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The NRN 50: Breaking bread, making deals

The NRN 50: Breaking bread, making deals

If there’s an enduring Hollywood image that has lost little of its impact throughout the years, it’s that of the business meal. Whether it’s ruthless corporate trader Gordon Gekko lecturing his protégé over steak tartare in “Wall Street,” or a cadre of highly pressured advertising executives draining pitchers of martinis in the TV series “Mad Men,” the business meal has served as a point of reference for many movie and television storylines.

In the real world, the business meal has been a strategic staple for many—particularly the nation’s small businesses, which are usually devoid of expansive ad budgets—in competing for clients and market share against their larger Fortune 500 counterparts.

For restaurant operators, particularly for those in or near corporate and financial zones, the business meal represents a sizeable portion of their lunch and dinner revenues and a literal annuity for repeat business.

Doing business over meals is a ritual that has existed for centuries. Taking clients to breakfast, lunch or dinner has long been an effective way to forge profitable relationships.

Unfortunately, for many in the corporate and restaurant arenas, regulatory setbacks and seesaw corporate budgets have at times affected the health of America’s business meal.

First and foremost, the nation’s tax writers have not always shared in their enthusiasm for the business meal’s role as an economic stimulus.

In 1986, as part of the Reagan tax package, the deductibility of business meals sank from 100 percent to 80 percent. Eight years later under the Clinton administration, business meal deductibility plunged to 50 percent.

In the ensuing 14 years, it’s been an uphill battle for the restaurant industry and the National Restaurant Association to regain deductibility even back to its Reagan-era levels of 80 percent.

According to research conducted by the NRA, restoration to the 80-percent level would boost business meal sales by $8 billion and the nation’s economy by roughly $26 billion.

In California, for example, if the deductibility rose from 50 percent to 80 percent, sales of business meals would rise $1.02 billion, while the total economic boost for the state would approach $3 billion. If the deductibility levels rose to 100 percent, those figures would balloon to $1.85 billion and $4.1 billion, respectively.

“I really don’t think anyone looked at the long-term impact of reducing the deductibility,” said Kevin Joyce, owner of Pittsburgh-based The Carlton Restaurant and 2007 chairman of the Pennsylvania Restaurant Association. “[The move toward reduction] really began with Jimmy Carter in 1976, who had this populist notion that the factory lunch pail couldn’t be deducted but the corporate big shot could deduct the two-martini lunch. But did anyone really look at the economic stimulus of the business meal?

“I was, and am, frustrated. This has been a priority for the NRA and has been for quite some time. I was also frustrated by Washington. This has been a Republican issue, and even when [the GOP] controlled Congress and the White House, we still couldn’t get it done. Washington generally doesn’t see restoring deductibility as an economic fix. In my opinion, it’s a better fix than giving tax abatements for new equipment.”

In addition to the deductibility hurdles erected courtesy of Capitol Hill, the business meal also has been hostage to corporate budgets and companies’ discretionary spending, a tandem that traditionally has marched in lockstep to the annual fortunes of Wall Street.

Operators often cite the high point of corporate-dining revenue as the era just prior to the dot-com implosion when venture capital flowed like champagne and the NASDAQ was treading at the impossible level of 5,000, while the nadir was arguably during the months following the Sept. 11, 2001, attacks.

Despite these challenges, the business meal continues to be ingrained as a critical component for many operators.

At New York’s famed 21 Club, corporate meals comprise roughly 75 percent of its lunch business.

The historic landmark, which began as a speakeasy during Prohibition, has over the years forged an anecdotal reputation for its role as a backdrop for scores of high-profile business deals.

One of the most frequent scenarios at 21 has been the sight of two executives from separate firms lunching together on consecutive days. Invariably, the headlines of the major business sections would trumpet news of either a merger or a high-level management change.

“There was one reporter from a network who was having lunch with one of the executive producers,” recounted a representative for 21. “We all speculated that she was going to jump ship, and sure enough, that’s what happened.”

Roger Rice, the restaurant manager at 21, explains that the business meal has been a cornerstone of the venue for generations in addition to hosting celebrities, athletes and politicians.

“We have a lot of regulars who come three or four days a week,” Rice says. “The staff knows what they drink and what they eat. But our restaurant is also a family tradition for many. People will tell us they came here with their grandparents or parents when they were young and have been regulars ever since.

“This year we did a lot of corporate business. There were a lot of times when we had tables of executives and the wine bill alone ran into the thousands. [The business meal] is a part of the culture here.”

The Carlton’s Joyce, whose restaurant is situated on the mezzanine level of Pittsburgh’s Mellon Center, says business and corporate dining continue to comprise the majority of his lunch business—albeit less under the current 50-percent deduction levels.

“We looked for other avenues,” he says. “We made it a celebration restaurant for special occasions.”

At the Chicago-based upscale steak-house brand Morton’s, president Edie Ames said the 77-unit chain has culminated a two-plus-year project to hone its menu items, service levels and unveil several new concepts to appeal to the corporate patron.

“We call it ‘the evolution of the brand,’” Ames says. “We spent a lot of time on the road visiting the restaurants and meeting with the management team and staff.”

The result was the launching of its Bar 12*21 concept, a cozier incarnation than the traditional bar area that includes a proprietary menu with smaller-sized offerings and a line of new drinks headlined by its “Heavenly Mortini.”

“It’s a much more comfortable place to hang out or wait for a table, a holding tank if you will,” Ames says.

With regard to training, there’s also a program underway to certify Morton’s unit managers as sommeliers, and to lure corporate business, there’s a dedicated sales and marketing manager. Ames says most units also have two to three private board-rooms for special events.

“We do a great deal of corporate business, but we’re certainly not insulated from economic uncertainty,” Ames says. “We have had tremendous success with the business meal and traveler in the past, but we have to continue to work on attracting more.”

At the same time, operators and the NRA vow to continue the fight to raise the deductibility level.

“[Restoration] would create more jobs and business than anything else you could do,” says Joyce of The Carlton. “It seems the hospitality industry is under a threat every day. Our industry is comprised of a lot of small businesses, and that’s the heartbeat of the community. But we’ll get through; we always do.”

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