The restaurant industry, with expenses that can skyrocket with the price of gas and revenue that can tank because of bad weather, is certainly not immune to the weak economy.
But some restaurants aren’t taking the punch on the nose or just trying to outlast the downturn; rather, they’re diversifying diners’ options by opening new venues with more frugal menu choices and offering a different type of dining experience with more value and smaller checks.
“The beauty of restaurants is that they can think of things today and implement them tonight,” said Paul Hartgen, president and CEO of the Restaurant Association of Maryland, an industry advocacy group.
And this creativity has created a line between restaurants that are adapting to the economy and ones that are suffering from it, he said.
Restaurants in Orange County are enjoying some good times lately. But many operators wonder if it’s a temporary boon driven by big promotions or a sign that diners are finally ready to spend money again.
“The overall trend is that people are ready, even eager to dine out more,” said Erin Deviny, sales manager at the Rusty Pelicanin Newport Beach.
Thad Foret, managing partner at Antonello Ristorante in Orange County, said some evenings are unexpectedly packed, which gives him a “feels like old times” sense of security.
But, like other restaurateurs, he knows that’s not reality.
Two big dining events over the past two months – Orange County Restaurant Week and Valentine’s Day – have triggered much of the dining out frenzy among local foodies.
Restaurant week drew hundreds of diners to 100 O.C. restaurants that provided discounted gourmet meals ranging from $10 to $40 per person. Over the weeklong event, reservations were up 20 percent compared with last year’s inaugural event – an indicator that consumers are being less thrifty about dining out, said Pamela Waitt, president of the OC Restaurant Association.
Es-Ca in Dongan Hills sees the economy’s wear and tear on its business.
“Customers who used to eat out a few times a month are coming out only once a month,” explains Michael Calore, Es-Ca co-owner. Therefore the restaurant implemented a few new strategies to kick up the sales. Drop prices. Offer discounts. Make the menu more appealing to families with more affordable items like pizza and sandwiches.
“Through April starting this week, we’re doing a customer appreciation night,” says Calore. “It’s 15 percent off on the check with parties of eight guests or fewer. If it’s successful, we’ll continue it on Tuesdays in the future.”
Going forward, a Wednesday Es-Ca tradition — two-for-one entrees printed on a separate menu — continues. This discounted program highlights 20 entree and appetizer combinations. Thursdays will feature wine bottles that are half price. Starting tomorrow, customers can BYOB. And there is no corkage for the weekly courtesy.
The $566 billion restaurant industry is unforgiving; it’ll leave a naïve entrepreneur broke and out of business within a year – in a good economy.
In this economy, even a savvy restaurateur is capable of losing everything – but there are local entrepreneurs taking risks opening restaurants and hoping for the best.
Of the notable openings, Trevor Sacco and a team of investors in October opened Bice, an Italian fine dining restaurant with roots in Milan.
Brian Malarkey – a local who competed on Bravo’s “Top Chef” – and EnDev LLC’s James Brennan are building buzz for Searsucker, a new restaurant they plan to open at Fifth Avenue and Market Street in the Gaslamp Quarter in July.
Local restaurant heavyweight David Cohn’s Cohn Restaurant Group opened two restaurants and relocated one in the last year.
And barbecue honcho Fred Glick, owner of Phil’s BBQ, is planning to open a second San Diego location this year, too.
The most important meal of the day has become the hottest area of competition for the foodservice industry. Mintel, a leading market intelligence firm, reports that restaurants added more than 460 new breakfast items to their menus in 2009, more than in 2007 or 2008, respectively.
The problem? Half of consumers surveyed by Mintel in November 2009 said they’re spending less on restaurant breakfasts compared to 2008. Only one in 10 are spending more. Furthermore, nearly half of survey respondents said they don’t eat breakfast out during the week (47%) or weekend (45%).
“We see an increasingly competitive market for restaurant breakfast, even though sales have declined,” comments Eric Giandelone, director of research, Mintel Foodservice. “Restaurants are refreshing their breakfast menus, but I believe reduced consumer spending, as well as relatively high unemployment, will limit sales growth over the next year.”
