Market forces

“Attention, diners: Now serving lunch and a quart of milk on Table 23. Or is that shoppers?”

At Old Salt Marketplace in Portland, Ore., visitors can attend the Thursday evening farmers market, buy housemade hot dogs from the meat case and grab a drink at the bar before heading home. In Alexandria, Va., folks stop into Society Fair for a cooking demo and a prix-fixe steak dinner, then buy bread for tomorrow morning’s toast. And at Puckett’s Grocery and Restaurant locations in Tennessee, customers can enjoy some Cajun Chicken & Waffles with their live music and take back some barbecued ribs and Goo Goo Clusters for the babysitter.

pucketts grocery restaurant

Eager to snatch back sales from supermarkets and c-store retailers with ambitious foodservice initiatives, restaurateurs are stepping out of the kitchen and learning about everything from merchandising packaged crackers to interpreting benchmarks for sales per square foot.

“Prepared food and an increased focus on takeout make perfect sense for restaurants,” says Justin Massa, CEO of Food Genius, a Chicago research company. “Not only are they ways to increase throughput without adding to the front-of-house costs, but they also directly respond to the growing trend of foodservice at retail.”

The idea isn’t new, of course. Cracker Barrel Old Country Store has been selling home decorations, candy and more out of its restaurant locations since 1969, counting upwards of 20 percent of revenues from a retail selling floor that’s unavoidable on the way to and from the restaurant. “Now we’re seeing a model where a limited menu of takeout items and conveniences like baked goods and coffee are offered in a dedicated section of the restaurant,” says Darren Tristano, executive vice president of Chicago research firm Technomic, referencing concepts such as Mimi’s Café’s “French Revolution” store-within-a-store concept. Now in rollout, the market features a French bakery, gourmet coffee stand, grab-and-go case and carryout counter. “It’s all part of segment blurring, integrating fast-casual convenience with more traditional full service,” Tristano says.

A retail operation is a natural bedfellow for a restaurant. Having a market on premise sets the business apart and gives customers additional ways to use it, says Sam Fox, founder and CEO of Fox Restaurant Concepts, whose holdings include Olive & Ivy Marketplace in Scottsdale (a second O&I is operated by HMS Host at Phoenix’s Sky Harbor airport). The upfront market offers baked goods, fast fare such as sandwiches and salads, bottled wine and housemade gelato as an adjunct to the all-day restaurant and bar.

“The marketplace creates a sense of liveliness, as well as another reason for customers to come in,” says Fox. It relies mostly on existing inventory and little additional labor (the bakers, who come into the shared production space at 4 a.m., also provide breads and other bakery items for the restaurant)— and there’s the $1 million contribution to Olive & Ivy’s $10 million in total sales. “A standalone prepared-foods outlet would never be able to do that kind of business—it’s hard to get the volume you need to keep food fresh and still make a profit,” says Fox. “But there’s a synergy between a restaurant and marketplace that really works to the advantage of both.”

The customer-service advantage

For operators of hybrid concepts, the retail component is more than just a vehicle for additional sales. Adjacent to the Kimpton Group’s Lorien Hotel in Alexandria, Va., Brabo is made up of three different venues: an upscale full-service restaurant, the more casual Tasting Room and The Butcher’s Block market. Each offers a distinct experience; collectively they provide a level of customer service that would be impossible individually.

“We collaborate very closely to make it all work,” says Chef de Cuisine Harper McClure, who shares production space as well as inventory with Butcher’s Block’s Sous Chef Richard Weber (whose title reflects the fact that he does more than just cut the meat for all three operations). The two communicate constantly about what’s in season, what’s coming in and what menu items and retail products will be on offer in each space. The same ingredients in the market may show up in dishes such as the Duo of Lamb entree in Brabo, the charcuterie in the Tasting Room or the housemade sausages and made-to-order sandwiches sold at the counter. Each outlet offers different products, so as not to cannibalize sales, and all three cater to locals as well as hotel guests with catering and special events.

brabo lamb dish

Weber can “source” anything he needs from the restaurants, from rice for risotto to veal glacé for cooking meat, to help a retail customer make the most of the offerings in the meat case. And the ability to turn trim and off-cuts from meat primals into braises, sausages and terrines helps McClure achieve “aggressive” food costs at Brabo.
Is the market a huge moneymaker? “Not really,” says chef-owner Robert Wiedmaier. “But it helps tell guests a story about our quality approach, and it enhances customer service.”

brabo lamb

Evolving the business model

The growing nose-to-tail menu trend has created opportunities for chefs to add retail, particularly butcher shops that double as production facilities for the restaurant. “We wanted to work with whole animals to diversify the menu at our first restaurant [Grain & Gristle, also in Portland], but we needed an outlet for every part of the animal, especially beef,” says Ben Meyer, operations manager for Old Salt Marketplace. The site consists of a restaurant, bar and American-style market specializing in products such as hot dogs and sausages, bacon, deli meats and fresh meat cuts.

