Recovery Expected to be Rocky
Federal Reserve Chairman Ben Bernanke’s announcement Friday that the U.S. economy is shifting from recession to recovery was welcome news. With economic activity “leveling out … the prospects for a return to growth in the near term appear good,” he said during a speech at an annual conference in Jackson Hole, Wy.
Food and beverage suppliers also are cautiously optimistic about a turnaround. A survey of 65 c-level executives at leading food and beverage supplier companies by KPMG revealed 72 percent expect business conditions to improve next year. What’s more, 72 percent also anticipate stronger revenue and 65 percent expect greater profits in 2010. And 74 percent of economists surveyed by the National Association for Business Economics believe the recession — which is the longest and deepest since the Great Depression — will end in the third quarter of this year. However, all these experts agree that recovery will be difficult and take time.
While that’s good news, no one expects to see consumer confidence and spending to immediately bounce back to pre-recession levels. Bar and restaurant operators are cautiously optimistic about the recovery, with many anticipating that the value mentality won’t be changing any time soon.
Patrons at Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar and Roy’s are responding to the value-added menu items from those chain concepts, according to OSI Restaurant Partners’ director of beverage Richard Verrecchia, who says he expects the intense battle for market share to continue.
Trading down continues and the premiumization trend — wherein consumers were shifting their beverage preferences upward — has stalled, according to Stan Novack, president of Novack Consulting and previously vice president, concept development for HMS Host. Cost-cutting measures are the best ways to improve financials, he notes. “A lot of the reports from restaurant companies indicate that they are reporting higher earnings. However, if you look closely, same store sales are still declining (with a few exceptions). The increased earnings are coming from very effective cost-cutting measures. However, cost cutting can only take you so far without a corresponding increase in sales.”
Daily promotions highlighting value and special events have kept business brisk at Sharkeez locations in southern California. “Before, a lot of places didn’t have to try that hard to get business if they were new or in a great location. They could charge high prices for bottle service, VIP tables, food and drinks. Now you have to work extra hard and really get out there and promote and plan very creative things,” explains Greg Newman, partner in Newman Hospitality, parent company of five Sharkeez restaurants. “Consumers will still come out and spend almost just as much and as often as before the recession as long as they feel like they are getting a deal and you’re throwing them a party they think they don’t want to miss. The business is out there; operators just have to go after it harder and not be too greedy.”
Some operators are seeing signs of life, so to speak. “Traffic, even in steakhouses, is gradually improving,” observes Roy Talling, beverage director of CentraArchy Restaurant Management Co., which operates 19 restaurants ranging from casual concepts to steakhouses in the Southeast. “Wine sales over $100 per bottle are sluggish, but are occurring. Upscale casual concepts are generating the majority of guest counts within our company. Regardless of concept, consumers are looking for quality, affordability and service. Spirits or food, guests are attracted to brands they know and trust.
“Hopefully, if unemployment is contained and begins to subside, we can anticipate a greater velocity of recovery than we are currently experiencing,” he says.
One chain that hasn’t felt the pain to the same degree as others is Buffalo Wild Wings. The Minneapolis-based chain reports comp sales trending positively throughout the recession, and marketing and brand manager Patrick Kirk is optimistic that football season will spark sales further.
“For us, football season will be huge, and we think consumers continue to turn to sports, especially the NFL, for escapism,” Kirk explains. “What's interesting is we have seen multiple requests from our restaurants to bring in lower priced beers like Busch Light and Keystone Light, but the impact of value beers to our overall beer mix has been minimal. People are still drinking the beers they want to, just less of them. On the liquor side, there is evidence that our guests have traded down from super-premium to premium on vodka, more so than for rum and tequila.”
So while the economic forecast is positive, the short-term outlook calls for continued challenges in sparking sales and bars and restaurants. “Consumer spending and traffic is slowly improving,” Newman observes, “but I am sure people’s spending habits will not go back to the $500 bottle services and $15 Goose Red Bull days any time soon!”