Restaurant breakfast and brunch sales fell 3.4% from 2007 to 2009, according to Mintel. The category is expected to grow only modestly through 2011 before picking up speed. All told, Mintel forecasts the breakfast foodservice market will expand by 13% from 2009 to 2014.
“To overcome contracting sales, restaurant operators need to be keenly aware of what drives people into restaurants for breakfast,” states Eric Giandelone. For example, Mintel found people are mostly looking for low prices and convenience on weekdays, while food quality and menu variety are more important to weekend breakfast diners.
“Restaurant operators can also perk up sales by realizing that many diners crave breakfast outside traditional breakfast hours,” says Eric Giandelone. The top thing breakfast diners told Mintel they’d like to see more of at restaurants was “all-day breakfast” (36% weekday, 38% weekend). More value meals were also desired (32%).
About Mintel
Mintel is a leading global supplier of consumer, product and media intelligence. For more than 38 years, Mintel has provided insight into key worldwide trends, offering exclusive data and analysis that directly impacts client success. With offices in Chicago, New York, London, Sydney, Shanghai and Tokyo, Mintel has forged a unique reputation as a world-renowned business brand. For more information on Mintel, please visit www.mintel.com. Follow Mintel on Twitter: http://twitter.com/mintelnews
Amid signs of thawing consumer spending, U.S. restaurants are starting to walk a fine line between turning diners on with new lower-calorie dishes and tapas-style small plates and turning them off with creeping price increases.
The course change comes as cost-cutting opportunities dwindle and restaurants try to wean still-skittish diners off discounts and special offers.
“2009 was strictly cost-reduction focused. … It seems like there’s a transition” afoot, said Adam Werner, a director in the food service practice at advisory firm AlixPartners.
“The conversations we have are focused now on ‘How do we grow same-store sales?’”
The special deals that helped lure diners into restaurants during the worst of the recession won’t disappear any time soon, but rock-bottom discounts that squeeze profits are becoming rarer as well-funded restaurant operators get smarter and more nimble with their value offerings.
Only 3 per cent of restaurants survive, one of Australia’s leading restaurateurs says.
John Kilroy, who owns Char in Darwin and Cha Cha Cha in Brisbane, said getting the economics of the business right was tough.
“When you take out all the expenses, most restaurant owners don’t make any more than an average wage,” he said.
Mr Kilroy was speaking after another Territory restaurant — Lewinsky’s in Darwin city centre — closed.
Lewinsky’s, which was named after Bill Clinton’s love interest, opened in 2004 and was named the NT’s best restaurant in 2006. It was famous for its $100,000 self-serve wine cabinet.
The restaurant has been taken over by Honey Pot owners Graeme and Anne-Maree Oates, who have applied for a 4am liquor licence.
Mr Kilroy said many restaurateurs failed to do market research.
Where the hell is this economy going? I think I speak for a lot of Las Vegas restaurant operators when I say I just want to throw up my hands in frustration.
Coming out of last year, a year that was a tough one for the casino food and beverage industry, we expected a very lackluster Christmas and New Years. We all were staffed down thinking that ho hum was going to have to be enough. I thought about the bare minimum staff I could run and that I probably wouldn’t need too much of the good stuff, like live fish, lobsters and abalone. We knew had some prominent players on the books, so we prepared for a modest pop.
But Christmas and New Years were massive! We were busy beyond belief; it was like the proverbial old days! We were so crushed I was running to 99 Ranch and International markets in my own car to keep us stocked up in the kitchen. So naturally, I thought OK, it is a new year; people have a renewed sense of hope. It’s a new beginning and only better things are coming. Looking ahead, we had Super Bowl smashed next to Valentine’s Day, smashed up to Chinese New Year, smashed up to the MAGIC tradeshow! We’re in the money!
The sour economy is spoiling some people’s appetite for restaurant fare. Even so, restaurateurs are still launching new eateries in and around Chicago.
In fact, Chicago is seeing something of a food renaissance. Specialty groceries such as Pastoral, the French Market at Ogilvie Station and Green Grocer Chicago are providing organic and locally grown products to the city’s gourmet crowd. Local food-related Web sites such as Culinary Culture and Grub Street Chicago have become places to stay up-to-date on local restaurant news, trade recipes or chat about wine pairings.
