The recession-plagued but hopeful restaurant industry sees signs of slightly looser lending and more customers
October 21, 2010 4:00 AM
Chad Brooks, owner of Brooks Hospitality LLC which owns the Pittsburgh franchise for Qdoba, outside his newest restaurant in Settler's Ridge shopping center.
By Teresa F. Lindeman Pittsburgh Post-Gazette
The Qdoba Mexican Grill presence in the Consol Energy Center likely owes something to a lucky connection between the Mexican restaurant chain and Pittsburgh Penguins coach Dan Bylsma. What good marketer wouldn't want to get a little play out of the coach's taste for its burritos?
But that's not the only reason franchisee Chad Brooks recently opened a new location at Settlers Ridge, is putting two inside vendor stations and a street-level restaurant at the new Uptown arena and is talking to the Pirates about a Federal Street location that could be ready for opening day 2011.
"Financing has opened up some," said Mr. Brooks, who hadn't built anything new since 2008, when consumer spending slowed and bank lending stopped as the financial crisis hit hard.
Much of the restaurant industry has been starving for the past two to three years, waiting for a return of the consumers who had decided dining out was a luxury they couldn't afford. In 2009, the worst year of the industry downturn, a net 8,000 restaurants were closed nationwide, compared with about 3,000 the year before, according to Technomic Inc., a Chicago-based food consulting group.
Before the slowdown hit, growth had been fast and demand for good spots intense.
"Restaurants were doing so well, they just never expected anything to close," said Darren Tristano, executive vice president of Technomic.
The hard times weren't much fun but they were educational. Restaurant chains fine-tuned their operations.
Many adapted their menus, their prototypes and their marketing to be better positioned for what comes next, even if that's a very slow recovery.
Some restaurateurs, like Mr. Brooks, are no longer content to stay hunkered down.
With hints that consumers are coming back combined with a slight easing in the lending environment, expansion is back on the menu.
Technomic is projecting the industry could see 1 percent restaurant unit growth this year and said sales in the third quarter finally seem to be showing gains, rather than just smaller declines.
Quaker Steak & Lube, the restaurant chain based in Sharon, Mercer County, this week announced a new deal with a franchisee planning to put as many as 16 restaurants in the New York and New England market starting next year.
California Pizza Kitchen also ranks among those ordering up new locations again.
The Los Angeles chain, which had been rumored to be scouting the Pittsburgh market as far back as 2007, will officially open its first area restaurant at Ross Park Mall on Monday.
"We've had a lot of requests from Pittsburgh," said Rick Rosenfield, co-CEO of the 260-restaurant chain who said he took a helicopter tour of the market a couple of years ago and personally approved the Ross Park site about a year ago.
The company is also looking at sites in the South Hills, as well as in Robinson and Cranberry, he said, adding that three or four locations would probably be the right total for this market.
California Pizza Kitchen had been opening 15 to 17 locations a year and then dropped suddenly to five at one point in the slowdown.
"The economy scared everybody and frankly still does," Mr. Rosenfield said.
Now, he said, the pace is back up to eight or nine new sites annually.
The company hasn't set a target for the number of new locations it might do each year, choosing instead to be open to any offers that fit the right location and demographic profile.
Before the downturn, the chain's sites were often in new shopping centers or projects going up around the country. At one point, California Pizza Kitchen was using a 6,000-square-foot prototype that might be in a freestanding building.
These days the preferred location is in a mall, preferably with a Nordstrom, Saks or Neiman Marcus, Mr. Rosenfield said.
A Cheesecake Factory or P.F. Chang's nearby is nice, too. The new restaurants are smaller -- about 5,000 square feet with a patio.
Mall operators are eager to add sit-down restaurants these days, having decided they serve as anchors drawing people to the enclosed shopping centers in a way that food courts don't, Mr. Rosenfield said.
In some cases, spaces have opened up in the malls, but sometimes it takes a little reconfiguring.
"They're happy to move retailers out now," he said.
Both California Pizza Kitchen and Qdoba have whipped up changes to their menus, trying to accommodate customers looking for value even as the restaurants try to avoid too much discounting. "It's pretty clear people are looking for discounts and promotions," Mr. Rosenfield said.
California Pizza Kitchen's strategy is to give people a wide price range to choose from, he said.
The "Small Cravings" offerings, for example, come in the $3 to $6 range.
Qdoba has expanded its kids meal offerings in the past year, said Mr. Brooks, and a new "Craft 2" menu that lets people pick two smaller items for the price of one entree has been popular.
It's a widespread trend. Pizza Hut has been heavily advertising its simplified menu pricing, pointed out Mr. Tristano, from Technomic. And Cheesecake Factory has more small plate offerings.
Other lessons learned in the downturn vary.
Mr. Brooks, who opened his first Qdoba in Oakland in 2002, moved fast in the early years and added locations quickly. He thinks the development hiatus helped him better understand how to make the restaurants work well and to build a strong employee base.
He has seen competition come and go -- Baja Fresh came and then closed, with Qdoba and Chipotle taking over the locations; a chain called Salsarita also tried the market while Moe's Southwest Grill stayed -- and he thinks the action may have helped raise the Mexican segment's profile in the Pittsburgh area.
Chipotle is expanding too, these days, with a new location just announced for Market Square, Downtown.
California Pizza Kitchen, which has built its U.S. presence with corporate stores, has begun to try franchising internationally as well as on college campuses.
The company announced earlier this year that it is also exploring strategic alternatives, which could mean a possible sale.
As for whether or not a real recovery is here, the restaurant operators are keeping a close eye on their cash registers.
Mr. Brooks said his Qdoba stores began feeling the recession a year before the financial meltdown came, and he started to see signs of a recovery in September 2009.
California Pizza Kitchen took a big hit in its office catering business when businesses were scrambling to cut budgets.
That has turned around dramatically.
"I may not be an economist," Mr. Rosenfield said. "I am a canary in the coal mine."
From that precarious spot, he reports that things haven't turned around entirely but they've calmed down considerably.
"People that have their jobs are more comfortable that they're going to keep their jobs than two years ago."