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Restaurants brace for a sour season as consumers lose appetite for dining out

FOOD

The number of people visiting restaurants has plunged for four quarters in a row, according to NPD Group. Some higher-end establishments are offering discounts for holiday parties.

November 24, 2009|By Jerry Hirsch
  • Patina Restaurant Group founder Joachim Splichal, shown at his Nick & Stef's Steakhouse in downtown L.A., has been focusing on booking company parties, offering price breaks as inducements.
Patina Restaurant Group founder Joachim Splichal, shown at his Nick &… (Ricardo DeAratanha / Los…)

Adele Cabot and her husband used to dine out three or four times a week, regularly spending $75 to $100 at a sushi bar sampling rainbow rolls and yellowtail nigiri sushi.

But that changed after Cabot, an adjunct professor of theater at UCLA, had to take a 6% salary cut. The couple now eat out half as much and frequent less expensive Mexican and Italian places.

"I just don't want to spend the money to eat out a lot," Cabot said.

With Thanksgiving this week and Christmas next month, restaurants are eager to win back customers such as Cabot who seemed to disappear amid a brutal summer for the nation's eateries.

Restaurant owners are worried that tight corporate entertainment budgets, cash-conscious consumers and greater competition from price-cutting supermarkets will make for another dreary Christmas.

The number of people visiting restaurants has plunged for four consecutive quarters, according to NPD Group, a market research firm. Companies as small as Tender Greens, with just three restaurants, and as huge as the Denny's chain are braced for another difficult year.

"Until the economy gets through these unemployment and foreclosure issues, we are going to have a tough time," said Nelson Marchioli, chief executive of Denny's Corp. of Spartanburg, S.C. "The economy has really put our customers in a tough position."

Marchioli is talking about people such as Harry Browne of Mount Washington. Browne lost his job in information technology and won't be buying anything more than "a value meal from a fast-food restaurant" these holidays. "I am on my last extension of unemployment benefits, so I have to really watch my spending," he said.

To reach those consumers, Denny's plans a television advertising blitz during key NFL and college football games as well as the Macy's Thanksgiving Day parade.

It isn't only mid-priced family restaurants that people are avoiding. Upscale chains such as McCormick & Schmick's, the seafood house, and Morton's, the steak purveyor, saw same-store sales, or sales at restaurants open at least a year, fall 18.8% and 16.8%, respectively, in the third quarter compared with a year earlier, according to Bellwether Food Group, a food industry consulting firm.

Bellwether doesn't project an industry rebound to pre- recession levels until 2012.

The recession has taught consumers to eat out less often and to order less -- skipping alcoholic beverages, appetizers and desserts -- when they do, Bellwether said.

That's made easier by supermarkets, which have cut prices and expanded their selection of prepared food and takeout entrees.

"We used to eat out a lot and buy just some things at the supermarket," said Grant Cramer, who owns a small television and film production company in Los Angeles.

Now he's cooking at home more and finds himself stocking up at the grocery store and farmers markets.

"I had a couple of projects that crashed with the economy. We had to tighten up," Cramer said.

Christmas-season spending at bars and restaurants this year will be about $7.8 billion, according to IbisWorld Inc., a market analysis firm in Santa Monica. That's one of the rosier industry estimates -- up almost 6% from a year ago, but that's only because last Christmas was so lousy, the company said. It is still down 11% from the pre-recession level of $8.8 billion in 2007.

"I think it will only get tougher. People are still losing their jobs, credit is still tight, and we could see another wave of foreclosures," said Erik Oberholtzer, co-owner of Tender Greens, a group of three restaurants based in Culver City that emphasizes locally grown food.

Restaurants are redoubling their efforts to prevent as poor a holiday season as last year's. In particular, they are focusing on catering private parties and hosting business gatherings -- a vital source of income this time of year.

"We called back a lot of people this year who canceled on us after the economy collapsed last October," said Joachim Splichal, chef and founder of Patina Restaurant Group, which owns Patina, Cafe Pinot and Nick & Stef's Steakhouse, among other upscale eateries.

Splichal found that many companies wanted to do parties for their workers if for no other reason than to celebrate surviving a tough year that often included wage freezes and layoffs.

"They were all on a tight budget," Splichal said. So to close deals, he offered a 10% discount for early bookings and then came up with all-inclusive plans, such as $60 for a three-course dinner, wine, tax and tip.

The hope is that customers will upgrade -- for example, picking more expensive wines or making other add-ons -- during the event, he said.

But he also found that many clients who still want to celebrate are downgrading from a formal dinner to a cocktail party.

Cache Restaurant & Lounge, an independent restaurant in Santa Monica, has knocked 10% off the price of private-party bookings.

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