U.S. Hispanics Propel Real Growth In Food, Beverage And Restaurant Sectors, According To Latinum NetworkU.S. Hispanics Propel Real Growth In Food, Beverage And Restaurant Sectors, According To Latinum Network

Hispanic Buying Offsets Mainstream Declines; Demand Presents Real Opportunity to Investors

Hispanics have become the most important U.S. demographic growth driver in the food, beverage and restaurant sectors, according to data presented by Latinum Network during the Sanford C. Bernstein Investor Conference Call.

The U.S. Hispanic segment made up more than 50% of real growth in the midst of a stagnant U.S. consumer economy between 2005 and 2008, with $52 billion of new inflation-adjusted Hispanic spending outpacing $40 billion of new spending by non-Hispanics. This growth can be attributed primarily to an increase in the number of U.S. Hispanic households, and secondly to an increase in consumer spending among U.S. Hispanics. In the food, beverage and restaurant business, this new spending offset most (84%) of the real decline in demand across the entire $1 trillion sector. This divergence in demand is driven mainly by differences in ethnic preferences, economic and cultural integration, and demographics.  

Among Latinum’s key findings:

• Over $9B of new value in Food and Beverage was created by Hispanics in otherwise dormant or declining categories such as fish and seafood, fresh fruit juice and dairy products between 2005 and 2008
• $5.9B of new value was created by Hispanics in growing categories where they represent approximately 20% of the growth such as vegetable juices and fruit drinks, meats including pork, ham and mutton and frozen meals, which represent the highest-growth food category among Hispanics. It appears that busy Hispanic professionals are increasingly turning to frozen meals to feed their children.
• While health & wellness trends reduced non-Hispanic consumption of beef, ethnic preferences buoyed Hispanic buying of beef.
• Hispanics are eating out more while others are cutting back, driving growth in fast food and full-service. In particular, Hispanics are increasingly likely to eat out during the work day, driving new sales in fast-food breakfasts and full-service lunches
• The increasing rate of Hispanic home ownership is driving growth in household goods, while non-Hispanics are doing the opposite – reducing real estate holdings and their purchase of household goods
• Hispanic teens are driving the majority of new growth in deodorant and feminine hygiene and at least 20% of growth in cosmetics and shaving needs.

According to Alexia Howard, Senior Research Analyst-US Foods at Sanford C. Bernstein, “With total U.S. Hispanic household spending  expected to top $1 trillion by 2013, and emerging markets around the world (such as China or India) fraught with political risk and hidden costs, institutional investors have a unique opportunity to look  homeward.  We see the growth in food, beverage and restaurants here as a particularly interesting opportunity for our investors.  Especially with the relative stability of Hispanic demographics, this growth can be reliably predicted through 2050.”

Says David Wellisch, co-founder and principal of Latinum Network, “Clearly, U.S. Hispanics represent a growing market in the midst of a mature U.S. consumer economy, but in order to win over this important demo, brands must make an authentic appeal to the unique behaviors and tastes of U.S. Hispanics through distinct products, channels, messaging and marketing strategies.”

For example, while younger Hispanics have higher levels of English proficiency and economic achievement due to having more education than their older counterparts, Spanish usage and preference remain high as consumers acculturate, giving companies expanded options for in-language and multichannel advertising and marketing strategies which appeal to a broader portion of the market.  

Find out more at: Latinum Network

Exclusive R&I Research: What Diners Want at Breakfast

Allison Perlik reports at Restaurants & Institutions that the New American Diner Study offers operators a peek into what consumers look for at their morning meals. 

Breakfast sales at restaurants declined 3.4% from 2007 to 2009, reports Chicago-based market-research company Mintel, but the daypart still is expected to post 13% growth from 2009 to 2014. As competition heats up for diners’ morning-meal dollars, data from R&I’s 2010 New American Diner Study offers valuable insights into customers’ habits and what they want from restaurants at breakfast.

