NRA: Industry sales move up 7.5% after Sept. 11 terrorism

Nation's Restaurant News, March 25, 2002 by Richard L. Papiernik

Despite a $1 billion drop in sales following the Sept. 11 terrorist attacks in New York and Washington, D.C., the nation's restaurant industry bounced back with a 7.5-percent gain by yearend, the National Restaurant Association reported.

The NRA also found that December 2001 sales reached an all-time single-month high, growing 5 percent, to $28.4 billion.

"Overall, sales have returned to preattack levels, and the industry continues to grow stronger every day," said Steven C. Anderson, NRA president and chief executive. Though restaurant revenues had been sluggish because of the recession, even before Sept. 11, Anderson predicted that foodservice sales in 2002 will mark the 11th consecutive year of inflation-adjusted growth.

Anderson reiterated earlier projections for a 3.9-percent year-over-year increase in industry sales, to $407.8 billion, in 2002, up 1.4 percent adjusted for inflation.

The growth streak, however, was strained in 2001 as foodservice sales barely reached positive growth levels, up just 0.8 percent on an inflation-adjusted basis, one of the slimmest percentage gains in more than a decade.

And industry employment fell sharply in the past six months, impacted by the economic cutbacks, a downturn in business travel and tourism, and a number of closings after the September terrorist attacks.

"Total employment at eating and drinking places remains below pre-Sept. 11 levels," Anderson said.

From September through February, 106,000 foodservice workers lost their jobs with the biggest toll taken in September and October of last year when 93,000 positions were eliminated. Though 13,000 additional jobs were lost this year, Anderson said the sharp declines halted and the employment situation stabilized with a total gain of 24,000 jobs from November 2001 through January 2002.

Despite the industrywide loss of jobs, several large operators and their franchisees with ongoing expansion plans, such as Wendy's International, Tricon Global Brands, Applebee's International, Brinker International, Darden Restaurants, Outback Steakhouse, Panera Bread, Ruby Tuesday, Schlotzsky's, Starbucks Corp. and a number of others have continued aggressive hiring and retention programs.

Most of those companies have kept their same-store sales up while expanding either through acquisition or new construction or have been rewarded on Wall Street. Forty of the top performers in the restaurant sector rang up stock-price gains of 31 percent through 2001, and more than half of them topped 50 percent for the year.

The leaders continued to show strength in earnings, margins and comp sales through the early months of this year.

"The worst of the impact from the recession has passed as the deceleration in industrywide same-store-sales growth appears to have bottomed in October," said analyst Paul Westra of San Francisco-based Robertson Stephens Inc. He noted a rise in industry comps by 1.8 percent in November and 3.8 percent in December.

"We expect comparable restaurant sales to continue to increase throughout 2002," he concluded.

Nevertheless, despite some aggressive unit growth at the top chains, Westra said, the total increase in restaurant sites is growing slower than demand from diners.

"We remain bullish on the longterm demand outlook for restaurant meals for the foreseeable future," he said. "Simply put, we believe that lifestyle, demographic and, most important, economic trends will continue to support America's ongoing outsourcing of meal preparation to restaurants vs. cooking at home."

Those trends have proved of benefit to many restaurant brands, as the economy began to pick up during the last four months.

"Consumer-dining habits are firmly entrenched," observed Applebee's chairman and chief executive, Lloyd Hill, after noting that sales, especially in casual dining "appear to have rebounded" in recent months.

Fast-food operator Tricon International ended last year with comp sales up in December at all three of its brands--KFC, Pizza Hut and Taco Bell -- an accomplishment achieved in only one other month during 2001.

Schlotzsky's, after retooling its 11 core market Austin, Texas, units, moved sales in that area up to an average of $31,751 a week. Buoyed by those results, the company is restarting its unit expansion program.

"For Schlotzsky's, 2001 was a very important year," said company president and chief executive John C. Wooley. "We returned to profitability and significantly increased our cash flow, generated almost exclusively from recurring revenue. Our efforts to improve operations, reduce costs, develop new products and innovative restaurant systems produced a solid financial performance."

Some of the challenges were specific to various geographical locations. Phoenix-based Main Street and Main, the largest franchisee in the T.G.I. Friday's system, for instance, cited specific impacts in its California markets.

In a statement from its chief executive, Bart A. Brown Jr., and president, William Shrader, the company cited "the escalating utilities situation, the 50-cent-per-hour wage increase and increased workers' compensation insurance rates."