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2008 Outlook: Southwest-Mountain

2008 Outlook: Southwest-Mountain

SALES FORECAST

The Southwest boasts the five states with the largest projected percentage increases in restaurant sales in 2008, according to the National Restaurant Association.

Leading the pack is Nevada, with a projected increase of 6.5 percent, followed by Arizona, Utah, Texas, then Colorado. The region’s aggregate sales are expected to lead the nation in terms of growth, up 5.8 percent from last year to $65.85 billion. Factoring in the NRA’s projected 3.6-percent menu price inflation, the region’s real growth rate is about 2.2 percent.

Despite the optimistic forecasts, however, operators in the region say they are nonetheless being conservative in their expectations for the year ahead.

Gary Suit, president of BEP Colorado Restaurants LLC, the Denver-based operator of 48 Black-eyed Pea restaurants in Colorado and Texas, is estimating a 3-percent to 4-percent increase in sales.

Along with increased labor, food and energy costs, Suit says he also expects customers to be thriftier in their spending. To entice cost-conscious consumers, Black-eyed Pea has introduced value-priced items, such as $1.99 desserts presented in 4-ounce martini glasses and combo meals for $12.99.

Operators are going to have to be just as frugal as customers to protect their margins, Suit says.

“I don’t want to sing a song of doom and gloom or be Chicken Little with the sky falling down, but you’re going to have to watch your nickels to get your dollars,” he says.

Utah operators also are battling cost increases in almost every category, including protein, produce, energy and wages, notes Stuart Gee, president of the 23-unit Rumbi Island Grill, a fast-casual Hawaiian concept with stores in Utah, Colorado and Arizona.

Gee estimates the chain’s sales will grow 4.5 percent in 2008. The company expected to post sales of $27 million in 2007.

“It’s about as bad as it has ever been,” Gee says. “We’ll be fighting for every dollar on sales and margins.”

ECONOMIC INDICATORS, PROJECTED GROWTH RATES, 2007 TO 2008

SOURCE: NATIONAL RESTAURANT ASSOCIATION
STATETOTAL EMPLOYMENTREAL DISPOSABLE PERSONAL INCOMETOTAL POPULATION
Arizona1.9%4.9%2.4%
Colorado1.25.21.4
Nevada1.14.13.2
New Mexico1.74.21.8
Oklahoma0.82.90.4
Texas2.04.61.5
Utah1.64.81.4
Wyoming1.53.80.7
National Averages0.93.40.9
2008 SOUTHWEST-MOUNTAIN FORECASTRESTAURANTSALES ($000)*RANKINGS*Includes sales at eating places and managed-restaurant-services providers.SOURCE: NATIONAL RESTAURANT ASSOCIATION/NATION’S RESTAURANT NEWS
 
STATE20072008%CHG.’08 SALES%CHG.
Arizona$7,915,457$8,422,8526.432
Colorado7,991,9378,450,6895.725
Nevada4,009,5564,270,6686.551
New Mexico2,557,7282,684,3575.076
Oklahoma4,363,2084,546,4624.248
Texas31,844,94733,691,9545.814
Utah2,869,8233,040,2645.963
Wyoming686,578718,6544.787
Sales Totals$62,239,234$65,825,9005.8  

Operators in Texas say they expect fuel costs to have a negative effect on consumer spending this year. Nonetheless, the state’s foodservice operators are expected to post in 2008 sales of $33.7 million—the highest total in the South-west/Mountain region and the second-highest sales total for a state behind California. Says Wendi Saari, director of communications for the Texas Restaurant Association in Austin, “Our members are confident and optimistic about the growth opportunities in the industry.”

OPERATOR OUTLOOK

Operators in the Southwest and Mountain region say they expect the costs of goods and supplies to continue to rise in 2008 as they did in 2007.

Prices for commodities and energy will go up, they say, and hikes in the minimum wage and increasingly strict immigration laws present some of the biggest challenges in the year ahead.

“The cost side of the business has been brutal,” says Boyd Hoback, president and chief executive of Good Times Inc., the Golden, Colo.-based operator of 54-unit Good Times Burgers & Frozen Custard restaurants.

The fast-food chain raised prices 7.3 percent last January to muffle the impact of minimum wage increases in Colorado and other expenses, he says.

According to Hoback, Good Times plans to expand in 2008 by pursuing multiunit franchisees, particularly in the Midwest, where the labor pool is deeper.

Most of the Mountain states are experiencing extremely tight labor markets and the situation is not expected to improve, particularly in such areas as Wyoming, where the restaurant industry competes fiercely against the booming mining and oil industries.

“We’re at a crisis,” says Lynn Birleffi, president of the Wyoming Lodging & Restaurant Association. “We have lots of restaurants that are shortening their hours because they don’t have enough staff.”

In Colorado, wait staff will see their base pay rise from $3.83 to $4 an hour next year because of state legislation that requires Colorado businesses to pay a higher minimum wage that adjusts for inflation every January.

Arizona and Nevada also are undergoing minimum wage increases in 2008. Voters had approved ballot measures in 2006 to tie annual minimum wage hikes to the consumer price index. The federal minimum wage rises to $6.50 an hour in July.

Nevada, whose population continues to explode, particularly in the Las Vegas area’s Clark County, is now up to 2 million people and expects strong sales growth and fewer labor issues.

Las Vegas will add 35,000 new hotel rooms in the next four years and as many as 170,000 by 2011, and more than 52 million tourists visited Las Vegas in 2007, reports Paul Hartgen, chief executive and president of the Nevada Restaurant Association.

“The amount of people needed to run that day-to-day operation of a hotel room will continue to bring more employees into the area, more service, more restaurants,” Hartgen says.

Jim Hopper, president and chief executive of the Oklahoma Restaurant Association, says operators in his state are dealing with a strict new immigration law that requires them to vet employees for documentation.

“Operators are having to get used to complying with this new immigration law,” Hopper says. “It’s considered to be one of the strictest in the nation. It’s having an effect on the workforce. We’re still looking for people to fill jobs.”

Although high petroleum prices are affecting consumers adversely, those high prices also are bringing more money into Oklahoma, which is a big producer of oil and gas, Hopper says. That income is filtering into the general economy. “Most of our members are saying the economy is good,” he says.

LEGISLATIVE HOTSPOTS

ARIZONA: Regulators in June will release an assessment of a statewide smoking law that went into effect in May 2007.

COLORADO: Health care reform, immigration reform, smoking bans and higher alcohol license fees.

NEVADA: No legislative session.

NEW MEXICO: Legislative budget-only session this year, but lawmakers are likely to consider mandated health insurance, funding of the Pro-Start program statewide and changes to laws covering the service of alcohol to minors.

OKLAHOMA: New immigration law to date will go into effect July 1, requiring increased scrutiny of worker documents.

TEXAS: No legislative session this year.

UTAH: Universal health care.

WYOMING: Budget-only legislative session.

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