How often do Americans eat breakfast from a full-service or quick-service restaurant on weekdays? 9.4% say they do so always or often, 24.3% say they sometimes do and 66.3% say they never do.

More dine out for breakfast on weekends: when 16.5% do so always or often, 33% do sometimes and 50.4% rarely or never. Asians, blacks and Hispanics much more likely than whites to go out for breakfast on both weekdays and weekends.

What would make diners more likely to eat breakfast at a restaurant on weekdays? Consumers offer the following as their top-five incentives: lower prices (42.4%), discounts for frequent/loyal customers (20.9%), more-convenient locations (19%), faster service (17.1%) and more time to stop (16.5%). Expressing the most interest in loyalty-based discounts are Gen Y and Hispanic diners, residents of the Western United States and diners with children.

It’s not the economy … Only 3.1% of diners who say they’re eating away from home less frequently because of the economic downturn name breakfast as the dining occasion on which they’ve cut back most (36% said dinner, 36.8% said “all occasions”).

Quick- or full-service? It depends on the day. During the week, fast-food establishments are by far the top choice for all age groups, with 48.9% naming QSRs as their top breakfast destination. Unsurprisingly, Gen Ys and Gen Xers are most enthusiastic about fast-food breakfasts; matures and boomers are much more likely than their younger counterparts to say they usually choose full-service family or casual-dining restaurants at breakfast on weekdays. On weekends, full-service family restaurants take the lead: 32.5% say they most often visit these operations. QSRs, casual-dining restaurants and fine-dining operations are the top choice for 25.9%, 8.1% and 9.2% of diners, respectively.

Chains win out over independents. Asked where they’re more likely to dine out for breakfast on weekdays-at a chain or at an independent restaurant-69.7% say a chain; 30.3% say an independent. On weekends, chains lose some ground, with only 54% of diners saying they choose them. Among demographic groups, younger diners and Southerners are more likely to patronize chains; Northeastern residents are more likely to head to an independent establishment. The groups most likely to choose chains are Gen Y, Asians, Southerners and single diners.

Breakfast of champions? Breakfast sandwiches (52.5%) by far are the most popular food choice for weekday breakfasts at restaurants, in particular among Gen Y diners, blacks, Southerners, single diners and diners with children. Pancakes, preferred especially by matures, blacks and Hispanics, rank second at 30.9%. Muffins, doughnuts and other sweet baked goods are a top choice for only 15.9% of consumers.

 Read the entire study: R&I’s 2010 New American Diner Study

A Look at Restaurant Industry Same-Store Sales

Mike  Dempsey reports at Nation’s Restaurant News that nearly all public restaurant companies reported fourth-quarter same-store sales results this month, and winter storms and lingering economic pressures pushed most into negative territory. Some, mainly because of value messaging, moved in a positive direction.

For the fourth quarter, or the quarter ended closest to December for companies on a non-calendar fiscal year, quick-service chains on average posted a larger same-store sales decline than any other restaurant industry segment. Quick-service chains were hurt by rising unemployment as well as comparisons with a year earlier when sales trends for fast food were still stable. Casual-dining chains still struggled for customer traffic in the fourth quarter, but some same-store sales results did ease from a year ago. On average, pizza chains and coffee and snack brands were able to post positive same-store sales in this harsh environment, while the fast-casual segment, which is typically the fastest-growing segment, posted, on average, a same-store sales decline of 0.8 percent. That was mostly driven by a double-digit drop of 11.9 percent at Cosi.

The averages were based on all chain reports for the latest quarter, including international operations.

Click here for a complete look at restaurant same-store sales results.

Quick service: Average segment same-store sales result: -4.7%

The segment finally started to take some hits from the recession. Arby’s fourth-quarter same-store sales were down 11 percent at North American stores compared to a year ago, while Wendy’s North American comps declined 3 percent.

While Wendy’s fourth quarter numbers were down, the company said its 99-cent spicy chicken nuggets and new fish sandwich helped sales jump 0.3 percent in January to open the first quarter.

