Outlook 2009: Southwest-Mountain

The Southwest-Mountain region seems well positioned to weather the economic storm in 2009, according to operators and state restaurant association executives.

The region includes the top three states ranked by expected sales growth in the National Restaurant Association’s Forecast for 2009: Colorado, Nevada and Texas. It also embraces Arizona, New Mexico, Oklahoma, Utah and Wyoming.

While the region generally shows increases in population and disposable income—two key drivers behind increased restaurant sales—operators still are finding the economy a challenging one as they evaluate 2008 and look toward 2009.

“We’re not really kicking ass,” says Pete Meersman, head of the Colorado Restaurant Association, “but we’re also not getting our ass kicked.”

While many operators are seeing the glass as half full, restaurant association executives shared Meersman’s estimation that the Southwest-Mountain area is “in better shape than most regions in our ability to weather the economic storm. We’re pretty optimistic.”

In Texas, where the growth in restaurant-industry sales is expected to lead the nation with a 4-percent increase from 2008, Richie Jackson, executive vice president and chief executive of the Texas Restaurant Association, says, “While our country is coping with the weakest economy in decades, Texas restaurateurs continue to buck the trends and post positive sales and job growth.”

ECONOMIC INDICATORS, PROJECTED PERCENTAGE GROWTH RATES, 2008 TO 2009

Oklahoma, which escaped the worst of the nation’s housing bust and is a state that benefits from the profitable energy industry, hasn’t experienced the big economic swings of other areas, says Jim Hopper, president and chief executive of the Oklahoma Restaurant Association.

“The effects certainly aren’t as severe as in some other parts of the country,” he says. “Operators are being careful, watching their costs and marketing campaigns and looking at what they can do to drive traffic.”

Troy Guard, a chef in Denver who still plans to open a two-level, 125-seat TAG restaurant in March, says he is a bit nervous for 2009 because the “next two to three quarters are looking a little hairy.”

However, to combat the expected weakness in consumer spending, he is positioning his new restaurant as “valuable and approachable and market-driven,” he says, and it will feature what he calls “continental social food.”

Guard says the economy is not forcing him to venture far beyond his original business plan, which was created prior to September’s stock market and credit market meltdowns. The restaurant’s per-person check average is targeted between $38 and $45 , he adds, which is in the middle tier of restaurant check averages in the surrounding areas.

“We’re more for the masses,” he says, “so we have to watch our price point.”

Guard says chef-driven restaurants have to look at new ingredients to keep the value message strong and also to contain costs.

“We have to get creative in our buying and our selling,” Guard says. “When it comes to proteins and some vegetables to use on the menu, we’ll be looking closely in 2009.”

SOUTHWEST-MOUNTAIN 2009 STATE-BY-STATE SALES FORECAST

Guard is looking at new value-priced products such as pork short ribs and an ocean-farmed Hawaiian Kona Kampachi fish.

“Anyone can put a filet mignon on the menu and charge $50,” he says, “but we have to be more creative.”

A long-range potential silver lining to the economy’s weakness may be the health of state residents, according to Carol Wight, chief executive of the New Mexico Restaurant Association.

“Some restaurants are paring down their portions to keep costs down,” she says. “Health-wise, this paring down is what we need to do as an industry so we don’t get hit later with a lot of obesity lawsuits. The fact that we aren’t over-serving is a positive.”

Another benefit of the economic downturn is the availability of more affordable real estate, sources say. Antonio Swad, founder of the 84-unit Pizza Patrón of Dallas, has units in Arizona, Nevada and Texas, and he says that landlords are growing more eager to get restaurants into their spaces. That was not the case a year ago, Swad notes.

“For a while there, we were a lot of dogs trying to chase a few cats,” he says of the real estate hunt. “But today, end-cap locations are more readily available and rents that used to be $35 a square foot have dropped to the profit-loss favorable $28 a square foot.

“The concepts that have value are positioned to win in this economy,” he says.

Andrew Gamm, director of brand development for Pizza Patrón, agrees that in this economy, the creation of consumer value, or lower-price points for quality offerings and great service, is imperative for the pizza chain.

“We haven’t changed our menu prices at all,” Gamm says. “We’ve spent much of this past year going back to the table with manufacturers and vendors to renegotiate some of our supply pricing. We’ve been successful in getting some stabilization of what’s coming in the back of the house. We’re optimistic over the next 12 months about what this will help us achieve.”

LEGISLATIVE HOTSPOTS

ARIZONA: Immigration reform; and lowered drinking age from 21.

COLORADO: Health department licensing fee; liquor law changes; union issues; immigration reform; tourism-promotion funding; and smoking bans.

NEVADA: Regulations for obesity lawsuits; immigration reform; overtime regulations; mandatory menu ingredient labeling; minimum wage increase; smoking bans; work opportunity tax credit; estate tax repeal; tip-tax fairness; and restaurant depreciation.

NEW MEXICO: Local-option liquor taxes; health-inspection grading system; healthcare initiative; and lowered felony penalties for alcohol service to minors.

OKLAHOMA: Menu labeling; trans fats; immigration reform; and statewide uniform food code.

TEXAS: Changes to franchise tax; immigration reform; liquor liability; employee food-safety training; smoking ban; and liquor purchasing.

UTAH: Liquor law reform; and reform of private-club membership fees.

WYOMING: Tourism marketing; immigration reform; food safety; smoking bans; and career and technical training grants.