Così CEO Carin Stutz resigns

June 28, 2013

carin-stutzmainCompany names executive chair Stephen Edwards president, CEO

Carin Stutz has resigned as chief executive of Così 18 months after taking the top post at the long-struggling brand.

The Deerfield, Ill.-based company’s board of directors has named executive chair Stephen Edwards president and chief executive.

“On behalf of the board,” Edwards said in a statement, “I would like to thank Carin for her service to Così. We wish Carin well in her future endeavors.”

Edwards and the board indicated that the 124-unit fast-casual chain’s first priorities under the new management structure would be to shrink its cost structures by focusing on unit-level profitability and exiting unprofitable locations, preferably through refranchising.

Accelerating franchise growth had been a key goal for the company when it raised $12.8 million last year in a secondary-rights offering to shareholders, which it completed on July 9, 2012.

“Our franchise partners have proven that they can operate successful restaurants under our brand,” Edwards said. “Our focus will be to give these partners and other entrepreneurs like them the tools they need to grow the Così system. … Così is a great brand. Our mission is to create a business model that builds on the strength of our brand while generating profits for our shareholders. And to do so quickly.”

The company’s first-quarter earnings, which it reported last month, reflected franchisees’ outperformance in Così’s uneven operating results. For the April 1-ended quarter, franchisees’ same-store sales decreased only 1.3 percent, compared with a 6.6-percent drop in company-owned restaurants, leading to an overall 4.5-percent decrease for the chain’s entire system.

Così Inc.’s first-quarter net loss widened to $2.74 million, or negative 15 cents per share, compared with $1.13 million, or negative 9 cents per share, a year earlier.

In that filing, the company reported pockets of success, including several franchised locations and an aggregate same-store sales increase in the New York City market, where reimaging efforts and a program designed to improve unit-level operations had started to return positive results. The company’s home market of Chicago also had been completely remodeled, and one downtown location served as a “pop-up” unit last winter, where an extensive new menu was tested.

Darren Tristano, executive vice president of Chicago-based Technomic Inc., acknowledged that Così had fallen behind competitors in the bakery-café segment, but still characterized Stutz’s resignation as a “sudden decision.”

“I had just spoken to Carin during the NRA Show and she was excited about the direction Così was going,” Tristano said. “So her decision is evidence that this is a very competitive segment of the industry, not just in bakery-café or sandwich, but, in general, breakfast. Even with a good product and good locations, it’s been difficult to build profitability.”

With more transition in leadership, Così’s path back to profitability and growth will probably be a little longer, he added. The sustained focus on refranchising could bring much-needed capital to Così Inc. and allow it to focus on building the brand rather than running restaurants, Tristano said.

“This decision can help narrow down what Così focuses on,” he said. “I don’t think it has to do with the menu, because they have a good product and their pricing is competitive and the décor is appropriate.

“They still have to tweak the service format and better understand what dayparts they want to own,” he continued. “I think it very likely comes down to service when competing with Panera Bread and Corner Bakery.”

In addition to Stutz’s resignation, Così layed off some administrative staff, which the company said would result in annual savings of approximately $1 million.

Così operates 74 company-owned locations and franchises another 50 restaurants in 16 states, the District of Columbia and the United Arab Emirates.

Eating Ethnic: Traffic Drivers & Attitudes

June 26, 2013

For ethnic fare, U.K. consumers seek restaurants and menus that offer both an authentic taste and authentic ambiance.

It’s no surprise that consumer interest in and demand for ethnic foods at restaurants and other foodservice locations is on the rise. One quarter of all U.K. consumers (26%), and two-fifths of consumers aged 25–34 (40%), polled for Technomic’s 2012 U.K. Flavour Consumer Trend Report are more interested in trying ethnic cuisines and flavours than they were a year ago. Further, consumers call for more ethnic fare at restaurants. Fully 22% of consumers agree and another 30% agree somewhat that they would like to see more ethnic options at restaurants. This data signals greater opportunities for operators to differentiate their menus through globally influenced offerings and gain an increased share of consumers’ foodservice spending.

