State of the Industry 2010 The New Basics

Michael Sanson

DO YOU REALLY NEED TO BE TOLD HOW AWFUL THE ECONOMY WAS LAST YEAR? We didn't think so. And despite small signs of hope on the economic horizon, the truth is most industry experts and Las Vegas odds-makers aren't betting this will be a breakout year. Where does that leave you?

The answer to that question depends on what kind of person (boss) you are. If you spent 2009 cutting to the bone without a sense of positive, forward-thinking energy behind it, you just may be screwed. This year you're going to have to make some smart, proactive moves to get butts in seats. Do you have it in you? We hope so.

The good news is that nearly everyone made his or her operations lean and mean last year. It was the smart thing to do during these tough economic times. But this is going to be a year for sorting out, separating those with vision from those who are lacking, says Bob Derrington, an equity research analyst for Morgan Keegan & Co.

“It is an interesting landscape out there,” Derrington says. “Companies that squeezed the life out of their operating costs last year must figure out what to do this year. You can't continue cutting operating expenses to the bone or you'll drive customers away.”

GROW: Panera ceo Ron Shaich says a recession is a good time to move ahead.

He points to smart moves made by two stalwarts — Chili's and Applebee's. The casual concepts, after driving down their store-level labor and operating costs, began employing similar two meals for $20 promotions. “Because their costs were lean, they could afford to make such an offer,” says Derrington. “And that's the key: What can you do to drive traffic without hurting profit margins?”

“In 2010, it will all be about value,” says Fred LeFranc, a founding partner of Results Thru Strategy, a restaurant consulting company. Consider Steak 'n Shake, he says. It had always had a la carte menu, but the economy forced it to redefine its value proposition. As a result, it came up with a 4 Meals Under $4 promotion, which bundled menu items and led to a sales increase of 10 percent.

Value has a different definition depending on the category you're in, says LeFranc. “Several of the high-end chains and independent restaurant operators who said they would never discount have begun to do just that because they had no choice.” It's not unusual for restaurants with $85 check averages to be offering three-course prix fixe meal offers for $35 or so to drive customer traffic. “If customers perceive value, they will show up,” says LeFranc.

Value. Get used to that word. It's ground zero for shell-shocked customers who have changed their spending habits and are now living within their means.

“Consumers are now seeking value propositions in every aspect of their life,” say the experts from National Restaurant Consultants. The new mentality is ‘Give me more but don't charge me for it.’”

Not what you wanted to hear, but NRC says innovation will be key, whether that means a change in service formations or serving size options. “Offering a wide variety of options makes a lot of financial sense for you as the owner and also for your guests.”

PRIME: In a very rough economy, Brad Friedlander opened a second unit of Red, the Steakhouse, in Miami Beach. It achieved new sales records by offering Certified Black Angus prime and top-notch service.

Denny's, which is still formulating its next round of menu changes, is considering more customer ordering flexibility in the year ahead. Its new premium burger, which sells for $6.99 with fries and a drink, may be offered for $3.99, with toppings, fries and a drink costing extra. It's what Denny's did with its “Grand Slam” breakfast. By allowing customers to build their own version of the Slam, customer traffic increased dramatically and made it five times more popular than any other menu entrée, reports Knapp-Track, which surveys restaurant sales.

More versatile menu options make sense because the economy has had a wide variety of effects on your customers. Currently 15 million Americans are unemployed, but millions more still have jobs. And while some of those who have jobs are living on tight budgets or trading down, others refuse to alter their old habits. You've got to be ready to cater to anybody who walks through your door. And, most importantly, you have to take care of them like you've never taken care of them before.

What worries most people today no longer reflects abstract and idealistic pre-recession issues, says Michael Whiteman of the Joseph Baum & Michael Whiteman Co. People are now focusing inward. Their concerns are personal, emotional and ethical. This year's hot buttons include reassurance, intimacy, friendship, neighborhood, comfort and safety, he says.

“Hotels and restaurants should be luring their hunkered-down consumers from their psychological storm cellars by replicating the campfire experience, building emotional ties and connecting to communities,” says Whiteman.

No, he's not suggesting a kumbaya sing-along with guests. Consider, instead, looking for more creative “snacky things,” more small plates, more portion options … things sized for one, for two, for a crowd. “It isn't about the size of the plate,” says Whiteman. “Sharing is the key. Sharing responds to consumers' needs for comfort and safety, for intimacy and friendship.”

Brad Friedlander

So, where exactly do you look to drive return visits? According to American Express MarketBrief, more than half (52 percent) of full-service restaurant customers surveyed said the taste of the food is most important to them, while food freshness (41 percent) and value for the money (35 percent) followed. But here's the catch: Those surveyed said they have seen no improvement in those areas in the last six months. They don't think you have your eye on what customers want, though they give you props for improving menu variety.

