Battered restaurateurs looking for relief in 2009

By Sarah E.  Lockyer

(Jan. 5, 2009) Restaurant operators nationwide are arming themselves with value promotions, new menu offerings and continued cost cutting to fight against what is shaping up to be a challenging 2009.

The year ahead is not likely to provide the industry with its much-needed sales turn around, according to operators, new data from the National Restaurant Association and an exclusive survey from Nation’s Restaurant News. Some relief could be found, however, in more favorable real estate and lease trends, more stable commodity costs, and the recalculation of more operator-friendly supplier contracts.
 

“This is a tough year to handicap,” said Rick Carucci, chief financial officer at Yum! Brands Inc., one of the largest companies in the industry. “You have to assume in 2009 that the consumer is still weak and you’ll need to be on your ‘A’ game.”
 

In current dollars, foodservice industry sales are expected to increase 2.5 percent in 2009 to $565.9 billion, according to the NRA. Backing out a projected 3.6-percent rate of menu price inflation, however, industry sales are expected to fall 1.0 percent, marking the second consecutive year of contraction in real sales growth and the first time a two-year drop has been posted since NRA data became available in 1971. Full-service restaurant sales are expected to total $182.9 billion in 2009, up 1 percent from 2008, but down 2.5 percent when adjusted for menu price inflation. Quick-service sales are expected to total $163.8 billion this year, up 4 percent from 2008, and up 0.4 percent when adjusted for inflation.
 

According to NRA research, macroeconomic factors contributing to the weak outlook for 2009 include an expected drop of 1.2 percent in real gross domestic product, the first projected decline since 1991; a projected 0.2-percent uptick in real disposable personal income; and a projected drop of 2.0 percent in U.S. jobs. The restaurant industry itself is expected to post its first workforce contraction since 1991, with an expected 0.5-percent reduction in 2009.
 

The majority of survey respondents to an online Nation’s Restaurant News questionnaire last month said they intended to discount menu items to spark sales, cut operating costs, and increase menu prices and spending on marketing and advertising. A majority of respondents also said they expect their operations’ sales to either be lower than or about the same as 2008 levels.
 

The following survey results were garnered from an NRN online questionnaire sent to readers in December. There were 123 responses. Results may not total 100 percent due to rounding. To see NRN’s entire 2009 Outlook, including additional NRA data and regional breakdowns, click here.
 

1. Your concept’s projected sales for 2009 will be:

  • Worse than 2008 … 40.5%
  • About the same as 2008 … 30.6%
  • Better than 2008 … 28.9%

 

2. The largest roadblock to profitability in 2009 will be:

  • Reduced customer traffic … 68.6%
  • Commodity costs … 20.7%
  • Labor costs … 8.3%
  • Utility costs … 2.5%

 

3. To combat today’s double whammy of slowed sales and higher costs, you will:

  • Cut costs … 26.4%
  • Provide discounted menu items to spark sales … 23.1%
  • Slow or halt development … 5.8%
  • All of the above … 44.6%

 

4. Your menu prices in the year ahead will increase by:

  • 1 percent to 3 percent … 36.1%
  • 3 percent to 5 percent … 27.0%
  • More than 5 percent … 4.9%
  • I do not plan to raise prices … 32.0%

 

5. You will increase expenditures in the following areas in 2009: (Respondents chose all that applied)

  • Marketing and advertising … 43.1%
  • Menu R&D … 22.8%
  • Unit development … 8.9%
  • There is no room in my budget for increased spending … 39.8%

6. Which regulatory headwind concerns you the most:

  • Health care reform … 32.8%
  • Menu labeling … 21.0%
  • Union organization … 17.6%
  • Food safety … 16.8%
  • Immigration reform … 11.8%

7. In which area do you see the most relief, if any, in 2009:

  • Real estate and lease trends … 34.8%
  • Commodity costs … 33.0%
  • Supplier contracts … 23.5%
  • Labor costs … 8.7%