Arby’s said its January corporate same-store sales improved, declining 7.4 percent, as it rolled out its $1 value menu to more than 2,500 restaurants.

Sonic blamed severe winter weather for systemwide same-store sales that dropped 12 percent to 14 percent in the second quarter. The Oklahoma City-based company said nearly two-thirds of the decline can be attributed to record snowfall around the country, including Texas and Oklahoma, where more than a third of the chain’s restaurants are located.

Read More at: Nation’s Restaurant News

Breakfast Competition Perks up as Sales Slow

Mark  Brandau reports at Nation’s Restaurant News that even though breakfast traffic has not fully recovered from declines brought on by high unemployment, new research shows that the morning meal is still an important daypart for restaurants.

Chicago-based research firm Mintel reported that restaurants added more than 460 new breakfast products to their menus in 2009, more than in the previous two years.

However, Mintel also found that consumers are spending less on the morning meal at restaurants. Half of consumers surveyed by Mintel last November said they spent less on restaurant breakfasts in 2009 than in 2008, while only 10 percent said they spent more. Nearly half of respondents said they don’t eat breakfast out during the week, at 47 percent, or during the weekend, at 45 percent.

A separate study by The NPD Group found that breakfast traffic fell 2 percent in the fourth quarter of 2009, compared with a 1-percent increase in the year-ago fourth quarter. Traffic at breakfast fared better than at other dayparts, the Port Washington, N.Y.-based firm found, as lunch traffic fell 3 percent and dinner traffic declined 4 percent in the fourth quarter of 2009.

Falling sales and traffic haven’t dissuaded restaurants from introducing new items for breakfast, however.

“We see an increasingly competitive market for restaurant breakfast, even though sales have declined,” said Eric Giandelone, director of research for Mintel Foodservice. “Restaurants are refreshing their breakfast menus, but I believe reduced consumer spending, as well as relatively high unemployment, will limit sales growth over the year.”

Sales of breakfast and brunch decreased 3.4 percent from 2007 to 2009, Mintel said. The firm projected that morning daypart sales would grow modestly through the end of 2011, but would pick up significantly after that, resulting in a 13-percent growth from 2009 to 2014.

“To overcome contracting sales, restaurant operators need to be keenly aware of what drives people into restaurants for breakfast,” Giandelone said, adding that survey respondents said they are seeking convenience and low prices during the weekday rush and menu variety and high-quality food while having breakfast or brunch on the weekends.

Already in 2010, quick-service heavyweights like McDonald’s and Hardee’s have rolled out new items in the morning, including the test of oatmeal for Oak Brook, Ill.-based McDonald’s and the introduction of the Double Sausage Egg ‘N’ Cheese Biscuit at St. Louis-based Hardee’s. Late last year, McDonald’s debuted its Breakfast Dollar Menu, comprising six items.

Coffee will be another area where restaurants will target improvement, as McDonald’s tests expanded items for its premium McCafe line of coffee and Miami-based Burger King upgrades its BK Joe coffee to Seattle’s Best.

Mintel said offering breakfast beyond morning hours could be a boon to restaurants, as the most popular suggestion survey respondents had for restaurants was all-day breakfast. Thirty-six percent of participants called for all-day breakfast on weekdays, while 38 percent wanted all-day breakfast on the weekend. Another 32 percent of respondents said they would like to see more breakfast value meals in restaurants.

Read more: Nation’s Restaurant News

New York Times to Deliver News on TV Screens to Promote Brand

Greg Bensinger writes at Bloomberg BusinessWeek that the New York Times Co. will distribute its news to 850 television screens in Dunkin’ Donuts coffee shops and other locations in five U.S. cities to promote its brand and help sell subscriptions to the newspaper.

The publisher will stream short news blurbs to TV screens operated by San Francisco-based RMG Networks starting today, Murray Gaylord, NYTimes.com vice president for marketing, said in an interview.

