Chipotle Not Cutting Back on Growth

Though it’s opening its first restaurant in Toronto this year, Chipotle Mexican Grill’s expansion will remain focused on existing markets in the United States, executives said at the company’s second quarter conference call. The company continues to expect 130 to 140 new restaurants openings in 2008, said Founder, Chairman and CEO Steve Ells. About two-thirds of the openings will be in well-established markets, with the remainder in newer markets.

“International expansion is not a key driver of our growth strategy,” Ells said.

Chipotle does not expect to cut back growth in 2009, unless space isn’t available.

“We’re still building our pipeline for 2009,” Ells said. "It does seem some developers are slow getting out of the ground. It may be that forces not under our control may force us to slow down."

Sales increased 24.2% from the previous year to $340.8 million, while comp-store sales rose 7.1%. Net income increased 22.5% to $24.5 million. Chipotle opened its first restaurant in 1993 and currently operates over 775 restaurants.

Source: GlobeSt.com

Pizza Hut turns 50 in tough time for the industry

LOUISVILLE, Ky.—Dan and Frank Carney borrowed $600 from their mother 50 years ago and opened a small pizzeria in Kansas using second-hand equipment in what was once a bar. The dream was to make enough pizzas to pay for college and earn a little money on the side for the family. That humble enterprise with a humble name -- Pizza Hut -- is now the world's largest pizza chain with $10 billion in annual sales and more than 11,000 stores worldwide.

"We were able to build something from nothing," Dan Carney said, recalling the hardscrabble early days and that first pizzeria in Wichita, Kan., which opened 50 years ago Saturday. The chain known for its red-roofed restaurants is now updating its look, with plasma TVs, sports bars and local sports memorabilia. It's also rolling out tubs of baked pasta and piles of fried chicken wings to go with its famous pizzas.

It is a tough time for pizza makers, who are strapped by rising cheese and flour costs and consumers who have been pinched by a sluggish economy. Last year, Pizza Hut Inc. closed more U.S. restaurants than it opened, which it attributes to such factors as leases ending and restaurants being sold. Analysts say Pizza Hut was due for an overhaul the new menu may help it through a rough time for the industry. Restaurant analyst Larry Miller with RBC Capital Markets said "the iconic red roof store is dated."

"From a bigger picture, longer-term view, this is a brand that's starting to differentiate itself from the competition in some really unique ways," he said. Pizza Hut went public in 1970 and was then acquired by PepsiCo Inc. in 1977. Frank Carney left the company three years later in a clash with the new owners. Pizza Hut's corporate parent changed again in 1997 when PepsiCo spun off what is now Yum Brands Inc., a Louisville-based company that also owns Taco Bell, KFC, Long John Silver's and A&W All-American Food Restaurants.

"I'm proud every time I see Pizza Hut doing well because that's part of me," said Frank Carney.
Now 70, he is a competitor with a stake in 73 Papa John's pizza stores in Wichita, Houston and Hawaii. "Good competition keeps everybody on their toes, them and us," Carney said.

Pizza Hut began an aggressive advertising campaign this spring to publicize the new menu. It says the effort paid off in the first month, when it sold 2 million pans of pasta, doubling its expectation, said Pizza Hut President Scott Bergren. The company sells chicken wings in an agreement with WingStreet. "We have changed our sales mix substantially," Bergren said.

Bergren declined to say what kind of profit margins the company was seeing for pasta and chicken wings compared with pizza, saying, "these are all profitable products." Ingredient costs like wheat, cheese and chicken have soared in the past year. Bill Walsh, a Pizza Hut franchisee with a stake in 93 stores in a dozen states, said the menu has bolstered sales at his restaurants. While restaurants have incurred higher costs and extra equipment expenses, "by the time you get those additional sales, we're happy to accept that higher food cost."

Pizza Hut is quick to emphasize that it will stay true to its name. "Our core, and Lord knows we sell more of it than anybody in the United States, it's always going to be pizza," Bergren said.
While the chain's most heated growth is now overseas, Bergen said there is room to expand at home. "We think there are another 1,000 towns in the United States where we can actually build a Pizza Hut," he said. "So we're not done growing in the United States at all."

