From The Wall Street Journal by Katy McLaughlin
"On one menu, he crossed out prices of wine and listed new prices with the term "sale" -- a rarely seen word in fancy restaurants."
Chef and restaurateur David Burke's business sounds like a financial-crisis perfect storm. Consider:
His restaurants are mainly in hard-hit areas including Manhattan's Upper East Side and Las Vegas. Mr. Burke has no experience owning restaurants in a down economy; he launched his empire during restaurant boom times, starting in 2003. And the $7 billion fine-dining industry will see a 12% to 15% drop in sales this year, according to Technomic, a Chicago restaurant industry consultant.
And yet...Mr. Burke reports overall growth, some of his restaurants are booked to capacity on some evenings, and restaurant-industry analysts say he is one of the few high-end players with the right idea for the times.
How could this be? Mr. Burke, it seems, has figured out a way to navigate the downturn. His strategy is to throw out the high-end-dining playbook that says discounting should be subtle. Instead, he is offering dramatic, attention-getting and significant discounts. By engineering the menu carefully and keeping labor costs in check, he is able to slash prices without losing money, he says.
His promotions have included $20.09 three-course meals with items such as oysters and lobster at many of his upscale restaurants, including two in Manhattan (where, without discounts, entrees run $29 to $44), and $5 burgers and milkshakes at his Chicago steakhouse (where a 14-ounce sirloin is $48 on the regular menu). On one menu, he crossed out prices of wine and listed new prices with the term "sale" -- a rarely seen word in fancy restaurants.
TRY IT! David Burke's promotions include a wine auction and $20.09 three-course meals
One of his most unusual promotions is the Wine Auction at the tony David Burke Townhouse in Manhattan. Diners are handed a list of high-end wines with prices ranging from $200 to $600 struck out with red ink. The sommelier approaches the table, suggests that diners make him an offer and begins a negotiation. Wine director Bruce Yung says he sells an average of five bottles a night, meeting his reserve price or better.
"It's worth a shot," says Mr. Burke of his unorthodox approach to selling fine wine. "I'm sitting on close to $200,000 worth of wine anyway, already paid for."
The D Word
Discounting is a strategy high-end restaurateurs have traditionally avoided or carried out in subtle ways, out of fear of eroding the cache of their brands. But this winter and spring, an unprecedented number of fine-dining restaurants slashed their prices.
Mr. Burke tries to set his restaurants apart from other bargains being offered mainly by making his discounts as drastic, easy-to-grasp and catchy as those of one of the few restaurants doing well these days: McDonald's.
"I have teenage kids who go to McDonald's for a dollar meal," Mr. Burke says. The snappy ring to that promotion inspired him to come up with a high-end equivalent. "I see that it's working for them at a buck, so it might work for me at $20," Mr. Burke says.
Starting in January, he rolled out $20.09 meals on Sunday nights at David Burke Townhouse and Fishtail in Manhattan, and at David Burke Fromagerie in Rumson, N.J. At Primehouse, in Chicago, he offers the $20.09 deal for lunch six days a week, excluding Sunday. At David Burke at Bloomingdale's, in Manhattan, he serves a $20.09 dinner every night of the week. For a $5 supplement, diners can have a one-pound lobster or filet mignon entrée.
Last year, DB Global, Mr. Burke's New York-based company, had $35 million in revenue, and for this year he predicts $45 million. Like many multi-unit operators, he reports that his less-expensive restaurants are doing well this year. For instance, David Burke at Bloomingdale's, which has both a sit-down restaurant and a Burke in the Box take-out area, is up 2% over last year. Sales at all three Burke in the Box restaurants -- the others are at McCarran International Airport in Las Vegas, and Foxwoods Resort Casino in Connecticut -- are up from last year.
Still, even his high-end restaurants, while taking a hit, are doing better than many of their high-end competitors: Primehouse had a 2% decline in sales in the last quarter of 2008 and beginning of this year, compared with the prior year; Fromagerie is down 5%, and David Burke Townhouse in New York City saw an 8% sales drop. Across Manhattan, meanwhile, fine-dining operators are reporting sales declines of around 15%, and some celebrated restaurants, including Fiamma, a highly praised Italian eatery in the same price range as Mr. Burke's fanciest restaurants, recently closed.
