Could Beer City kill Foodtopia?

BEER MARKET: Like restaurants nationwide, many Asheville eateries depend on profits from bar sales to sustain them. But what happens when more diners are ordering local craft beers with lower profit margins? Art by Katrin Dohse

The craft brewing scene began in Asheville with one brewery: Highland Brewing Co. opened in the basement of Barley’s Taproom in 1994, using jury-rigged dairy equipment to make British-inspired beer. At the time, there were only a handful of restaurants and bars downtown, most buildings were boarded up and Budweiser was still the king of the taps.

To say the least, things have changed. With over 60 breweries in the region employing hundreds of people, what started as a niche scene has become a full-blown industry and a key part of Asheville’s economy.

Around the same time the seeds of Beer City were sprouting, the restaurant and bar scenes began a trend of steady growth. The synchronous development created a service industry economy that the Asheville Area Chamber of Commerce says employs almost 30 percent of the city’s population. It’s a two-headed beast with two distinct personalities — breweries are the steady and confident one, and restaurants are more fickle, constantly tossed about by changing food costs and exceedingly narrow margins.

Restaurants run on razor-thin margins, usually around 15 percent before labor and overhead, according to most of the restaurant owners Xpress talked to for this story. So they tend to rely on much more generous alcohol margins — which often dance between 60 and 80 percent — to make their income.

“Our food margins are so expensive because pig is our top seller, and it is our most expensive product,” says Kyle Beach, general manager of Buxton Hall Barbecue. “It’s around $8 a pound before it is processed, and that’s not counting labor or the cost of wood. So for us, alcohol is a big part of the profitability model.” Beach says 25 percent of the overall sales for the restaurant are from alcohol, and 60 percent of alcohol sales is from beer.

Traditionally, wine and spirits have been the most consumed beverages at restaurants, so their markup has been more sizable. But as Asheville’s reputation for great beer encourages more diners to order a lower-margined ale or IPA with dinner, restaurants may have to tighten their belts as overall profit margins begin to shrink. If there is a major shift toward diners opting for beer over wine or cocktails, it could put a chokehold on a market already stretched thin by saturation.

The pricing game

Here’s a quick look at how those margins work out and how booze is priced in a restaurant. (Note: The following numbers, which were gathered by Xpress from local distributors and restaurants, do not factor in labor or overhead, only cost of goods.)

Take an $8 glass of wine, for example. Since wine goes bad quickly — most restaurants only keep an open bottle for about three days —  restaurants traditionally price it at the cost of the bottle. That way, if only one glass is sold in three days, the business at least breaks even. So if a restaurant pays $8 for a bottle of wine and will get five glasses out of it, charging $8 per glass means a $32 profit for each bottle, and $6.40 per glass, but only if customers drink every drop. That is an 80 percent margin at a 400 percent markup.

Liquor tends to run a more flexible line. Nicer liquors, like that $32 bottle of Bulleit bourbon, can be sold for $10 per pour with a profit of $7.44 per pour. That is a 74 percent margin with a 290 percent markup.

But beer gets trickier because it’s sold in varied packaging — multiple keg sizes, bottles and cans. In their taprooms, most big brewhouses serve from full-sized 15.5-gallon kegs, known as “half-barrels.” But most Asheville restaurants don’t have the space for kegs that size, so they rely on the smaller 5.2-gallon kegs, or “sixth-barrels.” Those can cost a restaurant anywhere from $65 to $90.

A sixth-barrel keg of Green Man IPA, which would contain about 41 pints, costs a restaurant $69.50, or $1.70 per pint, assuming there is no loss or foam. Most Asheville restaurants fix their pint prices at $5, which means $3.30 per pint profit, at a 66 percent margin and a 194 percent markup. That’s just $135 profit per keg, compared with $93 profit for that single bottle of bourbon or $384 profit for a case of wine.

“People get mad if they have to pay $6 for a pint,” says Zoe Dadian, who has managed Cucina 24, Tod’s Tasties and, most recently, the now-shuttered Local Provisions. “We get all this flack about, ‘Why don’t you pay your workers a living wage?’ We’re trying; we’d really like to. But there are more breweries every single day.”

Asheville restaurants generally try to stick to the national average of a 15-30 percent margin, but many of the businesses Xpress spoke with ride closer to the lower end of that scale. “I don’t know anyone that is running a 30 percent food margin,” observes Sovereign Remedies owner Charlie Hodge.

That means a $15 dish at an average downtown eatery can yield a profit as low as $2.25. If a customer orders an $8 glass of wine with the meal, it brings the total profit for that diner up to $8.65. But if instead she chooses a $5 beer, the restaurant would come away with closer to $5.55. That’s a difference of $3.10 in profit can really add up over the course of a dinner service, let alone over the course of a year.