This piece will examine what is important to those seeking ethnic items as well as their willingness to try new cuisines.

Authenticity Is Key

A majority of U.K. consumers—71%—cite authentic taste as one of the most important factors in their decisions regarding ethnic foods. And it seems to be more important to older than younger consumers. Three-quarters of consumers aged 55+ (74%), compared to 60% of consumers aged 18–24, choose a restaurant for ethnic foods based on the authentic taste of the food.

Two-fifths of consumers feel it is very important that ethnic food be prepared by someone from that country or region. Again, older guests feel more strongly: 50% of consumers aged 55 or older place high importance on the food being prepared by someone from the country or region, compared to only 32% of consumers aged 18–24. Ethnic restaurants are limited in their ability to hire and retain staff from other countries, so operators of restaurants that base their appeal on authenticity of the fare may want to consider establishing apprenticeships allowing their chefs to train other cooks in order to maintain the authenticity of menu offerings.

Servers who are from the same country or region as the restaurant’s cuisine may also drive ethnic purchases at restaurants. Patrons may consider these servers to be more knowledgeable about the menu. Nearly half of consumers choose an ethnic restaurant based upon the staff’s knowledge about the menu. These consumers may be seeking menu suggestions or thorough answers to their questions about an unfamiliar ethnic ingredients or preparations.

Ambiance also plays a key role in creating an authentic experience. Almost three out of 10 consumers decide which restaurant or foodservice establishment to visit for ethnic foods based at least in part upon the authenticity of its ambiance or décor.

Interestingly, while more men (45%) than women (36%) feel that it is important that their ethnic food be prepared by someone from that country or region, more women than men place high importance on authentic ambiance (30% of women vs. 25% of men).

Some consumers also choose an ethnic restaurant based on general restaurant amenities. Three out of 10 consumers choose a restaurant to visit for ethnic fare based on the availability of takeaway, and 28% place importance on customisation at ethnic restaurants.

Base: 1,000 consumers aged 18+Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Base: 1,000 consumers aged 18+
Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Menu Attributes Can Drive Purchases

Consumers may not be familiar with some ethnic dishes available at restaurants, and in fact, many consumers choose ethnic foods to discover new flavours. Various menu features could aid consumers in choosing an enjoyable meal.

More than half of consumers (53%) feel it is important that the menu include descriptions of ethnic dishes. As we have seen, consumers place high importance on authenticity when choosing an ethnic restaurant, suggesting that these restaurants may use traditional ethnic names for menu items that may be unfamiliar to many consumers. So it’s no surprise that 37% of consumers prefer that menus at restaurants that offer ethnic items present their fare both in English and in the language corresponding to the cuisine.

Similarly, consumers place a high importance on a menu that includes ingredient listings and photos of ethnic dishes. More than a third of consumers feel it is important that a menu provides a list of ingredients in ethnic dishes, and a quarter would like to see photos of ethnic dishes.

More women than men report that descriptions and lists of ingredient for ethnic dishes are among their top five factors in deciding where to eat ethnic foods. This could be related to the fact that more women than men say they eat ethnic foods to discover new flavours and to try something new, suggesting that these women may be less familiar with the ethnic foods they are considering.

Consumers want to explore and discover new flavours through ethnic foods. However, some may not have much knowledge about ethnic dishes, particularly less familiar options. Operators may find that highlighting their popular dishes, ingredients or flavours can help consumers choose an appropriate dish. Additionally, operators can train their staff not only to be knowledgeable about the menu in order to answer patrons’ questions, but also to ask customers if they have questions. Without enough knowledge to make informed choices, consumers may skip over items they would enjoy.

Base: 1,000 consumers aged 18+ Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Base: 1,000 consumers aged 18+
Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Importance of Ethnic Beverages

Offering ethnic beverages native to the particular cuisine served at a restaurant can add to consumers’ perception of authenticity. Forty percent of all consumers polled agree that restaurants should provide ethnic beverages that are associated with the cuisine offered.

