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Bars and restaurants are getting toasted by happy hour

Customers are gravitating to late afternoons, when drinks are cheaper. That's hurting overall alcohol sales.

January 10, 2009|Jerry Hirsch

Happy hour is getting happier, and that's making restaurants sadder.

As the recession drags on, drinkers such as Luis Romero of Anaheim are gravitating to happy hour -- that late-afternoon period when bars and restaurants sell discounted drinks and food to attract customers during what otherwise would be a slow time.

"You start watching your pennies a bit more," said Romero as he sipped a $3.75 pint of Honey Blond Ale one recent afternoon in the Yard House restaurant at Shoreline Village in Long Beach. Just a few hours later, the same beer would sell for $6.

Typically, alcoholic beverages are recession-resistant, if not immune to economic downturns. This current recession, however, is hurting alcohol sales more than previous slumps have.

For The Record
Los Angeles Times Wednesday, January 14, 2009 Home Edition Main News Part A Page 2 National Desk 1 inches; 60 words Type of Material: Correction
Happy hour: An article in Business on Saturday about customers gravitating to happy hour at bars and restaurants to save money gave the wrong name for a beverage alcohol analyst at Nielsen Co. who was quoted as saying, "In tough times, consumers migrate to what they think is the best deal." The analyst's name is Danny Brager, not Gary Bender.

People are trading down from premium vodka brands to whatever is good enough to still make the martini work. Others are giving up expensive Napa Valley Cabernet Sauvignons for budget reds. Some are ordering a soft drink or just consuming water when they dine out.

"This is far worse than anything we have seen," said Eric Schmidt, an analyst at research firm Adams Beverage Group.

The trend started to appear as far back as summer, though no monthly index exists for national restaurant and bar sales of alcoholic beverages.

In July, trade publication Wine & Spirits Daily reported that more than 40% of bar managers, bar owners and bartenders surveyed said they had seen a decrease in consumer traffic, while 25% noted a decrease in the number of drinks ordered and 22% said that customers were ordering less expensive drinks.

The cutback in beverage revenue comes as customers eat at home more often, putting restaurants in one of the most severe slumps the industry has faced in decades. Same-store sales growth for casual dining establishments -- the Chili's, Macaroni Grills and Applebees of the world -- fell nearly 5% in the third quarter, said David Henkes, the alcoholic beverage analyst at restaurant consulting firm Technomic Inc.

And the tab for drinks also is taking a new twist. Restaurants at Shoreline Village, for instance, are engaging in a price war reminiscent of the gasoline price wars of decades ago.

Yard House, a popular establishment that boasts 250 beer choices, is selling happy-hour domestic beers for $3.50, imports and crafts for $3.75, well drinks for $4.25 and the house martini for $5.50. Next door, Tequila Jack's Beach House Cantina advertised domestic brews also for $3.50, imports at $3.95 and well drinks for $3.95.

They are battling for such customers as Paul Yamada of Alhambra, who said he called Yard House and another bar earlier in the day inquiring when happy hour started and then alerting "friends who should show up soon." His group picked Yard House because its specials started at 3 p.m., an hour earlier than the other choices.

Customers such as Yamada and Romero have kept the volume of beer flowing at Yard House and other bars and restaurants, but it's slicing into revenue.

"We don't see a change in what people are drinking as much as seeing a change in the time they are drinking," said Kip Snider, beverage director for the Yard House chain of restaurants.

Still, a growing reliance on happy hour -- as well as a "reverse" happy hour with the same specials from 10 p.m. to midnight Sundays to Wednesdays -- is not a bad strategy.

"In times like this, the bar business should take on more of a focal point for restaurants because of the incremental profit that comes with each sale," Henkes said.

Restaurants net about 15 cents for every dollar of food purchased but 38 cents for alcohol, Henkes said. So it makes sense for casual dining spots, in particular, to pitch booze.

But even high-end eateries are reacting. Patina Restaurant Group, which owns Patina Restaurant in Walt Disney Concert Hall, Nick & Stef's Steakhouse and Cafe Pinot, is slashing 25% off the price of bottled wine -- not by the glass -- through the end of February.

That drops the price of wines such as the Foley Santa Rita Hills Pinot Noir and the Veuve Clicquot "Yellow Label" Champagne on Cafe Pinot's menu to less than $75 a bottle.

For the third quarter -- the latest period for which Technomic has data -- about 57% of the customers at a full-service restaurant purchased an alcoholic drink. That's down from 63% in the same period a year earlier.

The consensus among wine and spirits companies is that people are shifting from buying drinks at restaurants and bars to buying packaged alcohol for home consumption, said Megan Metcalf, editor of Wine & Spirits Daily.

There seems little doubt that people are changing buying habits.

"I am drinking more domestic beer and fewer imports because it is less expensive," Rene Castillo of Gardena said.

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