Owners of Stella Blu & Gypsy Saloon featured in the Inquirer

Posted on Thursday, November 6, 2008


Restaurants adapt to leaner times

Owners Kim Strengari and Marianne Gere are waiting tables and tending bar at their West Conshohocken restaurants Stella Blu and Gypsy Saloon, where they’ve decided to cut their own salaries in half.

In Center City, Del Frisco’s Double Eagle, a pricey steakhouse opening later this month, is adding cheaper wines to its list and is promoting its more affordable bar menu.

And Stephen Starr has hired a chef to develop lower-priced dishes for the menus at his restaurant empire.

“Everyone I talk to is saying their business is 10 to 15 percent down from what it would normally be this time of year,” said Gere, who is earning tips to supplement her salary. “I think people are afraid to spend their money. They don’t know what is ahead.”

As their high season approaches, restaurateurs are fighting a harsh economy, higher food costs of more than 15 percent over the last two years, shrinking profit margins, and heightened competition for fewer diners. The National Restaurant Association says these are the toughest economic circumstances restaurants have faced in nearly 20 years.

Want a table? Pick a weeknight. Dinners are particularly quiet early in the week virtually everywhere, and lunchtime in Center City has also slowed. Weekends are still fairly busy. With soft sales and empty seats, most restaurateurs are responding with discounts to build traffic – following the theory that shrinking profit margins can be eased by higher volume.

At Coquette bistro in Queen Village, owner Cary Neff has lowered entree prices and knocked 50 cents off his already-reduced happy-hour oysters; they now go for $1 apiece.

Fast-food restaurants are keeping their low-profit dollar menus. (Subway is touting its $5 foot-long sandwiches, $1 less than a year ago.) Philadelphia’s internationally known independent BYOBs – which can’t profit from marked-up drinks – are extending their $30 and $35 promotions well beyond the “restaurant weeks” that have sprung up in Center City, University City and South Jersey. OpenTable.com, the reservation service, is marketing the “Appetite Stimulus Plan,” a $35 dinner and $24 lunch promotion from Nov. 17 to 21, to drive traffic.

Although it may seem sacrilegious to shrink portions in this supersized America, some restaurants now push “small-plate” menus – which in some cases are a third the size of a main plate but are priced only 25 percent less.

At the upper end, managers at such steakhouses as Capital Grille are calling corporate clients personally to ask them to come in, rewarding them with discounts. Credit-card companies are sending out coupons.

So far, the region has not seen an increase in the normal ebb and flow of closings. “What it boils down to is, if you’re not business-savvy, you’re going to fold up,” said Rob Wasserman of Rouge on Rittenhouse Square, a businessman who with his wife, Maggie, inherited the bistro from Maggie’s father, Neil Stein, several years ago. “This could happen in any economy.”

Some see good times, particularly at the casual end of the food chain.

Claudio Sandolo, who owns Spasso Italian Grill in Old City, said he is busier than he was a few years ago – which happened to be the last time he raised prices. He said he cut waste and searched for better deals without sacrificing quality. “It’s cheaper than going to the supermarket,” he said of dinner at Spasso, noting, “with a glass of wine, you can get in and out at $20 a head if you want to.”

Chris Mullins, owner of McGillin’s Olde Ale House in Center City, said: “I hate to sound like I’m gloating, but we’re thriving.”

It may help that McGillin’s has been around since 1860. “Our price point is very attractive to people feeling the pinch,” Mullins said of his $8 lunches (including soup) and dinner entrees that cost less than $10.

“Mugs of beer for a buck-twenty? You can’t beat that,” he said.

Then again, at Starr’s new brasserie Parc on Rittenhouse Square, where the average check is about $55 a person, “business is exceeding our expectations,” said Starr, who owns 16 restaurants in Philadelphia, Atlantic City and New York and has more on the way.

At Rouge up the street from Parc, Wasserman said he was working with his suppliers. “It’s almost like a partnership,” said Wasserman, who said his business was off 5 percent from last year. “If you go out of business, they will, too.”

Statistics seem daunting.

Wholesale food prices rose 8.8 percent for the first nine months of 2008, following a 7.6 percent rise all of last year, according to the National Restaurant Association.

Add in higher energy prices and what the NRA deems a “dampened demand,” and this is the most challenging period since 1991. “Depending on how sales perform in the fourth quarter, it could end up the most challenging since the early 1980s,” said Hudson Riehle, the NRA’s senior vice president of research.

Restaurateurs seem loath to raise prices, for fear of losing customers. Menu-price inflation is about 4.3 percent year to date, Riehle said, lower than overall inflation (4.94 percent in September) as well as the price of food purchased at supermarkets (4.6 percent).

Even bars, which supposedly thrive in hard economic times, are not outpacing inflation.

The Pennsylvania Liquor Control Board, which sells all wines and spirits in the state, reported that sales were up 6.5 percent between the start of the fiscal year on July 1 and mid-October, compared with the same period last year. But the LCB’s direct sales to restaurants and bars were up only 1 percent, spokesman Nick Hays said.

“I see people not going out to have a second $10 drink,” said Starr, whose empire was built on many olives. “They’ll go to the liquor store and get a bottle of vodka.”

Pete Ciarrocchi, who owns the Chickie’s & Pete’s sports bars, said he was doing fine now but predicted a downturn a year and a half from now. “My customers are union people, and they’re the last people to feel the pinch,” he said. “They’re working now, but as [the jobs] dry up, then I will feel it.”

One big question is the future of Center City’s upper-end dining. By midwinter, Center City will have nearly 3,000 seats in steakhouses alone – triple the number it had two years ago. This year saw the debuts of Chima, Table 31 and Butcher & Singer, where per-person tabs at dinner can exceed $75.

Del Frisco’s Double Eagle, a national white-tablecloth brand, will have 616 seats when it opens to the public Nov. 26.

“The economy is affecting everyone the same,” said Shang Skipper, Del Frisco’s general manager. In a nod to the economy, Del Frisco’s added moderate-priced wines to its list. Per-person tabs at Del Frisco’s average $90 to $120 nationally.

Skipper, who said his restaurant’s fortunes would hinge on service, said: “You have to be better than you’ve ever been, day after day. The cream will truly rise to the top.”