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.