A Look at 1986, and the Climate for ’87 : Food Services
Consumers didn’t have much of an appetite for restaurants in 1986.
Most restaurateurs experienced slumping earnings as consumers took advantage of low interest rates and spent their money on big-ticket items rather than food, analysts said. And cheaper fast-food outlets suffered, too, as a result of stiff competition, partly from convenience stores.
To bring diners back to their tables, many in Orange County’s fast-food and restaurant industry experimented this year with leaner menus, healthier food, smaller portions and more colorful decor. While restaurateurs are optimistic that the new strategies will improve earnings next year, industry analysts remain skeptical about prospects for a turnaround.
One of the few winners in the industry this year was Costa Mesa-based Del Taco Inc. The chain expects to end its fiscal year on April 30 with profits of $2.8 million to $2.9 million, up 65% from the prior fiscal year.
Del Taco also plans to expand its menu in January, introducing higher-priced Mexican combo dinners in reheatable containers.
Competitors Taco Bell Corp. and Naugles spent heavily on radio and TV promotion in an attempt to separate themselves from the growing pack of Mexican restaurants.
Taco Bell, the $1.2-billion Irvine-based unit of Pepsico Inc., took the relatively rare promotional step of selling taco salads in reusable dishes and has been pushing an expanded menu that includes a Mexican pizza.
In November, Naugles Inc., the Orange-based fast-food chain, broke a two-year string of losses by reporting $1.8 million in quarterly operating profits (offset by a $2.3-million writedown). But the earnings didn’t come from tacos. They came from chicken, as 111 Kentucky Fried Chicken outlets acquired in October from Collins Foods International Inc. turned most of the profit. A management shake-up by Los Angeles-based Collins, which owns 51.3% of Naugles’ common stock, and a massive advertising campaign could turn the company around in 1987.
Chicken was also something to crow about for Anaheim-based Carl Karcher Enterprises.
The fast-food company says its restaurant division is operating in the black, largely due to the introduction this year of its hugely successful barbecue-chicken sandwich.
Menu diversification, however, did not work for Der Wienerschnitzel--the company that started the burger wars with its 39-cent hamburger-and-fries package.
The Newport Beach-based hot dog emporium abandoned a seven-year advertising effort pushing burgers and introduced a new “Big and Beefy” hot dog line in 1986. The company expects to expand both sales and the number of units in its chain by 5% in 1987. Der Wienerschnitzel operated 330 restaurants with sales of $125 million in fiscal 1986, ended June 30.
Rusty Pelican, the seafood dinner house, is also hoping for a turnaround next year after laying off several executives, cutting back on expansion plans and switching to lighter entrees.
The Irvine-based company ended the year facing a possible take-over bid after profits dipped 47% for its fiscal 1987 first quarter, ended Oct. 26.
Management predictions aside, analysts remain far from optimistic about a quick turnaround for the restaurant industry. “Things will get better when consumers have more money to spend,” said Sarah Stack, a securities analyst with the investment firm of Bateman Eichler, Hill Richards Inc. “I think 1987 is going to be very, very tough for any retail operator.”
