Economy eating away at people eating out

More independent and chain restaurants in the suburbs are likely to close, following the lead set when some Bennigan's eateries locked their doors this week.

Higher labor, food and energy costs are souring profit margins for many restaurateurs, who also face stiffer competition and whipsawed consumers, analysts said Wednesday.

"The operating environment for restaurants now is really tough," said Sharon Zackfia, restaurant analyst with William Blair & Co. in Chicago. "Consumers are dealing with products and energy costs going higher, and that's pressuring the profit margins for all restaurants. That's what helped put Bennigan's over the edge."

Texas-based Metromedia Restaurant Group, parent of Bennigan's and Steak and Ale restaurants, filed for bankruptcy Tuesday and issued a middle-of-the-night order to shut down restaurants, leaving workers and patrons in the lurch and stiffing local towns of the sales tax revenue.

One local Bennigan's, a franchise in the Elgin Holiday Inn, remains open.

The sudden collapse of Bennigan's after about 30 years sent ripples throughout the industry as long-established and new restaurants began taking a fresh look at how to capture hungry patrons willing to part with discretionary income.

This year has been among the toughest for the restaurant industry, analysts said. Restaurateurs have been offering more lunch specials, two-for-one deals, expanded delivery services, discount coupons, free drinks or desserts, and other incentives to capture a waning audience.

"There was a 45 percent increase in the number of restaurants in the top 20 chains in the last five years, which is way above the increase in the demand," said Ron Paul, president of Chicago-based restaurant consultancy Technomic Inc.

Busy families are finding the restaurant tab getting higher with the cost of food, taxes and tip and easily could slice that cost with precooked, ready-to-eat meals available at Jewel, Dominick's, Meijer's and even Super Target, Super K and others.

"Supermarkets and other retailers, like Costco, have rotisserie chickens, fully cooked and ready to take home and eat for $4.95. Buy a can of pop, which cost about 25 cents, and you can't get a whole chicken and a drink for that price at a restaurant," Paul said.

Beside the better quality now available in ready-to-eat foods, other money woes, such as foreclosures, play a pivotal role, Paul said.

"We're finding there has been no increase in traffic in restaurants nationwide and the worst hit areas are in Florida and California," Paul said. "That's because there are more foreclosures in those states and those consumers are really being squeezed."

Those who do keep their restaurant habit are likely to cut back by sharing plates or eliminating that extra glass of wine or dessert, which carry the biggest profit margins, Paul said.

While consumers tighten their purse strings, they could be enticed back with the right offer, said Peter Geisheker, CEO of The Geisheker Group Inc., a consultancy in Green Bay, Wis.

"If value meals work for fast-food chains, they can work for restaurants," said Geisheker.

"The idea of ordering a meal and getting a free nonalcoholic drink, such as soda, ice tea or lemonade, is a good start. Show people they get more value for their money so they have a reason to bring their family to your restaurant."

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