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,

Krispy Kreme to give bagels a try

Krispy Kreme may have to rework its neon sign to read, "Hot pastries now." The doughnut chain announced this morning that the ink has dried on a new baked-goods menu that includes bagels, Danishes, muffins, and pecan and cinnamon rolls. 

The bagels are particularly of note since they could be the chain's eventual means of adding sandwiches, breakfast or otherwise.

In disclosing that the baked-goods menu is ready to be tested later this year, Krispy also noted that it's new soft-serve ice cream, Kool Kreme, will soon be available in seven stores. 

Same-store sales for company-run units rose 2.1% during the three months ended May 3, the franchisor said. Profits for the quarter fell by more than half, to $1.9 million from $4 million.

List cites restaurant companies among the near-dead

Six SeekingAlpha.com contributors have collaborated on what amounts to a dead pool of consumer brands: “15 Companies That Might Not Survive 2009.” Regulars on the heavily trafficked site won’t be surprised to see Krispy Kreme on that critical list, given how much skepticism its turnaround efforts have met. Landry’s may not prompt a lot of visitors to fall out of their chairs, either. But Sbarro?

“It’s not the pizza that’s the problem,” writes lead author Rick Newman, whose day job is serving as chief business correspondent for U.S. News & World Report. Rather, he says, “many of this chain’s 1,100 storefronts are in malls, which is a double whammy.” A drop in retail traffic has thinned the eastern pizza specialist’s stream of potential customers, Newman explains. And without streetside facings, it can’t embrace some of the traffic draws that work for fast-food competitors, like snacks or breakfast.

The list is based on a review by Newman and his collaborators of Moody’s ratings of various bondholders, as well as unspecified other factors. The list was published on Sunday. Two days later, one of the cited companies is already flat-lining. Sirius XM, the subscription radio service, was reported today to be preparing for a bankruptcy filing.

Other familiar names on the death watch roster include Chrysler, Rite Aid, Blockbuster and Six Flags.

Of course, just publishing a list of companies you expect to go under can hasten the process. And no doubt some Old Media defenders will be citing the posting as a prime example of why blogging is the handiwork of Satan.

But there’s still the question of why the various companies cited haven’t posted comments challenging their designation of being not quite dead.