Dan Carney, 76, has left the pizza business but still keeps an eye on the company he founded 50 years ago in a rented bar with his brother. "I'd love to see it go another 50 years," Carney said. "As long as they stay dynamic with new ideas flowing in and out, they have a great chance to do that."

Source: Boston.com

Restaurant industry contracts in March

Prospects for the restaurant industry continued to weaken in March along with the worsening economy, a leading trade group said on Wednesday. The monthly performance index published by the National Restaurant Association came in at 97.9 in March, down 0.9 percent from February and its lowest level on record. A value of 100 or greater indicates the industry is in a period of expansion.

The Restaurant Performance Index is based on the responses to a Restaurant Industry Tracking Survey, which includes restaurant operators nationwide who are asked to comment on a variety of indicators including sales, traffic, labor and capital expenditures. The indicators include same-store sales, traffic, labor, capital expenditures -- both current and future -- employees, business conditions and staffing. Six out of the eight indicators declined in March, according to the NRA, which said the data signified both a slowdown in current industry performance as well as a weakening in the outlook for the industry in the coming months.

Among specific NRA findings: 25 percent of restaurant operators said the economy is the number-one challenge facing their business; 22 percent are concerned by food costs and 16 percent are worried about building-and-maintaining sales volume. About 14 percent are troubled about their ability to recruit and retain employees.

Source: BBJ

Bidding process narrows for Macaroni Grill

Sources say that it won't be long before Dallas-based Brinker International Inc. and Romano's Macaroni Grill part ways.

Macaroni Grill is on the auction block, and Sun Capital Partners Inc. is reportedly the final bidder, according to The Deal, a financial media company in New York.

The asking price for the chain, which was founded by Texas restaurateur Philip Romano in 1988, is reportedly $190 million. A sale is expected to be announced by June 25. The Boca Raton, Fla., private equity firm also owns Fazoli's Restaurants, Boston Market, Souper Salad and a number of other restaurant chains.

Other bidders may have included private-equity firms Castle Harlan Inc. and Bruckmann, Rosser, Sherrill & Co. LLC, according to The Deal.

Calls to Brinker were not immediately returned.

Brinker (NYSE: EAT) also operates Chili's Grill & Bar, On The Border Mexican Grill & Cantina, and Maggiano's Little Italy.

Source: Dallas Business Journal

Balt: Restaurateur defies sluggish economy, plans expansions

The owner of the Bicycle -- one of Baltimore's most popular restaurants -- plans to start a casual Italian restaurant about six blocks away from his Federal Hill eatery.

And Timothy Dean, of Timothy Dean Bistro, is spending $2.5 million on a 280-seat jazz lounge and restaurant at Prince George's County waterfront development National Harbor.

The moves underscore how some established restaurant operators are expanding even though consumers are watching their pennies. You can still lure diners by offering the right concept and good prices, restaurant owners say.

Timothy Dean will open Timothy Dean Bistro Jazz Club in August because he wants to grow his brand. Financing will come from two bank loans and business partner Peter Mallios of Mallios Realty in Washington, D.C. Plans to open a restaurant in Las Vegas have been put on hold for now while Dean expands to the retail and resort development.

Meanwhile, the Bicycle's Nicholas Batey will buy the building at 554 E. Fort Ave. to open Ullswater, named after an English lake. The building was formerly occupied by the defunct Soigné and more recently, the Sly Fox Pub.

Batey said he hopes to open the 100-seat eatery by October. Batey declined to say how much he will pay for the property but state tax records assess the value at $300,000. Funding for the new restaurant will come from a U.S. Small Business Administration loan and friends, he said.

Batey said he has noticed consumers are spending less. Some weekdays this winter have been slow at the 65-seat Bicycle, he said.

But Batey said he thinks he can draw customers with a lower-priced, casual restaurant. Diners at Ullswater will be able to order an entrée, appetizer and a glass of wine for $30. Federal Hill's the Bicycle sells contemporary international cuisine, with entrées such as New Zealand bass with red lentil dhal for $28.

Opening an Italian restaurant was always one of Batey's ambitions.

"The opportunity for the building and everything came at the right time," Batey said. "I just had to move forward and do this concept."

