The Case for Independent Restaurant Marketing Cooperatives & Why You Might Want to Join

Each month, executives for large corporate restaurant chains pore over research and hunker down at strategy sessions in hopes of aggressively growing the number of units and per-unit revenue within the evolving restaurant marketplace. They continually review trends to target the largest cross-section of diners. And they are writing really big checks for national advertising campaigns.

If that is not competitive enough to local independent eateries, the chains promote themselves as local "neighborhood" restaurants. You know them as those pseudo-homey "more coffee, hon?" units that are popping up on the corner of State and Main in every town. Some of the best corporate players are not only leveraging their economies of scale, but also trying to play on your turf. And speaking of turf, you might want to ruminate on this: A recent press release from a large national chain acknowledged that the company anticipated a greater than 30 percent increase in their advertising budget to convey their multiple messages to the consumer.

...Perhaps the strongest mathematical argument for independent restaurant marketing co-ops is based on the presumption that most independents budget only about 3 percent of their sales for marketing efforts. Frankly, this is not a great deal of money in itself; however, when pooled with other businesses it can have some leverage to finance events and programs that would be out of reach as individual enterprises.

Among the messages was their "neighborhood" branding that was planned in the more than 120 new restaurants set to open in the prospective year. They promoted themselves as a local family sitdown eatery, a title typically reserved for the independents.

The ever-changing and competitive business of supplying food to the eager masses is an industry in which the strong seem to get stronger, and the independent single-unit concept without major financial backing (which is generally the rule) is challenged to get increasingly creative to effectively compete. Enter the marketing cooperative.

Taking a Lead From Growers

A marketing cooperative (or "co-op") is loosely defined as a business or organization run by a group of like-minded independents, who then collectively sell their products to consumers. This style of promotion and sales was traditionally designed for those farther up the foodservice distribution chain -- regional independent farmers and producers, who wanted to pool their resources to drive consumer demand for their products. We have all seen the commercial ads on television promoting product categories such as California cheese, Florida orange juice, or cotton. Producers found more strength in numbers and were able to accomplish collectively what they could not achieve as individuals. With marketing cooperatives you are able to attain the benefits of a large corporate presence.

In recent years, small, independent restaurants have taken the growers' lead, and banded as their own marketing cooperatives. Not unlike the farmers, their goal is to create a group that could create consumer awareness that would be unattainable for them as individuals. Now they could hire fancy advertising agencies and buy full pages in the metro newspapers, and prime-time regional spots on television. They could hire a small staff to manage co-op administration and purchasing, i.e., a dedicated marketing department. In essence, they could begin to create a presence in the regional marketplace that rivals the chains by agreeing to promote themselves as a group. This united front provides a heady opportunity to position yourself like the big boxes, with the hope that you'll share equitably in the rewards.

In theory, and often in practice, this is the case. That said, not every successful independent is smitten by the idea. (See "The Potential Pitfalls of Marketing Cooperatives" on this page.) Nevertheless, marketing co-op proponents can be downright evangelical about their value. "The marketing efforts are all positive," says Tracy Voight, owner/partner in three restaurants in Houston, and a member of the Houston Originals. "Bringing up awareness of independent versus chain can only help. There is no downside to that."

David Versus Goliath -- It's an Old Story

You can't separate the epic "independent versus chain" struggle from any discussion of the pros and cons of marketing co-ops. It seems to be the main driving force behind this trend, and for good reason. Again, when you look at corporate marketing resources carefully, the numbers are intimidating. Large chains such as Applebee's, Outback Steakhouse, The Olive Garden and Red Lobster spend a total of about $350 million combined on marketing and advertising budgets every year, making the competition to win and retain every consumer fierce. Moreover, the corporate boxes are able to spread their advertising and promotional costs over multiple properties. The per-unit cost, when amortized over scores if not hundreds of corporate-owned or franchised units, is relatively small due to the economies of scale.

As trite as it sounds, consumers have choices to make each time they open their wallets, and they are going to spend their money where they can receive value to be sure, but they also spend money based on brand recognition. The explosion of restaurant franchising has created a plethora of choices in the food industry, and consumers can be very selective. There are a tremendous number of restaurants chasing them, and they weigh their options carefully. They keep up with the changes and fluctuations through advertising. And, frankly, that is where the chains beat up independents, and sometimes badly.