Meanwhile, new eateries, from the Publican in West Town to Feast in the Gold Coast, keep springing up despite the worst economic downturn in decades.
The key to restaurant survival now, industry observers say, is delivering a well-prepared meal at the right price.
They might not have hit the soup lines, but consumers suffering through the worst recession in decades certainly weren’t splurging on restaurant meals, either.
Through the end of December, the restaurant industry suffered through six straight quarters of traffic declines, according to the NPD Group.
It was the weakest and longest running downturn the research firm has seen since it began tracking the industry in the mid-1970s.
The good news is that the rate of decline is slowing.
In the quarter ending in December, year-over-year traffic fell 2.9%, better than the 4% drop in the three months ending in September. Improvements continue, analysts say.
“We’re hearing inklings of consumers spending a little bit more,” said Bonnie Riggs, NPD Group’s restaurant analyst. “We do have pent-up demand. And we do see life here and there.”
Dining out declined in the United States for the first time in more than three decades in 2009, a consumer survey found.
Restaurant visits nationwide dropped 3 percent for the year, compared with the previous year, according to market research firm NPD Group.
“It tanked. Everybody took a beating last year,” said Al Hinman, president of the Greater Kansas City Restaurant Association and owner of Le Peep in Lenexa and Overland Park. “It was kind of scary. … We aren’t rich guys. Our life savings are on the line and we’re supporting our families.”
The NPD survey found that the American dining dip of 2009 affected not only high-end eateries but also casual and fast-food establishments.
A big part of the decline — nearly half, NPD found — resulted from workers forgoing purchases of takeout food to eat on the job. And when diners showed up at restaurants, they economized by spending less. Families with children and young adults, in particular, fueled the decline.
Consumers are battered and bruised. They’re cutting up their credit cards or seeing them yanked by the banks. They’re reluctant to open their wallets for just about anything.
But battered credit or not, Americans by and large are still treating themselves to dinners out with the family.
The Cheesecake Factory (CAKE) keeps luring them into its casual sit-down restaurants.
Analysts chalk its success up to smart management, effective cost-cutting and timely promotions. But the consumer helped as well. Cheesecake Factory is a slightly pricier option than some of the other chain eateries with a more upscale clientele.
“They cater more to a slightly higher-income demographic, and I think that demographic is feeling a little better now than they did a few months ago,” said Robert Baird & Co. restaurant analyst David Tarantino.
Restaurant operators statewide still aren’t feeling optimistic about the economy, a new study released by the Olympia- based Washington Restaurant Association shows.
The association, which collected feedback from about 60 restaurant owners for its January survey, found that 58 percent of the operators reduced staff member hours from January 2009 to January 2010. It also found:
• Eighty-two percent expect to remain at reduced staffing levels or to cut more jobs.
• Sixty-three percent said sales fell last month compared with January 2009.
• Fifty-seven percent of restaurants nationally also reported that sales fell in the same period.
“The fact that this many operators are still down was not a welcoming sign for me,” Washington Restaurant Association President and Chief Executive Anthony Anton said.
Restaurant operators gained confidence about future economic and business conditions in the first month of this year, according to the National Restaurant Association’s comprehensive index of restaurant activity. As a result of softening sales and traffic results in January, however, the Restaurant Performance Index (RPI) backed off slightly from December’s 22-month high.
The Association’s RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98.3 in January, down 0.3 percent from December’s level.
“Although the current situation indicators remained soft in January, the Expectations Index rose above 100 for the first time in 9 months,” said Hudson Riehle, senior vice president of Research and Knowledge Group for the National Restaurant Association. ”Restaurant operators are relatively optimistic about improving sales growth and economic conditions in the months ahead, and their capital spending plans rose to the highest level in five months.”
The RPI is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The Index consists of two components – the Current Situation Index and the Expectations Index. January’s mark of 98.3 represents the 27th consecutive month of an index below 100, which signifies contraction in the index of key industry indicators. The full report is available online: www.restaurant.org/pdfs/research/index/201001.pdf.
The RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators.
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.6 in January – down 0.8 percent from December. In addition, January represented the 29th consecutive month below 100, which signifies contraction in the current situation indicators.