Source: Washington Business Journal

Restaurants buckling as costs soar, traffic slows

The number of restaurants for sale in the Boston area has spiked as the combination of higher costs and declining receipts has convinced many owners to throw in the towel.

Several area restaurant brokers report their listings have doubled from a year ago. And asking prices are dipping as the market becomes glutted with listings.

In some cases, those operators have dropped their prices 25 percent to 30 percent from what they would have been a year ago. Restaurants normally sell for from 30 percent to 40 percent of their sales.

"You're seeing an adjustment just as you are in the residential real estate market," said Charles M. Perkins, president of the Boston Restaurant Group Inc., restaurant brokers based in Boxford. Perkins is carrying about 40 listings of restaurants for sale; he normally handles around 20. "A lot of leases were executed when the market was strong. Sales are off and rents continue to go up."

He added: "It's nice if you're buying in (to the market). It's not so nice if you're cashing out."
While no geographic location is exempt, city restaurants may have the advantage of abundant foot traffic, says Daniel R. Newcomb, founder of the restaurant brokerage firm Atlantic Restaurant Group Inc. Newcomb normally has 15 sales listed; this week it's 28.

"There's pressure from both sides of the P&L," said Newcomb. "There's pressure to maintain sales and grow sales, and there's pressure on the bottom line because their costs are increasing."

Restaurant owners cite a few key reasons for the cost squeeze:
Increasing operating/utility/labor costs: Utility costs and labor costs have gone up around 10 percent to 15 percent over the last year;
Skyrocketing food costs: The price of flour has tripled in the last year; other commodity prices have risen at an alarming rate. Many restaurants have been forced to raise menu prices.
Greater competition: A good economy in 2005 and 2006 inspired a slew of new restaurants, and now more restaurants are competing for fewer dining dollars.

Increased competition eroded business for Ronnie Catanese, owner of The Rat Pack, an upscale restaurant in Framingham. He closed the restaurant last week. Between the Natick Collection and other MetroWest restaurants opening, about 2,000 seats were added last fall to the area. Catanese, who opened in 1998, started to see sales slip as much as 41 percent last fall when weekday corporate lunches fell off Monday through Thursday.

"In the end it was not profitable," said Catanese. "It's not like Boston when a convention comes and there's another 100,000 people in the city."

Purveyors are also wary of the economy. Michael Rhoads, owner of B&R Artisan Bread in Framingham, who sells specialty breads wholesale to restaurants, said he's shortened his terms of payment and has found a collector in the event he has to go after delinquent clients. He hasn't needed the collector, yet.

Another purveyor, Specialty Foods Boston, is seeing more high-end restaurants buy canned black truffles as opposed to the more costly fresh ones from Italy or France.

"Everybody's painfully aware of their bottom line and their food costs and whatnot," said Philip Peterson, manager of Specialty Foods Boston, a produce purveyor. "Some lesser established places seem to be on the ropes."

The silver lining lies with restaurateurs, many of them veterans, who have capital and a proven track record to weather the storm and even take advantage of others' misfortunes.
Not Your Average Joe's founder Stephen Silverstein is getting ready to open his 16th restaurant in the former Applebee's space in Westborough this May. He was able to lease the 5,400-square-foot building below the market price, said Silverstein, allowing him to save a couple hundred thousand dollars.

"There's more (inventory) now than there was, and will be even more," said Silverstein. "We sort of have a cleansing going on right now in the industry. It's doing its thing. It's weeding out the weak."

Christopher Spagnuolo is adding to the mounting number of restaurants for sale. Monday he shuttered his 2,300-square-foot Panificio Bistro & Bakery in the Back Bay after operating for 2 1/2 years. The bottom line? Spagnuolo, who also owns and operates the smaller, original Panificio on Beacon Hill, couldn't make the rent-to-sales ratio work here.

Sitting in the closed restaurant among the empty glass cases, empty shelves and bottle-less bar Monday afternoon, Spagnuolo contemplates what he may do with the tables and chairs. "Leave it," he says. And the business? "Reassess. I would think somebody who has more resources -- a larger management staff -- (could buy it). It just can't be me and the chef."

Source: BBJ