According to Scarborough Research with the Center for Media Research, the average adult visits a quick-service restaurant, such as McDonald's and Subway, 5.2 times per month, and a casual-theme restaurant, such as TGI Friday's, on average 3.4 times per month. Again, chains have huge advertising budgets and while the menu and/or service may not be at the highest level, customers often will choose a chain restaurant due to the safe and recognizable name, deciding instead to go the dependable route as an alternative to chancing the unchartered waters of a local independent restaurant. Because they have seen the restaurant on countless national television ads and billboards on the highway, causing predictable name recognition, the consumer feels comfortable in their choice. With a marketing cooperative, however, an independent could saturate the local media and gain some name recognition of their own by way of combined advertising.

Perhaps the strongest mathematical argument for independent restaurant marketing co-ops is based on the presumption that most independents budget only about 3 percent of their sales for marketing efforts. Frankly, this is not a great deal of money in itself; however, when pooled with other businesses it can have some leverage to finance events and programs that would be out of their reach as individual enterprises.

Case in Point: The Cleveland Originals

One marketing co-op, The Cleveland Originals, a co-op of 60 independent restaurants in northeast Ohio, has made an effort to pool their resources as a team and come onto that field. They now see themselves as better equipped to succeed by working together to increase their marketing and advertising dollars. Sergio Abramof, president of the successful dining collective, says he helped form the group to "ensure the success of the independent restaurant." He says he always felt that the independents were on the cutting edge and pushed the envelope of the dining experience. Without independents, he says, real innovation and creativity would disappear from the culinary landscape. "We wanted to level the playing field so the customer still has the option of dining in more independent restaurants 10-20 years from now," Abramof says.

Focusing on the endangered model of similar independent trades and the fears that stem from the extinction of all things autonomous, Abramof says, "We saw the threat to the hardware stores and the bookstores. There is no longer a choice of going to an independent bookstore or an independent pharmacy." Abramof seems to be clear on why he believes the restaurant industry could be next. "We need to be keenly aware that these bookstores and pharmacies were not able to compete with the pricing of the chains. The chains are able to be in the competitive locations, they have legal leverage for tax breaks. The independents don't have these resources.

...Joining a restaurant marketing cooperative might not be the best option for you, particularly if you have clear and unique ideas on how you want to promote your business. Nevertheless, you should keep your eyes peeled for them in your market, if they become the trend that some industry doyens predict.

The chains have national advertising and their purchasing choices are better because they leverage their buying power." Abramof, owner and operator of two successful restaurants in the Cleveland area, and the current president of The Cleveland Originals, started the organization with other restaurateurs in his area because of the growing need by the public to support local businesses who wanted them to succeed. "In a matter of six months," Abramof says, "the chains added about 5,000 seats to our market segment, so we knew we had to act."

The cooperative group, which says that it exists mainly to "promote dining in independently owned restaurants and to serve the interests of the independent restaurateur in America," also believes that the purpose of the Cleveland Originals, now the largest "chain" of independents, is to "protect, nurture, and promote independent restaurants in northeast Ohio." Locally owned and operated Cleveland Originals member restaurants say they share a commitment to their community along with a passion for excellence in food and service. They list their mission and goals as:

1. To market the positive attributes of member Cleveland independent restaurants and to raise public awareness of what makes us special and unique.

2. To form an alliance for group purchasing efforts.

3. To improve the quality of member independent restaurant operations through educational opportunities and interaction.

4. To foster positive communication within the independent restaurant community.

5. To channel the efforts and resources of the independent restaurant community to help improve the quality of life in the northeast Ohio community through charitable activities and efforts.

Try Us, You'll Like Us

One successful program launched by the The Cleveland Originals is "TCO" Tuesdays, which stands for "Try Cleveland Originals" Tuesdays, which allows diners to earn a $25 gift certificate to a Cleveland Originals member restaurant just by visiting four different member restaurants on any given Tuesday, thereby earning a gift certificate to a fifth Cleveland Original location. Diners save their receipts and mail them to the co-op's administrative office, which, in turn, sends them a $25 gift certificate redeemable at a fifth restaurant. Diners can make their four visits at any time during a single calendar year to qualify for the certificate.

According to Abramof, this Ohio co-op now can experience the unity as though they were part of a large corporate chain with a combined advertising budget, marketing plans and the co-members to bounce ideas off of on a regular basis.

There is Room for Both Chains and Independents, but the Battle Lines Have Been Drawn

It is important to remember that there is room for large multiunit chains, cooperatives, and unaffiliated independent restaurants in this growing restaurant market. For the independent, whether you promote your business through a co-op or fly solo, the trick is to be proactive and creative, putting yourself all on the same field and letting the consumers choose based on their preference and taste on any given day. Equality is not handed out with your business license or given as a gift with purchase, however; it must be earned by stepping up and taking charge of your future. By coming together, the independents can offer competitive pricing with better quality and keep the larger chains from monopolizing the market segment and yet at the same time protect the entrepreneurial spirit of the small-business owner.

