Eateries, Unite

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."