While about equal proportions of men (40%) and women (41%) agree that restaurants that offer ethnic foods should also offer ethnic beverages, differences emerge by age. Consumers aged 18–44 are more likely than those 45+ say that restaurants should offer ethnic beverages along with ethnic foods. Further, consumers aged 25–34 are the most likely to agree with this proposition, with half saying that restaurants that offer ethnic foods should also offer ethnic beverages native to the particular cuisine.

Base: 1,000 consumers aged 18+ Consumers responded using a 1–6 scale where 1 = disagree completely and 6 = agree completely Percentages may not equal cumulative percentage due to rounding Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Base: 1,000 consumers aged 18+
Consumers responded using a 1–6 scale where 1 = disagree completely and 6 = agree completely
Percentages may not equal cumulative percentage due to rounding
Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

To Try or Not To Try?

Consumers’ attitudes toward trying ethnic foods largely fall somewhere between adventurous and conservative.

Technomic asked consumers about their attitudes toward trying mainstream and unique ethnic foods and flavours. Generally, consumers are neither particularly adventurous nor especially conservative about ethnic foods. More than two-fifths of consumers say they try both mainstream and unique ethnic foods from time to time.

On one end of the spectrum, 5% of consumers report that they prefer traditional foods and rarely try ethnic fare. These consumers are likely less adventurous eaters in general. Beyond these highly conservative eaters, more than a quarter of consumers (28%) enjoy ethnic foods and flavours but tend to try only those that are mainstream, such as Chinese, Indian and Thai.

On the other hand, some consumers are more enthusiastic about trying new ethnic foods and flavours. Seven percent of consumers say they actively seek out mainstream ethnic foods, and another 4% actively seek out unique ethnic foods.

Base: 1,000 consumers aged 18+ Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Base: 1,000 consumers aged 18+
Source: The U.K. Ethnic Food & Beverage Consumer Trend Report, Technomic Inc. 2012

Key Takeaway

Consumers want to try new ethnic flavours and appreciate authenticity in the global cuisines and influences that they grew up eating. Restaurants and other foodservice operators can help build traffic and loyalty by offering authentic dishes and experiences while educating consumers about the cuisines’ flavours, ingredients and preparations.

Mitchell has plans for new grill, steakhouse

June 24, 2013

cameron-mitchell-new-art0-gufnbj49-120130520-exterior-materials-views-1-jpgThe Columbus restaurant entrepreneur has announced two new restaurant concepts for 2014: a “polished casual” American grill at the Lane in Upper Arlington and an “upscale casual” steakhouse in a Gahanna barn that once was home to Hoggy’s Restaurant & Catering.

Neither restaurant has a name yet, but their working names are “the Grille” and “the Barn,” Mitchell said yesterday, smiling.

“Restaurants are such a part of the social fabric of a city,” said Mitchell, founder of several iconic local restaurants, including Cameron’s American Bistro, Cap City Fine Diner & Bar and M at Miranova, not to mention national chain Ocean Prime.

“Columbus is a great restaurant town,” he said. “We’re all trying to make it better.”

When Mitchell and his colleagues opened the Pearl Restaurant, Tavern & Oyster Room in the Short North this year, it was the first new concept for the restaurateur since the economy took a nosedive in 2008.

Early that year, he completed the sale of Mitchell’s Fish Market, Columbus Fish Market, Mitchell’s Steakhouse and Cameron’s Steakhouse restaurants (22 restaurants in all) to Ruth’s Chris Steak House for $94 million.

The deal helped Mitchell repay investors and his restaurants to weather the recession. Now, the restaurant company is growing again.

Cameron Mitchell Restaurants plans to open Rusty Bucket restaurants (in which Mitchell is a partner) in the Cincinnati area in the fall; in Naples, Fla., in January; and “a couple in Detroit” next year, Mitchell said.

The company and its partner opened a Rusty Bucket in Easton last week and are renovating the menus and facilities of existing Rusty Bucket restaurants, he said.

The company also plans to open another Ocean Prime upscale seafood and steak restaurant in Philadelphia in September, and one in Beverly Hills, Calif. — its first foray into California — in April.

The new restaurant concepts were developed to occupy unique properties that became available, Mitchell said.

