Can we eat our way out of recession? Restaurant outlook in 2010

The Saint ReportProperty Development, Retail, saintblog0 Comments

By Jesse McKnight, Executive Vice President, The Saint Consulting Group

As the self designated staff Quick Service Restaurant (QSR) specialist, I listened with more than passing interest as noted hospitality consultant Randy Hiatt spoke on the status of America’s restaurant business at the recent Urban Land Institute conference in Boston. Randy has more than 30 years experience in the Food Service industry. After training with a Marriott affiliate, he was with the Walt Disney Company for 12 years in restaurant operations, financial analysis and project development.  He is now President of Fessel International in Costa Mesa, CA.

Like other retail sectors, it has been a rough two years for restaurants.  Casual dining has been hammered, while fine dining fell later and fell harder. Bankruptcies have struck many longtime chains – including Bennigan’s, Steak and Ale, Shell’s, Black Angus, Daphne’s, McGrath’s and Pizzeria Uno – more than 30,000 restaurant closures and 250,000 jobs lost over this time.

Have we hit bottom?  Restaurants are typically a lead indicator for the economy. After a slight uptick in November/December, January and February restaurant sales were down in all segments. This, even though retail sales ticked up 3.7% in February.  Restaurant sales on the weekends are doing OK, but  weekday evening business is dismal.  According to recent polling, 46% of US households (or 50+ million households) are eating out less.

The only segment of the restaurant business that is holding its own is the QSR or commonly referred to as fast-food. These quick casual success stories include Panera Bread, Chipotle and Pei Wei.    Although McDonald’s has done very well with its value dining and coffee additions, not all QSR’s have.  Burger King and Jack in the Box are both down 12% over the two year period.

As for the Operators’ dreams for 2010, they hope to make more money than last year without hurting their brand. They will continue to move away from more development deals as soon as possible.  The hope is that commodity prices will stay low, while they will continue to ask vendors for lower prices.  Yes, this includes landlords too.  In addition, they will hope that wage pressure stays almost non-existent given the current job market. Lastly, they all are looking for a way for lower cost social media to work for their restaurants.

Randy’s projections for 2010 are that fine dining will be down another 3%, on top of a 17% sales drop in 2009.  Casual dining is projected to be down 2%, on top of the 8% drop in 2009.  Chains are going to continue to be slow in adding new units.   However, there is a glimmer of hope.  The Restaurant Performance Index numbers below appears to be trending in the right direction, with March 2010 numbers expected to be slightly ahead of February.

So, can we eat our way out of this recession?  With the advent of free healthcare, why not?  I urge you to go out and do what you can…….take a biggie size for your country.

Jesse McKnight is executive vice president of The Saint Consulting Group, email mcknight@tscg.biz, phone 510 279-4271

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