Outlook 2009: New England

New England’s restaurateurs face proposals for new taxes by cash-strapped municipalities that could hurt their bottom line and low consumer confidence levels that could hurt the top line. But they are meeting the challenges with a combination of innovation and back-to-basics thinking.

To position operations for growth, restaurateurs also are staying local, they say, whether garnering funding from smaller, community banks, or marketing to customers from close-by neighborhoods. In addition, some New England operators are relying on their own local competitors to help weather the economic storm.

For example, Cambridge, Mass., restaurateur Patrick Lee and his Grafton Street Group, which comprises Grafton Street, Temple Bar and Redline, is a member of Dining Alliance Boston, a purchasing co-operative that was formed just over a year ago and now has more than 200 restaurants as members. While purchasing co-ops are not new in the restaurant industry, they have grown more popular in recent years as food costs have escalated.

“Individually, none of us are major restaurant chains, but together we can negotiate like we are,” Lee says.

Dale Venturini, president and chief executive of the Rhode Island Hospitality & Tourism Association, agrees. She has organized group purchasing of natural gas for the past 10 years and recently started a similar initiative with electricity. She recently formed a membership services council to explore other avenues for joint purchasing, something her members seem more interested in doing during tough economic times.

“People are much more open now to working with their competitors,” she says.

Lee of Grafton Street says that, in addition to trimming costs, it is important to continue to show commitment to your business.

When times are slow, he says, it makes sense to invest in small renovations—to take care of things that got shunted aside during busier times—and to keep operations fresh. So in 2009 he plans to add bar menus to his various restaurants. He says they not only will give customers a slightly lower price point to consider, but also will encourage them to dine out when they might not otherwise.

Burlington, Vt.-based Bruegger’s also is looking toward innovation in 2009. The chain of just under 300 fast-casual units has been testing hot sandwiches and house-made breads and plans to introduce them systemwide this month.

ECONOMIC INDICATORS, PROJECTED PERCENTAGE GROWTH RATES, 2008 TO 2009

Chief executive James Greco says the new offerings would provide the chain with a more solid lunch program and help fill out its catering efforts, which he hopes the chain will be ready to promote in the second half of 2009. The company is working on setting up an effective order-taking and delivery system before catering operations move full-steam ahead.

Bruegger’s locations that already offer the new hot sandwich items are outperforming others locations by several percentage points, he says. The chain’s same-store sales through the third quarter of 2008, which ended in September, were up by about 3 percent from a year ago. Greco anticipates growth in the fourth quarter of 2008, too.

NEW ENGLAND 2009 STATE-BY-STATE SALES FORECAST

In the summer of 2009, Bruegger’s also will bring back its coffee-based frozen drinks and introduce the chain’s first fruit-based smoothie. Beverage offerings have been an industry bright spot, with sales for the category rising throughout 2008 at many chains. Brands from quick-service players Sonic and McDonald’s to fine-dining operators Morton’s and McCormick & Schmick’s have looked toward new beverage offerings to drive sales.

Poised for growth, a New England Qdoba Mexican Grill franchisee is turning to local banks for funding, especially as the national credit market continues its thaw from a deep freeze.

“We had started to establish relationships in the early fall, recognizing the descent into the credit crisis, and started to forge relationships with…old-style community banks,” says Jeff Ackerman, chairman of Chair 5 Holdings, which operates 18 Qdobas in Massachusetts. His company’s involvement in community activities won over the local lenders, he adds, “as opposed to some of the straight credit rules that some of the national lenders look at.”

Chair 5 had a good 2008, with same-store sales up about 5 percent, Ackerman notes. But even so, getting the funding the company needed to open new restaurants required not only inroads into community banks, but also the raising of equity and agreeing to expensive subordinated-debt loans from institutional lenders, he says.

“The year was a definite high-wire balance act,” he says of 2008. “I will focus for the most part on [local lenders] throughout 2009.”

Local is also the focus of Boston restaurateur Babak Bina, who with his sister, Azita, owns Lala Rokh and Bin 26 restaurants. But by local Babak Bina means focusing on neighborhood restaurants that cater to local clientele, rather than high-end destination restaurants, which is a segment the Binas exited as recession loomed back in the late 1980s. The duo have operated neighborhood spots ever since because local operations rely on a more regular customer base and are less exposed to economic fluctuations, he says. In November they opened BiNA Osteria and BiNA Alimentary, a combination restaurant and retail food shop that opened side-by-side at the Ritz-Carlton Boston.