Silver linings in an economic storm

Yes, customer habits are changing. But some operators are changing along with them—and reaping rewards.

Leave it to America’s restaurants to find the upside of a slowdown. The economy’s current slump, say restaurant experts, could be the toughest to hit foodservice in decades. In 2007, industrywide traffic edged up 0.7 percent, but only because of new unit openings, reports the NPD Group, a consumer survey firm in Port Washington, New York. This year, NPD forecasts traffic will rise even less. 

“We’re not in a formal recession, but consumers are behaving like we are,” says Bonnie Riggs, restaurant industry analyst for NPD. “They’ve got less in their wallets than they’ve ever had.”

In the first four months of 2008, Americans’ disposable personal income crept up a mere 0.05 percent, according to the U.S. Bureau of Economic Analysis, while inflation hit an annual rate of 4.2 percent.

The result: consumers are cutting back. Schaumburg, Illinois, market researchers, The Nielsen Co., found in a June poll that 63 percent of consumers were shrinking their spending and 52 percent were eating out less—a jump of 11 percentage points in six months. 

The biggest culprit, say economists, is $4 a gallon gas, whichis leading consumers to look for cheaper ways to eat.

The good news is that restaurants are coming up with creative ways to help them do it. “Luckily, the restaurant business doesn’t have to do the same thing as a car plant,” says Randall Hiatt, president of consultants Fessel International of Costa Mesa, California. “To retool away from building trucks costs a million dollars. The restaurant business is more nimble than that in adjusting to the new reality.”

But today’s no-growth environment requires close attention to consumer trends, says NPD vice president Harry Balzer. “There will be winners and losers,” he adds. “The winners will be those who give us an opportunity to moderate our food costs.”

Read on to find out how folks are changing their dining habits in hard times—and how restaurants are taking advantage.

Trading down, staying put

In past recessions, consumers have traded from higher- to lower-priced restaurants. This time, they’re more apt to stick with their favorite establishment but trade down to less expensive dishes.

Nielsen reports 35 percent of consumers are shopping at the same stores but buying cheaper brands, up from 23 percent in December. These consumers want a little more for a little less, says Hudson Riehle, senior vice president of research and information services for the National Restaurant Association. “What will continue to be a focus for the consumer is increased emphasis on the price/value relationship.”

One way to offer value is new products with less-costly ingredients. With beef near $4 a pound but pork near only $1.50 a pound, Gringo’s Mexican Kitchen of La Porte, Texas, added a summer menu with a pork enchilada, chalupa and puffy taco. Says Russell Ybarra, CEO of the eight-unit chain, “Anything that drives traffic towards lower food-cost ingredients helps out.”

Another value strategy is to bundle meals, offering multiple dishes for a single price. It’s an old approach for fast-feeders. But now, casual and fine dining restaurants are selling combo meals under fancier names.

“A year ago, 5 percent of restaurants had prix fixe menus,” says John Sola, senior culinary vice president of the Daily Grill, a casual chain from Thousand Oaks, California. “Now, it’s probably 95 percent.” Since February, his 25 locations have bundled appetizer, entrée and a dessert or a glass of wine for $24.95. The Chef’s Menu is now 30 percent of his dinner business.

Up the scale, at Atlanta’s Buckhead Life Group, check averages can run to $65. But this June, to mark 29 years in business, all 12 restaurants offered three courses for $29. Most items came from the regular menu.

“That’s where the value is,” says chief operating officer Paul Baldasaro. “You allow the guest to see what it would cost if they had ordered it a la carte.” After saving money, he adds, guests often order extra drinks. The promotion boosted customer counts 15 percent, and will encore in October. 

Un-supersize me

In a recent NPD survey, financially troubled adults ranked eating healthy as their number one goal in buying food—more important than saving money. Seventy-nine percent purchased low-fat products and 58 percent bought low-calorie foods.

Now, restaurants are giving them a chance to save calories and cash at the same time. “We’re seeing the whole day of supersizing going away,” says Darren Tristano, executive vice president of restaurant researchers Technomic in Chicago. “We’re seeing the option of smaller portions.”

In February, Eat’n Park of Pittsburgh, Pennsylvania, rolled out a Smaller Portions at Smaller Prices menu of 15 dishes in its 76 family restaurants. A platter with a single, 4-oz. baked Scrod filet runs $7.99, instead of $9.79 for a full-sized order of two.

