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Foodservice industry remains positive while awaiting economic improvement

by Christina DiMartino | October 26, 2009
As of late October, almost all the major U.S. fast-food chain restaurants reported increases in their most recent quarterly earnings over the same quarter a year ago. It's no surprise: the lowest-priced restaurant category was expected to benefit during the bad economy as consumers tightened their spending.

Some wonder, however, if sales at McDonald's, Burger King, Yum Brands and other quick-serve style restaurant chains will start to trickle down as the United States inches toward economic recovery.

A story in the Oct. 22 issue of The Wall Street Journal stated that the recession helped McDonald's more than other restaurant chains as consumers traded down to fast food. But with signs of a recovery emerging, investors are starting to bet that consumers will return to casual-dining chains.

Another article in the same issue of the Journal reported that fast-food chains have held up better than full-service restaurants in the recession, although all have begun to see sales slow as unemployment remains stubbornly high. McDonald's, according to the article, has begun to show some rust in its armor and is facing pressure to continue to show sales growth beyond strong numbers from last year.

McDonald's third-quarter earnings rose by 5.9 percent. Burger King reported a 16 percent increase in its fiscal fourth quarter. Most other quick-serve chains also showed gains in most recent earning reports.

Go up a notch from fast food to casual dining, however, and you get a broad range of earnings reports. Among the more positive is the Cheesecake Factory, which reported a 38 percent gain in its most recent quarter. The company credits its earnings' increase to cost-cutting, such as smaller portions, lower-priced items and some new menu-item launches.

Chipotle Mexican Grill, which operates 911 restaurants, reported double-digit increases in its quarter ending Sept. 30. It also opened 26 new restaurants during the quarter. The company credits increased efficiencies with helping to drive its gains.

But there is also a lot of reorganizing and restructuring in the casual dining arena, with some hefty losses being reported as a result.

In Sonic's year-end report Aug. 31, the drive-in restaurant chain announced that the fourth quarter and fiscal year declined 4.5 percent, and same-store sales at partner drive-ins (those in which the company owns a majority interest) declined 5.3 percent in the quarter.

Brinker International -- which operates Chili's Grill & Bar, On The Border Mexican Grill & Cantina and Maggiano's Little Italy -- reported double-digit declines in revenue and profit for its first quarter 2010, primarily due to the sale of Romano's Macaroni Grill, of which it continues to hold a minority investment.

On Oct. 21, Zagat Survey LLC released its 2010 America's Top Restaurants survey on The survey covers thousands of eateries across 45 U.S. markets, with over 145,000 diners sharing their opinions, especially on how the past year's economy has affected the restaurant industry.

Known as the "burgundy bible," Zagat Survey rates and reviews a wide range of entertainment categories, including restaurants, in more than 100 countries.

In its press release highlighting the 2010 survey results, Zagat Survey noted that a national percentage of meals eaten out or taken out declined to 48 percent from 50 percent in the previous 12 months. The national average of restaurant meals per week dropped to 3.2 from 3.3.

These losses are magnified by sobering changes in the dining habits of those surveyed. Less than half (43 percent) said that they're eating out less, while 41 percent said that they are more price-sensitive and 36 percent are eating in less expensive places. Additionally, 22 percent are skipping appetizers and/or desserts, and 19 percent are cutting back on alcohol.

In efforts to save money, 10 percent of those surveyed said that they are going to expensive restaurants for lunch instead of for dinner, as lunch menus are typically less expensive. Seven percent said they are less likely to try new places, 44 percent are cooking more, and 26 percent said the economy has had no affect on their dining habits.

Overall, the economy in the past year has not been kind to the casual dining category, which sits one notch above fast food.

But some optimism is prevailing.

Zagat Survey reported, for example, that there were more restaurant openings than closings in the past year.

Consumers are also searching for -- and finding -- better deals at restaurants during this economic period. There are no tricks or secret ways to find good, cheap restaurants in any city today. People need only to put "good cheap food, (any city)" in their search engines, and plenty of specially priced menus, coupons and other incentives are revealed.

Restaurant-savvy consumers also love to share information about local eateries that offer good food for a great value, and frequently blog about their experiences suggestions. By sharing the names of special hideaway restaurants, the search engines get pumped up even more for "good" and "cheap" keyword surfers. The brightest spot for the restaurants recommended in these blogs is that even if those restaurants are making less money for the sake of drawing customers today, they are developing a customer base that will remain loyal when consumers are spending more freely.

Zagat Survey 2010 concluded that over the past year, 54 percent of those surveyed nationwide are finding better deals at restaurants, 40 percent feel their patronage is more appreciated, and 31 percent say it is easier to get reservations. Overall, 22 percent of those surveyed feel that restaurant service has improved. Another 20 percent say they are eating healthier.

"There's no doubt that the recession has seriously affected diners' habits across America," Tim Zagat, co-founder and chief executive officer of Zagat Survey, said in the press release. "Yet all our surveys highlight how the industry is adapting to the needs of the diners, offering better value, service and bargains for the wallet-weary. It may take time, but we are convinced that the industry will weather the storm and emerge stronger."