Eateries, Unite

By Kristine Dell

Three weeks before Lisa Lathrop and her husband were supposed to move their Madison, Wis., bakery to a new location, the deal suddenly fell through, and they couldn't find another place. With only two days left on the old lease, they were desperate. "I was scared to death," says Lathrop. Closing down for a few weeks would have killed the fledgling business, so Lathrop sent out a plea for help--to her competitors.

Her message went to the e-mail list of the local chapter of Dine Originals, a trade organization that bands together independent restaurants, and caught the eye of Robert von Rutenberg, co-owner of a nearby steak house. Von Rutenberg and his brothers served up the solution: though they barely knew Lathrop and her husband, the brothers offered to share their kitchen with them and their Wisconsin Cheesecakery staff until they could find something else. "They did it out of the goodness of their hearts and wouldn't let me pay for the space," says Lathrop, who ended up staying four months. "The Von Rutenbergs and Dine Originals really saved my life."

Dine Originals is throwing its life preservers to small restaurants across the country. Facing competition from national chains that add more muscle every year, many small food establishments are finding the strength to compete by exploiting the power in numbers. First called the Council of Independent Restaurants of America, the group started life in 1999 as a conventional trade association; its main activity was organizing well-meaning promotional events like food and wine tastings. About six months ago, it started using the brand name Dine Originals, shortly after forming a coordinated purchasing and marketing pool that helps the little guys save money. Over the past year membership has exploded and now includes more than 700 restaurants in 19 chapters.

The growth comes at a crucial time. Independent restaurateurs once had a tendency to view one another with suspicion. "Ten years ago, I wouldn't talk to fellow restaurateurs because I thought they'd steal my recipes," says Dine Originals president Don Luria. But hard knocks have turned indie rivals into sympathetic allies. Skyrocketing food, energy and health-care costs have cut into independents' bottom line, while national chains, from Applebee's to Morton's, have been expanding at every price level at the expense of the joint on the corner. According to the NPD Group, traffic share for major and small chains has grown to 69% of overall restaurant visits this year, having gained 1 percentage point a year for the past five years. Meanwhile, independents' share has steadily dropped over the same period, to 31%.

Turning the screws even tighter, developers of new malls and shopping centers are less willing to take a chance on an independent without deep pockets, shutting small restaurants out of prime real estate. "The game has changed," says Rick Bolsom, owner of Tin Angel in Nashville, Tenn. "You have to be more aware of things outside your four walls to succeed."

Enter Luria, a co-owner of a Southwestern restaurant in Tucson, Ariz. He took over as president of Dine Originals in 2004 and has made it his second full-time job (unpaid at that) to help independent restaurants thrive. He travels at least once a week, cultivating new chapters. And so far, every city that has asked him to speak has become a member. "If independent restaurants were to disappear, then everywhere you go in this country would be the same," says Luria.

Luria's innovation is to think of Dine Originals as one big chain--taken together, the 700 restaurants pull in about $1.4 billion in annual sales and represent $450 million in purchasing power--so its members get the clout and volume prices previously reserved for the big boys. Last month Luria signed a contract with Avendra, the top U.S. group-purchasing company in the restaurant-and-hotel sector, to get members lower prices on food and supply contracts as well as consulting advice on how to run their businesses more efficiently. The help may not reverse the chain-restaurant juggernaut, but it gives small restaurants a fighting chance. Even before the Avendra deal, many chapters had developed their own local buying programs. Under Tucson's plan, in which restaurants buy in bulk at common suppliers, Luria's Cafe Terra Cotta saved $100,000 on food costs last year--3% of its total sales for the year--without changing its menu. Andrew Hutto, owner of Baxter Station Bar and Grill in Louisville, Ky., used the savings from his chapter's buying group to help pay his gas and electric bill, which more than doubled, from $2,500 to $5,100 a month last winter.

Joint marketing has long been the cornerstone of local chapters, which use the Dine Originals banner to remind customers that money spent at local restaurants stays in the community, supports local farms and promotes the region's unique culinary taste. Now Dine Originals members are getting more creative with their marketing. Michael Klauber, owner of Michael's On East in Sarasota, Fla., and president of the largest Dine Originals chapter, struck a deal with local suppliers to get a small discount on purchases to be used for joint marketing. "I told them the more they help us fill seats, the more business they'll generate from us--and they got it immediately," says Klauber. He estimates that, thanks in part to the marketing push, his restaurant has increased sales about 15% in the past two years.

While the chance to save money in an industry notorious for wafer-thin margins draws new members, many veterans say the group's greatest value is its camaraderie and exchange of ideas. Dine Originals restaurateurs frequently refer customers to one another and eat at other member restaurants when they travel. During their four months together, Lathrop and the Von Rutenbergs shared recipes and taste tests in addition to kitchen counters. "We started to feel like part of their family," says Lathrop. Those ties remain: the Von Rutenbergs' restaurant now serves Lathrop's cheesecakes.