After posting a moderate improvement in December, restaurant operators reported a softening in sales results in January. Twenty-seven percent of restaurant operators reported a same-store sales gain between January 2009 and January 2010, down from 35 percent of operators who reported higher sales in December. Fifty-seven percent of operators reported a same-store sales decline in January, up from 49 percent who reported negative sales in December.
Restaurant operators also reported softer customer traffic results in January. Twenty-six percent of restaurant operators reported an increase in customer traffic between January 2009 and January 2010, down from 30 percent who reported higher customer traffic in December. Fifty-four percent of operators reported a traffic decline in January, up from 47 percent who reported lower traffic in December.
Capital spending activity in the restaurant industry held relatively steady in recent months. Thirty-two percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the past three months, roughly on par with the levels reported by operators in the previous two months.
The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 100.1 in January – up 0.2 percent from December and its third gain in the past four months. In addition, the Expectations Index crossed above the 100 level for the first time in 9 months, which signifies expansion in the forward-looking indicators.
Restaurant operators remain relatively optimistic about sales growth in the months ahead. Thirty-three percent of restaurant operators expect to have higher sales in six months (compared with the same period in the previous year), compared with 35 percent who reported similarly last month. In comparison, 22 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, and 21 percent reported similarly last month.
Restaurant operators are also cautiously optimistic about the direction of the economy in the months ahead. Twenty-nine percent of restaurant operators said they expect economic conditions to improve in six months, and 18 percent expect economic conditions to worsen during the next six months. Last month, 34 percent of operators said they expected the economy to improve in six months, and 18 percent expected economic conditions to deteriorate.
With a relatively optimistic outlook for sales and the economy, restaurant operators’ plans for capital expenditures ticked upward this month. Forty-three percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 39 percent who reported similarly last month.
The RPI is released on the last business day of each month, and more detailed data and analysis can be found on Restaurant TrendMapper (www.restaurant.org/trendmapper), the Association’s subscription-based service that provides detailed analysis of restaurant industry trends.
Founded in 1919, the National Restaurant Association is the leading business association for the restaurant industry, which comprises 945,000 restaurant and foodservice outlets and a work force of 12.7 million employees. Together with the National Restaurant Association Educational Foundation, the Association works to lead America’s restaurant industry into a new era of prosperity, prominence, and participation, enhancing the quality of life for all we serve. For more information, visit our Web site at www.restaurant.org.
In a special report issued today, Fitch Ratings says that modest improvement in sales trends are expected for the U.S. restaurant industry during the second half of this year. The special report on the 2010 outlook for U.S. restaurants provides supporting data and commentary to the conclusions listed in Fitch’s outlook press release issued on Nov. 18, 2009, titled ‘Fitch 2010 U.S. Restaurant Outlook: Modest Improvement in Sales Anticipated by Late 2010.’
According to the report, increases in restaurant traffic will be driven by an improving employment situation and continued economic growth resulting in higher personal consumption expenditures for food-away-from-home during 2010. In the near term, restaurants will likely maintain their currently cautious stance on pricing because consumer spending remains weak and the environment remains extremely competitive. ‘We believe weak U.S. traffic trends among the national quick-service chains is a signal that sales declines have bottomed for the entire restaurant industry,’ said Director Carla Norfleet Taylor. ‘While we are not predicting a rapid upturn in same-store sales growth, we do anticipate modest improvement by the second half of 2010.’
Adequate liquidity and positive free cash flow will continue to support a stable credit environment for the large chain restaurants in 2010. ‘Given limited near-term same-store sales visibility, a higher than normal degree of financial discipline is expected,’ said Senior Director Wesley E. Moultrie. ‘However, once top-line trends improve, a return of share repurchase activity is definitely possible.’
Modest food cost inflation, particularly for beef and dairy products, is anticipated, despite recent food cost deflation for many operators. As such, controlling cost will remain a priority. Moderate increases in capital expenditures are possible but a ramp-up in new U.S. unit development is not anticipated.
The full report, ‘U.S. Restaurant/Foodservice Outlook: Modest Improvement in Sales Expected by Late 2010; Stable Credit Environment Anticipated’ is available at ‘www.fitchratings.com‘ under the header ‘Corporate Finance’.