Guests can add a mini-dessert for $1. “It makes it a lot easier to upsell,” says Kevin O’Connell, senior vice president of marketing. “It’s hard to argue with a dollar.”

At 45-unit Salad Creations of Margate, Florida, the 12-item Sensible Sizing menu offers a 32-oz. salad for $6.99 or a 22-ouncer for $4.99.

“Sensible Sizing is the antithesis of supersizing,” says marketing vice president John King. “It gives people a choice based on their economic situation or their hunger situation.”

Most diners add on drinks, chips and proteins like chicken or wild Alaskan salmon. “We saw the guest checks actually went up,” says King. “They feel like they’re getting more for their money.”

Stacking snacks

Last year, according to NPD, dinner traffic slid 2 percent. But snacks grew by 4 percent. For many customers, snack time may replace supper.

“One nice thing about snacks is they can be bundled together and substituted for a meal,” says Bob Sandelman, CEO of restaurant research company Sandelman & Associates. “People are eating more often with smaller meals throughout the day as opposed to three squares. They have the perception they’re not spending as much.”

One promising period is 4 to 7 p.m., a daypart better known for drinking than snacking. But in Longview, Texas, Johnny Cace’s Seafood & Steak House launched a happy hour menu in January, featuring shrimp and six kinds of oysters. “We offered them to increase our early evening and late afternoon business,” says owner Gerard Cace.

The Daily Grill sells 24 happy hour items. They’re shrunken versions of its dinner menu, like a 3-oz. chicken potpie for $3.95 or two mini Kobe cheeseburgers for $2.95. But at 160 orders a day, they add up. “The younger set orders five or six of these and shares them,” says Sola. “We are seeing some guests slipping from dinner to happy hour, but we’re glad they’re coming in right now.”

Beyond combos

Consumers love deals, says consultant Malcolm Knapp. “This is a promotional environment. People expect it. It’s clear that when you don’t advertise and promote, you really go down in comps.”

While the bundled meal is still consumers’ favorite deal, reports NPD, other types are gaining. Coupons matter most to 14 percent of diners, up 8 percent from last year. Another 10 percent prefer discounted prices, and 7 percent want to get something for free.

How about free fuel? At Quaker Steak & Lube of Sharon, Pennsylvania, each of the 30 stores is giving away 10,000 scratch-off cards, one with each meal. Most prizes are free sides, but some diners win $50 in gasoline cards. “Everyone’s been hurt by gas prices,” says Marla Pieton, senior director of marketing. “We’re working to drive traffic.”

In Peabody, Massachusetts, the two-unit Sylvan Street Grille pumped out a different sort of gas deal. It emailed 11,000 members of its rewards club, offering a $6.30 discount at checkout—at the time, the cost of two gallons of gas. Sixty percent came in to claim their rewards.

Email also helps Sylvan Street promote quick-hit deals. When Valentine’s Day was snowed out, general manager Vinny Polcari emailed a coupon the next day: 20 percent off the total bill, good for that night only. “We got slammed,” he says. “People came in, and 40 percent had the coupon. You couldn’t run a newspaper ad that quickly.”

Snail mail coupons are still preferred by 5 percent of diners, finds NPD. The mid- and upscale Atlanta group Concentrics Restaurants sent coupons to all residents within the zip codes of their 10 concepts. “Show your driver’s license to let us know you’re our neighbor,” says partner Todd Rushing. “You get a 20 percent discount off your check.”

High-tech extras

Sure, you’ve got Wi-Fi to attract the laptop crowd. Some chains are thinking bigger. A May study by the Global e-Sustainability Initiative, a consortium of technology firms, calculated videoconferencing could replace 30 percent of the world’s business travel.

Chicago-based Morton’s is already there. It’s outfitted private dining rooms at its 80 U.S. steakhouses with high-definition satellite receivers, drop-down screens and surround sound, letting corporations like Genentech and Eli Lilly hold cross-country power lunches. The largest meeting covered 45 locations and 1,150 people.

Says Patty Pleuss, vice president marketing & sales, “It alleviates the need to get on planes, fly everyone into one central destination and pay for airfares and hotels.

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