Paying for a pint

“We are charging $6 for a pint, which is more than most, and even with that, our margin by comparison to wine or a cocktail is so much smaller,” says Rhubarb’s bar manager, Spencer Schultz. Rhubarb tends to sell mostly wine and cocktails, with beer accounting for about 20 percent of its alcohol sales — which is a good thing, says Schultz. “We couldn’t make the percentages we need to make just on beer,” he points out. He has started urging guests to try bottled sour beers and goses, which he says both tend to pair better with Rhubarb’s food and give the bar a friendlier margin.

“I think the big problem is that Asheville [restaurants have] a fixed beer price, which is $5-$6 a pint more or less, and everyone is breaking their cost control metrics to keep that price point,” says Beach, noting that much of that price suppression comes from brewery tasting rooms that keep pint prices on staples like pale ales and lagers at around the $3-4 mark.  In cities like New York, Washington D.C., Atlanta, and even Charleston, S.C., and Charlotte, beer draft prices for craft beer can reach as high as $8-$10.

“Catawba is one of a slew of tasting rooms that have raised their prices in recent years,” says Catawba Brewing Co. retail operations and marketing specialist Brian Ivey. “As far as comparing our prices to restaurants and bars, we internally charge our tasting rooms for beer as if they are a bar. So they ‘pay’ the same price for a keg as a local establishment that buys through distribution. This ensures that we understand what it costs to run a tasting room.”

“The problem is that in a lot of those bigger cities that are charging more for beer, you have a higher median income, so they are willing to pay for an $8 beer and still come out just as often,” says Emilios Papanastasiou, who runs Post 70, Post 25 and the East Village Grille. “But in Asheville you have a lot people still under that living wage ceiling that can barely afford covering rent, so they aren’t going to want to go spend that much for a draft beer.”

East Village Grille has $5 pints with a rotating $4 special and runs weekly beer specials of $4 drafts. “It’s just a sales driver,” says Papanastasiou. “We take the hit on the alcohol to try to fill the restaurant up on a Monday night.” But that means leaning heavily on already thin food margins.

It may be that Betteridge’s law of headlines applies here: When the headline of an article asks a question, the answer is always no. Perhaps it’s hyperbole to ask if Beer City could kill Foodtopia — maybe it would be more of a squeeze. But without some creative adaptation, the steady rise of beer drinkers could throw a wrench into the way restaurants survive, driving up either the cost of food or the cost of booze.

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About Jonathan Ammons
Native Asheville writer, eater, drinker, bartender and musician. Proprietor of www.dirty-spoon.com Follow me @jonathanammons

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22 thoughts on “Could Beer City kill Foodtopia?

  1. Michael Schneider

    I’ve never been in the restaurant business so I’m quite willing to be educated. But from a patron’s viewpoint something here does not make sense to me. “Restaurants run on a razor-thin margin, usually around 15 percent before labor and overhead……..”, so it is stated. We cook a lot at home and eat out regularly as well. Whether its chicken, ribs, burgers, eggs, pork or whatever, I don’t believe restaurant prices for the food I order are only 15% greater than the cost of preparing the same food at home. What am I missing as I’m incredulous?

    • Katrin Dohse

      That cost that you don’t see at home – paying employees, running industrial equipment, food waste (things getting dropped, contaminated, spoiled, misprepared…) and don’t forget that cost also includes paying rent in prime (see pricy) downtown locations. If you factored in an hourly wage for yourself and whoever washed the dishes and the rent you are paying you would already get a a number much closer to what you pay eating out.

      • DBunt

        Don’t forget DRAM insurance, regular insurance, employee taxes, credit card fees. Your lucky to walk away at the end of the year with 7 – 10% profit in a casual restaurant that takes care of their employees.

      • luther blissett

        Yes, but the original statement was “15% before labor and overhead”: we know what “labor” means, so what specifically counts as “overhead”?

        Picking up on another point, the idea that “much of that price suppression [for restaurant beer] comes from brewery tasting rooms” feels like it’s trying to find someone to blame. Beer-centric downtown food places were charging $4-5 for non-macro pints when it was basically just Highland, Green Man and Wedge in town, and they charge around the same now. What’s the argument here — if Asheville didn’t have a bunch of breweries, restaurants would be able to charge $8 for a beer like in Charlotte or DC? That’s a non sequitur.

        If you so desperately want the traditional booze margin at your restaurant that comes from selling an $8 bottle of wine at $8 a glass, either stop selling beer or limit the choice to room-temperature bottles of Bud Light.

