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Tag Archives: economic crisis

Analyst optimistic about restaurant growth

From Nation’s Restaurant News:

Improved sales expected in next round of restaurant earnings

Analyst: Chains still face higher commodity prices and shaky consumer confidence

October 6, 2010

Mark Brandau

While commodity price inflation looms on the horizon and the Consumer Confidence Index has retreated to its lowest level since February, Morgan Keegan analysts Robert Derrington, Destin Tompkins and Joe Drake think recent improving same-store sales at 15 of the restaurant companies the firm tracks should continue this quarter and into 2011.

Read the rest of the article here:

http://www.nrn.com/article/improved-sales-expected-next-round-restaurant-earnings

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And yet, not all news is positive for the restaurant industry

Restaurant operators’ optimism wanes

NRA’s Restaurant Performance Index slips in June

July 30, 2010 | By Paul Frumkin

Restaurant operators appear to be less optimistic about their future prospects, which contributed to a decline in the National Restaurant Association’s Restaurant Performance Index for the third consecutive month.

The RPI fell to 99.5 in June, a decline of 0.3 percent from May and the lowest level since February, according to the NRA. It also marks the second consecutive month the RPI has stood below 100, which reflects contraction in the monthly index of key foodservice industry indicators.

Read the rest of the article here:

http://www.nrn.com/article/restaurant-operators-optimism-wanes?ad=news

Positive news on the high-end front

From Nation’s Restaurant New’s Breaking News

High-end restaurant chains say business, travel spending up

August 3, 2010 | By Molly Gise, Lisa Jennings

The return of business travel and conventions is driving traffic at fine-dining chains, many of which have recently reported positive same-store sales after suffering from empty dining rooms during the recession.

While steakhouse chains including Morton’s, Ruth’s Chris and The Capital Grille have taken advantage of the increased spending among their core markets, the high-end seafood chain McCormick & Schmick’s says it has suffered from the Gulf oil spill, which has kept consumers away.

Read the rest of the article here:

http://www.nrn.com/article/high-end-restaurant-chains-say-business-travel-spending?ad=news

Small is beautiful

I had to drop into the local WalMart Supercenter to pick something up the other day. I don’t shop at WalMart very often, mainly because of ideological reasons, so I was surprised to see that the store was changing drastically. They were still renovating but much of the work seemed to have been done.

I was surprised to see that the display aisles were now only around 6 feet high, whereas before they were at least 8 feet tall.

There seemed to be less merchandise as well, although this could be a function of the unfinished nature of of the redo. Not only did there seem to be less of each item, there seemed to be less total items. I wondered if this was a concrete manifestation of the economic crisis that we’ve been going through. It looked like a fairly drastic downsizing of the Supercenter.

This seems to be borne out by this CNN article:

http://money.cnn.com/2010/02/15/news/companies/walmart_dropping_brands/

When I left the store, I noticed that the Superstore signage had even been removed. Perhaps they’re just changing the signage and it will continue to be considered a “Supercenter”, but I wonder if it’s being “demoted”. They certainly don’t seem to be shrinking the square footage.

Doing some superficial browsing, it looks like WalMart is contracting a bit. In one case, they actually cut the size of the store in half. It doesn’t look like that’s going to be the case here, but it does look like there’s going to be a much smaller inventory and assortment.

I think that we’ll see the same forces at work in restaurants as well. I wonder how long it will be before we see restaurants that used to open units with 200 seats start redesigning their new units to be 150 seats (just to use a random example). I wonder how long it will be until menus start contracting the number of items on their menus. And I wonder how long it will be before we start seeing smaller staff (larger sections, fewer hosts/hostesses/fewer managers stretched with more hours, fewer kitchen employees consolidating more and more tasks, etc.)  In many states, there’s not much savings in cutting waiters that make $2.13 – $4/hr, but there could be some savings in reducing the number of server assistants, putting more burden on waiters in general.