Disappearing are the days when consumers can wander into a Frank Capra soundstage where the neighborhood pharmacist has known them since they were "knee high to a grasshopper." Now the corner hardware store is memorialized mostly in movies, and black-and-white at that. The fear among some independent restaurants is that the dining experience is following suit. Do we listen to the doomsayers, who predict that the future of commerce is such that the structures of all businesses will be controlled by large corporations because of their ability to buy in bulk and their large advertising budgets?

Some small cities, fearing this trend, have stepped up to limit the entry of chains and big-box businesses, in support of the local business owner. That said, government-imposed restraints on trade tend to be short-lived, and not all local and national leaders see the need to fortify small business.

Joining a restaurant marketing cooperative might not be the best option for you, particularly if you have clear and unique ideas on how you want to promote your business. Nevertheless, you might want to have your eyes peeled for them in your market, if they become the trend that some industry doyens predict.

The Potential Pitfalls of Marketing Cooperatives

There are some who believe that marketing cooperatives are not the answer to the advertising and promotional challenges facing independent restaurants. Chef John Sheely, owner of Houston's Mockingbird Bistro, believes that most restaurant owners need to preserve their independence when it comes to marketing. "As an independent fine dining restaurant owner I have had a fair amount of success with community involvement and a strong public relations program," Sheely says. "I saw no advantage in a restaurant group marketing effort because there is no 'one size fits all' program. Some concepts may benefit from coupon redemption but not all. Some might appreciate print advertising in newspapers, but for others it may miss their customer."

Sheely underscores a significant pitfall, particularly if you place most of your marketing dollars in one proverbial basket. If your promotional efforts are banking on the cooperative, you want to be confident that your investment is well-spent. Prior to joining, ensure that you will have a voice in the decisions and direction of the cooperative; however, it is best to generally agree with the philosophy and strategy of the group from the beginning. Understand the escape provisions of the cooperative agreement, and have your attorney review any contracts or other transactional documents related to your participation in the cooperative -- before you sign them.

Whether You Join a Co-op or Go It Alone, Always Leverage Your Strengths

Chain restaurants have been able to increase their ownership of the market share because they have the advantages that encourage growth. Chains brand themselves to look like the neighborhood bistros because that is what speaks to the consumer, that is what they want, and the chains are evolving to meet that demand. That should give you a clue about how you might consider positioning your place.

There are many ways for the independents to compete with the large chains, and many ways to exceed what they offer just by expanding on their independent status. One of the reasons that independent marketing cooperatives may become popular is that the chains are trying to emulate some of the core competencies of independents -- personalized service and a homey feel. It's not unlike a major brewery that attempts to give the impression in its ads that its premium beer is made by a microbrewer in a small New England town. The point is that people are drawn to independent businesses and their perceived strengths.

The way to offset this perception is to do what you do best -- whether you do it as part of a marketing cooperative or on your own. The great independents have benefits that the chains could never replicate, no matter how many executives attempt to re-create the feeling in the boardrooms. Consumers enjoy the regional flavors that generally cannot be found in the "trying-to-please-everyone" menu found at the corporate establishments.

Meanwhile executives on the Left Coast are generating the menu for the Right Coast, and vice versa, trying all at once to please the entire marketplace. An advantage that the local restaurants have over the national "committee" menu planners is that they can embrace the regional flavors and call for changes in the field, as opposed to having to submit the ideas to be reviewed by a committee and research groups. A locally owned and operated business owner is his or her own coach, and calls the shots while there is still time on the clock. Being able to move quickly when the market demands can be a tremendous benefit to regional cooperatives.

Focusing on the natural strengths of the small business, such as more personal attention, the independents take a stride forward because they can offer something corporations cannot. As a small independent, you are also able to be a part of the community in ways that outside corporations cannot possibly compete.

Guerrilla marketing techniques include buying selected produce from local growers and farmers markets, which not only supports the community, but gives you the opportunity to promote on your menu local ingredients not easily duplicated outside the region. Sponsoring a local team, donating to the town's community foundation, and making your presence known at the chamber of commerce socials are all ways to show that you are more than a local business; you are a local citizen.

Finally, remember the bar in the old television series "Cheers." People want to go to a place where "everybody knows [their] name" in this world in which technology, assault on the family structure, and urban sprawl is isolating us. Let your restaurant be a place where people not only feed their stomachs, but also their spirit. The biggest advertising budget in the world can't create that or overcome the lack thereof.