|
 According to one of our company's banking sources, bankruptcy filings for restaurants have dramatically increased over the last few months. Last week alone they received notification of seven filings in the New England area. What does this mean for everyone else? With a great deal of talk about softness in the foodservices industry especially among independent and casual restaurants, is there a looming problem or are we dealing with the inevitable failure of a few, marginal companies?
According to Dan Newcomb, Owner of Atlantic Restaurant Group, Inc, “There is a softness in the New England restaurant market.” He explained that restaurant operators are suffering from a measurable reduction in top line revenue and significantly increasing expenses. For example the price of wheat-based and dairy products is up at least 20% and the list of other produce that is becoming more expensive seems never-ending. “Oddly New York is not seeing as much top line pressure as Boston thanks to both increased tourism and a stronger micro economy,” Dan added.
“We have seen a significant increase in restaurants for sale over the year so far,” said Dan. “Many operators that are feeling the pressure and are deciding to market their properties before they get in over their heads. In some cases the owners have even closed before they get in too deep and are then forced to shut down.” Dan characterized the market for the current glut of restaurants as pretty bullish. “There are some high quality buyers out there,” he said. “They are seeing opportunities to acquire underdeveloped operations with good upside potential.”
What does Dan see in the industry's near term future? “I think we are obviously in for at least a weak summer, especially on the Cape. After Memorial Day I suspect that the number of properties on the market will continue to increase,” he said. Dan is not pessimistic however. “I think, things will shake out once the election is underway and we begin to see some clarity on the political front,” he concluded.
 Beth Berardi, a restaurant insurance specialist is at the other end of the restaurant cycle. Whereas Dan has a clear insight into owners sentiments as they exit the market, Beth is dealing with aspiring restaurateurs as they set up their shiny new operations. “I am definitely seeing a trend,” Beth said. “There are a number of restaurant groups that have solid plans and good financing, that are taking advantage of the current situation to expand.” She is describing the classic Warren Buffet thought that you should be buying when everyone else is selling, that is, if you want to take advantage of the eventual upswing.
“There's still a huge level of enthusiasm for the new suburban mall opportunities,” she continued, “I see operators embracing this new market and gaining an advantage from being able to service consumers closer to their suburban homes.” Diners sensitive to gas prices can get an all-in-one shopping and dining experience without driving all over town.
What about independents? “There is some pull-back for projects that are marginally funded,” Beth said. She has not seen any cut back in the types and level of insurance restaurants are seeking, which to a certain extent demonstrates that restaurateurs are being sensible and not increasing their risk. Beth's view of the market is that it's not only the obvious economic factors, but also the significant increase in the number of seats and the attractive new locations that are competing for the traditional restaurants diners.
How does Beth view the coming months? “It's going to get worse,” she concluded. “I see a lot of operators hunkering down and waiting for things to turn around.” Beth also has a sense that some independents have a better grasp of the situation than others. She sites those that have really stepped up their marketing in creative ways, aiming for lost cost and attractive events and promotions that encourage the reluctant diner to venture out and spend some of their hard earned dollars. Like Dan Newcomb, Beth thinks that the election and its influence on the economy and consumer sentiment is critically important.
 Peter Christie, CEO of the Massachusetts Restaurant Association has a macro view of the current state of the market and it's something of a mixed bag. “Thing are difficult, especially for casual dining,” he said. “Meals tax revenue was down in January and effectively flat for February and March. With menu inflation of at least 4% that means that there is a definite downturn. As much as 6% in January and 3%-4% in February and March.”
Peter sees the cost-of-goods issue as a huge component of the current situation. “Wholesale food prices are up around 8.5% this year and they increased 7% last year. This means that operators are taking a hit as menu price inflation has not kept up,” he said. The MRA see a difficult market to operate in, not the worst they have ever seen, but it's pretty tough. “Weak consumer confidence worries me,” said Peter. “With a very competitive market and a large number of new restaurants, especially in urban areas we need the dining public to to be out and eating. With a constant barrage of seemingly bad economic news the risk is that they cut back their dining even further.”
Peter is also not pessimistic. He feels that the industry should be cautiously optimistic that things will improve towards the end of the year. “The big factors will be the price of oil and the corn for fuel issues that have not yet been passed onto the market. We are not as badly effected in New England as some other parts of the country, employment rates are holding up and restaurateurs in this area are very resilient,” he concluded.
Sentiment seems clear. Things are definitely not positive for restaurants overall at the moment, but there are some bright spots. On one hand the financially well-heeled are able to both weather this situation and to take advantage of some of the opportunities it offers. On the other hand, those whose operations are marginal, are really feeling the pinch.
Intuitively everyone I spoke to felt that now is the time to get creative with marketing and not a good time to pull back. If you embrace the idea that we are going through a “recession” then your thinking changes and you probably have a better chance of dealing with the next few quarters. It's more important than ever to seek professional advice and pay very close attention to financial matters, so you can hang on until the inevitable (if you believe our experts) market reversal.
|
Are we all going bankrupt or is it just paranoia? 
