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Restaurants feeling the pinch

January 28, 2009|By CHINA MILLMAN / Pittsburgh Post-Gazette

Unlike other small businesses, most restaurants aren't directly affected by the credit crunch. But that doesn't mean they aren't feeling the pinch.

Restaurants and caterers were devastated by a sharp decrease in holiday parties, which make up a substantial amount of their profits and help get them through the lean months of January, February and March.

Restaurants with private party rooms can have a full house all night, plus the private party group. Per-person charges at parties held by businesses and individuals are almost always higher on average than regular diners. Parties also often bring in a new set of people who may return to the restaurant on their own.

Businesses have canceled or scaled down parties amid major budget cuts. In addition, if layoffs are in the mix, businesses worry about tarnishing their public image by holding lavish parties in their wake.

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According to the outplacement company Challenger, Gray & Christmas Inc. 2008 Holiday Office Party Survey, 6.8 percent of companies responding have canceled parties due to cost-cutting measures, compared to none in 2007. Even companies that are still holding parties are scaling down the affairs. The same amount of money will buy less this year due to increases in food costs. Moreover, 34.8 percent are holding their parties on company grounds this year, compared to 27 percent in 2007.

The survey was conducted on Oct. 29, and since then the financial problems have only worsened, suggesting that, if anything, this is an optimistic picture.

Few restaurants will talk about a loss of business. They rely on projecting an image of quality and any publicity about loss could weaken its appeal. But they'll talk about the cancellation of holiday parties because it is so widespread.

Melissa Adams, a manager at the Stone Mansion, a 1930s house in Franklin Park, Pa., with many private party rooms, confirmed that a number of holiday parties had been canceled because of company budget cuts.

Bill Fuller, executive chef of the Big Burrito restaurant group, which operates the Mad Mex chain, Kaya, Soba, Umi, Casbah and Eleven, said his restaurants also have seen parties canceled and catering requests slow down.

While surveys have suggested that people are cutting restaurant meals from their budgets, restaurants remain full. Roger Levine, an instructor at the International Culinary School at the Art Institute of Pittsburgh, suggested that it is the perception of value that will determine whether restaurants make it through the crisis or go under, more than the relative price point of the restaurant.

Restaurants must be careful of any promotions that imply lower-quality product. They have little room to manipulate prices or portion sizes as a way to increase the bottom line. Customers are very aware of these factors, and while they may be sympathetic to the restaurant's plight, they will be quick to decide that a restaurant no longer represents a good value.

Restaurants that already plan to open late this year or next year will face even more difficult odds than those confronting a new small business. Consequently, they must take extra care to make sure they start out on firm financial footing.

In 2004, Aldo Coffee, an independent coffee shop in Mount Lebanon, Pa., opened on Dec. 29, even though its espresso machines weren't working yet. The shop made chump change in the days before the new year, owner Rich Westerfield said. But those three days of business allowed the shop to write off some business expenses for 2004.

Careful bookkeeping is important for restaurants to stay in the black. "The way we're planning for next year, we're planning very conservatively for the first half in terms of planning, hiring, scheduling, ordering, because we want to see what's going to happen," Fuller said.

The Big Burrito restaurants and Morton's benefit from their groups, which allow savings through bulk purchasing, hiring and training and also in cash resources unavailable to small, independent restaurants. Those smaller restaurants are unlikely to fare so well or to have the resources to plan so carefully for the coming year, Levine said.

"The business is scary. After the holiday season, I think, unfortunately, you're going to find a lot of these smaller operations are going to say it just isn't worth it."

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