NEW YORK —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Despite the ailing economy, executives of Darden Restaurants, Buffalo Wild Wings, California Pizza Kitchen, AFC Enterprises and the new Wendy’s/Arby’s Group Inc. all declared this month that they see opportunities for growth, chances to gain market share and openings to refocus brands. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
(To view charts featured in this week's print pages, click here.) —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
For operators with funding, one key silver lining glimmering through darkened economic clouds and gloomy credit markets would be a new openness among commercial landlords to offer favorable occupancy deals on good sites that are going begging. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Even though the financial markets are facing changes never before seen, the economy is not in an unfamiliar state, including such now-familiar trends as job losses, increased gas prices and reduced spending, said Cheryl Bachelder, president and chief executive of AFC, parent of the Popeyes Louisiana Kitchen chain. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“We’ve been in recessions before, we’ve seen gas lines before,” she said. “We’re in the restaurant business, and people have to eat.… That won’t change.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Leading companies today are working to position themselves for an eventual turnaround, one perhaps sparked by Congress’ action to bail out failing banks. The $700 billion plan, which is expected to increase lenders’ liquidity and boost spending and consumer confidence, will take time to exert any effect, however, experts say. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
In the meantime, operators are looking to use the downturn to take advantage of many available, topnotch restaurant sites, an influx of well-qualified but downsized employees, and a fiscal environment that forces more disciplined cost-cutting and sales generation. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“The availability of quality sites is greater than it has been—more than we were thinking it was going to be just a year or so ago,” said Brad Richmond, chief financial officer of Darden, whose Red Lobster and Olive Garden chains anchor the industry’s largest casual-dining system. Prime sites are “a precious commodity in our business.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Richmond and the other executives spoke this month at the RBC Capital Markets Consumer Conference in New York. Officials of Buffalo Wild Wings and California Pizza Kitchen also said they are seeing better sites open up as the pool of qualified tenants shrinks or as some brands restrain or even halt expansion. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
While rent abatements have yet to be seen, developers and landlords will eventually have to come down in pricing for viable tenants, the chain leaders said. Financing for growth is not yet a problem, the officials added, as companies insist they can self-finance corporate system growth through cash flow, and that many of their franchisees are in the same position. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Despite some lenders’ slowdown on new restaurant lending, like at GE Capital Franchise Finance, which last month said it was raising hurdle rates and taking more time to make deals, at least one McDonald’s franchisee says capital remains available. Jonah Kaufman, a 32-year McDonald’s veteran who operates 13 branches in the New York area, described a talk he’d had this month with his banker at a subsidiary of JPMorgan Chase & Co. about credit availability. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“I said, ‘Donna… I have this beverage initiative coming up and I’ll need $1 million,’” Kaufman said, “and the answer was an unqualified yes.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
The quoted interest rate, however, was about 2 points higher than Kaufman’s current lending arrangement, which was fixed at 4.6 percent, he said. A new deal was quoted between 6.8 percent and 7.1 percent, although those rates are fluctuating daily, he added. Kaufman’s banker also pointed to tougher scrutiny on leverage ratios, cash flows and his business’s profit-and-loss statement. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Roland Smith, the new chief executive of Wendy’s and its new Wendy’s/Arby’s Group parent, said he had not yet heard from franchisees that any financing trouble could pose a roadblock for Wendy’s turnaround plans, which eventually will include the remodeling of units. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“The availability of capital will have an impact on every single business’s ability to build and remodel,” he told Nation’s Restaurant News in New York. “Capital will be available…to the best businesses with the best returns.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
All executives at the RBC Capital Markets conference agreed that growth in today’s marketplace needs to be handled with care so that returns on capital investments are met and the supply-demand equation between restaurant sites and consumer appetite is healthy. The oversupply of casual-dining locations has been one reason cited for that segment’s negative sales trends during the past two years. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
In addition to tapping higher-quality sites, California Pizza Kitchen has been able to hire experienced restaurant managers who are seeking opportunities while fleeing from other brands that have either shut units or capped growth and spending, said Rick Rosenfield, CPK’s co-founder and co-CEO. He said the employees CPK is able to hire today would better position the brand for tomorrow. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“When all of this shakes out,” Rosenfield said, “we will be at the top of our game, and I feel good about that.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Working through the currently tough economy, however, is still top of mind for each and every restaurant operator, the conferring executives said. Re-evaluating each line item of expense while driving sales with value-based offerings are imperative. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
On the cost side, Popeyes’ Bachelder called the need to squeeze out costs or boost sales “finding your 2 percent” to improve margins, a line she said the company repeats to unit operators each day. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Buffalo Wild Wings’ chief executive, Sally Smith, also said cost controls need to come from small wins in various places, because there remain no large areas for tightening up unit-level expenses that haven’t already been exploited. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“It’s looking at uniforms, credit-debit card fees, pre-opening expenses,” she said. “It’s 50 cents, it’s $1, it’s 10 basis points. There is no magic bullet.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
All executives agreed that while there typically is room to reduce spending, such cuts must never come at the expense of the customer experience—perhaps the one element keeping consumers dining out in today’s tough times. Experience, ambience and food quality cannot be reduced, they concurred. The umbrella term is “value,” what consumers get in exchange for what they pay, the executives emphasized, and value isn’t just 99-cent deals or limited-time, price-driven promotions, they stressed. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“It’s about making the visit as compelling as you can,” said Darden’s Richmond. “You can’t take anything away to improve margins.… It’s attention to detail and everyday consistency.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Quick-service executives agree that each day counts as well, and consumers who have been trained to expect low prices need to get them each day. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
Popeyes’ Bachelder said any value meal offering, a necessity in today’s quick-service segment, must be sustainable and profitable. —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
“Items under $2 are driving 50 percent of [quick-service] traffic,” she said. “That plus a drink is pretty much all the market will bear.… Consumers want value they can trust. Every day.” —Leaders of some of the industry’s largest casual-dining and quick-service brands do not believe the sky is falling, even amid the unprecedented credit chill, recently extreme stock market volatility, consumers’ stricter belt-tightening and persistent cost inflation.
