El Furniture Warehouse: Breaking Industry standards to achieve significant brand recognition

Take a walk around the downtown core of Toronto and what do you see on every street corner? Obviously there are a lot of cars, a lot of people, but do you notice that there are a lot of restaurants? In fact, not only in Toronto but every major city in the world, restaurants are in abundance. It is a universal business that exists in almost every country and every culture, providing a place for people to eat, drink and socialize. As cities have grown so has the number of restaurant establishments, making the market extremely saturated. As a result, it is become increasingly more difficult for restaurants to differentiate themselves from their competitors. In addition, with so many spin-offs of fast food restaurants many consumers are continuing to trade down for more affordable options and meals. It is becoming harder and harder to compete as a full service operator that does not have a large brand recognition. Not only is competition over saturating the market, increasing food costs are also producing un-favourable operating conditions for restaurants. Commodity prices are continually fluctuating and the general industry trend is moving towards offering the appearance of higher quality food items to maintain margins. With all these external conditions working against restaurant operators, how does one adopt a strategy that is able to combat all these negative forces?

One particular establishment has embraced a pricing strategy that is extremely rare in the restaurant industry. This restaurant is El Furniture Warehouse in Toronto. You may have walked down Bloor street and seen a massive line starting as early as 5pm coming out of a dark restaurant. With quality food and portion sizes equivalent to a meal at Boston Pizza at $4.95, there is no wonder people are demanding to get into this unconventional restaurant. El Furniture Warehouse is part of the Warehouse Group, a restaurant chain that started out of Whistler, BC in 2002. Their reputation and brand has been built around their $4.95 food items and a non-pretentious atmosphere that attracts all types of demographics.

At first you might be thinking that their pricing strategy may be a little unrealistic given the rising food costs in the market. How is El furniture able to turn a profit if most fast food restaurants cannot even offer a pre-cooked frozen burger, drink and fries combo for $4.95? It is likely due to the high volume of patrons that the restaurant is able to turn over in a short period of time that purchase alcoholic beverages. It is estimated that the 110-seat restaurant is able to sell about 800–1200 meals per day. That is a turn over of 7.27–10.9x, compared to most restaurants that have an average daily seat over of approximately 1.0x[1]. It is quite possible that the restaurant is losing money on every meal that is offered, however on with the addition of drinks it is likely that El Furniture’s strategy is to get a high volume of customers through the door to profit off of the sales of their alcoholic beverages, where a licensed restaurant is typically able to earn 70–80% gross margins on their alcoholic beverages. In addition, a large reason for why El furniture is able offering such low priced menu items is because the restaurant is backed by a mixture ex-skateboarders, surfers, and snowboarders and as a result the risk is shared among many individuals with semi-deep pockets. It is also likely that the restaurant could be finding another method by establishing a brand and generating revenue from sponsors such as red bull and vans.

It has been said by many that you cannot become a cost leader in a market and a differentiator at the same time, as you will send mixed signals to your consumers and it will not be profitable. However, given the fact that consumers are tightening their budgets and there is an extremely saturated restaurant market with increasing menu prices, clearly there is a gap for opportunity. Although it is difficult tell if the restaurant’s pricing strategy actually leads to profits and ROI for its investors, one thing is for sure — by servicing this pricing gap, El Furniture has been able to differentiate itself from all the other restaurant chains in the eyes of consumers, making them an innovative brand for taking the risk to adopt such a unique strategy for a restaurant.

[1] https://s3.amazonaws.com/s3.documentcloud.org/documents/291534/t288-nrarept2010.pdf