I saw this happen at P.F. Chang’s about 3 years ago when they went from one Server Assistant for every two servers to a couple of SAs for the whole restaurant. They did it the right way though and shrunk each server’s section by 1 table and added an additional server (that’s 1 more server and 2 less SAs).. SAs made 4.50 an hour, so this was a net gain against payroll and probably didn’t affect service too much. but I can see some big corporate entity with less savvy trying to trim staff without taking the impact on service into consideration (Darden, I’m looking at you!).

This trend could trigger some realignment of a large chain’s strategy and could also impact the gross number of jobs available to waiters in general. It could have a benefit of making it more feasable for smaller independent restaurants to make a go of it. If restaurants in general get smaller, then, in the eyes of the average consumer, a smaller indie restaurant might be on more of an equal footing with the larger chains due to the general perception in the US that “bigger is better”. On the downside, it could make waiters’ jobs more difficult and it might make great service harder to give and get.

These are just some random thoughts triggered by a mundane shopping experience. If anyone has seen some manifestations of this trend, feel free to comment. Or if you have any thoughts on the matter, please weigh in.

Yes, that’s a restaurant under the striped blue awning.

Photo is from “Rene G” at the “lthforum” at  http://www.lthforum.com/bb/viewtopic.php?f=15&t=24958

It’s a “Chicago-based culinary chat site”.

P.F. Chang’s plans price hike as traffic improves – Nation’s Restaurant News

By Ron  Ruggless

Mother Nature hammers the restaurant sector

A look at industry same-store sales

by Mike Dempsey

And speaking of O’Charley’s

Jeffrey Warne, recently named CEO of Nashville-based O’Charley’s Inc. and The Tennessean, the Nashville newspaper, did a Q&A with him in today’s Sunday edition.

Here is just one question, as answered by Warne:

How has the company controlled margins?

If you go back to 2008, we made the tough decision to reduce support staff. We eliminated some positions and through attrition we did significantly reduce the staff by about 20 percent. We also set up in 2008 a labor model that would predict when guests are in the building.

Using eight years of historical data, we mapped when guests were in our restaurants in 15-minute increments. The labor model was very effective at controlling labor costs. When we matched our labor as best as we could to when (guests) were in the building, our guest satisfaction scores took off, as well.

It is an informative series of questions and answers with a “numbers guy” and you can read the entire interview here:

http://tinyurl.com/Warne-interview

But you might want to hurry, as this article could be archived pretty quickly and might not be available for long.

Good and not-so-good news about restaurants in this economy

 

Nation’s Restaurant News has two articles in their “Breaking News” feature that points out the complexities of restaurants dealing with the economic crisis: 

O’Charley’s posts positive guest counts By Elissa  Elan 

NASHVILLE, Tenn. (Feb. 4, 2010) While consumer pressures tied to the recession pushed fourth-quarter sales into negative territory at the three chains of O’Charley’s Inc., its namesake brand and Stoney River Legendary Steaks chain posted their first year-to-year traffic increases in more than three years. 

The company also posted a narrowed net loss of $15.2 million, or 72 cents per share, for the quarter ended Dec. 27, versus a loss of $68.2 million, or $3.34 per share, in the same quarter a year ago. The improvement was mostly because of year-ago charges, when O’Charley’s booked more than $60 million in impairment for goodwill and restaurant closures. 

Latest-quarter revenue declined 6.9 percent to $188.9 million, the result of consumers cutting back on spending, O’Charley’s officials said. The company, which operates or franchises 368 restaurants under the O’Charley’s, Stoney River Legendary Steaks and Ninety Nine Restaurants casual-dining brands, had expected sales of between $190 million and $195 million. 

Read the rest of the article here:
 
Notice that this is a good news/bad news sort of thing. Cover counts are up, but people are spending less. This means that sales are still soft.
 
