Fine-dining restaurateurs are likely to face a challenging new year as the U.S. economy loses steam and operators across all segments step up their efforts to lure spending-conscious consumers already wrestling with skyrocketing energy costs.
Even with a spike in international tourism helping to buoy businesses in some gateway cities like New York, many upscale operators are finding themselves under pressure to maintain sales and traffic levels as the battle for the dining-out dollar intensifies.
In an effort to arrest sales and market-share erosion, some up-scale operators are exploring possible remedies like casualization, menu re-engineering and multi-tiered dining.
Hudson Riehle, senior vice president of research for the National Restaurant Association, says the weakness in the U.S. economy will extend at least through the first half of 2008.
“Fine dining in general mirrors the overall industry, so we expect to see a moderation in growth,” he says. “It’s not like the business will be falling off a cliff. There is still opportunity for fine-dining operators to grow sales.”
Nevertheless, he cautions, “It will be a more challenging environment.”
The NRA forecasts that the entire full-service restaurant sector will see only a slight real-sales gain of 0.7 percent in 2008.
Other industry observers, however, maintain that the fine-dining marketplace is shrinking gradually. The NPD Group, a consumer marketing research firm based in Port Washington, N.Y., says customer visits to upscale restaurants have been trending downward over the past several years. The number of visits declined 2 percent for the year ended September 2006 and another 3 percent for the same period ended September 2007.
NPD also finds that while minimal check increases have helped to ease some of those traffic declines, sales themselves remain weak. Sales at fine-dining operations were off 1 percent in both 2006 and 2007, the group says.
Heightened competition from all industry sectors and shifting dining patterns are exerting pressure on independent upscale restaurants, says NPD vice president Harry Balzer. He notes that “overall, going out to eat has become a market-share battle.”
“All compete at different times and at different points,” he says. “Someone has to lose, and that often turns out to be an independent.”
Balzer says consumers are cutting back on their dining-in frequency and are using foodservice operations more as sophisticated providers of packaged meals for takeout.
“There is pressure between the dine-in and takeout businesses,” he says. “Fewer Americans are actually staying in the restaurant to eat their meal.”
Last year the average U.S. consumer purchased 127 meals at restaurants and then ate them somewhere else, according to NPD. By comparison, the average customer bought 81 meals for consumption in a restaurant.
“That’s a reversal from the 1980s,” Balzer says. “Today, less than 40 percent of meals purchased in restaurants are eaten there. That has a direct impact on high-end operations. Restaurants have gotten very good at providing convenient alternatives to dining in.”
And upscale operators apparently are feeling the economic pinch. The NRA’s tracking survey for November found that 46 percent of fine-dining restaurateurs reported lower sales for the month, compared with 40 percent who reported higher sales. By the same token, 44 percent of quick-service operators polled by the association said sales were higher, versus 28 percent who reported lower results.
When asked to forecast business conditions over the next six months, 44 percent of the upscale restaurateurs polled predicted a more difficult economic climate.
“Fine-dining operators tend to be a little more pessimistic [than those in other segments],” Riehle says.
Upscale operators participating in the NRA’s monthly survey also said their top challenges for the future were recruiting and retention of employees, climbing gas and energy prices, maintaining sales volumes, and absorbing food cost and other economic increases.
Observers, however, say that while the business outlook is expected to remain cloudy for the near future, high-end dining is not in peril of becoming extinct.
“It’s wise to not underestimate the power and allure of fine dining among restaurant customers overall,” Riehle says.
While Balzer observes that fine-dining restaurants account for only 1 percent of all industry traffic, the experience is about “more than just supplying fuel.”
“People will always have a desire to experience new things, and they will continue to seek out fine-dining restaurants to supply them,” he says. “The special-occasion experience will always have a place in our life.”
In the meantime, operators continue to seek out ways to sustain their businesses during lean economic cycles. Joseph DiSalvo, co-owner with his family of DiSalvo’s Station Restaurant in Latrobe, Pa., says fine-dining operations must remain attuned to customer demands and tastes.
DiSalvo, who also serves as chairman of the Pennsylvania Restaurant Association this year, acknowledges the challenges facing fine-dining operators in 2008.
“With oil and gas prices up and the economy uncertain, you have to work to get people in the door,” he says. “So you have to be creative at different price points.”
“I have to constantly be listening to my customers and what they want,” continues DiSalvo, who says business in 2007 was off about 10 percent from the previous year. “If they want a better wine list or a larger array of spirits and beers, I have to give it to them.”
