Recession and Economy and Restaurants and Retail

Hungry for customers, restaurateurs dangle deals

April 6, 2009

Restaurant diners, spooked by the recession, have never been more tight-fisted.

Restaurateurs are responding to this challenge, be they the proprietors of fine-dining establishments or burger joints, by offering low-cost dining deals. It's an effort to preserve their customer base and, just perhaps, poach a few hungry mouths from their competitors. But according to some experts, lower prices aren't always a panacea.

"If you're the first one on the block to do it, it usually works," said Lloyd M. Gordon, president of the Skokie, Ill.-based restaurant consulting firm GEC Consultants. "But if you're second, it's less effective. If you're third, even less. And if you're fourth, almost not at all. So if you're cutting prices, you better be first."

Such caveats haven't stopped the rush to board the cost-cutting bandwagon. At Sullivan's Steakhouse on the north side, there's a new J.L. Prefix Fixe Menu featuring a salad, entre, veggies, horseradish mashed potatoes and dessert for $29 per person. Not to be outdone, St. Elmo Steakhouse downtown serves a three-course menu for $30 per person every Sunday.

Further down the pecking order, T.G.I. Friday's offers 10 $9.99 entrees, while O'Charley's touts a $20 Meal Deal—two entrees and two drinks for $20, Mondays through Wednesdays.

Even Indianapolis-based The Steak n Shake Co. has introduced low-cost items at its 490 restaurants, including meals under $4 and a $2.89 Steakburger  "snack pack." It seems to be paying dividends, with customer traffic in the first quarter of 2009 up 6.2 percent and same-store sales improving 1.8 percent.

"I was in there last week," said Steve Delaney, principal and restaurant specialist for Sitehawk Retail Real Estate. "They have hot dogs for the first time ever. They have a fish sandwich, which they've never had before. They also have these little mini-burgers, all in an effort to drive in new traffic."

Big industry

Restaurants' struggles to preserve their customer bases are of far more than academic interest, given the sheer size of the food industry. The National Restaurant Association forecasts sales at the nation's 945,000 restaurant and food-service outlets to reach $566 billion in 2009—a sales increase of 2.5 percent over 2008 (though when adjusted for inflation it works out to a 1-percent decline).

The industry, according to NRA stats, accounts for 4 percent of the United States' gross domestic product and employs 9 percent of the American work force, or 13 million individuals.

The pain of the recession is felt unevenly in the food industry, said Gordon, who before becoming a consultant owned several Indianapolis-area eateries. That's because during hard times, diners often turn their backs on the establishments they once frequented in favor of something a bit less pricey.

"They trade down," he said. "If you formerly went to fine-dining places, you go to casual-dining places instead. You've still got waiters and waitresses, but your price range is maybe 30- to 40-percent cheaper. And if you formerly went to casual places, you do fast food instead."

This can work out quite well for the casual-dining and fast-food places. They can tread water during bad times by taking in the refugees shunning the price point directly above them.

Things are more problematic for fine-dining establishments, which may see an outflow of newly frugal customers with no accompanying influx. It can be particularly tough for independently owned operations, which Gordon believes are the most heavily exposed to the recession.

"The chains have a lot more fat in their corporate structure," he said. "It's the independents that are going to have to dig down into their own pockets to survive."

So far, most locally owned restaurants have been able to keep afloat. Among the handful of recent closings was the Scholars Inn Bakehouse in Broad Ripple.

Enticing offers

Indianapolis-area independents are attempting to hold onto their customers by offering both discounts and added value. If it works, it might keep their clientele from either visiting lower-priced establishments or simply heating up a TV dinner at home.

Patti Crahan, owner of Oh Yumm Bistro on Illinois Street, has crafted a series of Sunset Specials—a three-course meal for under $19 offered between 4:30 and 6:30 p.m., Tuesday through Friday.

"I didn't want to call it an early-bird special and sound like a cafeteria," Crahan said. "I thought Sunset Special was just a nicer way to say that."

So far, response has been good. The menu isn't exactly a huge moneymaker, but it does put butts in the seats during the slow, early dinner hours.

"It's tight," Crahan said of the pricing. "It's definitely a challenge to do it. But if you can get people in here between 4:30 and 5:30 p.m., that's normally a dead time. It's my feeling that getting people in by selling at that price is better than not having anyone at all."

The downtown and north-side locations of Ruth's Chris Steak House are experimenting with a similar program--a Prime Time Dinner Menu which, for $35, gets customers a starter, entree and dessert. It's available during the off-peak hours of 4 to 6 nightly, plus all day Sunday.

"We've gotten a lot of new business from it," said Matthew Bauer, manager of the downtown Ruth's Chris. "But one thing I've noticed as well is that some of the regulars come in more frequently. They'll come in before they head home and have it. Because stopping in and spending $35 for dinner versus coming in on a normal basis and spending $70 is a little more feasible."

The Scholars Inn downtown has put a more artful touch to its low-cost program, calling it the Theatre Prix-Fixe Menu. The idea is that diners can partake of the eatery's three-course, $30-per-person repast (available Monday through Saturday from 5 to 8 p.m.) before taking in a show. Owner Lyle Feigenbaum considers such moves a necessity.

"The fact of the matter is that we're in the most competitive environment there is," he said. "As an independent restaurant without huge marketing dollars behind us, we have to offer value in every way, shape and form."

Feigenbaum's other lures include a special VIP club that offers discounts on food purchases. There are also markdowns on most restaurants' most sacred cash cow—alcohol.

"Every Monday night, all our wines are half price," he said. "Any bottle on our list is half price. Our hope is that people will appreciate what we're trying to do with the half-price bottles of wine and the menu we have. They'll think, 'We can go out. We can still have a good time and live our lives, because times will turn.' If we do that, we hope they'll stick with us."

Sitehawk's Delaney said such specials often are minimally profitable. Sometimes they're even loss leaders. But that can be ameliorated somewhat if the patrons who buy the cheap meals also spring for booze—a fact not lost on restaurateurs. Crahan, however, notes that many of her early birds display a disheartening tendency to order iced tea.

Delaney asserts that simply offering low-priced items isn't the only way to survive during tough times. Many restaurateurs are taking a raft of other measures, including starting catering wings and dabbling in home delivery. "If they don't come to us, we'll come to them," said Delaney, a former owner of Noble Roman's franchises and other restaurants.

Though the future of the economy is uncertain, Delaney makes one prediction with confidence. When things finally firm up, the restaurant specials will vanish quicker than an order of molten chocolate cake.

"I think they'll eventually just go away," he said. "They were never on the menu before, so I think they'll disappear as the market gets better."

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