By COURTNEY BAIRD
Orange County restaurant chains grew in 2007, despite high costs, skittish consumers and a slumping economy that have shown little signs of improving this year.
Revenue for the 25 largest Orange County-based restaurant chains rose 7.8% last year to $6.2 billion, according to this week’s Business Journal list.
The gain largely came from restaurant openings, as the chains struggled to keep up sales and profits at existing restaurants.
Things have gotten worse this year. Some executives call today’s market similar to that of the 1970s era of rising prices and a stagnating economy.
“It’s safe to say we have a really historic combination of circumstances right now,” said Stephen Carley, chief executive of No. 8 Costa Mesa-based El Pollo Loco Inc.
Many chains have turned to marketing campaigns to promote “value menus,” even as they have had to raise prices to offset high food, gas and other costs.
At the same time, consumers have pulled back on eating out as they grapple with higher prices for everyday expenses.
Some restaurants are looking at smaller, less expensive portions. They’re also focusing on improving service and streamlining supply operations.
“It’s a game of inches,” said Tom Amberger, vice president of marketing for No. 20 Newport Beach-based Galardi Group Inc., which runs the Wienerschnitzel hot dog chain.
Wienerschnitzel has switched to less expensive napkins and cut the amount of ink used to print to-go bags, according to Amberger.
Many restaurants have reluctantly raised prices, even though they know they risk losing customers.
El Pollo Loco saw a 1.8% gain in sales at restaurants open at least a year in the first quarter, helped in part by higher prices.
The chain also reported a 6.5% rise in first-quarter revenue to $71.2 million.
“We had a slowdown in traffic, which we made up for in pricing,” Carley said. “We don’t like that. Sometimes it’s unavoidable. But we are very sensitive to it.”
Fast food chains such as El Pollo Loco, Wienerschnitzel, No. 1 Irvine-based Taco Bell Corp. and No. 3 Lake Forest-based Del Taco Inc. say they’ve fared better than casual, sit-down restaurants as diners tend to trade down when the economy is slumping.
Del Taco, part of Nashville, Tenn.-based Sagittarius Brands Inc., did $550 million in 2007 revenue, up 3% from a year earlier.
The company is watching food supplies and relying on longstanding ties with suppliers to control costs and keep prices down, President Shirlene Lopez said.
Lousiville, Ky.-based Yum Brands Inc., parent to perennial list No. 1 Taco Bell, has been expanding abroad, opening 158 restaurants around the world in the first quarter.
Mimi’s
Tustin-based Mimi’s Cafe, part of Columbus, Ohio-based Bob Evans Farms Inc., is among the casual restaurant chains that is struggling.
For the 12 months through April, Mimi’s same-store sales fell 2.4%, even though it raised prices by 3%.
Mimi’s has retooled the look and content of its menu, which now emphasizes freshness, said Tim Pulido, the chain’s president.
It started a “Just Enough” section that offers the option to buy smaller portions at lower prices, he said.
Some restaurants say they aren’t feeling the squeeze as much as others.
“Overall, I think we’re doing a lot better than most,” said Steele Platt, founder and chief executive of Irvine-based Yard House USA Inc., known for its specialty beers on tap.
Yard House’s same-store sales last year increased for all but two restaurants, Platt said. About half of its restaurants did $10 million or more in sales last year.
In late 2007, Yard House sold a 70% stake to San Francisco-based private equity firm TSG Consumer Partners for an estimated $175 million.
Employment
Local employment at the restaurants on the list rose 6% in the past year to 15,512 people. The number of local restaurants at the chains rose 3% to 417.
Companywide, the number of restaurants rose 1.5% to 9,498.
Many restaurateurs are philosophical about the downturn.
“It is true that economic conditions are tough, but at the same time this often helps companies get that much more disciplined and focused. Frankly in the long run the good restaurants and concepts are just going to get better,” Mimi’s Pulido said.
