Decatur eatery serves, cuts costs

By Peralte C. Paul

The Atlanta Journal-Constitution

Opening a new restaurant in one the worst economies since the Great Depression had some people thinking Federico Castellucci III was crazy.

"In this time, banks aren't even going to look at us — a new restaurant opening in a nasty recession," Castellucci said of his family-run Decatur eatery, the Iberian Pig, which opened in October.

But Castellucci, whose family owns two other restaurants in metro Atlanta, built on an existing space on the Square by bartering services with contractors and other vendors.

He financed the opening through future sales and the fee he pays a trade exchange firm based in Lawrenceville, Castellucci said.

"We were able to barter a little less than half the opening costs. And today, that's huge," he said.

Businesses of all sizes are scrutinizing expenses and cutting costs where they can.

Some costs of doing business — advertising, ordering inventory and construction — can't be eliminated entirely.

That has led the Iberian Pig and others to a centuries-old idea they say helps in any economy: bartering.

Among them is Blue MedSpa, a four-year-old company that offers traditional spa services, such as facials, massages, liposuction and tattoo removal.

"Right now, it's tough economic times," said Scott Cooper, Blue MedSpa's chief operating officer.

Like the Iberian Pig, the spa barters its offerings through the services exchange firm Tradebank International for things it needs, such as advertising. The advertiser is "paid" with credits that they can use to purchase services of another member firm in Tradebank's network.

"It's not having to lay out the capital," Cooper said, explaining why the spa has been part of a bartering exchange since opening its doors. "Whether it's a tough economy or not, it's a great way to network and meet people who wouldn't normally seek you out. The benefit we get from it is we bring new clients to our business."

Of course, companies have been trading services for years. But bartering firms such as Tradebank say they are experiencing huge surges in volume.

"This year, we're seeing a 57 percent increase in new account sales," said Todd Gerry, Tradebank's senior vice president of marketing. "Our trading volume is up 11 percent over 2008."

Tradebank, which also has offices in Canada and the Czech and Slovak republics, said the $40 million in sales year-to-date by mid-December had exceeded the 5 percent to 7 percent growth projected for 2009.

Other exchange firms report similar increases.

"We're averaging 300 to 400 new sign-ups across the country every four weeks," said Frank Scott, a broker in Conyers for Itex, one of the largest business services exchanges in the world. "That's double what we were doing three to four years ago."

Exchange brokers say they're seeing increases from all types of businesses, but they report acute growth from the restaurant, travel, accounting and other service-related industries.

Trade exchanges are different from traditional bartering in that they're not one-on-one trades.

"The problem with direct trade is sometimes you need their business and sometimes you don't," Gerry said.

In a trade exchange, for example, a dentist might need business cards printed, but the printer may not have an immediate need for dental services. The printer may need catering services for a staff luncheon, and the caterer might have need for a dentist.

So all members pay a brokerage fee to a trade exchange to find the services they need. The value of the services each business performs for another member firm is logged in an account and recorded at fair-market value by the trade exchange company.

Those trade accounts, for accounting purposes, are treated like cash and must be reported to the IRS.

Nationally, trade exchanges have grown to a roughly $4 billion-a-year business, said Tom McDowell, a leading authority in the industry and recently retired executive director of the National Association of Trade Exchanges.

That's up between $500 million and $750 million from five years ago.

"When the economy slows down, businesses still have inventory. What they don't have is customers," McDowell said, explaining what's fueling the increase. "Bartering doesn't replace your hard costs, but what it does do is help offset incremental costs like cleaning, advertising, legal services and accounting.

"What you save on those items, you then can use to cover your hard costs."

It also frees up cash flow, said Castellucci, the restaurateur.

"In this business, when something comes up, and it's broken, it could be $4,000 or $5,000," he said. "You want to reserve your cash flow as much as you can, and being able to barter and do something at your cost of goods plus the fee of the bartering agency is more feasible and cost-effective."

While the current spike in volume is due in part to the economy, McDowell predicts trade exchanges will remain a popular alternative even when conditions improve.

"We're seeing a lot more of the small- and medium-sized businesses that are just facing a cash-crunch getting involved. They're using it for survival," McDowell said. "But in a good economy, they'll use it to add things like employee bonuses or the office Christmas party."