CRAZY IDEA - How Do We Maintain Profits If Alcohol Sales Keep Dropping?

Summary

Podcast Title: RESTAURANT STRATEGY
Host: Chip Klose
Episode Title: CRAZY IDEA - How Do We Maintain Profits If Alcohol Sales Keep Dropping?
Release Date: July 14, 2025

---

Introduction to the Crazy Idea Series

In this mid-season episode of the Restaurant Strategy podcast, host Chip Klose delves into a provocative and timely topic: maintaining restaurant profitability amidst declining alcohol sales. This episode is part of Klose's unique 10-episode summer arc, themed around "crazy ideas" designed to challenge and inspire restaurant owners to rethink and innovate within the evolving industry landscape.

The Dependence on Alcohol Sales

Klose begins by addressing a critical issue facing many independent restaurants today:

"Most restaurants really prop themselves up on that beverage cost, on the very profitable spirits that we sell at 14 or 15% cost because people are willing to pay more to get a buzz."
— Chip Klose [02:30]

He highlights how alcohol sales have traditionally been a significant revenue stream, often allowing restaurants to offset other operational costs. However, demographic shifts are altering consumer behavior, particularly among younger generations who are drinking less.

Generational Shifts in Alcohol Consumption

Klose presents compelling statistics to underscore the trend:

"Statistics are coming out that, for example, Gen Z is drinking on average 25% less than millennials and Gen X."
— Chip Klose [05:45]

This decline in alcohol consumption translates directly to reduced revenue from beverage sales, which many restaurants rely on to maintain profitability. The pressing question arises: How can restaurants adapt when a once-reliable income source diminishes?

Exploring Alternatives to Alcohol Sales

The episode explores potential alternatives to traditional alcohol sales, such as:

• Zero-Proof Beverages and Mocktails: While these options cater to the non-drinking demographic, Klose questions their ability to command the same premium pricing as alcoholic drinks.

  "They get something that tastes good but doesn't necessarily give them that fuzziness that alcohol gives them."
  — Chip Klose [10:20]

• Rethinking Beverage Offerings: Beyond substituting alcohol, Klose advocates for a comprehensive reevaluation of the beverage program, emphasizing the need to create offerings that can sustain profitability without relying on alcohol-induced margins.

The "What If" Challenge

Klose introduces a thought-provoking exercise inspired by marketing guru Seth Godin:

"Seth Godin always asks this question. What would you have to do if I forced you to double your prices tomorrow?"
— Chip Klose [14:15]

Applying this to the current scenario, he challenges restaurant owners to envision a future where alcohol sales plummet and to strategize accordingly. This involves:

• Transforming Food Costs: With reduced beverage revenue, managing food costs becomes even more critical. Klose warns:

  "If we do not have an answer for this, I promise you the profitability of our restaurants are gonna topple when we suddenly have to be running our food cost at 18 to 20% to help balance out all of the other costs we have in our restaurant."
  — Chip Klose [12:50]

• Adopting a Luxury Mindset: Transitioning from competing on familiarity, convenience, or price (commodity mindset) to offering a luxury experience that justifies premium pricing.

  "We can't compete on those three. We can't compete as a commodity. So we have to think like a luxury product."
  — Chip Klose [17:30]

He cites Eleven Madison Park as an example of successfully repositioning as a luxury brand by becoming completely vegan, thereby attracting a niche market willing to pay top dollar for a unique dining experience.

Reinventing the Dining Experience

Klose emphasizes the importance of authenticity and belief alignment:

"There are plenty of people who will believe what you believe if you tell them you believe it."
— Chip Klose [19:10]

This means that restaurants must articulate and embody their unique value propositions, whether that's through innovative cuisine, exceptional service, or a distinctive atmosphere, to foster customer loyalty without relying heavily on alcohol sales.

Strategic Recommendations

To navigate the decline in alcohol consumption, Klose offers several strategic recommendations:

1. Diversify Revenue Streams: Explore additional avenues such as catering, private dining, and enhancing the guest check average.
2. Increase Dining Frequency: Implement strategies to encourage repeat visits and build a loyal customer base.
3. Enhance Marketing Efforts: Shift focus towards storytelling and building a brand that resonates with the target audience's values and preferences.
4. Optimize Operations: Tighten control over food costs and streamline operations to maintain profitability without the cushion of high-margin beverage sales.

Conclusion and Call to Action

Klose wraps up the episode by reiterating the urgency for restaurant owners to proactively address the shifting landscape:

"I think it's about rethinking beverage. I think it's about rethinking the way you cost your food, the way we talk about our product. That's my challenge to you. That's my crazy idea."
— Chip Klose [25:00]

He encourages listeners to adopt a proactive mindset, akin to preparing for another Prohibition era, and to innovate before being forced by market changes. Additionally, Klose promotes the upcoming P3 Profitability Summit in Fort Worth, Texas, urging listeners to secure their tickets to gain further insights and actionable strategies.

