3 Ways to Use Retail to Diversify Your Restaurant Business

February 20, 2019

The public is spending more money at restaurants than ever — but it’s not always on dining.

A milestone was reached in 2015 when the U.S. Census Bureau reported that restaurant industry sales (15 percent of all retail purchases) topped grocer sales (14 percent) for the first time ever. The USDA also reported an unprecedented shift when food-away-from-home sales first surpassed food-at-home sales.

Eating out has become the largest growth sector in the retail industry.

Many experts attribute the trend to Millennial shopping habits. Apparently, Millennial consumers value eating out experiences over other activities like traditional shopping or entertainment.

Despite increased visibility, the restaurant and hospitality industry is still a tough business. Forbes reports that while restaurant profit margins are widening, this increase is accompanied by a growing level of competition within the industry.

To stand out in a crowd, some restaurants are choosing to diversify their income by selling retail goods.

Bonnie Morales, chef and co-owner of Kachka in Portland, recently spoke about her decision to include a retail space in her second restaurant. “There is a lot of competition out there,” says Morales. “Anything you can do to diversify makes a huge impact on your ability to thrive.”

Becoming a Retail-aurant?

To adapt to changing times, many businesses are no longer operating exclusively as dining establishments. Restaurant owners are focusing on creative uses for their spaces, adding new income streams, and becoming “all-day businesses.” (Want to use your favorite restaurant as a co-working space? It could happen.)

Retail operations within a restaurant aren’t unheard of. Planet Hollywood, Hard Rock Cafe, and other casual dining chains have had retail spaces selling souvenirs for decades. But in recent years, the retail-restaurant crossover has grown beyond branded gifts.

Now, even small restaurants are starting to offer strategically curated edible and home goods for sale.

Incorporating retail profits into a restaurant’s business model can be a smart move, according to Forbes. Additional sales can help restaurants cover notoriously thin margins and expand their brands. Most importantly, for many business owners, expanding offerings gives customers another reason to walk through the door more often.

There are myriad types of complementary retail opportunities available to restaurant owners interested in diversifying their business. Below are three general types of retail goods being offered by restaurants today.

Curated Goods: Adding to the Customer Experience

One of the fastest-growing types of retail crossover is curated, market-driven offerings that complement a restaurant’s brand.

In Atlanta, the full-service Star Provisions Market + Cafe sits adjacent to the fine dining restaurant Bacchanalia. In addition to the food and drink menu, Star Provisions sells a large collection of edible and home goods, including artisan provisions, tableware, specialty food products and decor.

The retail products are hand-selected by chef and owner Anne Quatrano and her partner, keeping in line with the food and atmosphere of the restaurant. Quatrano explains that while the retail profits don’t greatly affect the restaurant’s bottom line, the operation offers something valuable to their customers.

“It does add to the guest experience, as they are able to purchase tableware and artisan products they enjoy in the restaurant to bring home,” she says.

Atlanta’s new Garden & Gun Club, owned by the Southern lifestyle magazine, offers retail goods made by artisans who have been featured by the publication.

Rebecca Darwin, CEO of Garden & Gun Magazine, told Bloomberg that while retail profits weren’t intended to be the main revenue driver at the restaurant, they will add to the business. “We anticipate merchandise sales to account for approximately 4 percent of our total revenue for the G&G Club, while also driving brand awareness and consumers to our online retail store,” says Darwin.

Yasuaki Saito, partner and general manager at London Plane in Seattle, agrees that retail can enhance a customer’s experience.

“This can be challenging, to manage these different facets… from a payroll and cost-of-goods perspective,” Saito told Food NewsFeed. “However, this wider spectrum is also what is unique and interesting about our model. We hope it is what keeps our guests engaged and returning to support our efforts.”

Design Collaborations: Complementary Restaurant and Retail Businesses

As restaurants look for ways to diversify their income, they are finding some designers and retail businesses eager to collaborate.

Some restaurateurs take on an active design role. La Mercerie in NYC is owned by designers Robin Standefer and Stephen Alesch, who collaborate with the chef and restaurant management in their work. La Mercerie offers diners the opportunity to buy something to take home with them: “the plates, the napkins, the tableware, the candlesticks and even the tables” they just encountered during their meal.

Retailers are also searching out partnerships with restaurants as they adapt their business models to shifting demographics. The LA Times reports that retailers are adjusting to Millennial shopping habits by creating experiences for customers who have an “interest in doing things with friends rather than buying things at malls.”

Many chains, from Barnes & Noble to Ikea, have been offering food options for shoppers for decades. But now, “there’s been a proliferation of restaurants inside grocery stores, shops inside eateries and even snack bars near the dressing rooms,” reports the LA Times.

The analyst continues, “Adding food to the equation is a way for retailers to make shopping an experience and tap Millennial consumers’ love of eating out.”

These trends are reaching even small, independent restaurateurs. With consumer preferences predicted to continue moving in this direction, many retailers and designers are keen to work with restaurants.

“The two [industries] should cross-pollinate, which is the best of both worlds,” says Neil Saunders, a retail expert with Global Data.

Merchandised Retail: Selling Your Brand 

Restaurateurs can also capitalize on the shifting market through branded retail products. Creating branded merchandise for sale can be difficult for restaurateurs to do well, but these products can add an alternative income stream to restaurant profits.

The National Restaurant Association recommends that restaurants start with a product that is distinctive and craveable, something “that you know there’s pent-up demand for and that people want to take home from your restaurant.” Examples of branded merchandise can include everything from bottled sauces to wearable goods.

Forbes also advises thinking about your target audience and creative yet complementary retail goods for your business. For example, a restaurant that attracts wine-lovers could offer branded wine accessories like openers or bottle toppers.

Above all else, adds Forbes, restaurant owners should think about their brand. Any merchandised goods will reflect back upon the restaurant, so the merchandise should be high-quality and used to expand the existing business.

In Summary

Retail operations require planning, preparation, and adjustments to traditional restaurant business models. But retail profits can offer a buffer of additional income and pull more customers through the door.

The retail and restaurant industries continue to “cross-pollinate” as the market and customer demographics change. As the restaurant industry grows, it expands into new directions — and retail may be what your restaurant needs to stand apart from the competition.