Outlook 2008: Mid-Atlantic

SALES FORECAST

Time was when a recession hit the Mid-Atlantic region, it hit hard and overstayed its intrusion.

The region was often among the first parts of the country to feel the squeeze of an economic slowdown and often among the last regions to feel its release.

Now foodservice operators in the five states and the District of Columbia that make up of the Mid-Atlantic are not only fretting that the nation’s economic slowdown presages a recession at some point in 2008, but that it is going to be all the more burdensome to their businesses given that many of the region’s state and local legislatures are debating taxes and government mandates that will increase the cost of doing business.

Throughout the region, legislatures are toying with new taxes or plans to raise general revenues that are targeted on the specific revenue streams of foodservice operations.

So even the 4.5 percent projected increase in foodservice sales to $68.26 billion that the National Restaurant Association forecasts for the region in 2008—a slower rate of growth from last year’s 5.3-percent increase—may be negated in the face of pending bills to raise taxes, operators say.

After adjusting for 3.6 percent menu price inflation, the region’s real growth rate is 0.9 percent.

OPERATOR OUTLOOK

In Allegheny County, essentially the Pittsburgh metropolitan area, operators are fretting about the county executive’s motion—already being entertained in the State House and playing a role in the 2008 gubernatorial elections—to tax restaurateurs 10 percent on alcoholic beverage sales, reports Patrick Conway, chief executive of the Pennsylvania Restaurant Association. That money, along with a $2-a-day tax on car rentals, would be used to pay for mass transit projects in the county, Conway explains.

Although a Republican house majority provided the enabling language that would allow the county executive to begin the new taxes Jan. 2, Conway speculated that the Republicans approved the measure as a minefield to trip-up a leading Democratic gubernatorial candidate—who supports the measure—with charges that he supports higher taxes.

ECONOMIC INDICATORS, PROJECTED GROWTH RATES, 2007 TO 2008

Melvin Thompson, vice president for governmental regulations at the Restaurant Association of Maryland, says industry-specific taxes on alcohol and an increase in various municipalities’ local meal taxes—both seen as ways to address the state’s budget shortfall—could hurt his membership in 2008.

On top of all that, Thompson says that employers’ contributions to the state’s unemployment insurance fund could go up if the state legislature approves a bill that would extend unemployment benefits to part-time workers. He says it is likely the state legislature will approve a new law giving unemployment benefits to those looking for part-time work.

Currently, 20 other states allow laid-off, part-time workers to look for part-time jobs, a benefit that would be new to Maryland. He estimated that 42 percent of the state’s foodservice workers are part-timers.

Thompson said operators also are worried about their customers’ satisfaction with the industry when the state bans indoor smoking in public places on Feb. 2.

In New York State, menu-labeling proposals bounce around the state house in Albany like ping-pong balls on a marble floor. But industry leaders are confident that nothing will be forthcoming given higher priorities the state faces with immigration controls and tax relief. Although New York City’s trans fats ban goes into effect in five months, state legislators appear to be publicly floating similar legislation for the Empire state.

While state legislators may stay out of New York City operators’ businesses in 2008, commercial landlords in New York city are siphoning more and more from restaurant revenue streams through soaring lease rate renewals.

Just two weeks ago, an annual real estate study reported that rental prices along the eight blocks of Times Square from 42nd Street to 50th Street have reached an all-time high of $757 a square foot. At the corner of 57th and Fifth Avenue—which long has boasted the highest commercial lease rates in the nation—commercial rents are $1,156 a square foot.

Deborah Dowdell, president of the New Jersey Restaurant Association, says her organization has teamed up with a group of other business interests to form a coalition to fight an expanded paid family leave bill. She says the bill will probably pass given the head-of-steam legislators are giving it, but she hopes the coalition can at least reduce the number of weeks off the bill proposes, which at one time was 12.

2008 MID-ATLANTIC FORECAST

Perhaps no operators feel the sting of elected officials’ actions more immediately in their businesses than those in Washington, D.C., where a broke city council and a politically sensitive Congress often work at loggerheads.

Lynne Breaux, president of the Restaurant Association of Washington, says that her members, especially high-end operators, fear the business impact if Congress passes a law that will make it illegal for lobbyists to dine with federal lawmakers.

Although the law has the well-intentioned goal of restoring ethics and more public disclosure between lobbyists and members of Congress, one of the provisions would make it illegal for a lawmaker to have a sit-down meal in a commercial food-service establishment with a lobbyist.

“I call it the absurd nonreform bill,” Breaux says. “It’s OK if they stand up, but they can’t sit down. I guess finger foods and bite-size hors d’oeuvres you can eat while standing are going to be the big menu trend here this year.”

LEGISLATIVE HOTSPOTS

DELAWARE: Menu labeling; trans fats ban proposal: paid family leave bill.

DISTRICT OF COLUMBIA: Congressional reform bill to prohibit elected officials from dining with lobbyists; menu labeling.

MARYLAND: Menu labeling in Montgomery County, a D.C. suburb; smoking ban to go into effect in February; proposed new taxes on alcohol sales in foodservice; bill to extend unemployment compensation to part-time workers.

NEW JERSEY: Possible reintroduction of state legislation to require menu labeling; statewide universal health care legislation; more generous paid family leave; more generous temporary disability.

NEW YORK: Menu labeling.

PENNSYLVANIA: Possible reintroduction of Philadelphia city council menu-labeling bill; state bill to require menu labeling for operators with 20 units or more; Allegheny County transportation bill to finance mass transit with a 10-percent drink tax on alcohol and a $2-a-day tax on car rentals