Wednesday, August 5, 2009

Don't bogart that financial statement

This week's earnings reports are giving the restaurant industry a new riff for its all-night blues jam. And, man, it's a killer. If the business could find enough green shoots, its best shot at solace might be to smoke 'em.

Consider, for instance, the meltdown at the high end of the casual market. The comp sales figure provide the slide work on this one: Morton's, down 26.1%; Ruth's Chris, down 23%; McCormick & Schmick's, down 17.3%; Benihana, down 13.1%. Keep in mind that several of those big-ticket players have already armed themselves with steep discounts relative to their usual prices. There's just not enough expense-account and top-ticket tourism business to avert a sales plummet. Ruth's Chris, for instance, said a continuation of its comps trend would cost each store about $1 million a year in sales.

But that's casual dining, and the top drawer at that. Surely it's a different story for fast-food.

Sure enough, comps ebbed only a little more than a percentage point for company-run Jack in the Box restaurants, and the damage wasn't much worse for the burger concept's little sister of a brand, Qdoba.

But in analyzing the factors for the benefit of investors, Jack in the Box CEO Linda Lang acknowledged that breakfast, one of the areas of growth for the whole sector, had been weak.

"We also saw some fall-off in sales [of] side items, carbonated beverages, and shakes," added Lang. Throw coffee in there, and you have the key profit drivers of fast-food.

Jack's solution: Discount deeper. The chain recently added a head-turner called the Big Deal, a cheeseburger, taco, fries and a drink, for $2.99. And, says Lang, "We currently have additional value-priced product or promotions in test elsewhere in our system." She described them as "margin neutral or margin friendly," without revealing specifics.

BurgerBusiness, Scott Hume's site devoted to all things burgers, noted in a recent posting that $2.99 is the new $5, the rockbottom threshold where everyone wanted to be earlier this year. As he pointed out, White Castle and Sonic are already offering meals at that price level.

Even Hardee's, a proponent of heft, is dabbling with bargain-priced snacks, vis-a-vis its new biscuit holes.

Product giveaways have become a routine way for chains to flycast for more customers. But if an everyday meal costs a mere $2.99, will that hook stay as irresistible? Or might "cheap" become irreversibly associated in the public's mind with "quick-service"?

I don't know, but I bet we're going to find out.

1 comment:

William said...

Peter, how does one make any money if you are giving away the profit? We are in this business to make money.Restaurants at all levels need to focus on service,how there establishment looks,quality of food. If you offer deals all the time, what happens when you take them away? Look at Macy's... A sale every week. Does anyone pay full price in that retail store? Deals ar great if they are handeled like salt. A little can make a dish great, but when too much is added, it is impossiable to eat.
Warm Reguards,
Bill Irvin