Restaurant Operators - 2008 Is your Company Ready for What's Coming?

Implications: As this first quarter of 2008 comes to an end, what's ahead for the Restaurant Industry in Q-3, Q-3 and Q-4? Commodity Prices escalating at unprecedented rates, customer traffic softening, labor costs rising, bottom lines dwindling, talent pools shrinking, facility expenses uncontrollable, oil prices at all time highs, the U.S.Dollar at all time lows, Wall Street on an unbelievable roller coaster, Banks and Financial Institutions failing and laying off ... Watch out ! ! There is not one Restaurant Segment that is in a 'safe' position - not QSR, Casual Theme, Casual Ethnic, Fine Dining, nor High-End Steak & Seafood. No, not one.

Analysis: Now that the media has dusted-off the "R" word (recession) and is, and has been using it freely, our consumers, the Restaurant Customer is re-priortizing their 'needs' from their wants on a large scale. Picture it ... U.S.A.-2008, the restaurant industry's 'target' 24 to 40 year old family group most commonly comprised of the 2 adults, 2 1/2 kids and a dog, that typically owns (or worse yet is paying off) the Had-to-Have SUV that now takes close to $100 for each fill-up, just found out their Flex Percentage Mortgage is flexing in the wrong direction and the valuation of their 'American Dream' is reducing harshly. Yet we the restaurant industry think we can continue to lure them into our spaces with higher-priced, average (to substandard) food, unceremoniously  delivered by substandard (hopefully English-speaking) servers while we think no one will notice we are grabbing an extra $2 for that Coke. Then we pine and toil and argue about soft (at best) sales and down-trending consumer spending habits. If any or all of these traits fit your method of operating, your headed for a disastrous year. To those who, inspite of the financial woes plaguing the U.S., continue to offer NEW, CREATIVE, INNOVATIVE Food Products, with a good to great value perception and 'TODAY' tastes, you most likely will enjoy a good, albeit fractional in contrast, sales year. But at least you will continue to be solvent.

Supermarket Prepared Food intrusion is a MAJOR threat to the QSR and Casual Theme segments of the restaurant industry. As more and more Supermarkets figure out what "verticle integration" means, and understand that those Holland Red Bell Peppers that retail for $3.99-lb. (store cost typically in the mid-to-high-$2's), when cut in half, stuffed, baked and sauced make a better $6.99-lb. (per half) entree selection. Having just attended a Supermarket Association seminar, focusing their industry on the subject of 'Prepared Foods', one startling fact resinated with me ... FACT: At 3:00pm DAILY, 78% of Americans DO NOT know what or where they are having dinner. Amazing ! And the wise Supermarket operators are capitalizing on that fact. Heard of Whole Foods? They have the Prepared Foods program covered from every angle. In-Store Vertical Integration; Prepacks from their regional production facilities; and/or Prepacks from qualifying local and regional third party production houses. Oh, by the way ... the prepared foods department not only knocks out a restaurant meal, but is one of the most profitable "margin" departments a supermarket has. They are cashing in BIG TIME ! ! Therefore, I confidentially use the word "Intrustion" when I speak of supermarket prepared foods departments. Not just supermarkets, by the way. Convenience Stores like 7-11, et al have already taken QSR business away from that segment. Fast ... easy ... grab-and-go. Even QSR Ticket Times cannot compete with the "C" Stores.

The net net is 2008 is going to continue to be rough, actually as we view it, minimally through Q-2 2009. The ONLY 'fix' is to have your individual houses "in order". If you haven't developed any new products, revamped (not just revised) your menus, and gone for GREAT tastes .... sorry to say you're headed for BIG trouble. More than one restaurant company is going to leave our world before the end of the year ... don't let it be YOU (or yours Mr/Mdme Equity Investor) ! !