  2. Michael Schneider

    I’m still not believing the statement I quoted which was 15% BEFORE labor and overhead. For restaurants that serve alcohol that overhead would include dram shop, other insurance, rent and the cost to pay their food purveyors. If not then the article’s author needs to put a finer point on what was meant when the restauranteurs bemoan their 15% margin before labor and overhead.

    • That 15% is also rather generous. The two most common factors of food cost that I have run across that directly effect a fluctuating margin on cost of goods is waste and quality of product. Lets start with quality of product: When you walk into the grocery store, you see roughly two prices for chicken per pound. Food distributors list a lot more tiers of quality than that, and most restaurants in Asheville aren’t buying the Tyson chicken. The demand for quality product in places like Asheville leave restauranteurs buying higher quality product, often at a premium price. Also, note that most of the restaurants we are dealing with in Asheville are farm to table spots, meaning they aren’t buying Sysco veggies (which would have a comparable price to a grocery store). The other end of that equation is cost of loss. If you have a shrimp po-boy on your menu, you have to stock shrimp, if only a handful of people order that sandwich for whatever reason that week, you might lose a ton of money on that shrimp that week. Also, another good example of that: you pay for fish by weight with the head on, by the time you filet the thing, you have lost half the animal’s weight, and half of what you paid for, then it is usually trimmed to look pretty, so you might only get a quarter of usable fish out of that expensive purchase (but if the chef is smart, they will use those scraps to make other things like stocks, fish sauce, etc.). So that $20 price tag on a wreck fish special would come well under that 15% mark when you factor in the cost of the accoutrements served along with. The National Restaurant Association’s Operations Report puts restaurant profit margins between 1.3% and 3.5% once cost of labor and overhead are factored in. But fear not, I actually have a story breaking down the cost of running a restaurant that will hopefully be coming out next month. I hope to apply the same type of mathematical breakdowns for that piece.

      • Jonathan Ammons

        Another point on that subject: it is a lot easier to manage your cost of goods at home because you know you will always be feeding you, or you and your spouse, or you the spouse and two kids, so you can plan accordingly. Furthermore, if you make Salmon that night, odds are high that everyone will be eating salmon and none of it will go to waste. A restaurant doesn’t work that way. And while every effort is made to utilize otherwise wasted product, there is simply no telling how much you will have to throw away. Also, for a place that uses whole animal, that margin fluctuates drastically depending on whether 150 people dine with you that night, or just 50.

        • luther blissett

          But somewhere like Buxton Hall Barbecue is working with a limited menu done high-end with overlapping sides, and who exactly orders wine with a pulled pork plate? It’s a very different model than somewhere like Rhubarb that has six very different “full plates” and a dozen small-plate options.

          (What’s the markup on sweet tea and fountain Cheerwine?)

          “Breweries are putting the squeeze on restaurants” just feels like a flawed premise. If there’s an impact on the food scene from beer tourism, it’s from the rise of taco joints and small-bite places that accommodate people who want something served fast to accompany their liquid dinners.

          • Jonathan Ammons

            Luther, I’m certainly not trying to blame anyone there, and I certainly don’t mean to imply that more people should order wine, because beer certainly just pairs better with BBQ! I am merely observing how these economies work (or don’t) in their current forms. Also, I talked to several restaurants that said, straight up, that they can’t push their beer prices much more than they have without looking like they are gauging the market compared to brew houses. That is why it seemed so important to include Catawba’s growing markup. If a brewhouse prices a beer at $5, that is easily a 400% markup. It would be hard for them to go above that at all without REALLY appearing to gauge that market. There’s no easy solution here, and certainly no one is to blame. It is just a matter of cause and effect.

          • luther blissett

            Definitely not trying to snipe — your broader analysis pieces like this one are always good reads, even if the headline this time was definitely in Betteridge’s Law territory.

            It taps into the broader question of whether the downtown/West restaurant scene is starting to cannibalize itself, especially in the blurry space where “drinking places with decent food options” meets “food places with decent drink options.” That owes a lot to NC licensing laws, but it also perhaps suits both locals and visitors who don’t want to spend an entire evening in one location.

            I had to go up to DC in the fall, and was sticker-shocked by $8 and $9 regional drafts at places with mostly $15-20 larger plates. The Asheville equivalent in terms of quality and price would probably be $12-16 for the food with $5-6 beer.

        • Lulz

          LOL any restaurant that throws away food is ran by buffoons. You don’t ever throw away food unless it’s bad. Otherwise that special from the night before becomes the blue plate or sandwich for the next day. Food is always recycled into something else. That chicken soup is made with leftover chicken for example. Anyone in a restaurant that doesn’t get creative with leftovers is someone that doesn’t belong in it.

