Tuesday, January 25, 2011

Snapshot from southern Cal

Restaurant veteran John A. Gordon was kind enough to pass along what he saw and heard at the recent ICR XChange Conference, a powwow in southern California for restaurant companies and investors specializing in the field. The meeting is different from most financial conferences because the presenters include private companies as well as public ones. In this case, that meant a peek inside such interesting up-and-comers as Le Pain Quotidien, a bakery-café concept, and Ignite Restaurant Group, the multi-concept parent of Brick House Tavern + Tap and Joe’s Crab Shack.

Gordon proved to be as astute in observing as he is in analyzing restaurants’ financial situations, a skill that has made him a popular source for those of us who write about the industry. He passed along these insights from the conference:

The mood of the conference was upbeat, with most of the presenters citing positive sales trends. Generally, they indicated that traffic is still weak, but the damage is being tempered by rising guest tabs.

Smashburger drew the most probing by the investors in attendance, despite the concerns voiced by some that the “better burger” segment may be overcrowded.

One extreme down note: Participant Steve West asserted that casual dining traffic will never rebound to pre-Great Recession levels, a result of the shakeout being too anemic.

Domino’s CEO Patrick Doyle noted that many of the chain’s franchisees are unable to grow because of a funding drought. The stores aren’t throwing off sufficient cash flow to justify a rubber-stamped loan, and banks are reluctant to touch any franchisee except the larger ones with whom they’ve done business over a long stretch.

A Sonic executive offered the hindsight that the drive-in chain should have included fewer items on its dollar menu, and promoted them in a more nuanced fashion. The budget line translated in some patrons’ minds into diminished quality.

Chipotle and BJ’s Restaurants, two of the industry’s high achievers, cited a lack of desirable real estate sites and a shallow pool of labor talent as curbs on growth. Others cited rising gasoline prices and escalating food costs.

Texas Road House, Chipotle and Krispy Kreme all cited an effort to shrink their back-of-the-house areas, part of an overall effort to reduce the footprint of new units.

My thanks to John, a principal in Pacific Management Consulting Group, for passing along his observations. You can get more of his food from thought at John's blog,

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