Knowing what customers want and giving it to them while others are not can make all the difference. Consider the case of Red, the Steakhouse, in Miami Beach. It opened its doors during the heart of the recession and could barely get traction. But owner Brad Friedlander (above) knew there was a hole in the market for excellent beef delivered with a Midwestern service sensibility.

“The owner of an enormous restaurant chain knew I was in trouble and urged me to buy cheaper meat and make other cuts,” explains Friedlander, who operates another outpost of Red in Cleveland. “But while so many of the other steakhouses were serving lesser cuts of beef and rushing their customers through the dining experience, I knew people would pay a few dollars more for Certified Black Angus prime meat in a relaxed setting. If I had done what he had suggested, I'd be out of business today. Instead, I've just experienced the best sales week I've every had in my career.”

Kudos to Friedlander, but clearly the upscale sector is getting hit the hardest. The model that's having the most traction now is the fast-casual sector. It has price points lower than the casual and upscale sectors, and food quality higher than the quick-service segment. Consider, for example, Panera Bread, which has registered gains in both sales and customer traffic during the recession.

“A recession is a very powerful time to grow a business,” said Panera ceo Ron Shaich. While others are cutting corners, the bakery café concept did not reduce its portion sizes or skimp on the quality of its ingredients or reduce staff numbers. In fact, Shaich said, Panera improved the quality of some ingredients, such as a new mix of lettuce that includes only hearts of romaine lettuce. As a result, sales of salads at 1,360-unit Panera have increased.

HOLA BURGER: The fertile mind of Jeff Sinelli has introduced yet another new concept: fast-casual Hispanic burgers.

Consider, too, that most Panera units offer free WiFi and have fireplaces, and you'll understand what Whiteman and the folks at MarketBrief are saying: If you offer good, fresh, affordable food in a warm, comforting setting, customers will come.

“Yes, customers are focused on price,” says Jeff Sinelli, founder and top dog at fast-growing Which Wich, “but it's more about meeting their expectations. And in most cases that means taste and quality, not the cheapest price.”

Dallas-based Which Wich, which offers 50 different varieties of sandwiches with superior ingredients, did not cut prices last year. “Sure the customer is looking for a little more value these days, but value may mean a smile on the face of your employees as they walk through the door or flawless execution,” says Sinelli, who opened the 100th unit of Which Wich last month. Instead of playing the price game, go back to the basics and make your business as strong as you can, he says.

It's always been about giving customers what they want and finding gaps in a competitive marketplace. It's why Sinelli created a high-quality sandwich concept where he saw none. It's why he recently launched another new fast-casual concept, Burguesa Burger, which offers Latin-style burgers (toppings include ham, refried beans, jalapenos and more).

A Latin-style burger concepts? What? Not so much what, but why has it taken so long for someone to run with the idea? And maybe, more importantly, why is anybody opening new restaurant concepts in this economy?

BITE-SIZE: In this new year, consider offering smaller portions. They need not be as elaborate as Jose Andres’ offerings at Bazaar.

Like Sinelli, Ron Parikh, a partner in the 41-unit Genghis Grill stir-fry concept (which Sinelli created and sold), is proceeding full-speed ahead, in part because the economy does stink.

“We have plans to open 30 more units this year because the real estate opportunities are better than they've been in a long time,” he says. “So many restaurants have closed, there are lots of good sites now available at a great price. They key is to stay within your cost parameters and don't overpay for these second- generation sites.”

And in Sinelli's case, the new idea is so intriguing, if he didn't jump on it now, someone else would have. Think of these ideas as “aha moments.” If you want to get your customers' attention, then do something unusual. The Mexican burger concept has drawn hundreds of requests for franchise opportunities, says Sinelli.

“Every year since I started in this business there has been that “aha” moment of the year,” said Nancy Silverton in the James Beard Foundation Newsletter. “Blackened fish, crudo, handcrafted cocktails, pizzerias. This year it will be something else,” said the founder of La Brea Bakery and co-owner of Pizzeria Mozza and Osteria Mozza in L.A.

This year's aha moment may not be the Mexican burger, and you don't have to be the one who even comes up with the next great idea, but it would behoove you to be creative in your own restaurant and offer surprises that keep your customer interested and coming back.

“During hard times there's an inclination to hunker down and play it safe,” says consultant Fred LeFranc. “But now is the time to take more risks to redefine your business model so you'll be in tune with the new consumer mindset.”

He says consumer desire for value may be top-of-mind, but good, interesting food always drives customer traffic. “Make sure you understand your customer base. If your customers are younger, then you should be looking at doing tapas or small plates. It allows them to spend less money, but it also brings people together and allows them to experiment with new flavors.”