          Restaurants have high profit margins. Where many go wrong is that they’re ran by absentee owners that pay staff to run it for them.

  3. justsayin'

    One thing I would like to note is that the restaurants are trying to have so many styles/brands of beer on hand that they have only given themselves room for 1/6bbl kegs (because they are limited on space) where the margin is significantly lower than on a 1/2bbl keg. If they were to purchase a 1/2bbl keg of local IPA at $165 a keg and get 124 pints (without spillage/foam/etc.) and charge $5 per pint the profit per pint would be $3.67 a pint x 124 pints with a profit of $455 per 1/2bbl keg. Giving them a 73% margin and a 276% mark up. as opposed to The 66% profit margin and 194% mark up. When you are squeezing every thing for all its worth I think it is an interesting thought.
    It certainly does not bring it up to the profitability of liquor or wine, but people want beer here in “Beer City” (a title I’d like to see retired, but that’s another argument for another day)

    -Just Sayin

    • WhyPA

      Also, I have been to restaurants who have 20 IPA on tap and very little else. Could just carry 4 and use your math of savings with larger kegs. Plus no reason for IPA ever in a just world let alone full domination of their list. IPA are the most shameful beers made. Decades ago I was baffled by all the American (cheap) “lager” drinkers, now they are just IPA drinkers. Not much of an upgrade and still don’t understand good beer… Not that it helps restaurants any.

      Biggest number for me was $8/lb for pig?!? It’s some really cheap meat in stores. Sure it’s not HNG pig, but ouch that feels high for their cost.

      Interesting article but the numbers seem low for booze to me. From all bar owners I know liquor is the big money maker, curious to see wine exceeding it’s margins.

  4. WAVL

    Everything new I learn about restaurants just makes them seem rough. Long hours and poor wages for employees, longer hours and worse profits for owners. As a not (super) wealthy consumer, eating at a nice restaurant always hurts a little bit more than I think it should, and the food never seems that much more enjoyable than what I can cook at home. I don’t see how the model works without relying on loads of tourists. I hate it for the restauranteurs but I don’t want to see pint prices driven up at breweries (which seem to work well in all the ways restaurants fail.)

  5. dyfed

    Jon, really terrific work putting out real numbers that lend context and much-needed perspective to the continual debate about prices and wages in food service for Asheville. It is particularly refreshing when so many articles, letters, and other pieces written on these issues usually boil down to a grab bag of activist opinions. I don’t know why more writers, locally and nationally, don’t really dig into the numbers like this, but I strongly suspect that a) it would disrupt their personal narratives of agitating for and against ‘labor’ and ‘capital’ or b) it’s just too much hard work to do the research and understand the economic problems. In any case, kudos, keep it up.

    A couple points:

    a) it seems obvious that manufacturer-to-consumer sales, as basic economics should predict, depress prices for consumers and squeeze out middlemen. In other words, brewery taprooms are a good thing for thirsty locals. Who would have guessed?

    b) It seems less likely to me that restaurants will raise prices on beer, because this wouldn’t move the demand curve on beer alone, as taprooms would have even more of an advantage against restaurants. Rather, it seems more likely that either restaurants will begin to consolidate offerings, having a narrower selection at a higher margin, or raise food prices, since taprooms can’t offer that service.

    c) it’s also possible that we may just see more restaurants take a less pricy and upscale approach. There is room in the market for “low cost, simple food, done right” that has a higher margin with a lower price point than most Asheville fare (which tends to be on the expensive and complex side—an outsize number of restaurants here fall into the ‘gastropub,’ artisanal or fine dining space).

    d) it seems unlikely at best that—given these problems—it would be sustainable for owners to increase back-of-house wages. So: if we have a labor shortage on qualified back-of-house staff (I’m not sure this is true), but owners can’t raise labor prices to attract more qualified applicants, is it possible Asheville’s restaurant saturation will die simply due to lack of labor? What happens if demand for new restaurants hasn’t been sated? Will a new model emerge? Very interesting questions.

    Looking forward to your next article.

    • luther blissett

      On c) specifically. As Jonathan has previously reported, Asheville restaurants pretty much moved away from fine dining over the past few years–

      https://mountainx.com/food/the-death-of-fine-dining/

      Yes, you can run up a big bill at Curáte or the Red Stag or Bull & Beggar, but the full-on splurge experience tends to be reserved for resort properties like Biltmore or the GPI with its $85 venison loin. Whatever you call Rhubarb, Table, Chestnut or Cucina 24 at around the $30 entree mark, it’s a separate category from traditional fine dining and not expensive by the standards of people coming in from outside the area.

