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January 2009
SPECIAL REPORT

Operators: Shifting Gears To Stay Ahead

Opening stores in nontraditional locations, beefing up bar areas and managing costs are just a few ways operators plan to cope with the economic downturn.

By: Janice Cha

Although the upcoming leadership change in Washington, D.C., and the proposed government stimulus package have inspired some optimism, operators and their customers continue to be challenged by the deteriorating economy, credit crunch and soft job market.

Of particular concern in the ongoing fallout from Wall Street's meltdown. About 90% of consumers are "very concerned" about the impact of the financial crisis, according to an October study conducted by Chicago-based Technomic, and some 70% of consumers are planning to cut back on restaurant spending as a result.

"Our research indicates that consumers are deeply concerned about the loss in value of their home equity, stock portfolios and retirement investments," says Bob Goldin, Technomic executive v.p. "As a result, they [intend] to reduce spending in a variety of ways. Restaurants will most certainly feel the effects of the pullback."

With that in mind, Technomic forecasts real growth for total foodservice to come in at -2.8% in '09 following -3% in '08. Inflation likely will settle at 4.5% this year.

Four Segments Look For Real Growth
Among the 19 categories tracked by Technomic for its annual study of the U.S. foodservice industry, only four are expected to experience positive real growth this year: bars and supermarkets on the commercial side, and universities and senior care on the noncommercial side.

The quick-service restaurant segment, which has managed to hold the lead in expansion and sales over the past few years, is expected to post real declines in '09. Technomic also predicts further drops in sales and unit growth for the full-service, B&I, nursing home and vending segments.

That said, some restaurant companies and operators have continued to outperform the industry, led by many of the country's largest chains. McDonald's Corp., for example, reported a comparable sales increase of 5.3% during October for its U.S. operations, plus a 9.8% increase in Europe and 11.5% increase in the Asia-Pacific, Middle East and Africa regions. Meanwhile, Burger King reported its revenues up 12% during its fiscal first quarter of '09, ended Sept. 20, 2008.

The quick-casual subsegment, as Technomic calls it, indicates another area of strength thanks to consumers seeking a happy medium between more expensive casual-dining spots and traditional QSR locations. Leaders in this group include Chipotle Mexican Grill (whose same-store sales rose 6.6% from September 2007 to September 2008) and Qdoba Mexican Grill (whose same-store sales were up 2.5% during the first three quarters of fiscal '08).

Overall, though, food-price increases have cut deeply into all operators' profit margins. Other cost pressures include the $0.75/hr. minimum wage boost from last July, which dials up labor costs, the second biggest cost component after food. Healthcare costs, mandated in some areas, pose another growing challenge.

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