The Wall Street Journal recently asked if Jose Andres' Beverly Hills restaurant — Bazaar — is the “restaurant of the future.” It serves only tapas, and a growing number of restaurants around the country have followed suit.

“The small-plates format is a clever way around consumers' psychological barriers to restaurant spending,” reports WSJ. “Consumer research shows that patrons order more when individual dishes are priced fairly low, and they don't spend time adding up the costs.”

Consider, also, what the New York Times recently reported was the revival of early-bird specials. This time around, though, it's not the blue-haired old folks showing up early, it's lots of younger customers who are financially strapped.

At old-fashioned restaurants like the Capri in Miami Beach, customers taking advantage of early-bird discounts understand it's all about iceberg lettuce, not arugula, but that's appealing because they are offered consistent value. “It was also the respectful treatment — the waiters in ties, the greetings of ‘Mr.’ and ‘Mrs.,’ the effort to remember the orders of regulars, and letting everyone stay as long as they wanted,” wrote the Times.

Not everything will be right for your restaurant. But the point is simply that you can't just continue doing what you've been doing if what you're doing has been putting you under water. Now is the time to be creative, even if that means you've creatively borrowed the idea from someone else.

Focus on Quality, Not Cost

How do you follow up a wild year of $5 menus, gourmet meals for paupers’ prices and buy-one-get-one menu specials? You return to quality, that’s how. Mintel Menu Insights, a service that tracks U.S. menu trends, released five predictions for 2010, saying the restaurant industry will focus on high quality food and ingredients to lure in diners. Here are the five menu trends it says will be important this year.

Classically simple. Many restaurants did less pioneering during the recession. What did they discover? Simple sells. In 2010, Mintel Menu Insights predicts chefs will harness the power of classic combinations and simple, pure ingredients. In 2009, the top new menu item for chain restaurants was an all-American classic: the burger. Look for more nostalgic, decadent pleasures on the menu: bacon, lobster, classic cocktails, milk and cookies and donut hole desserts.

Restaurant-grown. Just because people don’t have time to cook doesn’t mean they don’t crave homemade food. This year, watch chefs add a homegrown, or rather, restaurant-grown, touch where they can: artisan breads and cheeses, house-infused spirits, locally sourced produce and meats. “Rustic” will be the buzzword that describes imperfectly shaped pizza crusts and mashed potatoes. Restaurant-grown items are also a great way for restaurants to differentiate themselves.

Dining out…in. “If you build it, they will come” isn’t working quite the way it used to. Half of Americans are spending less at restaurants because of the economy, so it’s time for restaurants to come to them. Burger King is one of the latest to sell its food (French fries) in retail stores, but expect more retail-restaurant connections in 2010. Additionally, more restaurants will uphold relationships with customers by using smart phone apps for menu changes and online ordering.

Inherent health. Nearly 9 in 10 Americans think eating healthy is important, but 63 percent say it’s difficult at restaurants because there aren’t enough healthy items. It’s time for that to change: 2009 saw a trend toward healthier menus, but 2010 will see a sharp increase in good-for-you food and drink. Tomorrow’s healthy menus will feature inherently nutritious items—those with fiber, omega-3, vitamins and antioxidants—that deliver on flavor, too.

Regional ethnic. In this great melting pot, it’s no wonder people love ethnic food. In July, four in five adults told Mintel they’d eaten ethnic food at a restaurant in the past month. Cuisines like Mexican, Chinese and Italian have become so mainstream, however, that it’s time to dig deeper. Restaurants will increasingly pinpoint specific regions, such as Tuscany, Brazil, Morocco, or even within the U.S., North Carolina BBQ, to develop tomorrow’s ethnic food.

FIVE MENU TRENDS

Technomic, a Chicago-based foodservice consulting firm, suggests that menu innovation will play an essential role to entice recession-weary diners with compelling reasons to eat out. Look for these five trends in the year ahead.

1. New Spin on Old Favorites: Comfort Foods. Look for increased menuing of upscale comfort foods, with an explosion of simple foods containing a small number of “real-food” ingredients. Expect to see a fresh, premium or high-quality spin on familiar, humble foods, such as artisan cheeses used in macaroni and cheese. Interest in premium burgers and burger concepts will continue, with even greater emphasis on freshness, customization, toppings and condiment bars. Sandwich and other concepts will focus increasingly on hearty melts. Cassoulets, chili and other rustic bean-based dishes may get new respect.

2. Exploring New Corners of Asia (and the world). Korean foods (including Korean barbecue and Koreanstyle tacos) will hit the mainstream. Look for new interest in Indonesian and other Southeast Asian fare as well. The fascination with global street foods will also play out in the proliferation of Baja-style fish tacos, now moving beyond Mexican restaurants. Expect to see continued emphasis on regional versions of ethnic cuisines, especially with Mexican and Italian fare.

3. Frontiers of Flavor. It’s time for umami to become a household word, at least among foodies. Expressions of the savory, earthy “fifth taste” will range from burgers and other hearty meat dishes to truffle- or truffle oil-accented pasta, cheese, french fries and pizza. Beverage flavor frontiers of 2010 will include tropical ingredients (hibiscus flower, agave nectar, pure cane sugar). Starring in the American regional flavor pantheon is bourbon, used to sauce or spike everything from burgers to chili to desserts.

4. Back to the Future: Tending Our Gardens and Farms. With the First Lady now tending an official White House garden, look for more chefs to follow suit with proprietary herb or vegetable gardens. The emphasis on local and seasonal ingredients will grow and flower. Fascination with heirloom farm products—from tomatoes to pork—will continue; by the 2010 holiday season, look for a flap of interest in heirloom poultry breeds.

5. Breakfast ’Round the Clock. Look for breakfast to break out of its traditional boundaries, with breakfast-style fare available all day (and night) at both full-service and limited-service eateries. As fast-food restaurants expand and upgrade their menus of budget-priced breakfast sandwiches and wraps, more full-service operators will be offering hearty brunch buffets well into the afternoon on weekends.

Avoid These Mistakes

Rick Nelson recently shared what he says were annoying dining trends that he observed during the past decade as a restaurant critic for the Star Tribune in Minneapolis-St. Paul.

Half-price wine nights. On their face, they sound like a bargain—a hunter’s dream: A Flowers Vineyard pinot noir-syrah blend for $50? Bring it on. But by discounting a steep 50 percent, aren’t restaurateurs also telegraphing the message that diners are overpaying the other six evenings of the week? Speaking of lofty profit margins, do the math on a $3 Diet Coke sometime. Sheesh.

Online nastiness. The web has opened up dining-out dialogue like nothing else, and that’s a great thing. What’s not so good? Commenting nastiness, usually by anonymous posters. After trashing away to their heart’s content on Yelp, Urbanspoon, Chowhound and similar sites—even when the restaurant deserves every drippingwith- acid word—people of integrity should stop hiding behind “AntonEgoMpls” or some other snarky electronic appellation and affix their names—yes, the ones embossed on their driver’s license—to their vitriol.

Incessant copycatting. Enough already with the molten chocolate cakes, or the sliders, or the flatbreads or the countless other beenthere- ate-that dishes that have swept through restaurants. I beg you.

Tip jars. Let me see if I have this right: I’m supposed to fork over some coin because you bagged a few lemon bars? Or made a nonfat caramel brûlée latte? Don’t you already draw a salary?

Tuning in. Twin Cities restaurants have become infinitely better looking during the past decade, with one exception: the annoying proliferation of television screens. My mother didn’t allow her children to watch The Partridge Family while we were seated at the dinner table. And you know what? She was right.

Cranking up the volume. When did deafening sound levels equal success in the ears and minds of restaurateurs?

Long-winded servers. “Let me tell you about tonight’s dessert,” starts the chatty server, and off they go, delving into more detail than your physician employed during your most recent physical. “We start by preheating the oven to 350 degrees, then, using an electric mixer on medium-high speed . . .” Enough with the oratory already. Let Abraham Lincoln be the industry’s guide; his history-changing Gettysburg Address clocked in around two minutes.

Design-your-own dishes. More and more menu real estate is being devoted to laundry lists of ingredients for build-your-own pastas, burgers, pizzas, salads and omelets. On one hand, it’s a format that allows diners to customize their meal. But on the other, doesn’t it feel lazy? Aren’t chefs supposed to be making these decisions, and imparting the flavor of their unique point of view?

C-minus websites. A restaurant’s website features a lame sample menu, which suggests that the kitchen isn’t entirely familiar with what it’s currently serving. Or the posted menu is three or four iterations old. Or basic info, such as address or hours, requires enough clicks to induce a repetitive strain injury. Or the site takes forever to open due to a needlessly arty multimedia introduction. No, I don’t need to hear the sound of sizzling steaks coming out of my Macbook, thank you.

The slow, painful demise of fine dining. In the Twin Cities, the list of the dearly departed is long and tragic—Aquavit, Goodfellow’s, D’Amico Cucina, Levain, Auriga, A Rebours, cafe un deux trois, Fugaise, Bayport Cookery. They all bit the dust during the “aughts.” Yes, our culture is becoming more and more casual, a trend reflected in the restaurant world. But the loss of these fine-dining establishments, and their influence over our collective imaginations, still hurts.