---

Key Takeaways

• Dependence on Alcohol Sales: Many restaurants rely heavily on alcohol sales for profitability, but demographic shifts threaten this revenue stream.
• Generational Changes: Younger generations, particularly Gen Z, are consuming alcohol at significantly lower rates, necessitating a strategic response from the restaurant industry.
• Rethinking Beverage Programs: Simply replacing alcohol with non-alcoholic options may not suffice; a broader reevaluation of the beverage strategy is essential.
• Adopting a Luxury Mindset: Transitioning from a commodity-based approach to a luxury-focused strategy can help maintain profitability through premium offerings.
• Proactive Innovation: Restaurants must innovate and adapt proactively to shifting consumer behaviors to sustain and grow their business.

Notable Quotes

• "Most restaurants really prop themselves up on that beverage cost, on the very profitable spirits that we sell at 14 or 15% cost because people are willing to pay more to get a buzz." — Chip Klose [02:30]

• "If we do not have an answer for this, I promise you the profitability of our restaurants are gonna topple when we suddenly have to be running our food cost at 18 to 20% to help balance out all of the other costs we have in our restaurant." — Chip Klose [12:50]

• "We can't compete on those three. We can't compete as a commodity. So we have to think like a luxury product." — Chip Klose [17:30]

• "There are plenty of people who will believe what you believe if you tell them you believe it." — Chip Klose [19:10]

• "I think it's about rethinking beverage. I think it's about rethinking the way you cost your food, the way we talk about our product. That's my challenge to you. That's my crazy idea." — Chip Klose [25:00]

---

Final Thoughts

Chip Klose's episode serves as a crucial wake-up call for restaurant owners facing the diminishing returns from traditional alcohol sales. By challenging conventional reliance on beverage profits and advocating for a strategic overhaul of dining and beverage offerings, Klose provides actionable insights to help restaurants navigate and thrive in an evolving market landscape.

Listeners are left with a compelling invitation to innovate and adapt, ensuring their establishments remain profitable and sustainable in the face of changing consumer behaviors.

Transcript

[Chip Close]