“It’s a branding play to a large degree,” Gaylord said. “We’re getting the value of our content to millions of people in a new venue that’s very important for us.”

Times Co. has been seeking new sources of revenue as circulation and advertising sales continue to slide. The New York-based publisher will begin charging for some Web content next year.

The screens will rotate business, movie, technology and health news, among other New York Times content, he said. About 20 percent of the advertisements will be for New York Times subscriptions or other products, Gaylord said.

RMG will double the number of screens — now in San Francisco, New York, Chicago, Los Angeles and Boston — by August and bring in new cities, Chief Executive Officer Garry McGuire said in an interview. Closely held RMG will keep the revenue it collects from advertisers.

Read More at: Bloomberg BusinessWeek

Top 10 States for Foreclosures

There’s no humor in this top 10 list: The states hardest hit by foreclosure.

Bankrate.com reports that it’s especially unfunny for homeowners and agents in Nevada, Florida, California and Arizona, who’ve languished in the top four for most of the real estate recession.

“Those states had similar scenarios,” says Rick Sharga, senior vice president of RealtyTrac, a California-based firm that tracks U.S. foreclosures. “They all had unsustainably high home prices and had many buyers who really couldn’t afford them — most with toxic mortgages — followed by (downturn-related) unemployment.”

Some of the country’s foreclosure problems revolved around a pervasive American mindset of “object identity,” says Barbara Fitch of Pacific Star Real Estate in Corona, Calif. “The house is who they are and that is why (so many) are in this jam.”

Unfortunately, the foreclosure beat goes on. RealtyTrac reports more than 300,000 U.S. properties received a foreclosure filing in November 2009 for the ninth straight month.

Here’s a look at the top 10 states for foreclosure and how they got there:

No. 1: Nevada — In third-quarter 2009, Las Vegas suffered the nation’s highest foreclosure rate at 5.13 percent, or more than one foreclosure for every 20 households — almost seven times the national average. Investors, who snapped up one of every three homes sold at the boom’s height, were gambling on future gains after watching Vegas-area median home prices jump 122 percent from 2000 and 2006 — twice the U.S. rise of 49 percent in that span. The crash arrived, and real estate and construction jobs fell away — followed by many casino jobs. While foreclosure numbers were improving near year-end 2009, a 13 percent Las Vegas unemployment rate and 12.2 percent rate in Reno/Sparks helped keep Nevada in the top spot.

No. 2: Florida — In Miami-Fort Lauderdale-Pompano Beach, unemployment soared from just over 3 percent in early 2006 to 11 percent in fourth-quarter 2009, according to the U.S. Bureau of Labor Statistics, or USBLS. Orlando and Daytona Beach posted slightly higher unemployment, while Cape Coral-Fort Myers posted a 13.7 percent rate, helping place it at No. 4 on RealtyTrac’s top 10 foreclosure cities. “It’s likely that California will recover before Florida does, partly because of its net growth in population and partly because Florida is lousy with condos, which are typically the last to come back,” Sharga says. From 2003 to 2007 Florida prices doubled and tripled based largely on speculation, says Bernard Haddigan, managing director of Marcus & Millichap, a national commercial real estate brokerage specializing in real estate investment services. Homeowners were aggressively borrowing on future values and lenders were happy to cooperate, he says.

No. 3: California — At year-end 2009, the Golden State had 18 statistical metro areas where unemployment exceeded 10 percent — with nine of its cities in the bottom 14 in employment, according to the USBLS. In the hard-hit region surrounding Ontario, San Bernardino and Riverside, home values spiked from around $300,000 pre-boom to $800,000-plus at the market’s zenith. When the bust hit, jobs were whacked quickly along with home values. “We learned to borrow against everything,” says Fitch. “Buyers should buy houses for less than what they qualify for — not because it’s the largest or because it’s a bargain.” Pamela Haile, a Realtor with Coldwell Banker Gonella Realty in hard-hit Merced, Calif. — the top foreclosure city in the country — says, “We had a lot of lender fraud going on with non-English speaking residents. They were rushed through with lenders who added income to their applications and lied to buyers that it was legal.” In Merced, one in every 83 homes received a foreclosure filing in November. “Builders were manufacturing homes using an assembly line (in the area),” explains Julie Jalone of Roseville, Calif.-based MagnumOne Realty. “These homes were sold, sometimes in lottery style, before they were even built.” Consequently, she says, owners with mortgages higher than the purchase price came to represent a large portion of the market.