The Grille, set to open in February, will be a “cleaned-up version of our Cap City, which has been very successful for us,” he said. The menu will focus on fine wines by the glass, appetizers, flatbreads, rotisserie meats and entree salads, with a couple of fish and prime steak dishes, he said.

No white tablecloths here. “It will be warm and cozy,” he said.

The Barn, planned for a spring opening at the Market at Roger’s Corner shopping center on Johnstown Road, will offer “an extensive bourbon selection” as well as a butcher shop, bake shop and smokehouse that will supply the open kitchen, in which customers can view their food being prepared.

The menu will be “very approachable,” he said, with Black Angus steaks; house-smoked chicken, ribs and pork chops; and freshly baked Parker House rolls and pies served family style.

Mitchell is smart to target the “polished” or “upscale” portion of the casual-restaurant segment, said Darren Tristano, executive vice president of Technomic, the Chicago restaurant- and food-research firm.

“It’s a much smaller segment, it has a faster growth rate, with a better quality food and experience, and higher price point,” Tristano said. “And of course, no drive-through.”

The restaurant and food analyst isn’t surprised to see more new concepts from Mitchell and his restaurant company.

“They have a successful track record of developing and growing concepts,” he said. “And when they sell off great concepts, they refocus their efforts in different directions.”

Strangers eat out together – Communal tables new dining trend

June 21, 2013

Mary Altman and John Pinson, though each traveling alone on business, savored some conversation with their barbecue recently as they sat together at one of 4 Rivers Smokehouse’s large picnic tables in Winter Park, Fla.

The two discovered they both live in Jacksonville, Fla., so they chatted about their lives there.

“When you’re by yourself, it’s nice to meet somebody and, coincidentally, to meet somebody from your own hometown,” said Pinson, a salesman in his 70s.

Diners such as Pinson are surrendering some of their personal space as more restaurants install communal tables. The extra-long tables, which generally seat from six to 16 people each, are often occupied by multiple groups of diners who don’t know one another.

Though such tables are supposed to foster a sense of togetherness, restaurants also have a financial incentive to use them because they seat more people quickly.

“This is going to be a trend that will slowly become part of the restaurant-dining-seating options,” said Darren Tristano, executive vice president at the food-industry-research company Technomic. “Over time, more restaurants will jump in because they can squeeze more space out of it.”

For some people, communal dining feels too much like sitting with a bunch of strange students in the school cafeteria. But it is gaining acceptance as eating out in America becomes more casual, New York restaurant consultant Clark Wolf said.

“The notion of formal dining at your own table, with all that goes with it, has receded more and more,” he said. “We just don’t value it anymore the same way we did.”

But casual restaurants aren’t the only ones doing this. At a high- end Orlando restaurant called simply The Table, customers pay $120 apiece to sit for hours around a single, 22-seat table with strangers as they consume a five-course meal.

“Usually by the end of the first course, people are talking, and it’s great,” said Tyler Brassil, who co-owns The Table with his wife. “It’s a community thing.”

The 4 Rivers chain, meanwhile, has dining rooms dominated by picnic tables, along with some booths.

“It fits really into our entire model of wanting people to be together,” founder John Rivers said. “Anyone can sit with anybody here.”

For solo diners, communal tables can help them feel less awkward about sitting alone without forcing them to sit at the bar. McCoy’s Bar & Grill in the Hyatt Regency at Orlando International Airport added two long tables recently to appeal to travelers who might be alone.

For Altman, a marketer who frequently dines alone while on business trips, communal dining is a comfortable arrangement. But when she brought her more introverted husband to 4 Rivers, she said, “he was not quite as comfortable as I was.”

Zagat Survey has listed communal tables as the No. 1 most- annoying restaurant trend. Jason Kessler, who writes a column, The Nitpicker, for Bon Appetit magazine’s website, has also given them a harsh review.

Kessler is 30 – one of those “millennials” who supposedly embrace togetherness.

But “when I go out to dinner, I’ve chosen who I’m going with for specific reasons,” he said. “I like the privacy of dining at my own table.”

Others, such as Laura Kaminsky of Longwood, Fla., are more ambivalent. Kaminsky has eaten at communal tables, mostly while on vacation. In general, she prefers traditional restaurant seating.

