June 16, 2009

Written by: Vince McConeghy

The calendar sits almost three weeks out from Western New York’s lodestone food service event – The Taste of Buffalo. Entering its twenty-sixth year, the event’s mission statement, published on the official website, reads:

“The mission of the Taste of Buffalo presented by Tops is "to provide an affordable and enjoyable weekend festival in a socially responsible manner for families of Western New York; to enhance the quality of life in the Niagara Frontier and promote downtown Buffalo."

Scroll further down in the FAQ section and you will find an explanation to the financial disbursement of the proceeds of the event:

“The Taste is a not-for-profit corporation registered with the State of New York. The primary purpose of the event is to showcase downtown Buffalo and the wonderful restaurants that call our region home. As a rule, the Taste is designed to break even. Sponsorships help cover some of the expenses and food prices are set to make the event affordable for all families. The vast majority of the income from the Taste goes home with the restaurants and, after expenses (tents, electricity, permits, entertainment, trash collection, and more!), the Taste makes one or more contributions to local charitable organizations. Select charities and non-profit groups also partner with the Taste to staff ticket and beverage booths with volunteers in return for a small stipend.”

To food service operators that participate in The Taste, a singular question remains unanswered after twenty-five years: Can I make money by participation in this event?

“The cost/benefit analysis of a restaurant participating in an event like this is a fascinating subject for an operations management case study,” Assistant Professor of Management, Dr. Alfred Guiffrida, of Kent State University stated. 

“There are all the elements of a classical study: planning, forecasting, procurement, manufacturing, real time operational decisions, and most importantly, uncertainty. There is no easy answer to the profitability question. Some would frame the analysis strictly around the financial results of the actual participation in the event itself. Others may include accumulated “good will” as an additional benefit to participation.”

One operator who strongly believes in participation is Seth Halter of Chester’s Pub in East Amherst.

“Our business grew every year that we participated in The Taste,” Halter said. “We always try and do a better job each year. For example, this year we will use a bigger tent to try and serve more people, and it will help us to execute an additional menu item. We take a different approach to prep. We actually close our kitchen the week previous to the event so that we can get all the prep done. When we first started we kept the kitchen going the week prior but it was just too much.”

Halter’s experience in making money at the Taste runs counter to other operators who have dropped out because the cost of participation just did not add up.

“We’ve done the Taste eight or nine times,” said Bob DiPasquale from the Cozumel Grill. “We progressively got better at it. It helped that I eventually owned all my equipment and could hook it up myself. The prep demands are enormous. People underestimate the labor and equipment cost. The Taste was definitely an effective way for us to get our name out there. But we’ve decided that there are better ways to spend our money, and not have to go through all the labor in order for us to draw business to our location.”

This brings us back to our original question– can a food service operator make money at the Taste of Buffalo?

LFS.com ran some hypothetical numbers. Most operators we queried supported the notion that $15,000.00 in gross sales represents a minimum break-even revenue goal to shoot for.

In retrospect, our analysis is actually light on prep labor forecasting while these costs can be substantially higher (some operators detailed a month’s worth of prep time devoted to participation in the Taste.). Our observations are neither original nor conclusive, but they do suggest a risk structure that food operators, scraping to make a buck, might want to consider before plunging ahead.

1. The event places a heavy structural burden by the imposition of 18% gross pay out (the vig- technical term) to the event in addition to a $700 flat fee. When you factor in State sales tax, the participation cost scenario balloons to approximately 28% right out of the starting gate.

2. Food items sold at the event return smaller margins than when sold in the restaurant. The difference maker, obviously, is the volume in which the items are sold. But traditional food costing analysis often ignores the role of gross profit margin in developing true food cost structure/ return strategies. In order for restaurants to meet their food cost objectives, they will often have to manufacturer products that are not indicative of their restaurant’s true food profile (ie. in order to meet the volume, operators must freeze all items in advance, or risk high waste potential).

3. Uncertainty – Weather, make shift operations, and waste are typically not factored into one’s decision to participate, although these factors directly affect the ability of one to make a profit.

4. Labor – We suspect that the true labor cost of participation is often understated. Some operators rely on volunteers to man the customer service portion of their tents. If an operator pays their staff, as our scenario details, the margin for profitability narrows further. Ultimately, the decision to use volunteers may sway the profitability equation, but it may not be the best practice, and it may also, in some instances, be illegal.

5. Rigid Fixed Costs - Fixed costs include taxes, percentage of gross, set-up/tear down, rental, labor (if applicable) food cost, waste. The restaurant industry operates on a narrow margin to begin with, but the fixed costs of the Taste of Buffalo are challenging.

6. Good Will – this is the payoff all participants seek. Many restaurants will participate in the Taste under the assumption that they are building “good will” for their business. But a countervailing analysis of non-participation should also be employed to measure the utility of the event. In other words, the restaurant must ask itself: What if we were to deploy the resources segregated for participation in the event to another form of expenditure? Would these methods yield the same amount of “good will” that participation yielded, and more importantly, how do we measure “good will”?

“Every year we run an Operator’s Boot Camp to address many of the issues restaurants face,” Mac Hartman, 1st Vice Chair of The Taste of Buffalo, stated. “We have a restaurant committee and we have some very savvy veterans who are available to help people understand the costs to participate. Every one comes at this differently. Some are just happy to break even. Some are down here to get people to taste an item, and hopefully become a customer. Then there are those who are here to make money…The Taste provides between forty and fifty thousands dollars a year in charitable giving. There are so many variables that go into the festival that it is impossible to provide a strict set of guidelines that would help operators. But my first bit of advice for them is to truly understand the cost of their product.”

After twenty-five years, it seems that the profitability equation for participation in the Taste of Buffalo remains elusive. This year, as in year’s past, there are certain participants that do not meet the published criteria for classification as a restaurant (EM Chruscki Bakery, Landies Candies, Mr. Bones, Ms. Sweets, Nick Charlaps Ice Cream). This is not particularly troublesome, as it is more indicative of the difficult nature of turning a profit at the event.

No matter what individual outcomes may be, our analysis demonstrates that participation in the Taste of Buffalo is an uncertain proposition. The community has embraced this event, and the restaurant industry has sustained it. A recalibration of the risk/reward formula for operators appears needed to sustain the Taste of Buffalo for the next twenty-five years.