NEW YORK Executives from leading restaurant companies agreed during the RBC Capital Markets Consumer Conference here Wednesday that the future of the macro-economic environment remains difficult to decipher, but that the industry’s prospects can only improve.
Speaking with RBC restaurant analyst Larry Miller, executives from California Pizza Kitchen Inc., CKE Restaurants Inc. and Texas Roadhouse Inc. said they were each bullish that recent consumer behaviors, including less frequent dining out or the ordering of less expensive dishes or fewer beverages, would eventually stop.
“It is a cycle,” said Mike Murphy, president and chief legal officer at CKE Restaurants, the Carpinteria, Calif.-based parent of the Hardee’s and Carl’s Jr. chains. “We were at a down trend and now we’re headed toward an up trend.”
That isn’t to say that sales levels will revert back to the flush days of restaurant industry growth in 2006 and 2007, they noted. While consumer traffic will come back to the restaurant industry, the lower prices, smaller portions and different ways of eating may remain.
“There is a new normalcy,” said Rick Rosenfield, co-founder and co-chief executive of California Pizza Kitchen in Los Angeles. “We’ve reset the bar in terms of what revenues to expect, but people do go out, will continue to go out, and as consumer confidence increases, I’m a glass-half-full person that people will go out more.”
While the executives agreed consumers would again frequent restaurants, they were not eager to predict when that would occur.
“I could go heads or tails on that one,” Kent Taylor, founder and chairman of Louisville, Ky.-based Texas Roadhouse said, answering a question on when sales will improve. “I have no idea.”
Each of the executives noted that the silver linings visible during the economic storm of the past year included improved real estate options from closed restaurant locations and reduced rents or construction costs, as well as lower turnover rates from both hourly employees and managers that relish having a job. In addition, leading restaurant operators have cut costs, trimmed expenses and found leaner ways to operate. Those beneficial changes will only help margins improve when consumer spending returns, they said.
While a cautious optimism, especially for the second half of 2010, was the overwhelming sentiment expressed by the executives, fears of regulatory hurdles remain. The impact of pending health care reform and the growing list of jurisdictions adopting menu-labeling mandates both are likely to lead to more expensive operating structures for businesses, they said.
“I’m pretty clear that [imposed healthcare] would be widely inflationary,” Rosenfield said. “Whether it will occur, how it will occur, I don’t know, but somewhere in this public debate about healthcare, I don’t hear a lot of voices on the impact on business.”
The anticipated increased costs would force operators to raise menu prices, a tactic that California Pizza Kitchen uses in San Francisco and Hawaii, which are two areas that currently require health care for workers, Rosenfield said.
CKE’s Murphy noted that the added costs of employee health care would be directly taken from funds for new restaurant growth and job creation.
Contact Sarah Lockyer at [email protected]