Still, she said, “if you embrace it, it’s an opportunity to meet people. Kind of an adventure.”

Pulitzer Newspapers Inc.

Popular Fast Food Outlets Never Heard of Yet

June 14, 2013

64aa6020-6dcd-4a9b-9c4b-eae0901ec374_100montaditosKarachi: The most famous fast-food restaurants are burger joints: McDonald’s (MCD), Wendy’s (WEN), Burger King (BKW). But Americans have been in the mood for something different lately, and many of the trendiest quick-serve restaurants indulge that desire for variety, novelty and healthier eating.

Like other parts of the lackluster economy, restaurant industry sales have been growing slowly. So new chains hoping to become the next Five Guys or Chipotle (CMG) have garnered attention with standout food, flashy preparation and an eye-catching atmosphere. It also doesn’t hurt, of course, if a meal seems like a bargain.

To identify some of the most promising up-and-coming fast-food chains, Yahoo! Finance teamed with Technomic, a Chicago food-industry research firm that tracks more than 2,000 chains. Technomic sorted its data to highlight firms with annual sales between $3 million and $25 million and more than 10 outlets at the end of 2012. Among those, here are the fastest-growing chains that could open near you before long:

Cups Frozen Yogurt

Cups Frozen Yogurt (12 locations in New Jersey and New York, according to the company Web site; 400% annual growth in the number of outlets). The yogurt gets good reviews but the buzz comes from pounding music, a nightclub ambiance and arresting female staffers who have led some customers to dub this chain “the Hooters of froyo.” Check the name (and the logo) for double entendre.

Let’s Go Yogurt

Let’s Go Yogurt (29 locations in Florida, New Jersey and Massachusetts; 285% growth rate). It’s not dessert, it’s a “yogurt experience,” with flavors such as Zeusberry Greek and Ooey Gooey Cinnamon Bun. While yogurt may not seem like traditional fast food, it’s one of the hottest trends among quick-serve restaurants.


BurgerFi (20 locations in Florida, Georgia and nearly a dozen other states; 250% growth rate). Taking on the established burger chains requires something special, which in this case is “all-natural grass-fed beef” meant to taste like a premium steak on a bun. Veggie burgers are also on the menu. And to convince you that it’s not McDonald’s, BurgerFi also includes furniture made from recycled products in all its stores, along with huge ceiling fans meant to cut down on electricity use.

100 Montaditos

100 Montaditos (10 locations in south Florida; 233% annual growth rate). This is a popular European chain that offers authentic tapas-sized sandwiches and other Spanish fare. It’s a hit with Hispanics but offers anybody a flavorful alternative when you’re tired of Subway footlongs. Beer and wine goes for as little as $2. Bring on the siesta.

The Melt

The Melt (15 locations in California; 150% growth rate). The grilled cheese and soup combo has timeless appeal, especially when made with fancy ingredients such as fontina, aged cheddar, short ribs, Portobello mushrooms and artisanal bread. Techie touches, such as mobile ordering and digital screens showing the status of your order, enrapture hipsters.

Little Greek Restaurant

Little Greek Restaurant (12 locations in Florida and Texas; 120% growth rate). The Mediterranean diet is a hit, so fast-food chains capitalizing on that healthy appeal seem like a natural. “We think this category is going to take off,” says Darren Tristano, executive vice president at Technomic.

The Veggie Grill

The Veggie Grill (19 locations on the West Coast; 100%growth rate). There are several burgers on the menu but none made of meat. Sides include kale, red-cabbage coleslaw and vegetarian chili.

Umami Burger

Umami Burger (16 locations in California and Florida; 100% growth rate). This upscale chain sells burgers infused with an Asian vibe and topped with delicacies such as truffle glaze, shiitake mushrooms and carmelized onions. Expect to spend two or three times what McDonald’s would charge.

Piada Italian Street Food

Piada Italian Street Food (10 locations in Ohio; 100% growth rate). Imagine a Chipotle-style assembly line with Italian ingredients instead of Mexican ones: calamari, pancetta, pomodoro sauce and eggplant caponata, to name a few. Drinks include Peroni beer and Bellinis.

