Outlook 2009: Mid-Atlantic

While veteran foodservice operators in the Mid-Atlantic states acknowledge that they are in a recession of almost unparalleled size and scope, many are taking forward-looking actions that they hope will help them emerge from the economic turmoil stronger than before.

“This is an era-changing event,” says Zane Tankel, chairman and chief executive of Apple-Metro Inc., the Harrison, N.Y.-based Applebee’s franchisee. “But we also see this as an opportunity to grow.”

Restaurateurs are adjusting their menus, re-examining purchasing policies, refining service techniques and looking for ways to differentiate their concepts in efforts to strengthen their footing as they move into the uncertain business terrain of 2009. In addition, some operators say the recession is presenting unanticipated opportunities including the hiring of desirable management personnel and the availability of more affordable and better locations as a result of the industry’s well-documented unit closures.

Tankel, who operates 32 Applebee’s locations in New York City and its northern suburbs—and who plans to open three more outlets next year—projects 2008 sales will increase between 3 percent and 4 percent while guest counts will rise 2 percent to 3 percent.

But, he adds, “I think 2009 will be much worse than 2008.”

He says a companywide multimillion-dollar remodeling program helped drive traffic over the previous year, and he also reports that a new sound system linked to multiple TV screens in Applebee’s lounge area has been popular with guests.

ECONOMIC INDICATORS, PROJECTED PERCENTAGE GROWTH RATES, 2008 TO 2009

To help ride out next year’s economic uncertainty, executives have examined all food, liquor and labor costs and made adjustments where needed, he says. For example, the kitchens are adhering to stricter portion controls.

“We measure everything now,” Tankel says.

MID-ATLANTIC 2009 STATE-BY-STATE SALES FORECAST

To help make the restaurants more hospitable, front-of-the-house personnel have been asked to follow “the five-foot rule.”

“When a guest walks into the restaurant, any associate who comes within five feet of that person says hello,” he explains. “We have to make every guest feel important.”

Xavier Teixido, owner of Harry’s Savoy Grill and Harry’s Seafood Grill in Wilmington, Del., says business looks like it will be flat or slightly down for his two upscale restaurants this year.

“When all of this hit, 2008 was pretty much in the bag, except for the holiday season,” he says, noting that sales have not yet been hard hit.

“The Mid-Atlantic region doesn’t have a lot of problems with subprime mortgages, for instance,” he says. “So people have been going out.”

All bets are off for the first four months of 2009, however, he adds, and expenses are being evaluated carefully. Typically, about 80 percent of his advertising budget is set by this time of the year, but for 2009, he already has sliced $100,000 from his ad budget. Further spending will be conditional, he adds.

Teixido also says he plans to meet with vendor partners in early 2009 to explore new strategies.

“We’re going to reinterview every vendor next year to find out what’s happening in their business,” he says. “We have to see where we can partner with them…[and] what they are looking to promote.”

While closely monitoring expenses, Teixido says he must be careful to ensure that quality does not suffer, and, in fact, must be sure to look for products that will differentiate Harry’s from the competition.

“For example,” he says, “we’re working with a small supplier that markets its own naturally raised steers.”

To help boost guest traffic, Harry’s Savoy Grill is promoting smaller-portion entrées at a lower price, which enables guests to have more control over how much they spend. A 5-ounce filet with a gourmet preparation is available, for example, as well as a two-course lunch menu for $15 and a three-course dinner menu for $35. John C. Metz, chairman and chief executive of Metz Enterprises, the Dallas, Pa.-based company that operates on-site accounts, hotels, casual-dining restaurants and quick-service locations, acknowledges that sales are down for 2008.

“But I really believe there are opportunities out there,” he says.

His company is examining all areas of cost control, including leases.

“We’re trying to negotiate breaks on rent with our landlords,” he says. “Basically, we’re asking people to help.”

Michael Sternberg, co-president of Enovo Restaurant Ventures LLC, which operates two Harry’s Tap Room restaurants in the Washington, D.C., area, projects that sales will be flat for 2008.

Sternberg says he is sensitive to the effect that a pricing hike might have on customer traffic.

“We took a slight menu increase in 2008 and don’t want to take any more,” he says. “We want to keep the customer counts growing, even if it is at the cost of the average check. If you keep attracting people to your restaurant, you’ll survive.”