Let's face it: Life offers no guarantees. But as tumultuous as the world is, the restaurant industry is about as rock solid as it gets. If all goes as projected, this industry will experience its 15th consecutive year of real sales growth this year. Not many industries can make such a boast.
The National Restaurant Association predicts that annual industry sales this year will total $511.1 billion. That's a 2.5% inflationadjusted gain over last year's sales, and it will mark the first time industry revenues have crossed the half-trillion-dollar mark.
Take a bow, restaurant folks, you've been kicking butt under some incredible pressures. Last year alone, you stood tall against the effects of soaring gasoline and energy costs, monster hurricanes and a contentious war on terrorism. But, year-in and yearout, when the dust clears, there you are with a welcoming smile and a wide-open door. You, friends, are like a giant tablet of Tums for our collective agida.
Once again, the full-service sector will lead the way in 2006 with expected sales of $173.4 billion. Adjusted for inflation, the 2.5% growth rate expected this year is better than last year's 1.9% increase, but less than 2004's 2.8% gain. That's not bad when you consider unstable energy costs will continue to chip away at disposable income.
On the other hand, the NRA is predicting that wholesale food prices, which rose a whopping 13% from 2002 to 2005, will likely decline modestly this year. Specifically, beef and pork prices are expected to stabilize, and so may dairy prices. Nevertheless, with energy costs continuing to rise, the NRA predicts that menu prices will increase by 2.7% this year (which is still below the inflation rate of 3.2%).
What do the Olympics and Hurricane Katrina have in common? Both were bad for business, says Bob Derrington, an equity research analyst at Morgan Keegan & Company. As the country appeared to be recovering from escalating gasoline prices, the 2004 summer Olympics began to air on television, and a lot of customers stayed home to watch, he says. Call it the couch-potato effect.
Katrina had a similar effect last year, but on a more dramatic level, says Derrington. In much the same way everyone was glued to their televisions after 9/11, consumers stayed home to watch the aftermath of Katrina. On one level, it's heart-warming that people thousands of miles away from a disaster apparently care about their fellow man, but on another it means that isolated disasters can dramatically hurt business across the land.
The NRA says full-service restaurants not only serve as America's dining rooms, but are increasingly becoming America's family rooms. To support its point, the association asked adults if they would watch a small television at the table of their favorite full-service restaurant. One in four of them said they would. So, when disaster hits again, you might consider having a bunch of television sets around and letting your customers know it. It may be one way to offset the couchpotato effect. Oh, and let's not forget the next winter Olympics, which begins on the 10th of this month and will continue through the 26th.
Takeout and Curbside Pickup
Couch potatoes have to eat, and so do people with hectic schedules. If you haven't begun to offer takeout and/or curbside pickup, you're missing valuable sales. More than nine out of 10 family-and casual-dining operations offer takeout, according to the NRA. In that same survey, nearly two out of five adults said they bought takeout food from a full-service restaurant in the last year. According to the stats, you'll do even better if you offer curbside pickup.
It comes as no surprise that customers are demanding speed and convenience like never before. And 2006, says Derrington, may be the year fast-casual restaurants hit their stride.
"Consumers are demanding fresh, quality food at reasonable price points that comes with the convenience of quick service," he says. "Fast-casual restaurants meet all those demands and they provide it better than the fast feeders and casual dining."
Are you beginning to see that customers are in the driver's seat? Competition is fierce, margins are small and customers have a lot of choices, including staying home. They may be increasingly using your restaurants like their family rooms, but the truth is they can always stay home and make a baloney sandwich. The good news is that most customers admitted in a recent NRA survey that they go to restaurants for tastes and flavors they can't duplicate at home. All of this suggests that mediocre restaurants are one step closer to extinction and the good ones must do their best to create loyalty.
Customer satisfaction played a huge role in McAlister's Deli having its best year ever in 2005, says Phil Friedman , president of the Ridgeland, MS-based company. The 181-unit, fast-casual deli hopes to add another 50 units this year through franchising.
"We have become a much better company in recent years because of a strong guest focus, which we call the McAlister's touch," he says. "Customers order at a counter, but we deliver their food to the table. And if they want a refill, we get that for them. A little extra service in a fast-casual environment goes a long way with customers."
He says rising gas prices have cut into profits, particularly because of higher costs for delivery and petroleum products, such as the 32-ounce plastic cups McAlister's uses for sweetened ice tea. On the other hand, McAlister's is benefiting from customers who believe they can get a very good meal at one of its units for a lot less money than they could at a casual restaurant. Call it a positive trade-down.
