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Weathering the perfect storm economy

Weathering the perfect storm economy

It took a nonfiction best seller and Hollywood’s Oscar-nominated adaptation to establish “perfect storm” in the popular lexicon as a handy metaphor for rare convergences of fateful factors.

Though few restaurant operators may see themselves in George Clooney-like roles steering their enterprises through business-bashing torrents and unforgiving economic seas, a touch of perfect-storm imagery nonetheless provides an apt backdrop for examining the improbable multiplicity of forces now threatening foodservice.

Just for starters, there’s food inflation that’s grown at twice the rate of inflation overall, with portents that still-rising oil prices and expanding federal quotas for grain-based biofuel could worsen operators’ commodities burdens.

And with lots of key costs spiking, restaurants are pressured to raise menu prices repeatedly even as their recession-wary customers are being hammered by record levels of consumer debt and fears about rampant home foreclosures, work-force cutbacks, and the eroding values of investments and savings.

The storm warnings for restaurateurs only intensify when you add a growing spate of mandated labor cost increases and threats of new taxes for health care. Then there’s the specter of stagflation—the fearsome long-haul slowdown of economic growth coupled with persistent inflation.

Add to all those pitfalls the stunningly diminished value of the U.S. dollar, driving up costs for imports ranging from oil for delivery trucks to olive oil for tossed salads.

Consider, also, macroeconomic matters evident on a global scale, like the growing appetites for finite food staples among the burgeoning middle-classes of China, India, Russia and Brazil. A diminished dollar can stretch only so far in worldwide competition for coffee beans or beef or wheat or any other key commodity that might also be subject to crop diminishments from droughts, Earth’s swelling population or a host of other factors.

Despite such external forces, many American restaurateurs have come to see the U.S. government’s alternative-fuels policies as symbolizing self-inflicted woe, stemming from the huge quantities of corn being diverted from animal feed and human consumption to the production of ethanol for automobiles. As prices for that grain have soared, more operators whose business plans hinge in part on affordable, versatile chicken offerings—which is to say, most restaurateurs—are wincing when they tally their costs for a commodity widely regarded as “corn with wings.”

Because of the perceived biofuel boon-doggle, corn that used to represent only one-fourth of the overall cost of chicken now is said to be fully 50 percent of the cost—even for large chicken chains with bulk-buying clout.

Yet despite such stresses, most operators aren’t prepared to concede that unavoidable pass-throughs of ingredient inflation can only lead to bigger trading-down pressures on consumers than we’ve already seen, with habitual coupon clipping and home cooking as the inevitable outcomes.

One saving grace restaurateurs can exploit is that they, compared with grocery stores, have more compensatory latitude because of the variability of their recipes, product specs and menu formulations. Perhaps as never before, chefs are being put to the test to concoct appealing dishes that utilize more lower-cost ingredients and can be priced accordingly.

Meanwhile, plenty of operators continue to scoff at the notion of an economic perfect storm swallowing up their viability. They insist that sustainable returns can still be had by business managers who don’t forget that clichés still matter—as in, you’re only as good as your last meal. Or that unwavering attention to hospitality and service score lasting points with even the most tightfisted penny-pincher.

Optimists also can point to near-term metrics suggesting that the nation’s economic malaise may be shorter-lived than some might have expected. For example, the government’s most recent quarterly Gross Domestic Product figures showed the U.S. economy still growing, albeit slightly, meaning that “recession” technically remains at bay for now. What’s more, recent employment statistics show job losses falling to only about one-fourth the levels posted in early months of 2008.

In developing this special section, Nation’s Restaurant News’ team of “perfect storm” reporters were mindful that endless reams of newsprint and countless hours of verbal punditry had already been devoted to the extraordinary confluence of inflationary and revenue-stunting factors confronting businesses. For these reports, we sought to feature savvy operators’ tactics for lessening the impact of economic hardships through optimized purchasing, pricing, product reformulation, occupancy cost adjustments, workforce management and value-sensitive marketing.

In addition to focusing on ways to overcome customer reluctance, special attention was paid to developments on Capitol Hill that might help ease food-to-fuel cost pressures and regulate unchecked energy speculation that’s seen as artificially inflating the cost of gas—and thus food.

NRN’s team found many operators tight-lipped about their tactics for weathering a roiling economy. Their circumspection might be explained by pervasive uncertainty about the shifting economic winds and rising tide of cost pressures.

Still, the wide-ranging reports that follow help part the clouds at least a bit to shine light on best-practices methods and mind-sets that might help your business calm the storm or at least ride it out with minimal harm.

Weathering the storm: Course correction

Weathering the storm: Buying breathing room

Weathering the storm: Inflation fuels action

Weathering the storm: New lease on life

Weathering the storm: Commodities get too hot

Weathering the storm: Labor pains

Weathering the storm: Discount du jour

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