Also:
 

U.S. restaurant count declines

By Molly  Gise 

CHICAGO (Feb. 4, 2010) The number of U.S. restaurants fell this past fall as the industry continued to suffer from serious declines in traffic and sales. The rate of closures, however, was less than what was reported last spring. 

According to The NPD Group’s ReCount data released Wednesday, the total number of U.S. restaurants declined 0.3 percent, or by 1,652 restaurants, to 578,353 locations in the fall of 2009, compared with the fall of 2008. ReCount tracks commercial restaurant locations twice a year, in the spring and fall. 

Restaurant closures were more severe in the spring of 2009, when the total number of U.S. restaurants fell 1 percent from a year earlier, reflecting the loss of more than 4,000 eateries. 

“NPD’s fall 2009 ReCount reflects a slowdown in chains expanding, and two years of a challenging economy already weeding out the poorest performing restaurants,” said Greg Starzynski, NPD’s director of product development for foodservice. 

Read the rest of the article here:
 
 
So, while there are positive signs, the restaurant sector continues to face challenges, which makes it even more incumbent for waiters to execute at a high level. If you’re seeing more people but less total sales, upselling is more important than ever. As always, upselling shouldn’t be done solely to extract the maximum amount of money from the guest, but should be done to enhance the dining experience. Never lose sight of this basic tenet.
 

P.F. Chang’s to help develop True Food Kitchen

Restaurant News Logo

From Nation’s Restaurant News breaking news:

P.F. Chang’s to help develop True Food Kitchen

By Ron  Ruggless

SCOTTSDALE , Ariz. (Aug. 12, 2009) P.F. Chang’s China Bistro Inc. said Wednesday it has agreed to lend $10 million to Fox Restaurant Concepts to develop more units of Fox’s True Food Kitchen, a health-oriented eatery that opened late last year in Phoenix.

Terms of the deal were not disclosed, but P.F. Chang’s said the debt capital could be converted into a future majority equity position. Fox Restaurant Concepts president and chief executive Sam Fox partnered with wellness author Dr. Andrew Weil to open the restaurant in the Biltmore Fashion Park as a regionally sourced “global” eatery.

“We have admired the work of Sam Fox and his team for quite some time,” Bert Vivian, co-chief executive of P.F. Chang’s, said in a statement. “We are pleased to be able to provide capital for the growth of their newest creation.”

P.F. Chang’s said the transaction would not have a material impact on its financial condition or prospects for the foreseeable future. In 2005, P.F. Chang’s first ventured outside its China Bistro and Pei Wei Asian Diner concepts to open Taneko Japanese Tavern in Scottsdale. The concept failed to gain a profitable following and was closed after sale attempts were made in 2008.

Read the rest of the article here:

http://www.nrn.com/breakingNews.aspx?id=371208

I find this to be an interesting trend, especially in these days of rough economic waters. Restaurant chains becoming debt capitalists  in order to diversify their holdings without actually creating new companies themselves? As the article indicates, it might not always be smooth sailing, but it it a creative use of capital. This sort of thing has gone on in other industries, and, for all I know, it might not be a new development in the restaurant world, but I’m more familiar with buyouts and mergers. Obviously, this could lead to ownership or a true merger down the road.

Whether or not this ends up offering a good return on investment, it’s just another way that P. F. Chang’s seems to be thinking outside the box. But I guess it’s just business as usual for the only company that has really been successful at growing a nationwide Chinese-themed restaurant chain – note I didn’t call it a Chinese restaurant chain. Other larger entities (Darden by way of General Mills) have tried it and failed.

I suspect that the companies that survive this economic downturn are the ones that aren’t scared to cautiously expand, either into their areas of strength or in creative ways such as this. Refusing to give into panic is key – finding ways to create what the military calls force multipliers will allow operations to aggressively combat weak economic times. This might include cost-cutting measures, but, as doctors found in the 18th century, bloodletting only gets you so far.

TrueFood

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