Lane Cardwell

2008: Stick a Fork In It. It's Done.

I don’t know about you, but I have had just about enough of 2008. I can’t wait to tear the December 31 page out of the calendar, wad it up and three-point it into the trash can. I don’t even care if it goes in. This has been a terrible year for our industry. 2008 will forever be remembered as the Year of Restaurant Influenza; killing the young, the old, and the financially weak. Will 2009 be any better? Who cares? All I know is that it won’t be 2008 any more.

2008 was also the year of the three S’s: stoic, shocked, and scared. We started the year with weak sales and approached it with our usual stoicism. After all, like the saying goes, what doesn’t kill you will make you stronger. By summer we were a little shocked that the soft sales, coupled with stiff cost pressures, were still with us. And by year end, let’s face it, we are just downright scared. It’s ugly out there.

I’m trying to be optimistic about the future. Right now the best that I can do is to remember that  the restaurant industry is an economic leading indicator. What that means is that whatever is going on with the economy, we experience it first. We lead the economy by about 6-9 months. We turn down before the economy starts to visibly turn down. And here’s the optimistic part: we turn up before the economy begins to get better. We don’t need to see a strengthening in the economy for our sales to improve, we usually experience it at least half a year before the talking heads on TV tell us that the good times are here..

Why is that? Well, our customers are sensitive to their personal economic conditions. They dine with us good times and bad, but spend more during the good times. When they are confident about their economic futures, they spend. When they are not confident, they save. December was one of the lowest recorded periods of consumer confidence that we have seen. And the holiday sales for restaurants and retailers reflected it. The good news is that they don’t have to be richer to start spending more, they only have to feel richer.

2008 can be divided into two parts. The first part saw the industry raising prices at unusually high rates, even as customer traffic was weakening, in an effort to protect margins in the face of food cost and energy related inflation. What happened? As they have in the past, our customers rebelled and traffic really went into the toilet, especially in the casual dining segment. The second part saw operators getting creative with value pricing, discounting, dealing, promotions, two-fers, you name it, in order to keep the customers coming in the door. Raise prices? Most operators learned their lesson in part one.

What are some of the highlights of 2008? This was the year that two of our legacy brands in casual dining, Steak & Ale and Bennigan’s, filed for Chapter 7 bankruptcy. All bankruptcies are not created equal. Chapter 11 allows a company to catch its financial breath, and hopefully leave bankruptcy as a stronger company than it went in. Chapter 7 is liquidation. Sell everything and pay off as many creditors as possible. Buffet Holdings (Ryan’s and Old Country Buffet) filed for Chapter 11. So did Vicorp (Village Inn and Bakers Square) and Shell’s Seafood. So did many other good-sized franchised organizations.

The stock market fell apart across the board, but the carnage was especially bad for restaurant stocks. It looks like only two or three restaurant stocks will be positive when compared against last year. You know it’s a bad year in the market when five of the top ten performing restaurant stocks lost between 15-20% of their value. The bottom five lost between 80-90%. Ouch!

We lost some of our most colorful and creative icons this year. Al Copeland, founder of Popeye’s, Carl Karcher, founder of Carl’s Jr., and Rocky Aoki, founder of Benihana, passed away. All three were larger than life and created jobs for hundreds of thousands of employees over the years.

We also experienced a greater than normal turnover in executives as the economy turned sour. Many of the new owners of restaurant companies over the past couple of years were private equity firms who took a dim view of missing the financial plans that they had sold their investors and banks on. It wasn’t just the marketing head that got blamed this year in many organizations. “Get me someone who knows how to make money whether sales are down or not!”, was the CEO profile given to many executive recruiters. Superman and Wonder Woman have been spotted on several job interviews. Too bad there is only one Jack the Ripper. He would be in high demand.

And so we turn the page on one what is one of the worst years that the restaurant industry has ever experienced. There have been some bad ones in the past. There will be some bad ones in the future. But in the years to come, you will always be able to tell your younger coworkers, “You think this is a bad year? This is nothing. You should have been there in 2008. Now that was a bad year!”

2008…stick a fork in it.

Posted by Lane Cardwell on December 30, 2008 | Comments (2)