Sure, you could replace the cloth napkins with paper ones, but patrons will notice that right away. Moreover, it's the kind of switch that risks cheapening your restaurant's image.
According to the Wall Street Journal, many restaurants are being visited these days by "efficiency experts" who look for ways these establishments can cut costs. The WSJ says that these experts work
... by carefully pricing out a kitchen's every move — like making ranch dressing every three days instead of daily, which can shave prep time by 15 to 18 minutes. They help fine-tune recipes to economize on ingredients. (Taking olive oil out of the marinara sauce saved one chain $17,000 a year.) And they "engineer" menus to spotlight the highest-margin offerings. Forget soda; iced tea costs a restaurant as little as a nickel a glass.
... one tip comes with a spritz of controversy: Don't automatically serve patrons water, so they're more likely to order soda, beer or wine.