At restaurant chains, meaty profits even in recession
They goofed, Dennis Collins claims, when they took out too many counter stools at the Friendly's restaurant in Ludlow, Mass., last year. This mistake, which happened in the process of a ''modification'' program to give the restaurant a bright, new look, left too few seats at the counter for break-time patrons to enjoy ice cream, coffee, or other refreshments. The result: Regular customers were in something of a stew. Rightly so, says Mr. Collins.
Collins worries about things like the right number of counter stools because, as director of restaurant openings for the Friendly Ice Cream Corporation, he wants to see that everything is just right - for the customer as well as for the balance sheet.
Friendly's, a subsidiary of the Hershey Foods Corporation, is cooking up new ways to increase profits. Sales totals are discussed reluctantly, but were reported at $302.9 million for 1981. In a moment of candor one company official speaks optimistically of an eventual $1 billion a year. The company owns and operates 644 moderate-price, family-type restaurants in 16 states and has an aggressive expansion plan.
So do a number of other restaurant chains.
Does expansion in the face of prolonged recession and a 10.8 percent national unemployment rate make good business sense? Robert Natale, retail food analyst for Industry Surveys, a publication by Standard & Poor's Corp., says it does.
''Restaurant chains are experiencing significant real sales growth for the first time in four years, which can be traced to the industry's success in holding the line on prices,'' Mr. Natale reports. ''In fact, restaurant prices have been rising at a slower pace than supermarket prices.''
With the cost differential between eating at home and eating out narrowing, he adds, it's no surprise that customer traffic, unit volume, and profits are sunny-side up at most restaurant chains.
Accordingly, restaurant chains are making plans to add more links. One example is Bennigan's, a chain of Gay '90s-type restaurants aimed at young, middle-class couples and singles and owned by Pillsbury Company. Bennigan's started with seven restaurants in the Midwest and Sunbelt in 1978 and now has 66 in 16 states. By May, however, there should be 108 outlets in 21 states, says Pillsbury spokeswoman Ann Corwell.
Burger King, another Pillsbury-owned chain, opened 259 new outlets in fiscal 1982.
According to the National Restaurant Association (NRA) in Washington, customer traffic at family-type restaurants was up 3.5 percent last year. For fast-food outlets, traffic increased 2.8 percent.
That doesn't mean the industry is on the gravy train, but it's a lot better than more expensive, specialty type restaurants did last year. Their traffic fell 0.5 percent.
In the December issue of NRA News, the association projects $87.4 billion in eating-place sales this year - an 8.6 percent increase over the 1982 totals. Most of that, however, is accounted for by limited-menu, or chain, restaurants, for which a 10.5 percent growth rate is expected.
The overall retail sales projection, the magazine adds, figures out to a 2.6 percent gain in real sales, which ''outshines declines in real sales of 0.7 percent in 1979 and 1.0 percent in 1980 as well as the increases of the past two years of 1.3 percent and 2.0 percent, respectively.''
Based on the expectation that the economy will improve toward the end of 1983 , the NRA forecasts a 6 percent rise in menu prices - about the same as happened last year. Payroll costs will be eased, the magazine continues, by an abundant labor supply, lower inflation, and no mandated increase in the minimum wage, now
But it warns: ''Operators will be challenged to provide new menu items, new concepts, and to take a closer look at promotions.'' The organization says the menu expansion will be necessary so patrons can ''trade down'' in meal selection rather than look for other restaurants that offer more limited, but cheaper, menus.
The message is getting through. At Friendly's, for example, a customer can order a ''Great American super-beef'' burger with extras for $2.70, a ''super beef'' with fewer extras for $2.25, or a ''Big Beef'' cheeseburger for $1.80.
Mr. Natale says chains that performed well last year - such as McDonald's, Burger King, Denny's, and Wendy's - benefitted from two things: changing demographics, including smaller families, more working women, more divorced parents, and more single-person households; and significant declines in some commodity prices.
The commodity price picture will remain relatively stable for most of 1983, say analysts in the beef, poultry, seafood, and pork industries. Still, the industry is not ignoring the NRA's advice to diversify menus through introduction of different types of foods. Example: Bennigan's.
Bennigan's serves what Ms. Corwell calls ''a pretty good, filling meal'' for about $5, exclusive of drinks and dessert. The fare: salads, quiches, nachos, and ''fried cheese'' - a cheddar cheese concoction coated with bread crumbs and toasted. The formula appears to be working. Per-unit sales averaged $2.3 million last year, a 15 percent real increase over 1981, according to Pillsbury's annual report.
Burger King, by comparison, averaged $751,000 in annual unit sales in the US market, in part the introduction of breakfast, a ''late-night drive-thru'' program (many units stay open as late as 4 a.m.) and heavy promotion.