Outlook 2009: West

In the West, operators say they are hoping for the best but preparing for the worst in 2009.

California, by far the largest state in the region, is expected to remain a challenging market for restaurants as consumers cut back on discretionary spending and the state continues to enact tough business legislation.

Operators say they are focused on what they can control.

Pat Kuleto in San Francisco, for example, is the primary owner of seven independent Bay Area restaurants, including the adjacent waterfront venues Epic and Waterbar, as well as Martini Bar, Nick’s Cove and Cottages, Boulevard, Farallon and Jardinière.

“In 2009, the name of the game will be survival,” he says. “You’re going to have to show you can tighten the ship and operate lean and mean.”

To help each restaurant cut costs, Kuleto has pooled purchasing, not only on food and beverages, but also on supplies such as paper products, linens, accounting and other services.

Kuleto is looking at other efficiencies as well, such as using one reservation system for all of his concepts. Managers of each restaurant are meeting regularly for “think tank” meetings to share best practices, he says.

Operating in the Golden State hasn’t been easy of late. It was one of the first states to suffer the impact of the housing crisis in 2008, and it consistently has led the nation in home foreclosures over the past year. Unemployment levels reached 8.4 percent in November, the highest state rate since September 1994, according to the state’s Employment Development Department. Health care and employer legislation also continue to make headlines. The California Restaurant Association is expected to push for legislation that would make the state’s regulations on meal and rest breaks more flexible for both employers and workers.

ECONOMIC INDICATORS, PROJECTED PERCENTAGE GROWTH RATES, 2008 TO 2009

Meanwhile, the state Supreme Court this year may review a potentially precedent-setting meal-and-rest break case involving Chili’s Grill & Bar, which observers say they hope will provide clarity on the issue, which already has led to lawsuits for so many California businesses.

For operators like Los Angeles-based Innovative Dining Group, or IDG, which owns 11 high-end restaurants including the Sushi Roku, BOA Steakhouse and Katana brands, the focus in 2009 will be on continuing efforts to drive sales and cut costs despite the distractions of operating in California.

“We’re looking at things that don’t affect the guests sitting in those seats,” says Lee Maen, an IDG partner.

For IDG that has meant cutting back on the use of mystery shoppers, scaling back hours of operation, scheduling fewer hostesses during slower hours and letting managers watch the front-of-the-house.

WEST 2009 STATE-BY-STATE SALES FORECAST

To bring in more business, the group for the first time began offering affordable three-course prix-fixe menus at each of the concepts. In addition, all IDG restaurants now offer a 10-percent discount on takeout.

IDG is developing a new French brasserie concept, scheduled to open this year in Hollywood. The group also is moving its West Hollywood BOA Steakhouse from a 3,300-square-foot spot to one nearby with more than 13,000-square-feet on the competitor-packed Sunset Strip.

“You just have to be aggressive and optimistic,” Maen says. “People are going to gravitate toward the newest and best thing. But I’m not taking on any more new deals until at least mid-2010.”

In the casual-dining segment, chain operators across the West say they are focusing on providing consumer value.

Ruby’s Diner, the 50-unit chain based in Newport Beach, Calif., plans to introduce in January new family meals that are designed for four to share and are priced at less than $30. Options might include a giant turkey potpie, or a plate of sliders, fries, onion rings and a shareable dessert, according to Doug Cavanaugh, Ruby’s chairman and chief executive.

To boost beverage sales, the chain will offer milkshake samples, and one unit is testing all-day breakfast service.

The 13-unit Kabuki Restaurants Inc., based in Burbank, Calif., is also looking to appeal to cash-strapped consumers with a new weekday happy hour. In addition, a planned menu overhaul in 2009 will include a more value-priced beef bowl lunch option.

This year Kabuki is one of many operators planning to offer consumers more nutrition information in restaurants.

California in 2009 will become the first state to mandate the disclosure of nutrition data in restaurants, following similar mandates at the city level in New York City and Philadelphia. Beginning in July, chains with 20 or more units nationwide will be required to either provide a brochure detailing the calories, fat, carbohydrates and protein levels in standard menu items, or to post calorie amounts on menus and menu boards. The latter will be required by 2011.

Kabuki, with only 10 units in California, would not fall under the mandate. However, like many operators across the state, officials are planning to comply on a voluntary basis.

“Menu labeling is something we’ll need to do,” says Young Kim, Kabuki’s director of marketing and real estate. “We’re getting a lot of requests for the information.”