Nation's Restaurant News - November 2, 2009

casual-dining sales are improving sequentially, based on October sales comments by P.F. Chang’s, The Cheesecake Factory and BJ’s Restaurants.”

Still, given widespread uncertainty about the timing of an upturn, many companies declined to issue guidance on their future expectations, and those that did were decidedly cautious, noting that for the foreseeable future discounting would continue as the strategy du jour to lure guest traffic — even at the expense of margin.

“There remains uncertainty around when a sustained improvement in the economy may occur,” said Doug Brooks, chief executive of Brinker International Inc., during an investor call last month.

CONTINUED FROM PAGE 3

The delayed recovery means continued messaging surrounding $1 items, value meals or combos, or free giveaways. For instance, Brinker’s Chili’s Grill & Bar chain is again promoting its three courses for $20 deal and McDonald’s is testing $1 breakfast items.

Executives that did offer outlooks — and there were fewer than typical — didn’t see consumer spending improving until the second half of 2010.

“Clearly, at this point we still feel like discounting is something that’s almost a requirement based on the consumer’s desires,” said Sonic chief financial officer Stephen Vaughan. “Our expectation is that as we move into calendar year 2010, that the external environment will improve … and

[you] should be able to see less discounting as we move into the back half of the year.”

“[You] should be able to see less discounting as we move into the back half of the year,” said Stephen Vaughan, Sonic’s chief financial officer.

Even Chipotle Mexican Grill Inc., one of the few restaurant companies to buck industry trends and post double-digit sales and profit growth in its latest quarter, expects 2010 to be muted.

“Without any signs of improvement in consumer discretionary spending, we expect transactions and [same-store sales] trends during 2010 to be flat,” said John Har-tung, chief financial officer at Chipotle.

While cost-cutting has led to

bottom-line improvements, it is a sales recovery that is needed for the long term.

Companies are looking for positive same-store sales to drive corporate profits. At McDonald’s, for example, one percentage point change in U.S. same-store sales is estimated to equate to 3 cents per share in earnings, or about 3 percent of its latest-quarter per-share earnings. At The Cheesecake Factory Inc. one point of same-store sales improvements could lead to as much as 8 cents to 10 cents of earnings gains, or about 37 percent of its latest quarterly per-share earnings.

Chili’s plans to create menu items that are more compelling so it is easier to walk away from promotions, officials said. The chain has tweaked preparation methods

for its burgers and ribs. The new ribs will be slow-smoked over pecan woodchips rather than mesquite, and the hamburger pat-ties, which had been delivered to stores pre-formed, are now hand-shaped in the kitchens using 100- percent USDA ground chuck.

Longer term, Chili’s will focus on premium items, emulating the barbell pricing at many quick-service chains. Sonic earlier this year launched a value menu but is now adding more premium items.

“I have to say through this economy our No. 1 focus is on driving traffic,” said J. Clifford Hudson, Sonic’s chief executive, “but simultaneously we’re also putting in place initiatives to work to drive check.” ■

slockyer@nrn.com

Average casual-dining prices jump even as brands tout meal deals

prices, followed by Washington, D.C. For example, a domestic beer costs on average $4.15 in New York and $4.13 in Washington, D.C. Oklahoma City, where a domestic beer costs $3.22 on average, offers the lowest-priced drinks, the survey found.

The strategy of offering deals while raising other prices is an effective one, said Dennis Lombardi, executive vice president of foodservice strategies for WD Partners, a consultancy based in Columbus, Ohio.

“The attractive value of a $6.99 or $7.99 entrée may bring people into the restaurant, but once they’re sitting there their moods

CONTINUED FROM PAGE 6

will dictate whether they get a cocktail or side dish, not the fact that the broccoli went from $1.25 to $1.50 an order,” he said.

According to Rick Hendrie, vice president of marketing for Uno Chicago Grill, a 200-unit, Boston-based casual-dining chain, the segment’s appetizer prices have fallen because many chains have re-engineered those items to include less costly ingredients.

Intellaprice’s Kerr noted that casual-dining chains have to be savvy in their pricing strategies, keeping an eye on margins even as they offer deals.

“[Operators] have to be very strategic or else they would lose margin,” she said. “They have to

keep the customers coming through the doors. That’s why they advertise their deals.”

Hendrie said that Uno is using such a pricing strategy for its fall limited-time offerings.

“We have 13 new items and only two of them are specifically priced at clear-cut value prices — $10,” he said. “Nevertheless, we’re finding that in every case, virtually each new item has been No. 1 in its category [in sales], so people are trying them and buying them again. And they’re not all price driven, that’s for sure.”

At Margarita’s, a 19-unit Mexican dinnerhouse chain based in Portsmouth, N.H., prices on food and drink will remain the same as long

as the environment necessitates that, said Bob Hoffmeister, president and chief operating officer.

Instead of offering bundled meals, Margarita’s has developed a menu concept called Fiesta Zone, which features new items at prices ranging from $4.99 to $9.99 that are offered between the hours of 4 p.m. and 6 p.m. and then after 9 p.m.

Hoffmeister added that the economy has not negatively affected his drink sales, which make up about 40 percent of the chain’s sales mix.

“We do a very large beverage and bar business,” he said. “Those sales have more than offset any decrease we’ve had in the dining

room. We probably could pass a price increase through on our hard beverages, but we’re not going to. It’s a matter of sensitivity.”

Dennis Riese, president and chief executive of the Riese Organization, a New York City-based multiunit operator of such chains as T.G.I. Friday’s and Charley O’s Bar & Grill, said value pricing is an important strategy to use during this down economy.

“This is not the time to be raising prices, and if discounting can give the perception that it’s helping customers cope with this recession, it’s a win-win, definitely the right approach,” he said. ■

eelan@nrn.com

HUMAN RESOURCES

Operators stay ahead of the competition by enacting smart, tough strategies

3. Big ideas, small practices. We have to think differently about other industries, such as retail, that we’d never consider as competitors before. We compete against them for both our labor pool and customers’ disposable income, why not for their ideas too?

4. Make hiring the biggest de-

CONTINUED FROM PAGE 14

cision. Many operators and managers believe that all employees are the same and that they don’t mind who they work with. But the thing is, they aren’t and they do. Be picky about who you let on your team.

5. Train more, train better, train all. Recent industry research reveals that foodservice chains have cut training budgets for meetings,

materials or personnel an average of 19. 5 percent in the last 12 months. Getting through a recession by dumbing-down your franchisees and hourly teams is like improving automobile mileage by not putting gas in your car.

6. Clean everything twice. Now clean it again. You always sell more in a clean restaurant. Counters, tabletops, bars and to-go areas need

to be spotless now more than ever. And QSR operators should take a good look at their pass-through windows in the drive-thru lanes.

7. Don’t play it safe. When a market shrinks, smart operators actively steal market share. Weak leaders become risk-averse and motionless, like the first hiker. Don’t be reckless, but look for opportunities to improve. Customers

have long memories, and they’ll be there in the upturn for the companies that tried hardest in the downturn to respect, refresh and renew their experience with your brand. ■