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Restaurant operators double down on economic and industry recovery

Acrisis is a terrible thing to waste.

While walking the halls, holding meetings and breaking bread at the Restaurant Finance & Development Conference in Las Vegas, it was clear the industry would heed that warning. Operators, lenders and analysts all pointed to the significant moves the best companies are making to come out of this downturn stronger than before: the better labor scheduling, tidier procurement processes and lease restructurings to reduce real estate costs.

(To see charts from this week's print issue, click here.)

Don’t get me wrong: Tales of woe are significant. Some operators say sales are down 30 percent at certain locations, just as costs are up by the same amount. Funding has been all but eliminated as Small Business Administration lenders and others, like heavyweight GE Capital, halt or delay new lending. Local banks are asking for equity contributions in the double digits and tightening terms like a vice. Layoffs of friends and family members have taken place at large chains and independent restaurants.

The reasons for all of this are well-documented, and many say it will only get worse before it gets better.

While hope is not a strategy, having heart is—and heart is one thing this industry has in spades. It may not have an influx of customers, it may not have relief from high commodity costs, but the restaurant industry has heart. Even a cynical and sarcastic journalist can see that from a mile away.

In Las Vegas, veteran restaurant operators congratulated first-time entrepreneurs on their hot concepts, private-equity investors met with owners to discuss infusions of capital, and bankers spoke about finding ways to make mergers and acquisitions work for both parties. Everyone knew the backdrop the industry is operating against, and everyone showed up to get some work done.

Bill Taylor, a journalist and author of “Mavericks at Work: Why the Most Original Minds in Business Win,” spoke on the new era of leadership taking hold in businesses across the country. They are less risk-averse and don’t fear innovation. These leaders foster differentiation, he said.

“The best leaders today are no longer top-down managers,” he said. “They tap into all people, a large group.… Nobody alone is as smart as everyone together.”

New leaders from the industry also shared strategies for success:

Sally Smith, chief executive at Buffalo Wild Wings, interviews each job candidate four levels down from her position at corporate headquarters. While the strategy hasn’t eliminated mis-hires, it has helped avoid bad hires, she said.

Jimmy John Liautaud, the founder of Jimmy John’s sandwich chain, said his company is focused on basics. While Subway’s $5 foot-long sandwich promotion was killing his chain—he used much more colorful, four-letter infused language than that—Jimmy John’s would “let the main thing be the main thing” and focus on food, service, speed and quality.

Greg Levin, the chief financial officer at BJ’s Restaurants, said the casual-dining chain wouldn’t get caught in the discounting game. “It’s like a drug,” he said. “You think it’s great at first, but like all drugs, it will kill you in the long term.”

Kenneth Hignett, the chief financial officer at Morgan’s Foods, the fourth-largest KFC franchisee in the United States, said even though franchisees rely on franchisors for most menu and marketing strategies, there is room for innovation. Morgan’s KFC locations have initiated a Snack Attack menu with items from 69 cents to $1.29, which has worked to drive traffic and hasn’t taken away from lunch or dinner sales.

Sharon Soltero, vice president of franchisor relations at Irwin Franchise Capital, tried to calm fears surrounding the credit freeze by speaking about the inevitable lifespan of cycles. What goes up must go down, she said, adding, “Bring me the fastest-growing borrower today, and I’ll show you the biggest workout situation of tomorrow.”

Her bottom line advice?

“Be prepared and understand your business. If you have junk in the P&L, get it out.”

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