Some of the impact of Mr. Burke's discounting is measurable: The Sunday discount dinner at Townhouse in Manhattan turned a night that typically grossed $5,250 into a $12,750 night, Mr. Burke says. There are softer benefits, too, such as increased goodwill, publicity, and customers who discover the restaurants and return on full-price nights, Mr. Burke says.
Mr. Burke is somewhat insulated from the risk of besmirching his high-end image with discounts because of his unique public persona, says Ed Levine, founder of the food blog SeriousEats.com. "David Burke is the master of the culinary grand gesture, so this is perfectly in keeping with his brand," Mr. Levine says. Mr. Burke now has "pricing gimmicks" that link up with other gimmicks he's used over the years, Mr. Levine says. Mr. Burke, for example, bought his own breeding bull to sire the beef cattle used at Primehouse. He also lines his beef-aging cave with Himalayan rock salt, which he sells for $29.99 for a two-pound box.
Discounting, if done too often for too long by too many players, can erode pricing power in the long term, says Dennis Lombardi, executive vice president of WD Partners, a restaurant and retail consultant in Dublin, Ohio. Citing one example, "customers have been trained to expect to buy pizza at a discount," because of all the coupons and deals, Mr. Lombardi says.
Mr. Burke says that by limiting most of his discounts to Sunday and varying the deals, he avoids such expectations.
With careful planning, Mr. Burke says he is able to keep food costs on his discounted menus at about 45% of the menu price, which is higher than the traditional 35% most fine-dining restaurants aim for but still enables him to earn a profit, because people tend to order more drinks when they are paying less for food. He sprinkles in luxurious ingredients, though some, such as dry-aged beef or black bass, are served in smaller portions than on the a la carte menu. He caught a break this winter when the wholesale prices he was paying for lobster fell to about $5 a pound, from a norm of $7.50, enabling him to include on the discounted menu items such as lobster carbonara and half an "angry lobster," a spicy signature dish.
Stephen Hanson, a New York-based restaurateur who manages operations for the Chicago hotel where Primehouse is located and who helped devise the concept for the restaurant, disagrees with the discounting approach. Mr. Hanson says he fears that the customer will think, "Were you gouging me beforehand?" But Mr. Hanson, whose company, New York-based B.R. Guest Restaurants, owns 14 other restaurants in New York and Las Vegas, says he is content to let Mr. Burke, whom he calls "a marketing genius," decide the menu pricing.
During a weeklong promotion in October at Primehouse in which Mr. Burke sold normally $12 burgers for $5, the restaurant made money, Mr. Burke says. Serving lunch to 30 to 40 people on an ordinary day yields about $8,000 per week. During the promotion, the restaurant served 300 lunches a day, Mr. Burke says, for a weekly lunch take of $30,000. While food costs were higher, because more was served, labor costs stayed almost the same, because waiters at the restaurant make most of their wages through tips and the kitchen required only two extra line cooks, who make $15 an hour, he says.
In addition to discounting, DB Global is reducing labor costs. Every week the company analyzes how many bookings have been made at each restaurant and looks at past history to determine how busy it will be. Then it pares or increases hourly staff -- about 70% of all employees -- accordingly. In winter, about a dozen cooks usually return to their home countries, including Mexico, India and France, for six weeks of unpaid vacation; this year, Mr. Burke encouraged them to take two or three months off. Because his three Manhattan restaurants are in close proximity, he also moves staff from less-busy to fuller restaurants and asks them to multitask. For example, the company butcher now also makes ravioli and crab cakes.
DB Global also focuses on retaining every potential customer. On a recent Tuesday, Fishtail was too full to accommodate more patrons. Mr. Burke instructed the Fishtail hostess to send patrons to nearby David Burke Townhouse, promising a free drink would be waiting. Out of 20 potential guests, 18 took the offer, Mr. Burke says.
—Ms. McLaughlin is a staff reporter for The Wall Street Journal in Los Angeles.