Archive for February, 2015

Ruth’s to Begin Remodeling Effort

Monday, February 16th, 2015

Ruth’s Hospitality Group Inc.’s profit rose 11.7 percent in the fourth quarter, excluding one-time charges, despite higher food and labor costs, the Winter Park, Fla.-based steakhouse operator said Friday.

“We’ve had some external challenges, from difficult weather in the first quarter to the continued inflationary environment,” CEO Michael O’Donnell said during company’s earnings call Friday morning. “Even with those headwinds, our steadfast focus on improving the strength and consistency of the brand experience along with the hard work of our people allowed us to deliver another year of strong operating results and earnings growth.”

During the quarter, the company completed its sale of the Mitchell’s Fish Market brand, and is now concentrating all of its efforts and capital spending on its Ruth’s Chris Steak House brand.

The company has recently completed a comprehensive evaluation of its restaurants and is beginning a multiyear effort to remodel existing locations, executives said during the call.

Ruth’s will remodel 15 locations a year, and will apply lessons learned from the success of new restaurants and to existing locations to add capacity and improve kitchen efficiency, executives said. The remodels this year should cost a total of $6 million to $10 million.

“Instead of deploying (the capital) at Mitchell’s, we’re putting it into Ruth’s Chris restaurants,” said Arne Haak, Ruth’s chief financial officer. He said the company would examine the returns it receives on the remodels and tweak the designs as it goes.

In addition to the remodels, Ruth’s executives said the company will expand into smaller markets in coming years. Ruth’s plans to add three to five new corporate restaurants a year. About half of the new units in the future will be in smaller markets.

Ruth’s reported a same-store sales increase of 5 percent in the fourth quarter ended Dec. 28, split evenly between higher traffic and higher check. It was the 142-unit concept’s 20th consecutive quarter of traffic growth.

Sales growth was also in addition to 5.5-percent same-store sales growth in the fourth quarter of 2013, a two-year sales increase of 10.8 percent.

Ruth’s said revenue rose 12.9 percent in the fourth quarter, to $98.9 million, from $87.6 million the same period a year ago. Food and beverage costs rose 72 basis points in the fourth quarter, to 31.8 percent of revenue. The company attributed an increase in costs to higher beef and dairy prices.

Restaurant operating expenses as a percentage of sales increased 36 basis points due to rising labor and benefit costs.

For the full year, revenue rose 7.4 percent, to $346.1 million, from $322.4 million in 2013. Net income fell 26.8 percent, however, to $16.5 million, or 47 cents per share, from $22.5 million, or 65 cents per share. Same-store sales for the full year rose 3.7 percent.

The results included a $15.3 million charge related to the sale of Mitchell’s Fish Market, as well as other one-time charges. Excluding those costs, net income per share for the year rose 10.4 percent, to 74 cents per share, from 67 cents per share.

Restaurant Industry Projects Record 14 Million Jobs in 2015

Monday, February 9th, 2015

The improving U.S. economy has helped restaurants see healthier sales, but better economic times can be a double-edged sword for brands when it comes to recruiting and retaining employees.

Hiring talent will become harder and more expensive this year, according to experts at the Global Best Practices Conference in January, which is sponsored by Dallas-based analytics firm TDn2K.

“We didn’t have the good sales and traffic that we would have liked over the last four or five years, but on the other hand it was relatively easy on the people side,” said Victor Fernandez, TDn2K’s executive director of insights and knowledge.

“The question has shifted now. We’re seeing better traffic and positive sales, which the economy is pushing forward in 2015,” he said, “but that means on the flip side that it continues to be harder to get the people equation right.”

Restaurants are seeing increased turnover in both the hourly and management ranks as other sectors of the economy increase their hiring, Fernandez said.

The U.S. unemployment rate has been lower than 6 percent in each month since September, with the economy adding 321,000 net new jobs in November and 252,000 in December.

Other industry statistics reflect TDn2K’s data and projections. The National Restaurant Association, in its 2015 economic forecast, said the restaurant industry in 2014 added 1,000 jobs per day. “The overall restaurant industry is projected to provide a record 14 million jobs in 2015,” the NRA forecast noted.

“There are so many more jobs being created throughout the economy,” Fernandez said. “In 2014, more jobs were created than in any other year since the late ’90s.”

That hiring level across the economy is also putting pressure on restaurant wages.

