Hard times are on the menu at restaurants
By Bruce Horovitz, USA TODAY
The restaurant industry has fallen, and it can't get up. To add insult: The worst may be yet to come.
Same-store sales are sliding. Commodity prices are climbing. Units are closing. Customers are dwindling. Some of the top names in all ends of dining are in pain, from Starbucks (SBUX) to Applebee's to The Cheesecake Factory (CAKE).
"Whether or not the rest of the economy is in a recession, the restaurant industry certainly is," says Ron Paul, president of restaurant researcher Technomic.
The financial squeeze is hitting hardest at dinner. Dinner traffic fell 2% last year, says research giant NPD Group. Lunch is slowing, too, says Dave Jenkins, president of NPD's U.S. foodservice business.
More serious troubles may be ahead for the $558 billion industry. Except at McDonald's (MCD)— which posted a mostly terrific 2007 — same-store sales at the nation's largest restaurant chains grew a paltry 0.3% last year, Technomics says. Same-store sales are those at stores open at least a year.
Worse, 49% of restaurants surveyed by the National Restaurant Association reported same-store sales fell in January, and 54% said customer traffic fell in January, the fifth month in a row.
"In the lifespan of casual dining, we haven't seen economic times like this," says Marc Buehler, CEO of Lone Star Steakhouse, which just closed 27 of 179 stores.
Evidence of tough times:
•Restaurants are closing. After the Lone Star closings, 1,500 employees lost their jobs. "We're gonna get through this," says Buehler. "But it won't be easy."
Starbucks plans to close 100 low-performing units and will unveil a strategy of key changes at its annual meeting on March 19. Pick Up Stix, a fast-casual Chinese chain, closed 26 of its nearly 100 locations in January.
•Same-store sales are falling. Few chains have been hit as hard as Ruby Tuesday (RT), whose same-store sales at company-owned stores fell 10.8% in the fourth quarter. "Unlike paying the mortgage, going out to eat is discretionary and can be changed easily," laments Richard Johnson, senior vice president.
Same-store sales at Applebee's dropped 2.9% in the fourth quarter. "Despite a challenging environment, we believe we can reverse this trend," says Julia Stewart, CEO of parent IHop (IHP). She says a new menu is in the works.
Steak 'n Shake's (SNS) same-store sales dived 9.5% in the fourth quarter at company units. Chili's fell 2.4%. And Wendy's (WEN) sales at company-owned stores fell 0.8%.
Cheesecake Factory fell 0.4%, and Howard Gordon, senior vice president, says that since going public in 1992, "We've never seen a time like this."
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