No. 4: Arizona — The 8.7 percent jobless rate in Phoenix-Mesa-Scottsdale is the lowest of the top five foreclosure states. However, Arizona foreclosure activity still jumped nearly 8 percent in November with one in every 186 homes getting a notice. Despite a breakneck growth rate through the past decade, the area remains overbuilt residentially and commercially, says Kevin Schuck, senior vice president for CB Richard Ellis, a national commercial real estate firm. All the growth fueled a run-up in service-related and construction-related jobs “that gave people a false sense that it would continue forever,” he says. In Phoenix and other high-foreclosure markets, banks are holding back foreclosure inventory to keep from flooding the market, Sharga says. Nevertheless, “we don’t think the (overall U.S.) market will not feel much better until 2013,” he says.

No. 5: Idaho — The inclusion of Idaho, where one in every 259 homes received a filing in November, in the top five may surprise some — but not Dale Alverson, certified buyer-broker with Boise, Idaho-based 43 Degrees North Real Estate. “It’s not really surprising considering we had 20 percent-plus appreciation annually from 2003-2006,” he says. “What economy can sustain that?” Add in interest-only loans, “stated-income” loans and investor over- exuberance, “and you had all the ingredients for the perfect real estate tsunami.” On the upside, buying opportunities currently abound in most distressed markets. “As many savvy billionaires have stated, ‘Buy when everyone else is selling and sell when everyone else is buying,’” Alverson says.

No. 6: Michigan — The state’s automotive-related job losses have been well chronicled. Nearly 16,000 Michigan residences received foreclosure filings in November, or almost 10 percent above the state’s totals in November 2008.
No. 7: Illinois — The Land of Lincoln saw 16,422 properties owners receive foreclosure notices in November, nearly 108 percent higher than November 2008 and the third highest in volume among all states, according to RealtyTrac.

No. 8: Utah — Between Jan. 1 and Sept. 30, 2009, about 42.4 percent of all Utah subprime adjustable-rate mortgages, or ARMs, were reset, compared with 27.8 percent nationally, according to the Federal Reserve.

No. 9: Maryland — More than 30 percent of the state’s foreclosures occurred in Prince George’s County, which has just 10 percent of Maryland’s housing stock. County officials blamed the problem on exotic loans and balloon mortgages.

No. 10: New Jersey — About 3,000 New Jerseyans have received counseling through the Garden State’s “Foreclosure Mediation Program.”

Bankrate.com

Increased Sugar Prices May Soon Leave Bad Taste in Consumers Mouths

Misty Harris in Canwest News Service writes that Canadians with a sweet tooth may soon find cavities in their wallets as sugar prices soar to their highest level in three decades.

Production shortages have seen the cost of sugar nearly triple in the last year, flirting with 30 cents U.S. per pound in comparison to the 11 cents at which it formerly hovered. Analysts predict things will get worse before they get better, with potential price implications for everything from cupcakes to double-doubles.

“I think we’ll be going through most of 2010 at abnormally high levels,” says Edward Makin, president and CEO of Lantic, which represents more than half of Canadian sugar sales. “The 30-cents level we touched last week was probably justified, and we’ll likely go even higher.”

Sandra Marsden, president of the Canadian Sugar Institute says long-term contracts have helped limit the exposure of many retailers and food processors to the latest sugar swings. But until the predicted return to surplus in 2011, individual manufacturers and smaller businesses will have to either hold the line at lower profits or start passing costs along to consumers.

