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Outlook: Warding off the grinch

Operators get innovative to deal with lousy holiday sales forecasts.

We don’t need Steven Platt to tell us the outlook for holiday spending is probably not that great, but since his job is to study such things at the Platt Retail Institute in Hinsdale, Illinois, we’ll let him describe the forecast.

“Bleak.”

...Thanks Steve

“We’re talking about weakening employment, an over-leveraged consumer, the housing crisis, the energy crisis—it’s very, very precarious out there right now,” he continues.

And unlike economic downturns in recent memory, this recession is unlikely to be salvaged by consumer spending. In the Platt Retail Institute’s third-quarter retail report, Platt predicted the holiday season will be “disappointing,” with sales growth of just 2.7 percent to 2.9 percent. In comparison, holiday sales grew 3 percent last year—and over 6 percent in 2005.

With rising costs everywhere, consumers’ discretionary spending is shrinking, according to David Morris, senior research analyst with Mintel International in Chicago. That particularly hurts the family mid-scale segment, which caters to value-oriented middle-income consumers. However, it’s not all gloom and doom. Morris says QSR and fast casual concepts are holding up reasonably well, largely because they offer value and convenience. “People don’t just have a desire to eat,” he says. “They also want to meld that dining choice into a hectic lifestyle to create efficiency.”

That rings true for Raising Cane’s, an 80-unit chicken concept based in Baton Rouge, Louisiana. According to Clay Dover, president and chief marketing officer, Raising Cane’s has seen an uptick in drive-through business as well as sales increases overall. “Our check average is under $7,” he says, “so we believe we are actually benefiting from the current economic situation.”

Still, Mintel research indicates that while consumers are cutting back, many are not choosing to trade down to cheaper fare. Instead, they’re sticking with their typical restaurant segments, but dining out less. And given the emotional resonance of the holiday season, consumers may choose to continue traditions involving dining out or throwing catered parties.

The outlook for corporate holiday spending, meanwhile, remains unclear. Hudson Riehle, senior vice president of research for the National Restaurant Association, says corporate profits are under pressure, which may cause cutbacks in the holiday office party. On the other hand, he says, “During difficult economic times employers focus more on boosting morale.”

Rising Roll Gourmet, an Atlanta-based QSR sandwich concept with 10 units, is hoping to capitalize on both trends. Last year, the chain saw a small increase in its holiday catering, without any direct promotions. This year, says COO David Smith, Rising Roll is going after the corporate party business, at least in part as a way to make up for slower sales elsewhere. “We’ve got a loyal catering clientele for lunch, so we’re showing them how our menu presents for holiday catering.”

While times are undoubtedly tough, Bill Marvin, who runs a Washington state consulting company called Restaurant Doctor, says it’s a great time to look for opportunities to connect with guests, provide topnotch hospitality and build buzz. “Give people a reason to say yes,” Marvin says. “They’re looking for a way to avoid changing their lifestyle too much as it is, so make it easy for them.”

That means finding ways to incorporate value, perhaps by tweaking your holiday-season menu to incorporate a few dishes at lower price points.  Raising Cane’s is already a value-oriented chain. But Clay Dover says the concept is launching a holiday marketing campaign for the first time this year, in part because he sees the current economic climate as an opportunity to steal market share from other chains. Local store marketing managers and general managers will be promoting Raising Cane’s $5 gift cards for both individual and bulk purchase, the latter aimed at corporate customers. “We’re going to see people cutting back on holiday spending; where you used to give the mailman a $20 gift card, now you’re going to do $5,” he says.

However pinched consumers and corporations may be at the end of the year, experts agree that discounting is likely not the best way to reach them. “The point,” says Marvin, “is not how many people you can get through the door, but how much money you keep from each of them.”

And that means that, downturn or not, you don’t need to resort to gimmicks to get business. In the end, says Riehle of the National Restaurant Association, “There’s no substitute for a well-executed business plan during the holiday season. A proactive stance is essential.”

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