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Outlook 2008: Southeast

Outlook 2008: Southeast

SALES FORECAST

Operators in the Southeast say they expect 2008 to be another year of conservative growth as the industry continues to be plagued by the repercussions of the housing meltdown and the double whammy of rising energy and commodity costs.

Barrett Hardiman, director of governmental relations for the Virginia Hospitality Association, says he thinks the restaurant industry in Virginia will be lucky to see the 4.7-percent growth in foodservice sales predicted for the state by the National Restaurant Association.

“We don’t anticipate the economy growing much in 2008,” he says. “If we reach close to that 4.7 percent, we would be very happy about that.”

The NRA did report that including a 3.6-percent menu price inflation, the region would grow at just 1.1 percent.

ECONOMIC INDICATORS, PROJECTED GROWTH RATES, 2007 TO 2008

SOURCE: NATIONAL RESTAURANT ASSOCIATION
STATETOTAL EMPLOYMENTREAL DISPOSABLE PERSONAL INCOMETOTAL POPULATION
Alabama1.3%4.4%0.9%
Arkansas0.93.70.7
Florida1.74.41.8
Georgia1.04.12.1
Kentucky0.83.60.9
Louisiana1.12.30.2
Mississippi0.53.80.5
North Carolina0.93.62.1
South Carolina1.13.91.0
Tennessee0.93.71.0
Virginia0.73.00.7
West Virginia0.22.20.1
National Average0.93.40.9

The NRA’s projection for Virginia closely mirrors its forecast 4.7-percent dining-sales growth outlook for the full Southeast region.

Carol Dover, president and chief executive officer of the Florida Restaurant and Lodging Association, says she doubts the state can attain the level of growth forecast by the NRA. “I think ‘08 is going to be a very scary year.”

2008 SOUTHEAST FORCAST

*Includes sales at eating places and managed-restaurant-services providers.SOURCE: NATIONAL RESTAURANT ASSOCIATION/NATION’S RESTAURANT NEWS
RESTAURANT SALES ($000)*RANKINGS
STATE20072008%CHG.’08 SALES%CHG.
Alabama$5,200,320$5,414,3914.188
Arkansas3,009,5933,146,2084.5106
Florida25,559,58826,850,1065.013
Georgia13,311,78613,985,3445.121
Kentucky5,274,8255,485,8184.079
Louisiana4,592,3634,762,4643.7911
Mississippi2,829,3532,937,8043.81110
North Carolina11,793,64412,400,3225.131
South Carolina5,823,2376,099,5444.765
Tennessee8,090,4358,454,5054.556
Virginia10,724,59111,243,8764.844
West Virginia1,920,6081,991,6713.71211
Sales Totals$98,130,343$102,772,0534.7

Yet Miami-based Burger King Corp. says its fiscal 2008, ending in June, is shaping up nicely, with top-line growth expected to be 6 percent to 7 percent. Craig Prusher, BK’s vice president and assistant general counsel, says burger chains have done well as “consumers trade for value.” He adds, “We are uniquely situated to deliver that value. We can accelerate our growth and even add momentum to it.

Last quarter, we experienced the best traffic performance in 10 years.”

Jim Funk, chief executive of the Louisiana Restaurant Association, is optimistic about 2008. “The NRA’s projections for us are $4.8 billion,” he says. “While we are still down from the preKatrina $5.1 billion, we are moving in the right direction.” Funk explains that Louisiana is not suffering from issues like the credit crunch and subprime loans to the extent that some other states are.

“We just want people to know that Louisiana restaurants are open for business,” he says.

Stacy Roof, president of the Kentucky Restaurant Association, says the NRA’s prediction of 4 percent growth is likely accurate.

Tom Sponseller, chief executive of the Hospitality Association of South Carolina, says the growth forecast for his state would put 2008 restaurant sales over $6 billion.

OPERATOR OUTLOOK

No matter who you talk to in the Southeast, the biggest issue for operators is costs, costs and more costs.

Nick Vojnovic, president of Tampa, Fla.-based Family Sports Concepts Inc., parent of the 240-unit Beef ‘O’ Brady’s chain, says the company is getting squeezed in every area, particularly in Florida, home to half its units.

“We’ve had increased wages, tax increases, insurance hikes, commodity hikes, and energy hikes,” he says. “Just how much of these costs can you pass on?”

Vojnovic adds that “the farther south you go the worse it seems to get,” and he notes that Beef ‘O’ Brady’s is seeing better results in the Midwest, Mid-Atlantic, Florida Panhandle and Mississippi.

Michael Klauber, owner of Michael’s on East in Sarasota, Fla., says it has been hard hit by slipping real estate values and rising food prices. To survive, independents must band together when they can, he says.

“It is getting increasingly challenging for the independent operators. We have to think like multiunit operators to compete, but because we are so diverse in the types of businesses we have, we cannot always share marketing dollars or purchasing strategies.”

Table 301 operates five independent restaurants in Greenville, S.C., including the popular Soby’s and Devereaux’s. Co-owner David Williams says his biggest challenge in 2007 was rising costs for freight, utilities and disposables.

“Thus far, we have avoided raising menu prices by taking less profits,” he says. “As we strategize for 2008, we’ve placed an emphasis on creating alternative sources of income, like we did last year by putting out a cookbook.”

Williams notes that the challenging environment forces operators to re-evaluate their core values and focus on the fundamentals.

Rick Johnson, senior vice president of Maryville, Tenn.-based Ruby Tuesday, says the company expects consumer-related challenges to persist.

“Gasoline at or above $3 a gallon, rising food prices, higher utility costs, and concerns about the value of residential real estate all appear likely to be factors that will continue to influence eating-out decisions next year,” he says.

The operator or franchisor of 935 namesake restaurants recently said it expects a net loss in its second quarter, ended Dec. 4, as slumping sales and remodeling costs for its major restaurant remodel took a toll.

Still, the company expects to have opened a total of 20 to 25 restaurants as franchisees add 20 to 25 branches by the end of Ruby Tuesday’s fiscal year in June.

LEGISLATIVE HOTSPOTS

ALABAMA: Common Sense Consumption Act would stem filing of obesity-related lawsuits; menu labeling; immigration reform.

FLORIDA: Mandated health care; property tax issues; Hometown Democracy ballot initiative; tax increases; immigration reform; menu labeling.

GEORGIA: Immigration reform; trans fat bans; menu labeling; restaurant depreciation.

KENTUCKY: Possible trans fat bans; restaurant meal taxes; BYOB laws.

LOUISIANA: Ethics reform; workers’-comp reform; menu labeling; trans-fat bans.

MISSISSIPPI: Country-of-origin disclosure; immigration reform; tax-related issues; overhaul of alcohol laws.

NORTH CAROLINA: Smoking bans; meal taxes.

SOUTH CAROLINA: Smoking bans; transfat bans; immigration reform.

TENNESSEE: Logo sign bill; changes in restaurant playground inspections; increases in permit fees; potential sales tax increases.

VIRGINIA: Possible smoking bans; alcohol laws revision; menu labeling.

WEST VIRGINIA: Possible food-related regulations; tax increases.

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