Located about 40 miles southeast of Pittsburgh in the city of Latrobe—which has a population of only about 7,000—the restaurant’s success lies in its ability to function as a dining destination, he says. To help address changing consumer trends and attract diners at several price points, the DiSalvo family offers customers a choice with a multitiered dining experience. The operation’s 16,000-square-foot building is divided into three separate areas: the more casual main restaurant; Joey D’s Sala da Fumo, a cigar bar; and Prima Classe, a limited-seating, high-end restaurant housed in a refurbished 1901 dining car.
While the main restaurant generates an average check of about $40 per person, the Prima Classe is closer to $100. However, it also offers a more formal, personalized experience, which includes DiSalvo waiting on guests and his father, Gaetano, doing the cooking.
“There is a market for formal dining, but things are changing,” DiSalvo says. “Most people want a great meal in a casual setting.”
He says Prima Classe attracts between 25 and 100 diners weekly. By contrast, the main restaurant offers a more casual experience, featuring 10 entrées for under $10 each every day except Sundays.
Another operation that offers guests a choice of dining tiers is Schuler’s, the 99-year-old landmark restaurant in Marshall, Mich., near Battle Creek.
“We’re very sensitive about pricing,” says owner Hans Schuler. “Part of the auto industry is here in Michigan, and the economy is suffering. There have been job losses, and people are moving out. Every year for the past five years business has been up. This year it slowed down.”
To attract a diverse clientele, Schuler’s features the more casual Winston’s Pub in addition to its traditional upscale-dining experience. The restaurant’s main dining rooms feature signatures like Schuler’s classic roast Prime rib of beef for $28.95 and Lake Superior whitefish at $23.95.
The pub, which operates from a separate kitchen, tends to focus on more casual, lower-price items like sandwiches and burgers, although it also offers other favorites, such as fish and chips and black-bean pizza. The highest-priced item is a Prime rib sandwich served open-faced on housemade sourdough with au jus and choice of pub potatoes or fries for $14.95.
Like DiSalvo, Schuler also tries to stay in contact with his guests and has established what he calls the “pub advisory board.” The board includes about 30 local couples who are good customers. As members of the board they taste new dishes, evaluate the staff and provide critiques on all aspects of the restaurant a couple of times a year.
“They take real ownership and give incredible feedback,” Schuler says. “It has been a very strong positive.”
Schuler says the restaurant continually evaluates the selections on its menu, although certain signature items are immune to elimination. “People just expect to come in and find them,” he says.
While he keeps pace with menu trends, Schuler is skeptical about the movement toward offering smaller plates.
“Everyone is talking about smaller plates these days, but I think people are still looking for value,” he says. “Instead, we attempt to give a range of items at a variety of prices.”
Like Schuler’s, Jack’s Oyster House in Albany, N.Y., is approaching the century mark. And like Schuler’s, its owners won’t allow it to rest on its laurels. Brad Rosen-stein, third-generation owner of the 99-year-old restaurant, is in the process of making some significant changes, both in the menu and the physical premises. After 11 years as Jack’s executive chef, Dale Miller, departed to take a new position at an inn in Lake George, N.Y., so Rosenstein has hired French-born and -trained chef Luc Pasquier to replace him.
With the changing of the kitchen guard, Jack’s plans to move in a slightly different culinary direction, Rosenstein says.
“We’ll have a dual menu that offers both American and French fare,” he says. “The dishes will be a little bit more old-fashioned, with fewer sauces.”
Rosenstein, like Schuler, questions the smaller-plates trend and anticipates offering slightly larger portions on the new menu.
“People want value for their dollar,” he says. “They expect to take food home.”
Rosenstein also plans to enlarge the restaurant during 2008. Jack’s will take over about 1,500 square feet of space in an adjacent building that previously had been used for offices. He will move the bar into the new space and add additional seating and a 25-seat private-party room. He also plans to install a raw bar in the restaurant.
While Rosenstein, who serves as chairman of the New York State Restaurant Association this year, characterizes business in 2007 as steady, he nevertheless adds, “You constantly have to be making innovations to keep pace.”
David Kinkead, co-owner with his brother, Bob, of the four-year-old Sibling Rivalry in Boston, also recommends that fine-dining restaurateurs try to keep things interesting, even when business is generally robust. For example, Kinkead decided to shake things up on the traditionally slow Monday night by altering the restaurant’s theme, which pits the brothers’ cooking and menu-writing skills against one another.
“It’s kind of like dueling menus,” he says.
Now the restaurant stages “Fight Night,” for which the sous chefs are asked to create their own fixed-price menu to compete against one developed by David Kinkead.
“It’s been kind of exciting,” Kinkead says. “It makes other people in the kitchen get excited and elevates the motivational factor, which is not typically there.”
Fight Night has boosted cover counts on Monday nights by 30 percent, he adds.