If prices stay as high as they are now — or worse, climb higher — Lantic’s Makin says companies of every size will face that same decision.

“With things like this, you’re best to keep your head down and hope it all goes away. But I don’t think it’s going to do that any time soon,” says Makin, noting that he wouldn’t be surprised to see sugar trading in the mid-thirties over the next several months.

Already, the price of bags of sugar at grocery stores has risen with the fall in production, which was caused by unfavourable weather in India and Brazil. And across the country, bakeries — many still recovering from the record wheat prices of recent years — are preparing to raise the price of their goods.

“We’re definitely at the point where we have to increase prices by five to 10 per cent,” says Lori Joyce, co-founder of the Cupcakes franchise in British Columbia. Although the bakery chain won’t implement changes until after the Olympics, the fear that Canadians will presume price-gouging still looms large.

“I’m really nervous,” says Joyce. “The consumer just thinks retailers are getting greedy . . . This (situation) forces us to look like the bad guy.”

Even an organization as embedded as Tim Hortons isn’t immune to sugar shock, with coffee and doughnuts having been subjected to price increases of about five cents each late last year.

“High sugar prices have increased the cost of business for our local franchisees. In fact, franchisees have been hit from several directions, dealing with increased labour costs and commodities, such as coffee and dairy products,” says David Morelli, director of public affairs for Tim Hortons.

For competitive reasons, the company isn’t tipping its hand to this year’s pricing strategy. But if industry predictions are correct, Canadians who enjoy a good sugar fix should start fattening up their piggy banks now.

Canwest News Service

Forecast for ‘10: Partly sunny with certainty of more challenges

Jim Verdonik  in the Triangle Business Journal writes that “You don’t need a weatherman to know which way the wind blows”, by Bob Dylan.

What’s your weather information source? Do you trust weathermen? Or do you look out the window to check? If your weatherman had been struck by lightning a dozen times, would you get a new weatherman?

I ask, because it’s 2010 economic forecast season. Even if they’ve been wrong the past 10 years, “experts” can’t resist the temptation to try again.

Personally, my New Year’s resolutions included not making economic forecasts this year. Instead, I’ll advise about steps to consider in light of the consensus forecast of the “experts.”

Economic forecasters are boldly predicting we’ll see bumps in 2010 but that falling off a cliff like in 2008 isn’t likely. We may see improvement, but don’t be surprised if we don’t. It’s the weather equivalent of: “Partly sunny with a chance of scattered showers.”

The experts are covering all the bases and not going out on limbs. Perhaps that’s a good theme for running your business in 2010. Here are a few tips about how to deal with partly sunny with scattered showers.

• First, remember the millions of people fired in 2009? They’re both risks and opportunities. Should you rehire at first signs of a recovery or wait? There’s lots of talent available willing to work cheap, but it’s painful and expensive firing people – which is what will happen if you bet wrong on economic recovery. Do you want to risk running a revolving door hiring and firing? Suggestion: Weed out the remaining underproductive people in your organization and recruit better talent. Use this opportunity to upgrade your team’s quality while keeping expenses and headcount the same.
• Second, the world is still de-leveraging. What’s your company’s balance sheet look like these days? Should you increase debt to grow? Build up equity? Reinvest profits? Take profit out to rebuild your personal balance sheet? There is no one-size-fits-all answer. Suggestion: Consider why you own a business. Is being bigger your goal? Interest rates are low, if you can get a loan. Maybe you’ll expand into a rising marketplace. Or do you want stability and personal financial freedom? If so, take some profits out of your business instead of borrowing. One warning: Be careful about personally guaranteeing debt. Pay off personally guaranteed debt, if you can. Taking business risks is one thing, but it’s probably not the time to put more personal chips on the table.
• Third, with health-care law changes, there will be winners and losers. This year’s biggest potential swing factor is how you play the health-care game once Congress deals the cards. Make the effort to determine how to reduce employee health-care expenses in light of whatever new law emerges. Now isn’t the time to be an ostrich with your head in the sand.