Hey, everyone, Chip Close here. This is the Restaurant Strategy podcast. Every summer I do something weird. I do a 10 episode arc, all revival, all revolving around a different theme. This year, it's crazy ideas challenging you to rethink, to invigorate, to reinvent, to continue to evolve this industry today. Right? My crazy idea is what do we do when nobody's drinking alcohol anymore? Or what do we do when alcohol sales have dropped? So what is the alternative? Because I will tell you that most restaurants really prop themselves up on that beverage cost, on the very profitable spirits that we sell at 14 or 15% cost because people are willing to pay more to get a buzz. But what happens when people are no longer after that? What do we replace that with? We have to rethink how we approach beverage. That's what we're gonna talk about, how we approach alcohol sales as we gear up for a generation that is not drinking nearly as much. And as the generations passed all of that on today's episode of Restaurant Strategy. There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking. Hey, everyone, thanks for tuning in. My name is Chip Close and this is Restaurant Strategy. We do two episodes every single week, all meant to help you level up, increase the profitability and therefore the sustainability of your business. I write books, I give talks. You find me on social media, obviously can tune in here. 450 plus episodes and still going strong. I run a coaching program called the P3 Mastermind. By all means, you can learn more about that. There's a link in the show notes. Grab time for a free call with me or someone from my team. I'm also gearing up for the next live event. I do two live events every single year. The next One is the P3 profitability summit. It happens in Fort Worth, Texas in October 2025. If you want to be there, I want you to be there. We cap this event at 100 attendees. It's a tight, intimate room. You are going to level up and learn a ton. How do you manage cogs? How do you manage labor? How do you grow revenue? Actually grow revenue. Catering, private dining, increasing guest check average. How do you get more in the dining room? How do you increase the frequency of visits? How do you get more people talking about you? We cover all of that and it's a series of scripts, playbooks, very tactical. Highly actionable tickets are on sale. You can get general admission or a VIP ticket. You can find that link in the show notes as well. Thousands of restaurants across the country use Kickfin to send instant cashless tip payouts directly to their employees bank accounts the second their shift ends. It's a really simple solution to what's become a really big problem because let's face it, paying out cash tips to your workers day after day, shift after shift, it's kind of a nightmare. Tedious tip distribution takes your managers away from work that actually matters. It's sometimes hard to track payments, which leads to accounting and compliance headaches. Plus, cash tip outs create the perfect opportunity for theft. And there's never been, there's never enough cash on hand to pay out those tips. So what, what happens? Your managers are constantly having to make bank runs. Bottom line, there's never been a secure, efficient way to tip out. Until now. Meet Kickfin. Kickfin is an easy to use software that sends real time cashless tip payouts straight to your employees bank accounts 24 7, 365 tipping out with Kikfin gives managers and operators hours back in their day. It makes reporting a breeze and protects your business from mistakes and theft. And guess what? Employees love it. So it becomes a really powerful recruiting tool. Best of all, restaurants can have Kickfin up and running overnight. Employees can enroll in seconds. No hardware, no contracts and no setup fees. Get in touch today for a personalized demo and see how restaurants and bars across the country are tipping out with Kickfin. Visit kickfin.comdemo and yes, that link is in the show notes. Okay, so 10 episode arc we're smack in the middle. Crazy ideas. I'm just trying to get you to think differently about our industry, to help you reinvent, reinvigorate, so we can continue to evolve this industry. Today. I want to talk about the elephant in the room, which is alcohol. We know that the generations that are coming are drinking at a much lower rate than the previous generation. Certainly millennials, Gen X, the boomers, they drink more than Gen Z and below. So what are we going to do about it? Because most restauran rely on drink sales to help them balance out their profitability. So what do we do when people are no longer drinking at the same level? Yes, we can do zero proof. Yes, we can make mocktails. But are people willing to pay a premium in the same way that they're willing to pay a premium for alcohol? Meaning they'll pay a premium because they get a buzz. They get an effect from It. So what happens when they're just drinking something that tastes good but doesn't necessarily give them an effect? It does not give them that fuzziness that alcohol gives them? What do we do? Because if we do not have an answer for this, I promise you the profitability of our restaurants are gonna topple when we suddenly have to be running our food cost at 18 to 20% to help balance out all of the other costs we have in our restaurant. And make no mistake, that is where you're gonna have to put your food cost. What do we do? If you have never thought about this, this is your invitation. I am inviting you to really start to wrap your heads. Statistics are coming out that, for example, Gen Z is drinking on average 25% less than millennials and Gen X. That represents a huge loss in revenue, therefore also a huge loss in profitability. So what do we do about it? And I'm not gonna pretend to even know the answers. My idea, my crazy idea, right? The crazy idea here is what if we just got rid of it altogether? What if we say that it's never gonna be a part of our restaurants in 30 years, it's not gon meaningful part of it. If I said, what if you had to do it, What? What would you do? If I said you had to get rid of alcohol, what would you do? My crazy idea is not to get rid of alcohol. My crazy idea is to invite you to think about if we went through another prohibition, if I said you couldn't serve alcohol. Because what's going to happen is that there's going to be a meaningful amount of people that just aren't going to do it, then what do you do to your food? Right? So Seth Godin always asks this question. Seth Godin always says, what would you have to do if I forced you to double your prices tomorrow? What would you have to do? In the way that you market your restaurant, the way that you talk about your product, what will you have to do so that in the eyes of the consumer, it was worth twice what they paid yesterday? That is a powerful question to ask yourself. I've talked a lot about the luxury mindset versus the commodity mindset, right? Commodities are base goods. Means all things being equal, the consumer will base their decision on one of three criteria. Familiarity, convenience, or price. If they can get what you have elsewhere and it's cheaper, they'll go elsewhere. If they can get what you have elsewhere and it's closer, it's more convenient, they will go there. If they can get what you have but from the more famous place, the more familiar place, they will go there. So we can't compete on those three. We can't compete compete as a commodity. So we have to think like a luxury product, right? Eleven Madison park is one of the best restaurants in the world. They are now completely vegan. And they are not cheaper because the product is cheaper, those vegetables are cheaper, but they are still charging a premium. They believe that a vegan diet, that a vegan experience is worth top dollar price. And guess what? The hunt. Thousands and thousands of thousands of people every single year agree with them. Now you don't have to agree with them, but plenty of people do. And it's the same thing in your restaurant. There are plenty of people who will believe what you believe if you tell them you believe it. I think when the next generation comes up and they are drinking 25 to 50% less, it's going to mean big trouble for our industry. So my question for you is what do you do about it? The crazy idea is to get you to think about it and say what would you have to do? But do not wait till the last minute till you are forced to come to this decision. So having a zero proof cocktail program, fine. But I think it goes way beyond that. I think it goes way beyond just trying to replace boozy stuff with non boozy stuff. I think it's about rethinking beverage. I think it's about rethinking the way you cost your food, the way we talk about our product. That's my challenge to you. That's my crazy idea. What would you do if. Because I don't think it's an if. I think it's a win again. One final reminder, the P3 profitability summit is coming up in October. There are less than 30 tickets available at the time of this recording and maybe less now. If you want to be there, I want you there. You're going to find the link in the show notes. Go learn more about the program, learn about that summit three day event and get your tickets. I look forward to seeing you guys in Texas and I will see you next time for more crazy ideas.