      The problem with “simple food done right” is that whatever you gain in food margins, you lose in drinks and desserts, because there are psychological barriers to ordering a glass of wine that costs twice as much as the entree. The attempt to square this circle is the fancy taco joint, where you might at least sell a couple of tequila drinks. But most restaurants have already taken the “less pricy and upscale” option, and there’s not much room to trim further without giving up some of the elements that encourage diners towards higher-margin choices.

      (When Bouchon opens its satellite restaurant in Haw Creek, it’ll be interesting to see its menu and pricing.)

      • luther blissett

        (Desserts themselves are low-margin, but coffee and an extra round of drinks are high-margin. So you could equally argue that French Broad Chocolate Lounge or Nightbell or Imperial Life or other late-night places put the squeeze on conventional dinner-service restaurants downtown by giving diners the option to head out early without necessarily leaving time to turn the table.)

      • dyfed

        >Whatever you call Rhubarb, Table, Chestnut or Cucina 24 at around the $30 entree mark, it’s a separate category from traditional fine dining and not expensive by the standards of people coming in from outside the area.

        Sure, it’s separate from traditional fine dining. My point, though, is that it’s hardly sustainable for those who aren’t on vacation. There are sustainable models for $15 entrees that aren’t chain junk—Copper Crown is doing this out east—and my comment is anticipating growth in that sector.

        • luther blissett

          “My point, though, is that it’s hardly sustainable for those who aren’t on vacation”

          It seems sustainable up to a point, though probably not a growth area for new arrivals downtown. Lunch menus run around $15. Weekend brunch is reasonable. (This is more sensitive territory, but I’d like to know the margin on the pre-sold set menu events that seem to have grown in popularity. At $50-75 a head, they’re way out of my range, but there appear to be enough takers.)

          “There are sustainable models for $15 entrees that aren’t chain junk—Copper Crown is doing this out east”

          The clue is in the “out east”, hence your later comment. Copper Crown has done well to claim that space as its own with its balance between burger & fries and fancier stuff on the menu. Same applies to EVG / Filo / Post 70 and will probably apply when Bouchon opens in Haw Creek.

          I’m sure more openings will come towards the edges of the city, whether as satellites of established operations or new starts, and in unconventional locations. e.g. White Duck’s investment on Riverside Drive. But it’s also easier to saturate those areas, so there’s first-mover advantage if you hit the ground running.

    • Jonathan Ammons

      Good Questions, Dyfed, and Luther, astute observations as always. A couple quick responses on this without getting too deep:

      A: unfortunately, cutting out the middle man isn’t really an option for a lot of these brewers as they grow. Unfortunately North Carolina caps the amount of beer that a brewery can self distribute, meaning that any growth focused brewery must rely on a 3rd party. It’s always been odd to me that this does not apply to Budweiser, who brews and distributes, and also distributes a good number of local brews.

      C: It has only been recently that we have seen fine dining restaurants return to Asheville. Luther tagged an article I did on this very subject above. And in my article about affordable eats in town, I pointed out that Asheville is actually BELOW the average when it comes to cost of eating out: https://mountainx.com/food/foodtopia-on-a-shoestring-ashevilles-elusive-affordable-restaurant-meal/

      D: I also addressed the labor shortage a while back ( https://mountainx.com/food/falling-short-whats-causing-ashevilles-restaurant-labor-crisis/ ) and though labor shortages are often the first sign of an oversaturated market, I think that in this case, a lot of our labor shortage issues are because a line cook can earn more money working construction, so a lot of them are (for the labor shortage story, I talked to several restaurants that have people leaving for construction jobs). It is getting harder to afford rent on a server’s income in Asheville, that is certain. So there will be an exit from that labor pool. I am sure a new model will inevitably emerge, but I think the numbers make it clear that it needs to happen sooner than later.

      • dyfed

        Re: C, I don’t disagree, I just think there’s a lot more room in the space you’re referring to. I anticipate growth.

        Also read the article referencing the labor shortage earlier and I think if this points anywhere it’s probably to new models that rely less on cheap labor. We all know that it’s coming, the only question is how it will come—on the back of automation (unlikely) or wage pressure.

        This is out of my wheelhouse because I’m a real estate guy, but it provokes greater thought. From my perspective I think the best thing we could do to keep the restaurant industry running is to bring down Asheville rents—both for housing and commercial spaces. I’d love to help, but I can’t. The city has made it unprofitable for small developers like me to work within the city limits. All my projects are in the county, where my margins are workable.

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