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Morton’s bullish on business spending

Morton’s bullish on business spending

Steakhouse chain sales continue to climb, even with menu price increases

The recovery in business travel and expense account dining continues to align with Morton’s The Steakhouse’s positioning, company officials said in a conference call discussing third-quarter earnings.

The Morton’s Restaurant Group brand saw its seventh consecutive quarter of same-store sales growth in the third quarter.

Since Morton’s core customer dines on an expense account, its clientele has enough spending flexibility to accommodate the chain’s planned menu price increases in 2012, which aim to offset expected inflation in the cost of beef, chief financial officer Ron DiNella said.

Morton’s raised prices 2.2 percent in the summer of 2010, 2.7 percent in December 2010, and 1 percent in January 2011. The brand also raised prices 1 percent in October 2011. Same-store sales this month are 5 percent higher than the previous year.

“We have not contracted anything for next year, but when we have done it in the past, we typically do it very late in the year, beginning of November and ending up right before the end of the year,” DiNella said. “The beef guys are bullish on their pricing power, so we’re thinking [it will be] a 5-percent to 10-percent increase [in beef costs] next year.”

Beef comprises 80 percent of all food sold in Morton’s dining rooms and private-dining boardrooms.

While most of Morton’s customers likely would not defect over menu price increases, the chain still will emphasize its Bar 12-21 concept, where a small-plates menu and wines by the glass allow for a more casual experience with a much lower average check than the steakhouse, said chief executive Chris Artinian.

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“Historically, we’ve always committed to the finest-quality beef, and our guests realize that and depend on having ‘the best steak anywhere,’” Artinian said. “Our beef’s expensive, and our center-of-the-plate items can handle it. On the flip side, we’re conscious that there are increasing costs everywhere, and we’re just happy to have the bar as a destination, too … We’ve created another profit center that’s not $100 a head. You can get away with $25, with a little bit of work, with a glass of wine and Bar Bites.”

Revenue in private-dining boardrooms also are trending positively, and private-party bookings for the critical December holiday period are up approximately 10 percent compared with the previous year, Artinian said.

Growth expected to restart in 2012

Morton’s reiterated that its only new restaurant in 2011 would be a relocated steakhouse in uptown Dallas, which reopened in February. However, domestic and international expansion is expected to resume next year.

“We have accelerated our search for new restaurant opportunities,” Artinian said. “We’ve focused on densely populated cities to expand the Morton’s brand domestically. We are actively looking for sites to build new Morton’s Steakhouses in these markets or to relocate in existing markets.”

The chain has remodeled 53 restaurants to include Bar 12-21, Artinian said, adding that bar sales have grown from 11 percent of total sales a few years ago to 15 percent of sales in the 2011 year to date.

Morton’s said its remaining 24 restaurants would either remodel or relocate, and six such locations are designated as high priorities for action soon. The next restaurant to be relocated is in Tysons Corner, Va., and Morton’s will remodel or relocate about four restaurants per year, Artinian said.

The brand’s relocation earlier this year in uptown Dallas showed a dramatic improvement, initially doubling sales volumes compared with a year earlier.

Morton’s will keep international growth focused on Asia, the company said, as locations in Hong Kong, Macau and Singapore are some of Morton’s most profitable restaurants. Late last year, Morton’s made its first foray into mainland China with a restaurant in Shanghai.

Chicago-based Morton’s operates 77 namesake steakhouses in 26 states and five foreign markets.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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