Meyer says that the range of products requires a new way of thinking about sales and margins. The mix of what sells where and how much value is fabricated into it must be constantly evaluated and adjusted, depending on raw cost, size and type of animal, seasonality and customer demand.

Seasonality is important, because the restaurant menus are driven by what produce is available, and that drives what’s for sale in the market. “If you’ve got root vegetables and you’re putting short ribs and other braises on the menu, then you’ve got to move the flat meats for grilling into the meat case,” he says. “Even within the meat case, there are different avenues for sales, from fresh steak to pastrami to aged rib-eye. We constantly ask ourselves, where should we be driving the sales of our meats?”

This has a substantial benefit for food costs, and so does the fact that Meyer and his colleagues are sourcing beef and pork directly from ranchers. They’re setting a long-term price per pound, including processing and delivery, in exchange for agreeing to buy all of that ranch’s production. “That means that both our prices and our quality are more stable,” says Meyer. And the meat market’s staff of seven also helps take labor out of the restaurants’ kitchens.

Consumer education, including its popular butchery classes, also is a key element in the Old Salt Marketplace mix. As with so many restaurants—especially in green-minded Portland—the ultimate goal is a sustainable food system. In addition, the place hosts a Thursday night farmers market that’s tied in with community-supported agriculture deliveries and helps build Old Salt’s sales—not only do CSA members get a discount at the meat case, but they are very likely to end their shopping expedition in the restaurant.

Learning retail

The learning curve for an operator can be steep. “I was looking for a 3,000-square-foot space for my first restaurant, but to take the corner spot I wanted, I also had to take the 3,000-square-foot space next to it,” says Steve “Nookie” Postal, chef-owner of Commonwealth in Cambridge, Mass. But noticing that the neighborhood had few conveniences (“not even a place to buy milk or an apple,” says Postal), opening an adjacent market to sell the same ingredients he was buying and storing for the eatery made sense.

commonwealth market

Postal admits he had a lot to learn about the retail business. “How to price things, keeping track of inventory, figuring out what people were going to want to buy and when the market would be busy so I knew how to staff it—all that was brand new to me,” he says. During some dayparts, the market can be staffed by existing back-of-house employees, but when it’s busy, as many as six additional people are needed.

All told, the market contributes 30 percent incremental sales to Commonwealth in a space that’s approximately equal in size to the dining room. “Revenue per square foot is not as good for retail as it is for the restaurant, but I’m working on it,” Postal says, with self-serve party platters, for instance. There’s also the benefit of having multiple outlets for everything, maximizing freshness and minimizing waste.

commonwealth dining room

Expansion opportunities

Cathal and Meshelle Armstrong of the Eat Good Food Group in Alexandria, Va., already had found success with eateries such as Restaurant Eve and The Majestic. Now they say they’ve found their expansion vehicle, with Society Fair in Old Town Alexandria. The 8,000-square-foot space houses a retail bakery, butchery, market, wine bar and demo kitchen that hosts dinners, as well as a production space for catering and wholesale baking.

society fair demo

Says Robbie Shinn, who heads up retail development, the Armstrongs hoped that the location—which began with requests from their customers for items such as the housemade bread, charcuterie and olive oil—would serve as a commissary for smaller retail locations. Indeed, a 2,500-square-foot Society Fair satellite with a coffee shop, wine bar and sandwich program recently opened in Arlington, Va. They also wanted to provide skilled production of items such as meats and baked goods to the restaurants to simplify their back-of-house operations.

society fair sign

In the process, lessons have been learned. “There’s a lot to it,” says Shinn. “Each revenue center has different costs, pricing, inventory, profit margins ... Figuring out the back-end of the business was a tremendous and ongoing challenge. How much does it cost Old Town to supply Arlington? How can we make a profit on wholesaling bread? Whose balance sheet carries insurance for the delivery vehicle?”

Still, the synergies are huge. “If a customer likes a wine we’re serving at the wine bar, they can buy a bottle through the server,” says Shinn. “If they fall in love with a certain cheese or want to try to make one of our recipes at home, it’s all right there.”

Rules of retail

  • Use special events such as demonstrations and tastings to bring in more customers and establish a connection with the community
  • As much as possible, integrate retail production with that of the dining room to stabilize costs, maximize efficiency and minimize waste
  • Train all staff to build add-on sales and cross-promote retail and restaurant outlets
  • Track retail results separately from foodservice in order to evaluate performance in each area
  • Hire someone who has familiarity with the retail business to manage that function
  • Approach the business plan with flexibility as you learn the retail business
  • Emphasize service as well as selection as a point of differentiation 

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