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After a frightening period of struggles for the Southwest Virginia restaurant industry, the spending freeze is thawing but customers remain extremely frugal.
KYLE GREEN | The Roanoke Times
Diners enjoys wine at Metro! in downtown Roanoke. The restaurant recently celebrated its 10th year in business.
JOEL HAWKSLEY | The Roanoke Times
Bartender Jordan Zadell mixes a drink at Table 50 in downtown Roanoke recently. Owned by Eric DiLauro, the restaurant has faced several economy-related problems, but is still doing well.
REBECCA BARNETT | The Roanoke Times
The 55-year-old Little Chef closed in August.
STEPHANIE KLEIN-DAVIS | The Roanoke Times
Tudor’s Biscuit World closed in September after 28 years in business.
The Library restaurant closed in September after 33 years in business.
Sunday, March 31, 2013
After 29 years, Backstreets restaurant in Blacksburg last week baked its last pizza and sliced its last cheesecake.
The closure was the latest in a long string of restaurant losses that has recently plagued Southwest Virginia. One eatery after another has shut its doors, including some that never marked one year in business and others that had served patrons for decades.
Several owners said the economy and soaring food prices contributed to closures, and local and national statistics reflect a harrowing period of struggles for the industry, particularly during 2009 and 2010. But while shutdowns continue to make the news, restaurant spending is swelling and the closures, at least in Roanoke, have been mitigated by an explosion of new places to dine.
Now, restaurateurs cautiously traverse what market analysts are calling “the new normal” — a period when the spending freeze is thawing but customers remain extremely frugal and continue to seek exceptional value.
“It is not as bad as it was. People are spending,” said Andy Schlosser, owner of Metro! in downtown Roanoke. “Habits are still different, though. The world changed.”
In 2008, the year after the recession began, restaurant business across the country was stagnant. According to NPD Group, a New York-based market research firm, the number of restaurants that closed in 2008 was balanced out by the number that opened.
But in Roanoke, food and beverage tax collections — a good measuring stick for restaurant performance in the city — jumped to more than $11.5 million in fiscal year 2008, a 4.5 percent increase over 2007. Blacksburg saw an increase of almost a quarter-million dollars and Christiansburg collected $185,000 more during that same period.
High unemployment and low consumer confidence began to take a toll in 2009, however. Nationally, NPD Group reported, the restaurant business fell 3 percent, and while no segment was spared losses, fine dining took the hardest hit, dropping 13 percent.
By the following year, owners were feeling the pinch.
“2010 was probably where we hit the bottom,” said Jason Martin, owner of Martin’s Downtown Bar & Grill in Roanoke. “We were open that summer and we didn’t make a dime. We broke even for the whole summer and it was rough.”
The city of Roanoke collected about $400,000 less in food and beverage tax in fiscal year 2010 than it had in 2008, making it the second consecutive year of declines. Christiansburg’s collections dropped by more than $180,000 between 2009 and 2010 despite a 1 percent tax increase, while Blacksburg’s increase that year was mainly attributable to its 1 percent tax increase.
National customer counts started to increase in the second half of 2010, analysts said, but it was too late to redeem what had been a wretched year for restaurant owners.
They were being attacked from multiple angles. Not only were customer counts thinner, but food prices also skyrocketed “almost overnight,” Martin said, and purveyors added fuel surcharges. Those circumstances were piled on top of the usual periodic price increases that result from food shortages and climate conditions such as droughts and floods.
“I think that’s what really caught most restaurant owners off guard,” Martin said.
Independently owned restaurants fared much worse than chains during the recession, largely because chains have better negotiating power with vendors. According to NPD Group, 9,450 restaurants closed between spring 2010 and spring 2011 in the United States, and 8,650 of those, or 91 percent, were independents.
Not all struggling restaurants closed immediately — in Southwest Virginia, several held on until the second half of 2012. Between June and December, the losses included longtime Roanoke stalwarts Szechuan at Towne Square, Little Chef, Tudor’s Biscuit World, The Library, Surf & Turf, and Norberto’s.
When Tudor’s Biscuit World closed in September after 28 years in Roanoke, owner Louis Tudor cited a number of reasons but said “really, I guess the biggest thing is the cost of food.”
After decades in the restaurant business, Eric DiLauro is accustomed to its ups and downs.
The co-owner of Table 50 and First & Sixth in Roanoke knows, for example, that the two slowest months of the year are typically September and April, because of weather changes, taxes and back-to-school expenses.