“We have not been good in terms of wage growth in recent years,” Fernandez said. “The industry has felt there was no need to accelerate wage growth because of all the available talent out there. That has changed.”

As hiring increased, businesses found the labor force participation rate dipped. Between 2000 and 2014, the labor force participation rate fell 12 percent among those 16 to 24 years old, Fernandez said.

Economist Joel Naroff, president of Naroff Economic Advisors, a retained economist at TDn2K, noted that the labor force participation rate for men has been falling since World War II. While that decline was offset until 2000 by the increasing rate of women in the workforce, that participation for females has been declining.

The restaurant industry’s prime hourly employee is in the 16-to-24-year-old age range, a demographic group the NRA noted “currently comprises about four in 10 restaurant workers.” The Bureau of Labor Statistics, the NRA said, expects the number of 16-to-24-year olds in the U.S. labor force to decline by nearly 3 million between 2012 and 2022.

“The Great Recession and its aftermath had a significant impact on the U.S. labor force,” the NRA forecast said. “The labor force participation rate fell to a 35-year low, with many people who lost jobs deciding not to return to the workforce. Contributing to this decline was the retire of baby boomer, as well as a growing proportion of teenagers choosing to remain on the sidelines.”

The decline in the teenage labor pool has been significant for the restaurant industry, the NRA said. “In 2007, 16- to 19-year-olds represented 20.9 percent of the restaurant workforce,” the forecast said. “By 2013, these teens made up only 16.5 percent of restaurant employees.”

Fernandez said that because fewer teens are electing to take hourly restaurant jobs, “there are fewer employees available.” He theorized the recession was slow and painful for the younger demographic that had difficulty finding jobs.

“Many just decided not to work anymore,” Fernandez said. “You hear stories of them going back to live with parents or getting part-time jobs; others are going back to school or boosting resumes with volunteering.”

He noted that companies in the year 2000 that had 100 potential candidates ages 16 to 24 now have just 88 candidates in that range.

“That’s 12 fewer people you have available to attract to your restaurants,” Fernandez said. “Add to that competition from other sectors, and you have fewer potential workers available for restaurants.”

The drop in Millennial workforce participation has also led to a growing age gap between hourly workers and management employees, Fernandez noted.

The median age of new hourly hires in quick-service restaurants is now 21 years old, and the media age of new management hires is 30 years old, a gap of nine years. The chasm is even larger in casual dining, with the median age of hourly hires in 2014 reported at 22 years old, while the media age of new management hires was 37 years old, a gap of 15 years.

What those two age demographics expect from companies in terms of pay, time off and culture can be very different.

“Rewards and benefits differ between the two,” Fernandez noted.

Flexibility in scheduling, for example, is important to younger workers. “Many are juggling several part-time jobs, so they want the flexibility to choose shifts,” he said.

New technology in scheduling software, often on smartphones, helps companies provide that flexibility. “That’s a great tool to make flexibility happen,” he said.

Global Best Practices conference panelists said wages alone aren’t motivating high-achieving Millennial workers.

“High achievers want more than a paycheck,” said Lloyd Hill, a board member of Red Robin Gourmet Burgers Inc. and past chairman of Applebee’s Neighborhood Grill & Bar. “They want to have a purpose.”

Hill said companies are seeking new ways to provide programs that benefit the community, such as local charities.

“You have younger workers now who don’t care as much about the health benefits and any other long-term incentives,” Fernandez said. “The other group is looking more toward a career and might have a family, so incentives for attracting and retaining them is a different mindset.”

It’s not just about pay and benefits calculations. High rates of turnover in either group of workers can also affect sales, Fernandez noted.

“To get the repeat customer, you want that tenured manager who is engaged and making a good customer experience happen,” he said.

“It’s hard to have that consistent performance if you have a revolving door at the management level,” Fernandez said. “Traffic is the biggest problem for the restaurant industry right now, so inexperienced frontline hourly employees have to be especially well-trained.”

Industry Experts Predict Growth for Restaurants in 2015

Tuesday, February 3rd, 2015

Recent restaurant sales and traffic comparisons, as well as trends in the general U.S. economy, are fueling industry optimism for 2015, attendees at the Global Best Practices Conference were told this week.

The conference, which took place Sunday through Tuesday in Irving, Texas, was sponsored by Dallas-based analytics firm TDn2K.

“The optimism for the economy is not just that growth will be strong, but that it will generate more income and more demand for the industry,” said Naroff, president of Naroff Economic Advisors, a strategic economic consulting firm. “In essence, I’m really optimistic about the direction of the industry itself.”