“We didn’t do it out of desperation,” Kinkead says. “Business has been good. But it proved to be a good idea.”
Fine dining in New Orleans still has not fully rebounded from Hurricane Katrina, says Ralph Brennan of Ralph Brennan Restaurant Group, which operates Bacco, Redfish Grill and Ralph’s on the Park.
“Some restaurants are doing a little better,” he says. “But we’re still feeling the impact. Business overall is about 75 [percent] to 80 percent of pre-Katrina levels.”
Brennan notes that part of the weakness is due to the fact that many residents have yet to return to the city. In addition to the city’s residential diaspora, though, he says New Orleans is not benefiting from the recent surge in tourism.
Nevertheless, restaurants are attempting to encourage business by freshening their menus and offering promotions. For example, Bacco’s just completed a white-truffle event, while Ralph’s on the Park has been featuring a three-course, fixed-price menu based on local seafood.
One bright spot in Crescent City business has been an upsurge in party business. Brennan says his restaurants work with the local business community, hotels and the New Orleans Convention and Visitors Bureau to help drive party business. He says that business at Ralph’s on the Park increased about 30 percent in 2007.
“We’re projecting another 30-percent hike in 2008,” he adds.
The trend toward casualization also is continuing at restaurants in New Orleans.
“The food is still high-quality, but things have become less formal,” Brennan says. “Everybody is evolving. Service is a little more relaxed. And you see fewer neckties. It’s part of the lifestyle.”
At the same time, he adds that some customers miss the more formal experience.
“One customer at Ralph’s has asked me several times to establish a dress-up night,” he says. “I’ve thought about tying it into a wine dinner. But I haven’t committed to it.” International tourism together with some hefty Wall Street bonuses have helped pump up business at a number of New York City restaurants during 2007. Shelly Fireman, owner of the Fireman Hospitality Group, which operates such midtown restaurants as Trattoria Dell’Arte, Redeye Grill, the Brooklyn Diner and Bond 45, reports “business is outstanding because we’re blessed with great locations and product and strong tourism.”
“The exchange rate is bringing a lot of European vacationers to New York,” he continues, but adds that without it, his business could be faced with some issues. “Real estate is impossible here,” he says. “I know a lot of people—even big-name chefs—on the side streets who are struggling.”
In the meantime, Fireman says even those restaurants that are enjoying a run of good business can’t ease up on the pressure to improve.
“You have to keep it fresh,” he says. “You have to keep tweaking it and being super-critical of everything. We’ve just made many menu changes, and now we’re looking at refreshing the interiors. Restaurants are always a work in progress. Nothing is ever perfect.”
Fireman also is weighing the possibilities of expanding several of his concepts outside of New York.
“We’re looking down the East Coast, at places like Washington, Philadelphia, Atlanta or even Florida,” he says. “We’re focusing on Trattoria, but we’ve been asked to go to the prom with Brooklyn Diner in Florida and Red Eye in Washington.”
Phil Suarez, co-owner with top-rated chef Jean-Georges Vongerichten of the 20-plus unit Culinary Concepts by Jean Georges, also acknowledges that 2007 was a good year, although he adds that he “isn’t sure where things are going from here.”
“It looks a little bleak out there,” he says.
Nevertheless, he and Vongerichten continue to fine tune their fine-dining empire. They just spent $500,000 to renovate their Columbus Circle crown jewel, Jean Georges, which has won four stars from The New York Times and three stars from Michelin.
“The restaurant was approaching its 10th anniversary,” Suarez explains. “We didn’t have to do it. Nothing was broken or falling apart. But you still need to keep it fresh and new-looking. We’re just putting our money where our mouth is.”
Suarez adds that the pair have global aspirations for another of their concepts, the wildly popular Spice Market located in the Meatpacking District of Manhattan. He says they are planning to open at least four new Spice Market outlets in 2008 in such locations as Atlanta or Miami, as well as Istanbul, Turkey; Barcelona, Spain; or Dubai, United Arab Emirates. The high-end restaurant specializes in the street food of Southeast Asia. The original location encompasses about 13,500 square feet and generates annual sales of about $15 million on a per-person check average of $60.
In 2006 Suarez and Vongerichten formed a company with Starwood Hotels & Resorts Worldwide Inc. and private-equity firm Catterton Partners to own, operate, manage and license restaurants in Starwood Properties as well as freestanding concepts unattached to the hotel company’s outlets.
Some Spice Markets will be built with company funds, some will be management deals and some will be built in partnership with hotels.
Plans also call for the eventual expansion of other company restaurants, including Vong, Perry Street and The Mercer Kitchen.
“There’s a lot happening,” Suarez says. “And I thought that by now I’d be taking it easy.”