He knows Mother Nature can wreak havoc on his accounts — right now, romaine lettuce costs twice as much as it did a few months ago because freezing temperatures damaged crops out west.
Now, as he looks back at food costs in 2008 versus today, he said he believes they are at an all-time high.
Table 50 kitchen manager and chef Travis Powell said the restaurant is paying an average of 20 percent to 30 percent more for supplies than it did five years ago. Butter is up 30 percent, scallops are up 25 percent and beef is up at least 20 percent. Some specialty products have increased even more — duck breast is up 50 percent.
“It’s amazing how much fluctuation there is, even in stuff like plastic gloves,” Powell said.
While they may not use the same suppliers, other restaurateurs said those increases are right on par with what they’ve experienced.
As a result, some have raised prices and some have reduced portion sizes. Some have done both. Still others, reluctant to do either, simply accept lower profit margins in a business that already had slim margins.
“When you look at our menu in 2008, prices have not increased 20 percent since then,” Powell said. “It has increased, but not that much.”
Powell and DiLauro said they manage the higher food prices by running a more efficient kitchen. For example, steak scraps get ground into hamburger while the trimmings from a fish fillet may be used to make fish tacos.
Martin didn’t want to raise his prices or stop offering nightly deals such as the popular half-price burger night on Mondays, so he reduced portion sizes about 15 percent and purchased smaller plates.
“It is just a little bit smaller, so the perception to the guest is it looks full,” he said. “People are still leaving happy and the food looks better.”
But the most important change restaurant owners have made, they said, is in how they shop. Because of higher food costs and fuel surcharges on deliveries, owners have started making more price comparisons and buying from a wider variety of suppliers.
At Table 50 and First & Sixth, they switch back and forth between purveyors depending on which one has better prices that week. Sometimes they play food distributors against one another to get the best price, Powell said.
“I’m buying from five or six different vendors now,” Martin said. “Some are really good at dairy, some shelf items, some meat. Five years ago, I bought from only two people. It is a lot more work for me, [but] you’ve got to shop smarter.”
Fred Najjum, owner of Roanoke Fruit & Produce Co., has seen soaring food costs from a different perspective. The price of fuel has had a major impact on his business. For example, he said, the cost of shipping lettuce from California to Roanoke has increased by about $1.50 per box, or 30 percent, since 2008.
“The cost of freight has gone up, plus there is less and less product being produced nowadays, less land for it to be produced on,” Najjum said.
Roanoke Fruit has not added fuel surcharges because “that’s like a tax and nobody wants another tax,” Najjum said. Still, he understands why his competitors, who have much higher overheads, have to do it.
“It is not like the US Foods of the world have their own gas stations and can pay a dollar less,” he said. “It’s not just one big guy that does it, it’s all of them that do it.”
Dining out on budgets
Kelly Faulconer has her tricks when it comes to saving money at restaurants.
When her family goes out to eat, the Bedford mom sets a $30 budget for herself, her husband and their toddler daughter and tries to meet it by selecting inexpensive restaurants, using coupons and sharing adult meals with 2-year-old Madison instead of buying a $5 kids meal.
“Anything extra we can trim, we trim,” Faulconer said.
Faulconer was laid off in 2008, and even though she was able to find a new job, it came with a pay cut. She said she can’t remember the last time she visited a fine-dining restaurant, and if she did it would be hard to ignore how many bills she could have paid or how many groceries she could have bought with that money.
Ann Franco of Roanoke said she and her husband decide where to dine out based largely upon where their two sons, ages 9 and 6, can eat free. They also drink water, split orders and use coupons whenever possible, she said, “and then you try to figure out where you can go where you don’t have to tip.”
Families everywhere are using the same tactics to shave money off restaurant tabs.
“Many consumers have had to adjust to having less, including less confidence in their government and their employers, and spending less,” a February NPD report stated. The 2 percent payroll tax increase that went into effect in December is the most recent factor in that uncertainty, it said.
Mary and Gene McBurney of Roanoke, who are both in their 60s and have one grown daughter, said they still eat out three or four times per week. But Gene McBurney, who sells coal for a living, has cut back on business spending at restaurants.
“I know Gene does not travel near as much as he used to,” his wife said. “He does more day trips as opposed to the night trips with the wining and dining.”
Schlosser noticed the tighter expense accounts at Metro! during the holidays, when businesses were booking Christmas parties.
