Bar vs Restaurant vs Hybrid: What Works Best in the US Today
When evaluating which type of concept to pursue in the bar/restaurant or hybrid model, it’s important to view this decision as a business model choice. It will affect many aspects of your business, such as how you will operate your business, how you will employ your employees, how you will license your business, and your customers’ purchasing patterns. Many owners view this as a simple bar vs restaurant debate, assuming they can change it later.
At the moment in the U.S., traditional restaurants operate with approximately 9% net profit margins. Still, the costs of food are taking away a large portion of these profits. Bars operate with average profit margins of 10% to 15% because of the high profit markups on alcohol and the low operational costs of running a bar. On the other hand, hybrid restaurants offer a combination of good food, checks, and drink upsells if the right balance is achieved.
In this article, you will see how all three models actually operate within the United States today, and you’ll have a structured approach to determine which model suits your target market, your available resources, and your desired level of operational complexity within hospitality business models today.
Where the Money Actually Comes From in Each Model
Although they are sometimes grouped together when discussed in planning sessions, bars, restaurants, and bar restaurant hybrids generate revenue from entirely different sources.
The bar business model is based on guests spending more money as they spend a longer time in the bar consuming alcohol. This “Dwell factor” allows for low preparation time for every revenue dollar. The inherent risk for bars is the fluctuations in volume and potential for lost inventory.
In contrast, the restaurant business model is based on customers turning over seats and executing food. Revenue for restaurants is based on covers per hour and the average check value. So, the most important number for a restaurant is the amount of labor minutes spent per plate, as compared to the profit margin on an average plate.
Bar restaurant hybrids attempt to blend the two business models. However, for a bar restaurant to be profitable, it must support alcohol sales with food sales, not the other way around.
What matters the most:
- Labor cost per revenue dollar.
- Inventory spoilage and shrinkage.
- Speed during peak service.
Understanding these components at the early stages of planning will prevent operators from making false comparisons of one business model to another.
What Your Surrounding Market Quietly Dictates
The surrounding market often proves to be an important factor that can make or break your concept business model. For example, in areas with heavy office populations, bars that attract customers after work and offer nightlife food options do better than restaurants with predictable dinner business.
Residential neighborhoods tend to support restaurants with predictable dinner as opposed to other types of food (beyond dinner), and lastly, in tourist areas, the hybrid restaurant concept is rewarded because it can promote larger spending ($) on food and drinks.
There are several other factors that push restaurants toward a given direction in the marketplace:
- Parking availability and proximity to residential neighborhoods.
- Noise ordinances.
- The volume of traffic on weekends as opposed to weekdays.
- The number of competing restaurants within one mile of a given site.
If a restaurant owner fails to recognize these factors early, they will be forced to work harder to change guest behavior instead of aligning with it.
This is the Most Underestimated Operational Load
As operators venture into new concepts or switch from one concept to another with little experience, operational complexity increases dramatically. This is one of the many reasons why many restaurant owners seek help from a bar and restaurant consultant.
Based on our experience at TapAndTable, many restaurant owners underestimate the level of complexity involved in the following areas of restaurant operations:
- The amount of prep food that must be produced prior to a rush period.
- The amount of time that must be dedicated to training all the employees of both the kitchen and the bar.
- Scheduling overlap on weekends for kitchen and bar employees.
- Compliance layers tied to liquor license requirements in the USA.
This is where structured restaurant management services and professional consultation often become necessary to stabilize execution.
How Menu Structure Controls Speed, Margin, and Stress
Menus do not drive creativity in a bar operation; they drive the efficiency of the operation. The goal of a bar’s menu is to ensure that bartenders spend as little time preparing a drink as possible while maintaining quality standards.
The goal of restaurant menu engineering is to enable a restaurant to operate efficiently within the confines of labor costs (cook times) and kitchen space limitations (number of stations).
For a hybrid restaurant/bar to be effective, menus must follow strict guidelines such as:
- Only a limited number of Stock Keeping Units (SKUs) are needed for the creation of multiple dishes.
- All food must be designed so that it can be delivered quickly to the guest.
- Each menu item must be designed to encourage a guest to place a second drink order.
- A bar program should allow for growth without the requirement for specialty-trained staff.
When the execution capabilities of a menu are not taken into account, stress levels rise, and margins erode without being noticed, regardless of positioning in the market.
How TapAndTable Helps Operators Choose the Right Model
At TapAndTable, we help restaurants and bars refine their business concept for restaurants and support them with concept development, operations, compliance, and growth.
Our experience comes from working in actual restaurants and bars, not just at a conceptual level. Therefore, we know how different hospitality business models will actually perform within a real operational environment that includes real guests, real staffing limitations, and real peak periods.
By taking into account the actual execution realities, actual local demand, and actual financial mechanics, we are able to assist in making better choices than those based solely on popular trends or general comparisons.
We assist our operator partners by providing them with:
- Market and demand analysis based on time of day/dayparts and spending patterns.
- Restaurant menu engineering and bar program development based on the operator’s execution capabilities.
- Designing nightlife dining concepts that perform well in the market and grow quickly.
- Labor & workflow models to be used for peak service periods.
- Licensing, compliance, and operational setup.
Ultimately, the best operational model is the one that your team is able to consistently execute, and the model that your market will support; TapAndTable’s mission is to help you to clearly arrive at that decision.
Conclusion
Bars win when beverage flow is steady, and demand is social. Restaurants win when food execution is repeatable and predictable. Hybrids win only when food and drink are designed to support each other operationally, not emotionally. The best model in the US today is not the trendiest one. It is the one your market rewards and your systems can run without strain, including the ability to support restaurant event management without breaking service flow.
Confused which model to adopt? Get in touch with TapAndTable and let us help you decide the best model for you based on a professional assessment.
Frequently Asked Questions
What types of bars make the most money?
High-volume alcohol bars, limited menu options for food, and bars that have a lot of repeat customers tend to do the best. Having a neighborhood bar and being able to execute on a bar’s concept will often lead to a better-performing bar than a trend-driven venue because your labor costs and inventory costs tend to be much easier to control.
Is a bar more profitable than a restaurant?
In theory, a bar has higher overall profit margins than a restaurant, but this is contingent upon high volume and tight controls. In addition, restaurants typically generate more consistent and stable revenue streams based on consistency and higher turnover of liquor and food if executed properly.
Do hybrid bars/restaurants make sense for most operators?
Hybrids can be successful when the food supports alcoholic beverage sales, and a bar’s operations are suited to mixed-service operations. In most cases, hybrid bars/restaurants that do not have good systems in place typically do not realize the benefits despite having the hybrid cost structures.
What should an owner consider when choosing a bar, restaurant, or hybrid model?
Owners should primarily look at the local demands for these models, any potential licensing limitations, the staffing ability to execute each, and the level of operational discipline to manage the chosen model effectively.