Phoenix-area operators welcome end of summer

Phoenix-area operators welcome end of summer

CHANDLER ARIZ. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“We are optimistic,” said Steve Chucri, president and chief executive of the Arizona Hospitality and Restaurant Association [3]. “We are going to weather this storm.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

From fast-food restaurants to upper-end dining establishments, operators have been sweating out the area’s steep economic downturn while offering specials, reduced prices and other incentives to penny-pinching consumers. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Chucri said local McDonald’s [4] franchisees have slashed prices on drinks and ice cream items. Upper-end restaurants have extended happy hours while offering discount coupons and dinner specials. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“We’ve seen some creative marketing,” Chucri said. “The operators say they are at least able to hold their own in this down economy and especially during the doldrums of summer.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

But, still, the economy has taken its toll on a number of operators in the past six months, from Subway [5] outlets to fast-casual Taco Del Mar [6] franchisees in the hard-hit suburb of Chandler, southeast of Phoenix. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“It’s a very tough market,” said James Schmidt, president and co-founder of Seattle-based Taco Del Mar. “So much of Phoenix’s economy is tied to the housing business. I’ve heard upwards of 30 percent of the economy is tied to housing, and it, for all intents and purposes, on the residential side, has stopped in Phoenix.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Because of a collapsed housing bubble and foreclosures related to subprime mortgages, home prices in the Phoenix market fell 26.5 percent in May from a year earlier, according to the S&P/Case-Shiller Home Price Indices. That decline compares with the record drop of 14.8 percent in the index for the top 20 largest cities. Only price slides in Las Vegas, at 28.4 percent, and Miami, at 28.3 percent, were larger. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

A recent report from Realty-Trac, an online marketplace for foreclosed properties, showed Arizona’s foreclosure rate dropping from the nation’s third highest in June to fourth highest in July. Foreclosure filings were reported on 13,350 Arizona properties during June, a 3-percent one-month increase and a 127-percent jump from July 2007. One in every 195 Arizona properties is involved in a foreclosure filing, a rate more than twice the national average. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

While stunting consumer spending, the housing slump and midsummer record highs for gasoline at more than $4 a gallon also were darkening Arizona’s employment outlook. The state’s jobless rate rose 0.3 percent in July to 5.1 percent, versus 3.7 percent a year earlier. The state has lost 41,700 jobs since last year and more than 128,000 since employment levels peaked in December 2006. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Donna Niccum, owner for the past year with her husband, Tom, of a Subway unit in Chandler, said: “Gas prices definitely had some impact on our business. It probably affected 15 [percent] to 20 percent of our customers. A few people would comment and mention that they were looking for value.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

However, she added, “Subway’s national ad campaign for $5 foot-longs also has really helped us out.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Niccum also has been doing local-store marketing, sending fliers and coupons to area residents, and advertising with the local high school and participating in a discount coupon book being sold by the school band. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“We just have to make ourselves known in the community,” she said. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Chandler is one of the suburban areas in the sprawling Phoenix region that is experiencing a hangover from what had been a home-building spree. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Hospitality consultant Robert J. Nyman, president of the Nyman Group Ltd. of Scottsdale, Ariz., and Las Vegas, said: “Phoenix is so vast now. Maricopa [County] is one of the hardest-hit areas, and [the problem extends] out west toward the Buckeye area.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Gas prices that have stemmed the Phoenix area’s usual traffic congestion have not boded well for foodservice, Nyman said: “You listen to the radio traffic reports, and there are fewer people on the highways. If there are fewer people on the highways, there are fewer people to go into restaurants.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Nyman added: “I don’t hear that anybody is satisfied with the environment. Everybody is waiting for the economic shaking to stop. From a local standpoint, you have to eat someone else’s lunch to be successful. Operators have to do a better job and work harder.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Local casual-dining restaurants are making wider use of lower happy-hour drink prices, extending them for the entire evening, and offering dinner-for-two specials in which the lower-priced entrée is free, Nyman added. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

For example, Eddie V’s Edgewater Grill in Scottsdale runs a summer promotion of an all-evening happy hour with reduced-price drinks and a $45 steak and lobster dinner special. In addition, the restaurant is offering a bonus card for $50 off a future meal with every $150 purchase. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“For the market that is now available, we have too many seats,” Nyman said. “If you have too many seats, [customers] are going to the best food and value and satisfaction. People have a tendency to trade down.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

ARHA chief Chucri said: “If there is a silver lining here, it’s that people are still eating out. However, you can tell disposable income has been going into the gas tank instead of the restaurants.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

The Phoenix area’s frequency of dining out per capita had been five times per week, and that has slipped to three times a week, Chucri said. “They are eating out less frequently, but the good news is that they are still eating out.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

The quick-service and fast-casual segments are doing fairly well, “because [consumers] are trading down,” Chucri said, adding that “the hardest hit is the casual-dining market.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

BJ’s Restaurants Inc. [7] of Huntington Beach, Calif., which has opened five of its 78 casual-dining units in Arizona, told analysts recently that Phoenix was one its highest-growth areas over the last several years but one in which the slowdown in construction was taking a toll on the economy. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Greg Levin, BJ’s executive vice president and chief financial officer, said Phoenix has shown some slight improvement, but same-store sales nonetheless fell 6 percent in the second quarter, on top of a quarterly decline of 7 percent to 8 percent a year earlier. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Russell Owens, president of P.F. Chang’s China Bistro Inc. [8] of Scottsdale, recently described Phoenix as a weak market for the chain, along with Las Vegas, Southern California and, “to a lesser extent,” Dallas. Those four markets make up 41 percent of P.F. Chang’s comparable-restaurant base and were down 7 percent for the second quarter, Owens said. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Chucri said ARHA members have the advantage of being in the growing Sun Belt. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“We’re lucky that we are a state that is growing quickly, even though it has slowed from recent years,” he said. “At least it’s not stagnant.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Restaurants in the Phoenix market aren’t standing idly by to await a rebound. “Some McDonald’s franchisees have lowered drink prices down to $1, and in midweek they discounted their ice cream cones to 50 cents,” Chucri said, noting that many casual-dining places are cutting portions and prices. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Chucri said local operators are looking forward to the end of September and into October, when winter visitors start to return to Arizona. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“We hope that will inject some business,” he said. “The restaurateurs are hopeful that these folks will be eating out. Sometimes they are on fixed budgets as well, so there is a question mark associated with that.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

The winter months also draw business convention travelers to the area. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“But the question,” Chucri said, “is how much the economy will affect convention business and the pocketbooks of those coming here.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Schmidt of Taco Del Mar said other factors have affected Phoenix-area restaurants during the downturn. He thinks Arizona’s immigration law, which requires employers to verify workers’ status and allows the pulling of business licenses of those with repeat violations, has impacted companies and consumers. —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

“The tough immigration policy has really affected not only customers but the workforce,” he said. “The immigration policy in Phoenix and Arizona has hurt business.” —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.

Return to Hard-Hit Markets main page [9] —Restaurant operators in the Phoenix area are harboring hope that Labor Day will begin to mark an easing of the long, hot summer of high gas prices and rampant home foreclosures that have conspired to stunt sales in the region.