Joel Naroff, president of Naroff Economic Advisors. Photo: Ron Ruggless
Naroff echoed positive signs found in TDn2K’s Black Box Intelligence December 2014 data, which recorded the best same-store restaurant sales in three years. The fourth quarter registered the best same-store sales results reported in six years of BBI tracking. The latest results contributed to aggregate growth of 0.8 percent for 2014, an improvement over the industry’s 0.1-percent decline posted in 2013.

Victor Fernandez, executive director of insights at TDn2K, who presented data at the conference’s “2015 State of the Industry” panel, said, “For 2014, it was a good year for the restaurant industry. We ended with 0.8 percent up in comp sales. It’s not the exciting, but that is about a one-percent increase over last [year], which was actually negative.”

Extreme winter weather hit many sections of the nation in the first quarter of the year, Fernandez said, but industry sales growth accelerated through the rest of year.

“We ended up on this very high note of 3.1-percent comp sales growth for December, the highest we’ve had in three years,” he said. “And the 2.5-percent we saw for comp sales growth in the quarter was the highest we’ve had since we started reporting on Black Box Intelligence, almost six years of comp data.”

Fernandez said he was impressed by the industry’s same-store traffic numbers.

“We got to positive in December, and for the second time since we started reporting six years ago we had flat to slightly positive comp traffic,” Fernandez said. “That growth and that speed is being sustained by fundamental economic changes. It’s not just prices. It’s not just promotions. It’s really the economics behind it that are working in our favor. That’s something that is really exciting.”

The effect of falling consumer gasoline prices may not yet be reflected in the positive sales and traffic numbers, panelists added.

Panel moderator Stephen King, CEO of Dallas-based Dave & Buster’s Inc., noted that many attendees of the ICR XChange conference in Orlando, Fla., the previous week speculated on the effect of falling gas prices.

But Naroff and Fernandez said they expected the effect of declining gasoline prices to be more long term.

“The expectation is — depending on how low gasoline prices stay this year — we’re looking at somewhere between $100 billion and $200 billion going into the additional spending capacity of households,” Naroff said.

However, Naroff added that it would take time to trickle into the industry.

“It’s going to take a while for households — and this is a psychology issue — to feel that the funds that they are getting are a little more permanent,” he said. “Households have learned through the years that gasoline prices go down, but they don’t stay down. So until they start seeing that there’s a more extended period of lower gasoline prices, that impact on additional spending, including going out to restaurants, will be fairly limited.”

If gas prices stay low for an “extended period of time,” the effect will be seen, he said.

Fernandez said he hasn’t seen the effect of declining prices appear in Black Box Intelligence data, especially in increased traffic numbers. However, once consumers get into restaurants, he said, the potential is for them to spend a little more than they might have in the past.

As the economy improves, Naroff warned restaurant operators that they should expect to start paying higher wages to draw and retain workers.

“You’ve really got to start planning for those costs to start rising,” he said.

However, he added, with increased earnings in general, consumers — especially Millennials — will likely spend more in restaurants.

Naroff cited surveys that found “Millennials think that eating out — however that may be defined — is a necessity not a luxury. So they will be eating out more in one form or another.”

Restaurants Respond to Diverse Definitions of ‘Healthful’

Tuesday, February 3rd, 2015

For many Americans, resolution season means trying to eat more healthfully. Restaurants are responding to those resolutions by offering food that fits customers’ goals, but what exactly they mean by eating healthfully is an open question.

“There is no standard definition for health; it means different things to different people,” restaurant consulting firm Technomic Inc. said in its Healthy Eating Consumer Trend Report, completed in November. “To some, health is about the nutritional content of an item, while to others, health refers to how an item is produced.”

Kelly Weikel, Technomic’s director of consumer insights, said many consumers are devising their own diets, “choosing their own balanced, personal approach to health and wellness that makes them feel good emotionally and physically.”

That may mean they seek items with positive attributes. Promises to improve vitality — “particularly ‘power’ claims,” Weikel said — are resonating with Americans these days.

“Additive” messages, as opposed to “avoidant” messages, such as assurances that a particular item is low in calories or fat, seem to be what many consumers are looking for, she said.

“The avoidant claims that are resonating right now have to do with avoiding artificial ingredients, etc., for natural, real, unprocessed and healthy [foods],” Weikel said.