So, no predictions from me this year – just some card game advice about knowing when to hold them and knowing when to fold them.

Have a prosperous New Year!

Read more at: Triangle Business Journal

What Business Success Ultimately Boils Down to is Leadership

Edward Marshall at the Triangle Business Journal writes that over the past 50 years, almost every time a business has a burning platform, the weapon of choice has been a structural solution. Top leaders get terminated. The company is reorganized. There is either centralization or decentralization; re-engineering or de-construction. More recently, the ultimate hammer has been the “Matrix” form of management, ostensibly installed to cope with complexity in our businesses.

What we have failed to grasp is that, just like you can’t save your way to prosperity, you can’t restructure your way out of the fundamentals of sound business. And those fundamentals have to do with how people either do or do not work together. It’s about relationships – trust, fear, values, culture, and behavior – not who reports to whom.

The Matrix is expensive. We’re not just throwing something over one wall to another function like we used to; we’re throwing multiple somethings over multiple walls and hoping they get picked up.

Some of the things don’t get picked up. Accountability is lacking. There are unclear lines of authority and responsibility. Decisions are made slowly, if at all.

People report to two or more bosses – some dotted, some hard line – but we all know it’s politics that matter. Leadership’s influence can be undermined if some leaders have hard-line relationships to headquarters. Strategies get sub-optimized. Processes become expensive because silo systems don’t talk to each other. It’s time to move beyond the well-worn phrases asserting that focusing on people, behavior and culture is “soft stuff.” In fact, dealing with people issues effectively is the hardest work that any leader will attempt.

Digging down into the stuff that matters in those relationships – ego, power, trust, anxiety, and fears of all kinds – is not the domain of human resources or the corporate psychologist. This is the primary domain of leadership in the 21st century. It requires:

n Collaborative Leadership: This is leadership that values transparency, walks the talk, engages the work force, builds a culture of ownership, and trusts the work force with the business. These leaders are self-aware, on an inward journey, and capable of talking about their own humanness.

n New Behavior: The days of command and control are over. It doesn’t work in this complex world. Leadership needs to be about engagement, reaching across the walls, focusing on what is right rather than wrong, on what can be learned from mistakes, rather than just the mistakes.

n New Vision: We live in a bounded world, limited by resources, climate change, and economic interdependencies. The old approaches to visioning no longer apply. Leaders need to boldly seek out a new vision, not just for the business, but for their communities, nation, and the world.

n Leadership Strategy: It is time to create a new leadership strategy that embodies all of these critical elements and instills new attitudes, values, and commitments at all levels of management. It is time to develop a leadership strategy for the next generation, not just this one.

Triangle Business Journal 

Landlords to Restaurant Chains: Let’s Make a Deal

David Farkas of Chain Leader reports the recession has turned the tables on landlords, who are now offering restaurant chains attractive rents and more.
 
Pizza Inn, an aging chain in a crowded category, says the chain is nonetheless attracting more tenant improvement dollars than ever, says Vice President of Franchising Madison Jobe.
 
This past year, mall landlords gave Häagen-Dazs build-out extensions for the first time, saving the ice-cream chain tens of thousands of dollars.
 
Kevin Kruse, vice president of franchise development for Einstein Noah Restaurant Group, claims he’s hasn’t seen “this many high quality sites in a very, very long time.” 

Had more landlords been willing to work with Chili’s Grill & Bar in the 1980s, the casual-dining chain might have opened a lot more restaurants. But developers sometimes balked at Chili’s loudly striped awnings, a crucial brand element.

“We killed many deals if they wanted us to have their awning,” recalls Clark Knippers, then vice president of real estate and development for Chili’s parent company Brinker International.

Until recently, landlords have had no problem asking for—and often getting—their awningsor whatever else they wanted in leasehold agreements. Competition for good sites was fierce among fast-growing restaurants and retailers, which typically acceded to landlords’ demands.