Customers may be watching their pennies, but they're still willing to swing for the fence on occasion. According to a NRA survey, 69% of fine dining operators said they were expecting a better year this year as opposed to last. That compares to 59% in the casual sector and 48% in the family sector.
New York City restaurateur Geoffrey Zakarian says he's banking on a great year ahead. He's the chef/owner of Town restaurant at the Chambers Hotel and Country restaurant, which opened late last year in the Carlton Hotel.
"When you open a restaurant you have all these ideas about what people want, but when they finally arrive they decide how they're going to use your place," he says. "Your vision and their desires don't always match, so you listen to them and give them what they're asking for. That's how you become a success in this business, and it's why I'm expecting a good year ahead."
The days of chefs dictating to the public are gone, says Zakarian. Anybody with that kind of attitude is probably a young chef who doesn't have to make payroll, pay investors or make interest payments. "Give customers what they want. Charge 'em for it, but give it to them and you'll have customers for life."
Like most full-service operators, Zakarian is concerned about hiring the best help he can. He's done well, he says, because he looks for two qualities— emotional intelligence and a sense of urgency. If you can find those two qualities in a person, you generally won't go wrong.
In Chicago, media darlings Blackbird and Avec restaurants appeared to have done everything right last year and their owners are expecting good things again in 2006. "For Blackbird, our seventh year in business was awesome," says owner Donnie Madia .
"What really helped was opening Avec right across the alley. Each restaurant played off the other. If one was busy, we directed folks next door." Madia is particularly pleased with Avec, which has perfected the small-plate concept. Six restaurants featuring small plates will open in Chicago this year, he says. "It's good to be ahead of the curve."
With that thought in mind, Madia and partners hope to open a third concept nearby this year. He would not discuss the concept until papers are signed, but hinted that it would have a Parisian flavor, be beer focused (think Belgium) and have an outdoor cafe.
Meanwhile, Blackbird and Avec will focus more on increasing private party business, which began to take off last year. James Beard awardwinning Chef Paul Kahan says he'll also implement a prix-fixe degustation menu Monday through Thursday.
"We've been open several years and a new tasting menu will get our staff excited and allow us to open different bottles of wines during a meal," Kahan says. "We're hoping it will also excite our customers and kickstart some new business."
A Healthy Bottom Line
Speaking of new business, the founder of Boston Market, George Naddaff , is on his way to creating another empire. Capitalizing on the growing consumer trend to eat more healthfully, Naddaff created KnowFat! Lifestyle Grille, a concept where everything on the menu is, in Naddaff's words, "betterforyou food."
People are totally aware that they have to start eating better. This growing health movement is no fad, and it will gain momentum this year and continue on," he insists.
Growth of the new concept supports his claim. Currently six units are open, with five more under construction and 27 signed agreements to build more. His goal is to have 600 units up and running by 2009. The key, says Naddaff, is the company's dedication to create a more healthful menu that tastes great.
"Our menu is not about denial. If you want to have a cheeseburger, have a cheeseburger. But ours will have fat-free cheese, turkey bacon and a whole wheat bun. And, I'm not kidding, it tastes great."
Naddaff is so committed to his belief that people in the future will be more health-conscious, that he has also created in each unit a retail nutritional store, much like GNC or Vitamin World.
"It's a convenience play," he says. "People who are attempting to live a better lifestyle take supplements. So why not make it convenient for them, and have a restaurant and nutritional supplement store under one roof?"
Surprisingly, or maybe not, nearly 40% of sales are coming from the retail side of the business. If you believe the desire to eat more healthfully is a fad, perhaps you should rethink things this year.
SIX FOR ' 06
In light of the overall economic environment, the industry situation and the consumer's "mood," Ron Paul, president of Technomic Inc., expects the following six issues to be big ones in 2006.
10 TRENDS TO WATCH IN 2006
RESTAURANT HOSPITALITY'S intrepid reporter John Mariani eats in more restaurants in one year than most people will in a lifetime. Here's what he sees ahead.
OPERATE SMART IN 2006
Since 1985, Cini-Little International has provided restaurant business and design consulting services around the world. Here's what Ron Kooser, president and c.o.o. of the organization, sees in the year ahead.
2006 BEVERAGE TRENDS
Few parts of your business bring more to the bottom line than beverage sales. Philip Raimondo, the director of beverage development and training for Patrick Henry Creative Promotions, suggests you jump on one or more of these trends: