The Associated Press has an interesting article about the prevailing "better burger" trend. Burger joints are opening and growing around the country by following the exact opposite of the model that the fast food chains are working from. By offering a limited menu but giving customers higher quality beef and a choice of more unique ingredients, these burger joints are among the fastest niche of the food industry.
Ray's Hell Burger, also in Arlington, is not a chain, but the restaurant run by iconoclastic chef Michael Landrum earned a national profile with President Barack Obama taking Vice President Joe Biden and Russian President Dmitry Medvedev there last month. (Medvedev's review: "Not quite healthy, but it's very tasty.")
It's a market that has room to grow. Such chains represent only about 2 percent of the $65 billion burger market, said Darren Tristano, executive vice president of Chicago-based restaurant consultant Technomic.
"The traditional players — McDonald's, Burger King and Wendy's — have really shifted their focus away from burgers to breakfast, chicken and beverages," said Tristano. He predicts better burger chains will continue to have double-digit sales growth for at least the next few years.
For a look at the burger trend Pacific Northwest style, the Portland Hamburger Blog has reviews of hundreds of dining establishment's burger choices.
MediaPost has a great write up on the Technomic VP's assessment of the restaurant industry. Joseph Pawlak wrote in the company's newsletter that, "while things are looking better, we are hardly out of the woods."
The recent "improvement" in same-store sales is actually a slowing of decline, rather than a return to growth, he stresses. In his viewpoint, he notes that the foodservice industry lost nearly 10% of its real value in 2008 and 2009, and if it grew at a 1.1% real annual rate (the average for the past two decades), it would take nine years to regain those losses. Annual real growth of 3% would be needed to get back to the industry's 2007 peak within three years, and that rate has been seen only four times in the past three decades, Pawlak adds.
He also mentions that while places had freed up cash-flow due to an adjustment in workers and food costs, they are using it to support discounts, which have no certain benefits in the long term.
Restaurants are expected to add 428,000 jobs this summer season, a 4.6 percent increase over the March 2010 employment level, according to National Restaurant Association projections released today. America’s restaurants are the nation’s second-largest private-sector employer and job-creator—with nearly 13 million employees—a number projected to grow by more than one million positions in the next decade.
“In these tough economic times, restaurants are playing an ever more important role in their communities, creating jobs and economic opportunity for our nation,” said National Restaurant Association President & CEO Dawn Sweeney. “Every dollar spent in restaurants generates an additional $2.05 spent in the overall economy,” she added.
Here are the top 10 2010 Restaurant Facts from Restaurant.org:
Top Ten Facts in 2010
$1.6 billion: Restaurant-industry sales on a typical day in 2010.
$2,698: Average household expenditure for food away from home in 2008.
40 percent of adults agree that purchasing meals from restaurants and take-out and delivery places makes them more productive in their day-to-day life.
73 percent of adults say they try to eat healthier now at restaurants than they did two years ago.
57 percent of adults say they are likely to make a restaurant choice based on how much a restaurant supports charitable activities and the local community.
78 percent of adults say they would like to receive restaurant gift cards or certificates on gift occasions.
52 percent of adults say they would be more likely to patronize a restaurant if it offered a customer loyalty and reward program.
57 percent of adults say they are likely to make a restaurant choice based on how much a restaurant supports charitable activities and the local community.
56 percent of adults say they are more likely to visit a restaurant that offers food grown or raised in an organic or environmentally friendly way.
78 percent of adults agree that going out to a restaurant with family or friends gives them an opportunity to socialize and is a better way to make use of their leisure time than cooking and cleaning up.
We have begun to see little glimmers of hope on the economy from the news outlets, but is any of that translating into sales? Are chains still recession proof- and if so, does it make a difference if it is sit down or drive through?
We've talked before about how Mc Donald's was doing well in the economic climate, but this week Forbes reported on some sit down restaurants actually posting profits.
P.F. Chang's China Bistro Inc. said before the market opened that its profit rose 33 percent in its first quarter, far higher than analysts expected. The company, which operates the P.F. Chang's China Bistro chain and the smaller Pei Wei chain, also increased its guidance for the year.
Meanwhile, Brinker International Inc., which operates the Chili's Grill & Bar chain, also reported a profit in its fiscal third quarter, matching analyst expectations by controlling costs.
But it isn't all good news; Yum! Brands, who includes Pizza Hut and Taco Bell in its family of companies, saw a decline in first quarter profit. CNN Money has more:
Yum Brands Inc. (YUM) vows to "slug it out" with competitors in 2009 after reporting a 14% dip in first-quarter profit amid a decline in U.S. sales from increasing pricing competition and slumping dinner sales for its KFC and Pizza Hut brands.
Fast-food chains have been more resilient in the economic slowdown than casual-dining restaurants due to their lower-priced food and convenience. But the higher-priced chains are cutting prices to win back customers, leading some to believe that the quick-service industry may resort to a "zero sum industry" highlighted by intense competition for fixed pool of customers.
Thinking about opening a restaurant? This article from the Portland Small Business Examiner has some great advice in this article.
The Wall Street Journal has a great article about the beef industry's fight to bring beef back to the table in a recession:
The National Cattlemen's Beef Association and its Beef Promotion and Research Board have ramped up efforts at grocery stores to lure consumers who have become less inclined to visit restaurants. For example, the industry this year will hand out 60 million coupons valued at $1 or more for beef purchases, up from 10 million coupons last year.
The industry also recently introduced an online education program designed to teach consumers how to be their own butchers at home so they can harvest cheaper cuts. For example, they'll learn how to cut steaks from a tender roast or cut beef kebobs from a sirloin steak.
Similarly, a "Bargain Beef Bundles" program is designed for shoppers who want to buy beef by the side or the quarter to store in their home freezers.
And if the falling price of traditionally expensive cuts isn't prompting consumers to open their wallets (see graph, from the Wall Street Journal) they are promoting new thrifty cuts of beef that have only bee on the market for a few years:
The Denver is being tested in restaurants while the ribs are popping up in grocery stores. And according to the Wall Street Journal, some familiar cheap cuts of beef are being renamed to be more appetizing to the public:
In recent months, Cargill Inc., which owns one of the nation's biggest meatpacking companies, has begun trying to make some low-value beef cuts sound more appetizing. Thus, a piece that butchers have long called "flap meat" is being recast as "Cordelico Sirloin," while "ball tip" has been rechristened "Cabrosa Steak."
Further Reading:
The Leader-Post on the beef industry bashing the new health study findings.
Sure, Hormel is doing great in a tough economy, but where (if anywhere) are people eating when they go out? Are people still eating out at all?
In Oregon, particularly Portland, consumers are passing on the high end "foodie" paradises that were once opening by the dozen. Oregon Live reports that it is now the franchise that is the new king:
Although high-end restaurants have been hit hard recently --at least 25 closed last year in Portland --fast food is another matter.
Five Guys Burgers and Fries has exceeded revenue projections every month since opening in October in Beaverton. Franchise co-owner Ron Marble plans to open four franchises this year.
The Daily Herald writes that it isn't that people have stopped dining out, but it is how people have changed their dining out habits that is hurting the sit-down restaurant and favoring the fast food experience. One person interviewed spoke of ordering food to go to cut tip and beverage costs. He also says that if they do dine in, they drink water or split an entree:
That's a trend restaurateurs are seeing - those who dine in are skipping extras like appetizers and dessert, splitting main courses and saving money on drinks by passing on soda and alcohol. People who might have ordered a $60 bottle of wine are now ordering a $30 bottle. That, of course, lowers the amount of the bill - and the tips for the waitstaff.
A tactic some restaurant owners are using to lure in customers are coupons. Places like The Ram Brewery and the Blue Sage Cafe offered 2-for1 coupons in January. TheNewsTribune.com interviewed the owner of the Billy McHale's in Federal Way, WA, who also started offering coupons after the harsh winter snow hurt sales:
“I’ve been averaging 20 of these coupons a day,” he said. “The people who aren’t going to pay for an expensive meal are trading down to comfort food. We’re a family restaurant, and it’s tough for families right now.”
His store offers an extended happy hour, from 3 to 7 p.m. and again from 9 p.m. until closing – and in closing late, after most other local eateries and bars, he attracts a good number of restaurant employees.
While there is no magic potion for guaranteed restaurant survival, the key ideas that seem to come up again and again are comfort foods, catering to a different clientele by extending hours, low prices, value, and finding a niche.
Further Reading
Seeking Alpha of the success of the Buffalo Wild Wings chain.
MSNBC on Betty's Restaurant staying in business for 50 years.
TheTimesOnline on fast food companies and the recession.
News outlets across the country are raising panic with tales that the Super Bowl staple is facing a shortage, facing high prices, and facing just about any other problem they can pack into a frightening article.
NewsWest9.com says in the first paragraph that supply could "threaten to limit snack choices" in Texas, but in the next paragraph states:
So far, it appears as if West Texans will be able to fill up on hot wings for the Super Bowl.
And they later add:
NewsWest 9 also spoke with an executive at Wingstop who said the company had a deal already in place with Pilgrim's Pride before a lot of these cutbacks, so they don't anticipate any changes for the Super Bowl. Other local restaurants have reported moderate increases, but nothing as bad as the spike in prices in New York State.
In fact Wingstop issued a statement saying that they estimate selling more than 3.5 million chicken wings. "Wingstop is to Super Bowl what chocolates are to Valentine's Day," said James Flynn, Wingstop CEO. And if you are truly frightened that they won't have your order of wings, you can pre-order early here.
So what is going on in New York- the likely source of the countrywide wing panic? The news video at the top features Sam Musolino of Sammy's Pizza in Niagara Falls. While the WIBV.com report points out that Sam has enough wings, it is the prices that are a major problem, so he has called for a national boycott:
"Pass it on to everybody that if nobody could serve chicken wings for that day."
So what is the truth? Well, the National Chicken Council has a bone to pick with the media. Richard Lobb, director of communications for the National Chicken Council told the Arkansas Democrat Gazette:
Fears that chicken wing supplies will run out are unfounded. And blaming a shortage on Pilgrim's Pride's bankruptcy alone is a "wild exaggeration," he said. "Eat all you want. There are plenty more."
And regarding prices, the Council has this posted on their website:
By some accounts, prices are higher than a year ago. The U.S. Department of Agriculture cites an average retail price of $1.93 per pound for ready-to-cook chicken wings featured in grocery circulars, up from $1.52 a year ago. Prices always go up during the run-up to the football spectacular, but this year’s higher prices may be related to industry-wide production cutbacks due to high feed costs and general economic stress.
So grab your favorite dipping sauce and stop worrying about chicken wings- because if there is one thing we have seen in the food industry, it is that fear and speculations of doom and shortages will make prices rise higher than if we just let things be.
While most of America was preparing for a day of thanks, followed by a day of shopping, Pilgrim's Pride was talking to lenders to save themselves from bankruptcy. You might recall our post two weeks ago chronicling the saga of Pilgrim's Pride, who's temporarily extended (for the second time) line of credit was due to expire on Wednesday. It would appear that they had something to be thankful for, because on Friday they made this announcement via their website:
Pilgrim's Pride Corporation (NYSE: PPC) today announced that it has reached an agreement with its lenders to extend the temporary waiver under its credit facilities through noon (CT) on December 1, 2008. Pilgrim's Pride continues to pursue opportunities to refinance and recapitalize its business, and to position itself to capitalize on its strategic advantages.
While a weekend doesn't seem like a lot of time, it was enough to make them postpone their expected fourth quarter loss of $802 million dollars. Business Week has more:
The company said Friday in a regulatory filing it was delaying filing its annual report for fiscal 2008 with the Securities and Exchange Commission due to ongoing talks with its lenders regarding temporary waivers and "related financial uncertainties."
According to the Washington Post, shares of the company spiked 101.9% with the announcement of the waiver. What their company will do Monday after the deadline passes and the actual fourth quarter earnings are posted remains to be seen.
While some people are waiting to see the dip in gas and corn prices translate into lower prices at the grocery store, at the supply end a fear is mounting that deflation is impacting the markets. In cattle news, the Dickinson Press has an article about the falling prices of cattle amid industry fear:
Wade Moser, executive vice-president of the North Dakota Stockmen’s Association, said the cattle market is being driven by panic just like the stock market.
“There is absolutely no reason fundamentally-wise we ought to see this market go the way it is,” he said. “We are seeing corn prices lower than a year ago. We’re seeing diesel and fuel prices come down to good levels.”
It’s just that this whole market is being driven by fear, that’s the only reason we’re seeing what we’re seeing.”
Producers statewide aren’t selling their cattle, except where producers were forced to because of the drought, Moser said.
Has deflation affected your business? How were your Black Friday sales? Are you using incentives like the restaurants profiled in this CNN article? Let us know in the comments below!
Further Reading: The Star Tribune is doing a series on the food chain to research the connection between high prices and fuel.
"We've been losing money for more than a year," said Bill Roenigk, economist for the Chicken Council, who said producers intend to cut production by as much as 12 percent. "We need to recover these feed costs."
Thomas Elam, head of Farm Econ, said poultry, hog and cattle producers would cut production in coming months because of feed costs, meaning less meat on the retail market but at higher prices.
Menu prices are restaurants up 4.3 percent so far this year, the largest increase since 1990, said Hudson Riehle of the National Restaurant Association. He said one-third of each sales dollar goes to food purchases.
Who are these high food prices benefiting, if anyone? All Monday long Wall Street waited on edge, as preliminary news from Tyson spoke to a fourth quarter loss. When final profits were posted, however, a much different picture emerged as the industry giant reported a 50% rise in profits. Most of the gains were in the beef and pork sectors, as the poultry division suffered on the rise of grain costs. Representatives from Tyson said that grain costs climbed $230 million in the quarter accounted for a loss of $91 million in its chicken unit.
"Producing the three major proteins has proven to be a strategic advantage," said President and Chief Executive Richard L. Bond. "The strong performance by our beef and pork segments supported the chicken segment as it struggled throughout the year due to low prices and high input costs."
The meat industry has been hit by high input costs for key ingredients like corn and oil, as well as an oversupply of meat on the market that's keeping prices down and slumping restaurant demand as consumers eat at home more often. Bond noted that fast-food restaurant sales are holding up, even as people are cutting what they spend when they eat out.
"People are still eating beef but they are eating less expensive cuts," Bond said. "We expect this trend to continue in 2009."
The other big winner was McDonald's, who saw same-store sales rise 8.2%. The key to their success seemed to be value, as consumers passed up sit-down dinners in exchange for Dollar Menu items and new features such as the Southwestern Chicken Biscuits. Forbes has more on the story:
Monday's report provided a new indication that McDonald's low-price formula--such as the recession-friendly Dollar Menu-- is a winning strategy during a difficult economic period. The stock market tells the story: While the Dow Jones industrial average has slid 31.9% over the past year, reflecting the turmoil in the world economy and financial markets that began with the U.S. subprime crisis, McDonald's has shed only 3.4%. That's better than its fast-food rivals like Burger King, down 24.6%, and Yum! Brands, 28.6%, and significantly ahead of casual-dining companies like Ruby Tuesday, which has fallen 88.3%.
What about the rest of the industry? Is any help on the way?
While there is no food industry bailout currently in the works, some companies are getting creative to ease production costs. MarketWatch has a press release from a corporation in Illinois announcing a newer, cheaper packaging for meat and produce:
SCHAUMBURG, Ill., Nov 10, 2008 (BUSINESS WIRE) -- PLIANT Corporation introduces new Revolution(R) meat and produce wrapping films for improved yield and higher performance at lower costs. With recent economic conditions affecting supply prices, packagers can now counter these increases and replace their current packaging with a remarkable new substitute.
Revolution evolved from the combination of PLIANT's unique global PVC production capabilities and 50 years of expertise in the packaging film industry. Drawing on its double-extrusion process and proprietary resin formulating capabilities, PLIANT developed this thinner gauge, high performance film. Utilizing the Revolution product can lower packaging expenses, while maintaining outstanding performance characteristics for both in-store manual wrap stations and high-speed automation.
What do you think about the Tyson profits? Do you think their first quarter posting will be as high? Let us know in the comment section below!
And it isn't just the candy companies; Bloomberg reports that food inflation is accelerating at a pace not seen since 1980, due to the rising prices in meat, dairy, and oils. The increase will leave us with the highest jump in prices since the early 1990's, and by the next year prices will still raise another 4 to 5 percent.
With gas prices dropping, shouldn't food prices be falling? MSNBC asked that very question this week, and found that lower prices were not necessarily in our future:
Food inflation is to stay — and will probably get worse for some things.
That's because retail prices for cereal, eggs, cheese and meat generally lag by several months or longer world prices for wheat, corn and soybeans — the raw ingredients of so much of our food. Some food items may come down modestly as commodities prices cool off; others might not budge a cent and some may actually increase.
Already struggling with growing production costs, the food industry is responding to rising costs in a number of creative ways. The Wall Street Journal reports:
Cargill Inc., of Minneapolis, in July introduced to supermarkets cheaper cuts of meat with fancy-sounding names like Maranada steak (flank steak), Marbello steak (skirt steak) and Cordelico sirloin (flap meat).
General Mills Inc. says that by reducing the number of spice and ingredient pouches in boxes of Hamburger Helper -- and by halving the number of pasta shapes used in the product line -- the company has trimmed manufacturing costs 10%. The company is also replacing pecans with less expensive walnuts in its Pillsbury Turtle cookies.
Hershey Co. is substituting vegetable oil for a portion of the cocoa butter traditionally used in some of its chocolates.
Heinz is also cutting back on packaging and using more rail delivery to cut transportation costs. On Thursday, Heinz said earnings in its fiscal 2009 first quarter rose 11% to $229 million. General Mills and Kellogg Co. also have benefited from aggressive cost-cutting: Their stocks have risen 27% and 9.3%, respectively, in the past two years.
In the restaurant industry high food prices coupled with mandated increased in employee benefits have caused problems. Michael Bauer of the San Fransisco Gate asked the question, "What makes prices too high to dine at a restaurant, and how do consumers let the owner know?" I think he summed it up well in saying:
A lot depends on the ambiance, the intangible feeling diners get when they sit down, portion size and, most importantly, the execution of the food. If the food tastes great most people are willing to pay a premium; if it's mediocre the restaurant begins to lose its fans.
How are the high food prices affecting your business and daily life? Leave a comment and let us know.
Further Reading: The Business Sheet on food prices to skyrocket for months. Food Product Design on the largest food price increase in 20 years upon consumers. SF Gate on commodity prices bruising some hedgers.
The AP reports on the breakthrough in the salmonella case.
Restaurants, consumers, and the tomato industry had reason to breath a sigh of relief this week as two kinds of peppers found in Mexico were linked to the ongoing search for the source of the salmonella outbreak. While officials fell short of completely vindicating the tomato, they did report that no tomatoes have tested positive for salmonella. The cause of the outbreak is being reported as "contaminated irrigation water."
Mexico is denying that they are the source of the outbreak, saying that the positive tests were only preliminary findings. American produce industry executives expressed their dismay at a hearing on Wednesday. They argued that the investigation took too long to get to the "smoking gun." The LA Times reports:
Produce industry insiders, many also testifying at the Wednesday hearing, criticized what they called an expensive, inept investigation that had little transparency and failed to engage business owners.
One executive said his company, which ships tomatoes and other produce across seven states, had lost as much as $18 million since the outbreak began. Members of the Irvine-based Western Growers Assn. have collectively lost $13 million, said Henry L. Giclas, one of the group's vice presidents.
"I don't know how they could call it a breakthrough when our industry's already been broken," he said after testifying.
In other commodity news, corn prices dropped another 3.7%, with soybeans falling 2.8% for the week. While Congress failed to come to an agreement on what to do about oil prices and speculators, it was the weather that brought about the price decline. Thunderstorms rolling into the Midwest prompted the favorable prediction that despite the flooding earlier this year, corn production could still be on production schedule.
Cheaper corn might not directly translate to help for the suffering restaurant industry. The Chicago Tribune reported on the change in consumer spending habits:
In the restaurant business hard times have touched off a flurry of trading down to cheaper outlets.
That's a plus for McDonald's, which is testing a higher price for the double cheeseburger that anchors its dollar menu, and a minus for casual-dining chains. Bennigan's, for example, abruptly shuttered hundreds of its outlets last week.
At the same time, Americans are eating at home more regularly, a help to packaged-food companies at the expense of restaurants.
Further Reading:
San Fransisco Chronicle on criticism on US probe into the salmonella outbreak. MarketWatch on corn prices creating a buying opportunity. Seattle PI on the year long moratorium against fast food restaurants in Los Angeles.
This week the media focused on personal looks into how the food crisis and high gas prices are affecting people all over the country.
The video is from MSNBC's look into the suffering restaurant business. They reported that while the government stimulus checks helped profits rise by 7 percent in May, the $.40 gas increase hindered the good outlook by dropping sales to only 1.1% increase over a year ago. Paired with news of Starbucks closing over 200 stores, and other national chains such as Ruth's Chris and Ruby Tuesday announcing poor earnings, stock prices started to drop. This week many companies will report on their financial results, and the only winners are expected to be fast food chains.
“It’s a dead business,” said John Dillard, who pioneered the commercial farming of catfish in the late 1960s. Last year Dillard & Company raised 11 million fish. Next year it will raise none. People can eat imported fish, Mr. Dillard said, just as they use imported oil.
Finally, The Star Tribune took a look at grain elevators. Due to high commodity prices and tougher lending standards, many of the elevators are running out of money. Experts say that if too many of these elevators go out of business or sell to investment funds, it will create a national crisis of food supply and food prices:
"This is extremely serious," said Michael Swanson, an agricultural economist at Wells Fargo. "If elevators start having major problems, the whole food system could be affected."
MSNBC and NPR ran a story earlier this month on how restaurants are balancing the issues of giving the customer a great meal and rising food costs.
Some places are managing by decreasing portion size. A representative from the popular chain The Cheesecake Factory, spoke about decreasing the size of the lunch portions, noting that customers often remarked on not wanting to take leftovers back to the office.
Other restaurants are finding less expensive alternative ingredients, such as stocking different cuts of beef, using lower-cost butter blends, and serving less expensive fish. From the MSNBC article:
Chuck E. Cheese restaurants recently began using a "reformulated" pizza cheese at its 490 locations, helping the company cut costs and turn in positive first-quarter earnings. Richard Frank, CEO of parent company CEC Entertainment Inc., said the high-moisture mozzarella blend gives customers a "cheesier product" that spreads better and allows the chain to use less cheese on some pizzas.
The bad news for consumers is that while all of these creative maneuvers are helping, some restaurants are still having to raise prices, but that is no reason to abandon your favorite steakhouse or burger joint altogether. The Daily Gleaner offered up some great tips for restaurant goers in the new economic climate:
Look for reviews of good budget-friendly establishments to try.
Skip costly drinks and desserts and share portions.
Instead of dinner at a fancy restaurant, go there for lunch when items on the menu are less expensive.
At fast-food restaurants, use coupons and take advantage of free children's meals.
Get to know what restaurants have specials on which nights.
Eat a snack a few hours before sharing a dinner can help make the smaller meal more satisfying.
If you're a restaurant owner, what are you doing to help with food costs? If you are a consumer, how have food prices affected your diners out?
