So, how's business?
Restaurateurs are getting jabbed with the question before their investors offer so much as an hello. In today's economic climate, where many companies are getting flushed instead of flush, anyone with a stake in restaurants wants to know how the industry is faring. Fortunately, everyone in the trade is ready with an answer. It's just not the same one.
"Where we're seeing some softening is in the middle of the week," Buca di Beppo cappo Joe Micatrotto told stock pickers at the recent U.S. Bancorp Piper Jaffray investment conference. He put forth the theory that families are foregoing the convenience of having someone else cook dinner on a routine Tuesday night--precisely the opposite of what was said moments later by his counterpart at California Pizza Kitchen. "We see a slowdown in discretionary spending," said CPK CEO Fred Hipp. And that, he asserted, means less weekend sport dining; consumers will gladly forego the glitzy big-ticket stuff to satisfy their pizza and pasta habit during the time-crunched workweek. "Once experiences get integrated into a lifestyle, they're very hard to change," said Hipp.
Hmm. Two very successful and respected industry veterans, all but contradicting one another.
But wait—there's more murk. Both cited a softness in consumer spending. Yet Micatrotto aired his assessment after noting that users of Buca's new takeout service typically spend about $100. Similarly, Hipp commented that sales of new CPK items were "off the charts." A downturn, you say?
They were hardly the only presenters to draw "Say what?" looks from attendees. Addressing concerns about restaurant traffic, P.F. Chang's president Bert Vivian acknowledged, "The tide has definitely dropped a bit." Minutes later, an investor asked how Chang's planned to alleviate two-hour waits at the high-flying chain's newest store. Vivian, in what was essentially a shrug of the shoulders, allowed that the problem persists at mature stores, too. Ah, the challenges of a slowdown.
So, what's really happening? Are conditions better or worse? And how is that reflected in customer behavior?
If Alan Greenspan weren't on our other line, pestering us for advice on the prime again, we'd gladly provide the definitive answers. But for now, we'll just play back the replies we've heard to the Question of the Moment.
The responses leave little doubt that Micatrotto is right when he said at the conference, "If anyone thinks conditions are as good as they were a few years ago, then that person is on drugs." By all accounts, consumers are tempering their spending.
But, after analyzing the numbers as well as the ground-level assessments of operators, we're convinced there's truth to the sentiment that lifestyle factors are softening the downturn's effect on foodservice, particularly casual dining. Sales are still edging upward, in part because slight price increases are not being rejected, and partly because traffic is holding steady or even rising a hair. Consumers just can't find the time to cook, especially when they're being worked harder by employers hellbent on freezing or trimming payrolls.
The last certainty: Consumers are uncertain. As O'Charley's CEO Greg Burns expressed it during the Bancorp conference, "they're not sure what's going to happen" with fuel prices, their pay, even their jobs.
Shaken and stirred, they're altering their spending. But we've not heard one sage who can peg the changes across the board. One diner may forego appetizers as a belt-tightening measure. Another, for the same reason, may order a second small plate and figure that's enough of a meal.
That's why Micatrotto and Hipp might both be correct. Generalities just don't work; circumstances rule.
The trick, for all operators, is accurately reading the reaction of their patrons. How well they do it will readily answer the question.
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