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Sales forecasts in Florida get a little sunnier amid slow turnaround

When restaurant operators descend on Orlando, Fla., early next month for the 51st annual Multi-Unit Foodservice Operators Conference, they will find a brightening economic landscape in the Sunshine State. 

While Florida was among the first states to feel the crippling blow of the recession, operators now view it as a promising land, where sales and franchise activity are on the rise and good locations can be had at low prices.

To be sure, some of the state’s macro indicators remain challenging — the unemployment rate is well above the national average, and the level of turnaround varies by market and brand. But operators say they are nonetheless cautiously bullish.

“We’re not out of the woods yet, but we can see a clear path out of the woods ahead,” said Ian Baines, president and chief executive of the casual-dining Smokey Bones Bar and Fire Grill chain, based in Orlando.

Challenges to recovery

While Florida’s economy is expected to gain momentum gradually in the coming year, its recovery is expected to be “extremely tenuous and fraught with uncertainty,” according to a July report by senior economist Mark Vitner and analyst Yasmine Kamaruddin of Wells Fargo Securities.

“The biggest cloud hanging over the Sunshine State is the huge oversupply of housing constructed during the previous decade,” which will keep pressure on home prices for years, the report said.

Florida also remains among the leading states in terms of home foreclosures. According to foreclosure tracker RealtyTrac, for the first half of 2010 Florida ranked second in the nation in the number of homes receiving a foreclosure filing: 277,073, or one in 20 homes, were foreclosed upon. 

Florida was second only to the 340,740 foreclosure filings reported in California.

“There are a tremendous number of over-leveraged home owners here,” said Jeff Levine, chief executive of the 35-unit Salad Creations chain, based in Coconut Creek, Fla., near Ft. Lauderdale. “People just don’t have the money, or they don’t feel they have the money, to spend.”

As in other states, high unemployment remains a huge obstacle. Florida’s unemployment rate in July was 11.5 percent, above the national average of 9.5 percent.

Throughout the recession, from March 2007 through January this year, Florida lost nearly 925,000 jobs, which translated to 10.8 percent of all job losses nationwide, according to the Wells Fargo report. Though non-farm employment has risen over three of the four months in the second quarter, the state has a long way to go before employment returns to pre-recession levels, the report concluded.

Not surprisingly, restaurant jobs are among those that have been lost with the closure of untold numbers of restaurants over the past two years.

In August, Orlando-based E-Brands Restaurants LLC reportedly closed its Samba Room in Ft. Lauderdale after the company and its related entities filed for Chapter 11 bankruptcy protection from creditors. In the filing, E-Brands said its restaurants around the country have been “severely affected by the U.S. macro economy,” although the company did not return calls seeking elaboration on that statement.

In addition to the Samba Room, E-Brands operates 12 other restaurants under the brands Timpano Italian Chophouse & Martini Bar, Aquaknox Global Water Cuisine, Cañonita Express, Paradiso 37, Taqueria Cañonita and Timpano Tavern. The company’s restaurants are in Florida, Maryland, Colorado and Las Vegas.

Skies are clearing

But while some economic clouds still linger, other restaurant companies paint a brighter picture of the state’s dining scene.

In their most recent quarters, both the Jamba Juice smoothie chain and casual-dining bellwether The Cheesecake Factory said sales were strong in Florida locations specifically.

The privately held Firehouse Subs chain, with 125 of its 392 units in Florida, reported sales up about 7 percent to 8 percent year-to-date among Florida locations, said Don Fox, chief executive of parent Firehouse of America, based in Jacksonville.

The Florida units weren’t trending as high as the 10-percent increase seen outside the state, he said, but stores in Tampa, specifically, were up in sales 10 percent to 12 percent so far this year.

“We’ll finish the year in extremely good shape,” Fox said. “Comp sales in Florida overall will be 9 [percent] to 
10 percent positive at the end of the year.”

Sales for Firehouse Subs have been softest in the Miami-Dade County area, Fox said, in part because the company has softer market penetration there with only 10 restaurants. Sales in recent weeks have begun to run flat to slightly positive, but the last quarter was still down overall.

For Dunkin’ Donuts, however, Miami is a top market for sales growth, said Grant Benson, vice president of franchising and market planning for Canton, Mass.-based Dunkin’ Brands Inc.

With nearly 500 locations across Florida, Dunkin’ Donuts is seeing an uptick in comparable sales overall for units across the state, Benson said. 

Franchising also is on the upswing there, he added. The company recently signed an agreement with existing franchisee David McNulty to add 10 new stores to the Miami-Dade County area, with three opening next year. 

McNulty’s 10 new stores are among 35 new developments in the Miami area signed over the past 15 months, selling out that market, Benson said.

Warming trend

Tampa-based quick-service chains Checkers and Rally’s Drive-In also are adding units in Florida, said Lynette McKee, chief development officer for Checkers/Rally’s Inc.

McKee said markets across Florida, where Checkers/Rally’s has 159 mostly company-operated units, have been “tough over the past few months, but we’re seeing steady improvement,” especially in the Palm Beach and Miami areas, though she declined to give sales numbers.

“We’re seeing some growth initiatives, mostly by franchisees,” she said. “I think they feel they’ve weathered the storm, and now they’re looking to grow.”

McKee said the state’s economy appears to be “a little more stable,” but the company’s focus on operations through the recession also has paid off. For example, the chain’s “More for Less” menu, allowing guests to pick two items for $3 or $4, has helped drive traffic across the 800-unit chain, she said.

“It’s about being relevant,” McKee said. “People are spending money to varying degrees. The companies that are making it are the ones that are learning how to be relevant in that arena.”

Baines of Smokey Bones also reported improvement in Florida locations, but said it’s difficult whether to credit macro conditions or brand upgrades initiated since 2008, after an affiliate of private-equity firm Sun Capital Partners Inc. acquired the chain from Darden Restaurants Inc.

Baines said 27 of the chain’s 67 locations have been remodeled. Smokey Bones also has introduced a new menu and beefed up bar offerings, including the launch of daily drink specials in Florida locations.

Overall, sales are up 5 percent nationwide, but a remodeled unit in Orlando — near the popular new Harry Potter theme park that opened at Universal Studios this summer — is up 10 percent so far this year over last. Baines attributed part of the increase to the fact that some nearby competitors have closed.

It’s a good time to grow in Florida because of the many great location opportunities, said Levine of Salad Creations.

An upscale fast-casual salad concept, Salad Creations has 15 Florida locations, the largest concentration of its units in one state, Levine said.

Trends in Florida have been worse than anywhere else the concept operates, he noted. Also, though sales have been 7 percent to 8 percent positive at locations outside Florida, those in the company’s home state have remained flat year-over-year. 

Still, Levine said the company plans to open seven more locations nationwide this year, including some in the Miami and Ft. Lauderdale area, in part because real estate prices have dropped dramatically.

“There’s no question that Florida was hit hard, if not harder than anywhere in the country,” Levine said. “But we’re starting to bounce in Florida. We’re seeing it reverse, but it will take time.” 

Contact Lisa Jennings at [email protected].

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