Subway seems to have gotten the message. The quick-service sandwich chain’s reformulated grilled chicken, introduced in January, is being touted as having no artificial preservatives or flavors.

Subway executive chef Chris Martone said the chicken has a more pronounced chicken flavor than its predecessor, due to chicken broth in the marinade.

Along a similar vein, Del Taco recently reformulated its turkey filling, first introduced in January 2014, to make it taste more of turkey.

The quick-service chain, with more than 540 units, teamed with turkey producer Jennie-O to adjust the meat’s seasoning and make it chunkier, “so the natural flavor of the turkey comes through,” Del Taco executive vice president and chief brand officer John Cappasola said.

Del Taco presents lean, seasoned ground turkey with tacos, more.

Co-branding with Jennie-O gave Del Taco a marketing advantage, Cappasola said, since Del Taco’s research indicated that many Americans use the brand’s ground turkey when cooking Mexican food at home, mostly for turkey’s more healthful reputation compared with ground beef. Cappasola said he hoped that by letting customers know that a product similar to what they used and trusted at home was was readily available at Del Taco would give the chain an advantage.

“There’s more demand for fresh, quality and better-for-you type products,” he added. “The brands that will win are the ones that will figure that out without asking their customers to sacrifice.”

Applebee’s went so far as to call its new Pub Diet menu, introduced in January, “indulgent.” The menu consists of four items that are high in fiber and protein and have fewer than 600 calories.

“At Applebee’s, better-for-you doesn’t mean boring food,” Applebee’s senior vice president of culinary and marketing Darin Dugan said in a press release. He added that the new items were designed to match customers’ “flavor preferences and profiles without compromising their goals of eating healthful foods.”

Among the new items is a 350-calorie Pepper-Crusted Sirloin & Whole Grains, with sautéed spinach, roasted grape tomatoes and portobello mushrooms, finished with a light broth. Broth has become a hot trend at independent restaurants, where chefs, who often call it “bone broth,” tout its restorative qualities.

Also on the Pub Menu is Cedar Grilled Lemon Chicken with Quinoa, with Granny Smith apple relish, lemon-olive oil vinaigrette and a quinoa-cranberry-pecan rice blend. The new Savory Cedar Salmon comes with artichoke spread, vegetables and steamed potatoes.

The items, along with a new Shrimp & Broccoli Cavatappi dish, are permanent additions to Applebee’s menu.

Cheeseburger in Paradise also incorporated nutrient-rich items in its Surfside Slimdown menu, available until Feb. 5. Among the new items is a protein-rich Buffalo and Black Bean Chili.

El Pollo Loco reached for the trendy superfood kale for a new addition to its low-calorie Under 500 menu. The Grilled Chicken & Kale Salad features a blend of baby kale and spring mix, carrots, cabbage, salted and roasted pumpkin seeds, dried cranberries, avocado and crumbled cotija cheese, along with the chain’s signature grilled chicken breast.

Corner Bakery Café also features kale in a new Kale Caesar Salad with Chicken. Kale is mixed with romaine lettuce, traditional used in Caesar salad, along with croutons, Parmesan cheese, Caesar dressing and grilled chicken.

“Power,” as noted by Technomic, has been a constant descriptor for First Watch’s seasonal Quinoa Power Bowl. The breakfast-and-lunch chain’s current version includes two basted eggs served over quinoa, Italian sausage, cremini mushrooms, tomatoes, kale, Parmesan and extra virgin olive oil.

First Watch has also introduced Avocado Toast. A trendy item at independent restaurants, First Watch’s version features the fruit smashed and served on thick-cut whole grain toast with olive oil, lemon, Maldon sea salt and two basted eggs.

The chain has also started squeezing its own juice for a new beverage called Day Glow, which is made of juiced carrots, oranges and lemons, finished with organic ginger juice.

Ginger, which has been popular with the cold-pressed juice set for several years, also appears in a new Jamba Juice smoothie. Greens ’n Ginger is part of the chain’s Fruit & Veggie line, and is a blend of mango, peach, kale and lemon, along with ginger purée. Jamba Juice is marketing it as “an excellent source” of vitamins A, C, B6 and K, as well as folate.

Jamba Juice also introduced an addition to its Whole Food Nutrition line. The Amazing Greens smoothie combines kale, lemon, peach juice, peaches, bananas and pumpkin seeds. Not only is it high in vitamins A, C and K, as well as folate and manganese, but it also has 11 grams of protein.