The ongoing recession has taken a bite out of local restaurants’ profits, with more and more residents ‘dining in’ their homes. To retaliate, these establishments are adjusting their business plans to reclaim their customers.
Becky’s Restaurant and Lounge owner Rebecca Smith said her difficulty stems deeper than economic hardship.
The problem, she said, is that she had previously leased out the restaurant and has lost customers because of it.
“I don’t think it would be this bad if people know I’m back but a lot of people don’t know that I’m back yet,” she said.
To correct this, Smith has hired a promoter to inform old patrons of her return and possibly attract new customers.
According to Smith, this is just one attempt to increase Becky’s clientele.
Like many other local businesses, Becky’s has resorted to discounting its services in hopes that prospective patrons will be more inclined to spend at the establishment.
Although the recession has had a significant negative effect on frequency of restaurant visits for the dinner/supper meal, particularly among younger groups, the decline is a long-term trend that also has much to do with the aging population and changing lifestyles, according to a new report from The NPD Group market research company.
The evening meal is the restaurant industry’s largest sales driver, but it’s been the weakest-performing daypart for the past decade, according to “Getting a Grip on the Supper Market.” And while dinner is the meal that normally leads the industry out of recessions, that will not be the case this time, NPD concludes.
The youngest adults — those 18 to 31 — represent the largest share of dining traffic (28%), and have also seen the largest drop in per-capita supper meal occasions per year. Between 2001 and 2009, their average dinners out per year dropped by 13, from 79 to 66.
During the same period, the average number of restaurant dinners per year also declined (by seven, in each case) within three of four older groups. Among those 32 to 34 (representing 19% of traffic), average dinners out declined from 70 to 63; among those 44 to 51 (20% of traffic), from 67 to 60; and among those 52-61 (16% of traffic), from 63 to 56.
Only the oldest group — those 62 and up (17% of traffic) — showed a slight increase in average suppers out over the period (up to 49, from 48).
It’s been a difficult business climate in downtown Bellingham, but Catrina Bremer is focused on making it through this recession.
Bremer, owner of Nona Rosa’s Ristorante at 113 E. Magnolia St., nearly called it quits a few weeks ago, believing her Italian restaurant just couldn’t handle any more hits in what has been a challenging couple of years for any small, family-owned businesses.
But she’s changed her mind and has made a few adjustments to keep the doors open. Those changes include no longer offering lunch, and being closed Mondays and Tuesdays. The restaurant now opens at 5 p.m. Wednesday through Sunday.
“For a while I’ve been trying to plan an exit strategy, but now I’m feeling more determined to dig in my heels and stick this out,” Bremer said. “We’re so close to making it and I do think we’re good enough.”
Last year was a tough one for Southeast Michigan restaurants.
Some were forced to close their doors; others came out battered. But a handful found ways to generate growth.
David Ritchie, managing partner of the 500-seat Bastone complex in Royal Oak, which includes Bastone Brewery, Vinotecca, Cafe Habana, and Commune Lounge, said having four options housed in one location helped it not only weather the downturn but foster growth.
“If a building of this size had only one theme, it would have drowned,” Ritchie said. “Diversification is the reason we increased revenue in 2009.”
Revenue altogether is up by about 4 percent, even though food sales lagged from a year ago.
Some Phoenix-area restaurants, bars and coffee shops are seeing an uptick in business after a tough 2009 took a toll on their bottom lines.
January bar and restaurant sales have received a boost in the Phoenix market from the Tostitos Fiesta Bowl, National Football League playoff games and some improvement in consumer confidence. The sector is hoping February’s start to spring training will further help sales.
“We have seen better foot traffic, especially the weekend of the 15th of January with the (P.F. Chang’s) Rock ’n’ Roll Marathon and NFL games. It was the best Sunday we have ever had in our 16 years of business,” said Jim Scussel, owner of Four Peaks Brewing Co., which operates bars in Tempe and Scottsdale. “Our general numbers are up in January over last year, so that means better foot traffic.”
Chad Barnett, who owns 30 Subway restaurants in Arizona, said foot traffic is equal to or better than it was at the same time last year.
