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Friday, October 17, 2008

Restaurants adapting or failing

Source: South Florida Business Journal

Escalating food and operational costs, a drop in patrons and a decline in sales per check are squeezing South Florida's mid-priced restaurants, according to restaurant brokers and operators.

State figures show restaurant sales dropped by $266 million to $30.26 billion in the fiscal year ending in June. Sales at taverns and nightclubs dropped $129 million to $2.8 billion. Restaurants are a key economic engine, employing more than 900,000 statewide.

The survivors are finding some prime sites coming on the market, but facing challenges with the financial markets and value-seeking consumers.

Chicago-based NRC Realty Advisors is selling 64 former Bennigan's locations in 15 states - both leaseholds and owned property. In Florida, 22 locations - including three in Miami and one in Sunrise - have a sealed bid deadline of Oct. 28.

Company-owned Steak & Ale, R.J. Gator's, Shells Seafood and Roadhouse Grill locations also have closed in South Florida, but Flanigan's, Miller's Ale House, Salad Creations and Lime Fresh Mexican Grill are examples of local chains that continue to push against national players such as Cheesecake Factory, Chili's, Cracker Barrel and Outback Steakhouse.

"Keep it all in perspective: There are more than 5,000 restaurant chains in the U.S. and Canada - counting a chain as three or more restaurants - and that's more than any other country in the world," said Richard Lackey, a Palm Beach Gardens-based restaurant analyst and international broker with the Lackey Cos.

He sees the turnover as a natural market force.

"There has been some gross mismanagement not keeping up with changing tastes," he said. "Profits were taken out without reinvesting in research and development to create a better product."

David DeMuth, broker-owner of DeMuth Realty Services in Boca Raton, a specialist in restaurant and commercial sales, agrees.

"It's still all about concept, management and finance," he said. "Those restaurants failed because they didn't upgrade their menus, their premises, or had management and financial challenges they didn't overcome."
Value at the forefront

The casual, moderately priced restaurants, also known as quick-service restaurants (QSR), seem to be in a fight for survival as they lose some customers to the fast-food trio of Burger King, McDonald's and Arby's, said Lackey, who attributes the shift to the current economic slowdown.

Miami-based Burger King recently reported a 5.3 percent increase in same-store sales - r