Fresh Healthy Cafe

Fresh Healthy Café (16 locations in California, Colorado and several other states; 85% growth rate). The name might not be imaginative but it captures what many diners want in a meal these days — even a quick, inexpensive one. If smoothies and salads don’t sound healthy enough, try the fresh-squeezed wheatgrass juice or the quinoa-kale wrap. “Detox. Cleanse. Purify. Protect,” the company’s Web site urges. This is definitely not your father’s fast food.

Reclaim Your Angus: CEO Goes on Offense Against McDonald’s

June 13, 2013

100792738-Untitled-1.240x160It’s the advertising equivalent of rubbing a burger in a competitor’s face.

Following McDonald’s decision to do away with its Angus Third Pounders, the CEO of CKE Restaurants, the parent company of Hardee’s and Carl’s Jr., has taken to YouTube to sympathize with disgruntled customers and invite them to visit his restaurants instead.

“I’ve heard that McDonald’s abruptly stopped selling their Angus beef burgers, leaving many of you angry, frustrated and confused,” said Andy Puzder, CKE’s chief. “In fact, it seems you’ve taken to Twitter to express your frustrations.”

Then in a moment made possible only through social media, Puzder shares a couple McDonald’s customer laments.

Puzder quotes user ErickRast86, who says, “My angus deluxe was replaced by a quarter pounder with cheese deluxe, wthell man … not even full #mcdonalds”

Tweeter ‏TheRealAdamGee opines, “.@McDonalds why did you get rid of the angus third pounder? I’m sad, hungry, and want my money back! :(”

Hoping to attract these unhappy customers, Hardee’s and Carl’s Jr. are offering a coupon at for their 100-percent Black Angus Beef Six Dollar Burgers. The burgers are actually $6 in name only and refer to the amount consumers would pay for the same type of sandwich at a casual-dining restaurant.

In response to the ad, McDonald’s declined to speak via interview. In a statement, Danya Proud, a company spokeswoman, said: “We can confirm that McDonald’s is removing the Angus Third-Pounder burgers from our national U.S. menu to make room for new and exciting choices including the new line of Quarter-Pounder flavors. We remain focused on our business and serving our customers and invite them to try the new line of QP (Quarter-Pounder) flavors which include: deluxe, bacon habanero ranch and bacon and cheese.”

The Six Dollar Burgers’ launch in 2002 prompted a wave of fast-food chains, including Burger King and McDonald’s, to follow suit. Gradually though, the chains abandoned these pricier burgers.

“When McDonald’s kind of pulled out of the field for competition for a restaurant-quality burger, we decided it was time to take advantage of that and let people know that the first major fast-food chain to have black Angus burgers still had them,” Puzder said.

McDonald’s decision to do away with the Third Pounder came down to wanting to give consumers more options and a burger that’s less expensive than the Third Pounder, said Darren Tristano, executive vice president at Technomic, a market research firm.

“For most consumers, McDonald’s price point makes McDonald’s relevant,” Tristano said. “When you start to get to that $7- or $8-dollar range, which is what an Angus burger, french fries and a beverage cost, you start to get outside of that.”

The new Quarter Pounders are also less meaty, which might appeal to a female consumer, he hypothesized. Consumers wanting a heftier meal can merely upgrade to a Double Quarter Pounder, which provides another option.

Strained consumer demand because of a payroll tax hike and higher gas prices has also caused restaurants to rethink their menus, which resulted in stripping out some of their higher-price items. McDonald’s decision to do away with its Third Pounder in favor a three new Quarter Pounders is one example of this.

In the face of rising labor costs and the looming implementation of Obamacare, which also is anticipated to raise the company’s costs, CKE is finding other ways to tinker with costs rather than cut the beef.

The company is testing out having people use tablets to order rather than speaking with employees and paying more attention to scheduling. It’s also promoting whatever commodity is most reasonably priced at the moment—in this case, beef.

Although beef prices for items such as steak and pot roasts have risen, prices for one cut used in ground beef, called lean trimmings, have actually fallen from year-ago levels.