“People want the same thing they had last year at the same price,” he said , “even though goods have gone up. And we are saying ‘Absolutely,’ but we are fighting tooth and nail.”
Limited life spans
While the economy took a big bite out of restaurant traffic over the past five years, it is certainly not the only factor in restaurant losses.
In downtown Roanoke, a Lebanese place called Hummus House shut down after a few successful months because the Campbell Avenue building in which it was housed was put up for sale.
When The Little Dipper closed at the end of 2011, co-owner Sandy Wilkinson said ongoing construction on Market Street had killed their business. That project, a $28 million renovation to Center in the Square, has been aggravating for other business owners, as was the makeover of the Roanoke City Market Building.
Some restaurants have closed in part because the owners were ready to move on. When Debbie Spangler announced the closing of Horizon Bar & Grill in Roanoke, she said the economy and Market Street construction had been factors, but she and her son had also “just decided we don’t want to have a restaurant.”
Finally, in a city that has a lot of restaurants for its population, some simply don’t have the quality of food and service that keep customers coming back.
Vincent Magnini, an associate professor and researcher in the hospitality department at Virginia Tech, said many restaurants fail because of inconsistency, particularly in food.
“In order to keep your appeal in the restaurant business, every day that you open everything has to be consistent,” he said. “Every day is a chance for something to go wrong. Day in, day out, week after week and year after year.”
Magnini said it is a known fact in the industry that even good restaurants have a limited life span, and that long-lived places can lose their appeal as newer, trendier places open.
Even as many restaurants have closed, new places have been popping up in Roanoke to take their place. There were 470 restaurants in the city in January 2011; by January 2013, that number had risen to 506. Some high-profile openings have included Beamer’s 25, Billy’s, 1906 Ale House and Wasena City Tap Room.
Hunter Johnson and his business partner, J.P. Powell, opened Lucky in downtown Roanoke in 2010. They’re pleased by the restaurant’s performance so far, perhaps in part because they are not comparing it to the “good old days” they hear other restaurateurs discuss.
“We don’t really know what those were,” Johnson said.
If an established owner doesn’t have the energy to compete with new businesses, DiLauro said, that can spell failure.
“In the middle of a recession and a downturn in the economy, eight new restaurants opened at the same time,” he said. “If you are struggling, you are done. As a manager or owner, if you watch your business drop off 20 or 25 percent, you are struggling and you are depressed and that translates to the customer faster than you think.”
On the rebound
In the “new normal,” customers still may be seeking deals and coupons, but at least they are eating out.
Data from NPD Group shows there was a slight increase in the number of restaurants in the U.S. in fall 2012 over the previous year, mostly in the quick-service segment, which includes fast-food restaurants such as McDonald’s and fast-casual places such as Panera or Chipotle.
Although NPD is projecting little to no growth in the restaurant industry for the next few years, Southwest Virginia may be on a better track.
The Roanoke treasurer’s office reported that food and beverage tax collections totaled nearly $12.3 million in fiscal year 2012, up 7.4 percent from 2011. Those figures do not include the 2 percent surtax imposed in 2010 and 2011 for education funding. As of January, seven months into fiscal year 2013, the city was on track to top last year’s total.
Blacksburg’s meals-tax figures have grown steadily, in part because of the 1 percent increase in 2009. Still, the town collected $4.2 million in 2012, up from $2.4 million in 2007. Christiansburg has recovered well from its dip in 2010.
The growth in restaurant spending could be attributed to more restaurants and higher prices on menus, but some owners say their business is definitely improving.
Doug Robison said his restaurant, Wildflour, on Fourth Street in Southwest Roanoke, had an excellent year and a record-breaking October in 2012. He credits some new marketing strategies and the fact that his restaurant is in a comfortable price range for many diners.
Martin said he is beginning to feel as if his restaurant “survived” the recession.
“I’m optimistic because I’ve seen in the past six months that things are starting to come back,” he said, “and I remember what it feels like and it feels good.”
Magnini, the Virginia Tech professor, said that by streamlining ingredients, maintaining consistency, negotiating good food prices, conversing with regular patrons and making employees feel valued, restaurants have a greater likelihood of staying open.
“I don’t look much past tomorrow,” Schlosser said. “It’s better almost to keep your head down, keep putting out good food, pay attention to what the customers want, watch expenses where you can and watch your labor where you can. And that’s about as much as you can do — keep the bills paid and keep the customers happy and hope the expense accounts come back.”
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