Not anymore. “Supply and demand has flipped; now it’s a tenants’ market,” says Knippers, founder and president of Dallas-based Foremark, a consultancy specializing in restaurant real estate.

Space Available

Blame the poor economy, which is tanking businesses and freeing up loads of commercial space at attractive prices. Spring ReCount data from market research firm NPD Group show the U.S. total restaurant count slipped 0.6 percent in 2008, to 570,980. Experts believe that percentage is sure to climb when new data are out later this month. “I definitely think there is reason to believe so given persistently weak industry sales trends,” offers restaurant analyst Mark Kalinowski of Janney Montgomery Scott.

Excess capacity means lower rents, already down 10 percent on average nationally, according to Jones Lang LaSalle. They will tumble another 5 to 7 percent this year, especially in secondary markets, notes a report from the Chicago-based real-estate services firm. “Rent declines in the most construction-heavy markets like Atlanta, Charlotte and Miami will approach double digits in the first half of [2010],” the report adds. The firm doesn’t expect rents to begin rising until well into 2011.

And a fall survey of property owners by National Real Estate Investor, a trade publication, showed that 52 percent expected effective rents to decrease for the next 12 months compared to 38 percent who projected declines three months earlier.

The upside for restaurant chains, especially growth-oriented chains, is deals galore. Lease terms (including mid-lease) have changed dramatically over the last 12 months.

“We are getting real-estate deals we’ve never gotten before,” declares Larry Feldman, CEO of Subway Development Corp. of Washington, sub-franchisor of more than 1,000 sandwich shops in the mid-Atlantic region. “Landlords are splitting space and cutting rents.”

In one case, a landlord is charging Feldman half the rent he would have paid two years ago in a rehabbed food court in Washington, D.C. In another, a Georgetown, Md., developer divided a shuttered Blockbuster, offering Feldman’s franchisee 3,500 square feet—a deal Feldman claims never would have happened two years ago. “We walk into a landlord, and now we’re on top,” he says.

Rent Relief

Perhaps the most remarked-upon change in lease structures has been landlords’ willingness to grant rent relief mid-lease, a practice all but unheard of until recently.

“I have never seen anything like this,” says Madison Jobe, vice president of development for Dallas-based, 315-unit Pizza Inn, referring to rent restructuring. “I have never experienced anything like what we are going through now, nor have any colleagues I’ve talked to.”

“Rent relief is part of the reason occupancy is where it is today,” Taubman Centers CEO Robert Taubman told investors in the company’s third-quarter 2009 conference call. Occupancy had slipped just 1.4 percent in the prior 12 months at the 25 malls the Bloomfield Hills, Mich.-based company operates. Tenant sales per square foot, however, tumbled nearly 12 percent, to $497 per square foot.

Taubman was mum on how many tenants have received abatement. “We would prefer not to be specific about the absolute number of rent relief cases,” he said.

Rents won’t rise (or even stabilize) until more consumers renew their love affair with meals away from home. That’s unlikely until the second half of the year, when NPD Group predicts traffic will turn slightly positive. It likely won’t spark new building. The International Franchise Association forecasts new-unit growth of just 2 percent among franchised businesses overall, well below the 5 percent average annual increase from 2001 to 2008.

As a result, many landlords will remain on the hunt for tenants as well as working to keep those they now have. “The dynamics have turned around so much that my e-mail is going crazy with landlords asking, ‘What it will take to get you to stay in our center,’” says Sam Osborne, an area developer for Destin, Fla.-based Tropical Smoothie Café who has opened 20 locations in Central Florida.

For instance, Osborne recently helped renegotiate a lease, saving a franchisee $1,000 a month, or about $20,000 on the remainder of the lease. He says he told the landlord the franchisee wanted to stay but was exploring options. Osborne then asked the landlord “to work with us.”

Read more at Chain Leader

Next Page »