This is the eighth in a series of interviews with Jack Schacht…To read the others see right-hand column “Categories” then “Jack Schacht.”

A Look At Today’s Environment…

T.G.I. Friday’s restaurant chain (887 units) is coping with what its U.S. president calls an industry-wide slump “unlike anything I’ve ever seen” in 25 years in the business.

Guests are increasingly demanding value. On the other hand, their costs—from the price of a pound of butter to the hourly wages they pay their employees & staff—are going up.

One way they’re remaining profitable is by decreasing portion size to avoid price increases…billing the smaller portions for the same amount of money as “health-conscious.”

Note: Lowering some service costs (as well as advertising needs) through barter, wherein the variable cost for a meal would pay for these services, was never mentioned by T.G.I. Friday’s, unfortunately…the commercial barter industry hasn’t reached that all important critical mass.

For example, several years ago BarterNews did a survey of Los Angeles county…some 76,000 restaurants are located in LA county. And the trade exchange concept was introduced in Los Angeles back in 1960 by M.J. McConnell. At the time of the survey the trade exchanges in Los Angeles, all together, had less than 1/5 of 1% (156 restaurants) as members.

Jack,

1) Were most of your big traders the media and manufacturers? 2) How about restaurants, as you had hundreds of them. Did you put them in the hole? Or was the secret to working with them more the ratio game where they paid in food rather than cash commissions?
3) Did restaurants in the Midwest seek (use) a lot of media? (Dave Wallach said that was his key to great S.F. restaurants—supplying them with media.) 4) Even with the tougher times for today’s restaurants because of higher gas prices and food costs, plus real estate softness—which affects people’s thinking—trade exchanges don’t seem to be signing up the restaurants like they did years ago…your thoughts on what they should focus on?

Jack Schacht replies…

In our national accounts division, one third of our volume came from media, one third from travel, and the balance from a mix of other accounts. Though we did a few large excess inventory deals, manufacturers were not our bread and butter.

In the retail division, we considered restaurants to be our most important business category and constantly pursued them. Also, trade is natural to them and most understand it. They have great gross margin as well as great demand in the marketplace—a rare combination, since it is usually the clients with the lowest profit margin that have the greatest demand.

Dave Wallach is right in saying that media is the key to keeping restaurants in the game. Another key is to trade with them at a ratio which also helps keep them in the hole. Our largest restaurant client (who has about 25 locations in the Chicago market) was $250,00 in the hole when I left ITA and we liked it that way.

I really can’t agree that restaurants are more difficult to sign up because of higher gas prices or higher food costs. Such things should also increase their motivation to trade. The only reason it is getting tougher to sign them up is because of the decrease in independent ownership. About 80% of the restaurants out there are chain operations. When I started in the barter business only about 25% were chains so we had a much larger pool of good prospects.

Restaurants remain a critical category. Those who are having difficulty signing them up should do two things. Take the sign up fee in trade and trade at a ratio of 1.5 to 1 instead of charging cash fees. It can make a huge difference.

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