Prosperity bodes well for the hospitality industry in the new millennium

Black Collegian, Feb 2000 by Campbell, Steven E

The multi-billion dollar plus a year hospitality industry includes lodging, food service, institutional facilities and travel and recreation. Food service was it's largest and most profitable segment in 1999 while time share and theme park sectors also fared well. The food and beverage segment is divided into three areas: chains, corporate, and independents. According to Nation's Restaurant News, a leading industry trade publication, the top food and beverage chains/corporations were as follows:

Sales of sandwiches represented 42.15% of the estimated $370.72 billion in revenue generated in 1999 by the food service industry. Besides sandwich sales, the food service marketing mix leading into January 2000 was:

The nation's most profitable independent restaurants as noted by Restaurants and Institutions are listed below.

It should be noted that Tavern on the Green, the nation's most profitable independent restaurant, was under the direct supervision for several years by the late Patrick Clark, the restaurant's first African-American executive chef, who died in February of 1998.

Current Trends in the Food Service Industry

The Industry has numerous eating establishments opening yearly, each entrepreneur seeking to convince the public or target market that his/her new concept is unique. Despite high business failure rates, some new concepts look like winners and "catch on as what's in." This is mainly due to creativity; sound marketing, feasibility studies, and luck. This author has had the opportunity to dine at a few of the "hot concepts" winners as cited by Nation's Restaurant News and agrees they are unique.

As noted in the hospitality industry report for this magazine last year, theme restaurants by and large are "dead" and "high risk" for investors. Planet Hollywood filed for bankruptcy in August 1999 and the Fashion Cafe closed its doors in January, 1999, as did The Motown Cafe, also located in midtown Manhattan, in May, 1999. Some of the problems contributing to the lack of profitability of theme restaurants are cited below.

1. Exorbitant rents (rumored to exceed $75,000 a month for the Motown Cafe).

2. Union scale wages to the entertai-ners /staff.

3. Employee theft.

4. Stagnant menu. A cycle menu is necessary in theme restaurants to keep the public's interest.

5. Inflated prices.

6. Most customers are one-time visitors; lack of repeat customers.

In 1997, the Motown Cafe opened a restaurant in Las Vegas that is still afloat and more recently opened a facility in Orlando, Florida, at Universal Studios' Island of Adventure. Plans for a Tokyo restaurant are in the making. The Tokyo Motown Cafe should be successful due to the large following of the Motown aura and mystique among the Japanese. Theme restaurants are basically built on today's crazes. "Wrestle mania" is "in," so a wrestling- theme restaurant is scheduled to open in Manhattan. It is hard to conceive that a chain of these restaurants nationwide will be around in 2005. To reiterate, do not invest in theme restaurants unless you are financially sound and have the patience to wait a substantial period of time for a return on your initial investment.

International

Due to the economic problems in Asia, as well as political unrest in Eastern Europe, India and Pakistan, caution is the key word for many chain restaurants as they seek to expand globally.

Asia once viewed as the most dynamic market for industry expansion, saw its once powerful economy collapse several years ago. Since the 1997 depression, European and American chains have either postponed or sharply curtailed their expansion in the Pacific Rim. However, there are some analysts who assert Asia is recovering, and it would be fiscally wise to take advantage of the depressed real estate markets. Prior to the depression, Asian real estate costs often would consume 15-20% of a restaurant's gross income. Comparatively, in key American markets, such as San Francisco, New York City and Boston rents usually do not exceed 4% or 5% of gross revenue. The second rationale analysts are suggesting is that companies may wish to re-invest in Asia, particularly Japan, in that the average Japanese citizen spends nearly $1,500 per year "dining out" or about $700 more than the average American. The third factor for reinvestment in Asia is the currency exchange rates have become stable and that the worst of the regions fiscal problems have been settled.

Canada, Latin America and the Caribbean have replaced Asia as the "Hot Markets" for expansion. Chains such as Wendy's International and Outback Steakhouse plan to expand in the areas cited above. Latin America will account for about 50% of the international chains Wendy's will likely open this decade. Outback is projecting to double its half dozen existing stores in the Latin America and Caribbean area within 18-24 months. Tricon Global Restaurants, Inc., the parent company of Pizza Hut, KFC and Taco Bell, plans to open 800 new international stores by the years end. Subway Restaurant currently has 750 stores in 70 foreign nations including four in China and projects 1,000 foreign units to be open by early 2001. The premier giant of the chain restaurant industry, McDonald's, anticipates opening 15 restaurants in the Ukraine and expects to have 85 restaurants in the area by 2005. Overall, the industry is slowing its expansion internationally and focusing on positive markets which possess economic and political stability.