“I think it’s probably been a pleasant surprise for the fast-food industry because they came into this year envisioning having to pay higher prices, which is what’s been the trend since the recession,” said Kevin Good, a senior analyst at Cattle Fax, a beef industry research firm.

Because of a severe drought in the U.S. central and southern plains, many farmers chose to slaughter their older cows rather than pay for feed, Good said. This led to an increase in supply and drove down prices. But recent moisture in the northern plains will likely cause an uptick in lean trimmings in the second half of the year, he forecast.

Although Puzder’s ad might seem confrontational in other industries, Technomic’s Tristano insists that poking fun at rivals in ads has been occurring more in the burger biz.

“I think when you’re in the fast-food category, you can’t take yourself too seriously,” he said.

_ By CNBC’s Katie Little.

Restaurants Hope Tax Refunds Bring Customers

June 5, 2013

Payroll tax increases and high gasoline prices have pushed consumers to dine out less. But tax refunds, which are rolling in, may bring relief to the limping restaurant industry.

“Payroll tax takes its negative toll. Starting February consumers have less money — low- and middle-income groups,” said Darren Tristano, a restaurant industry analyst at Technomic, a market researcher.

The payroll tax was raised in January two percentage points to its previous level from 2010. 

According to research from the National Retail Federation that was released in February, nearly three-quarters of Americans said they’re adjusting spending because of the payroll tax change. Plus, 16 percent of those surveyed said they’re eating out less, and 15 percent are using coupons more often, according to the retail group.

Rising fuel prices have hit restaurants even harder. More than 37 percent of those surveyed said they’re eating out less because of the gas prices, according to a separate survey from the retail group.

Value is King

Given tighter wallets, it’s no surprise consumers are looking for more value, said Tristano of Technomic. Pizza and burger chains will likely grow further during the next few months as they offer more value. Tristano sees a slow growth of 1 percent (adjusted for inflation) for the restaurant industry in 2013.

“Hopefully those tax returns coming in will give us a boost in terms of sales,” said Tristano, “Enough to offset, perhaps, the impact of the payroll tax.”

With fuel prices forecast to climb further, dining out will be trickier for consumers. But restaurants catering to more wealthy customers won’t be hit as hard by payroll tax fluctuations, the analyst said.


Analysts see few attractive stocks in the restaurant industry at the moment, but Starbucks is one of them. Unlike fast-food chains that offer coffee for as little as a buck, Starbucks customers are willing to shell out several dollars for beverages.

“One of our favorite stocks in the industry is Starbucks, which has a luxury of catering to more affluent customer base that probably is not as sensitive to the payroll tax issue,” said RJ Hottovy, director of consumer equity research at Morningstar.

Starbucks also benefits from a variety of high-margin products available at grocery stores. Starbucks sells baked goods. The company acquired juice business Evolution Fresh and tea company Teavana. That diversified business model sets them up for growth, Hottovy said.

As Starbucks builds its growth strategy, consumers seem to be recovering from the payroll tax hike that gained two percentage points.

“When a 2 percent payroll tax went into effect in February of last month, the entire retail and consumer category — in terms of consumer behavior — was modified as a result of that 2 percent,” Starbucks CEO Howard Schultz told CNBC’s “Closing Bell” this week. “We have since, and I think others have seen it, come back,” he said.

Other Restaurants Picks

Sector analysts like other restaurant picks. Hottovy of Morningstar said Yum! is a slightly undervalued stock. Yum! is growing in emerging markets markets such as China, India and South Korea, he said. Yum! brands include KFC, Pizza Hut and Taco Bell.

Some consumers may trade down to lower price restaurants like McDonald’s if they continue to feel the impact of the pay roll tax, but the share price of McDonald’s reflects it already, he said.

Darden restaurants — including Red Lobster and Olive Garden — on Friday reported its third-quarter earnings of $134.4 million, down 18 percent from the previous year. Revenue of $2.26 billion gained 5 percent from a year ago period. The restaurant group had lowered its profit forecasts for the third quarter back in February, when several restaurants had revised their guidance as well.