Eateries Getting More Than a Taste of Misery : Food: Recession, dramatic increase in new restaurants make the going tough for San Diego restaurateurs.
For more than a year, San Diego County’s restaurant industry has been battered by the double whammy of an economic recession and the added competition generated by a wave of new restaurants.
Restaurant revenue began to dip in August, 1990, when consumers reined in spending as the United States and its allies began the military buildup that culminated in a lightning-swift victory over Iraq last spring. Sales deteriorated further toward the end of 1990 after California became mired in a nationwide economic slowdown.
During the second half of 1990 and the first quarter of 1991, average restaurant revenue fell by an estimated 8% to 10%, said Paul McIntyre, executive director of the San Diego Restaurant Assn., which counts 600 businesses in its membership.
Although the economic picture improved noticeably in April after the United States and its allies pushed Iraqi troops from Kuwait, the recovery was short-lived because wary consumers remained uncertain about the recession’s duration.
Local restaurants have yet to see a dramatic increase in business, despite official pronouncements from Washington in recent weeks that the recession has ended. Although business picked up after the Gulf War, countywide sales continue to lag behind the previous year by about 4% to 6%, McIntyre said.
Restaurants that normally benefit from hefty tourism traffic during the summer have also been disappointed. “August for San Diego restaurants is normally the peak month,” McIntyre said. “What December is to retailers, August is to restaurants. And we’ve not seen a recovery yet.”
“The positive note is that it’s not getting any worse,” said Tom Fat, president of the San Diego Restaurant Assn. Fat, whose family owns and operates the Fat City restaurant and bar complex on Pacific Highway near the airport, said: “I think you have to say that people are being more careful with their money.”
Although economic concerns have slowed consumer spending, San Diego’s allure is still strong for potential restaurant owners and operators, according to an annual survey conducted by New York-based Restaurant Business magazine.
Restaurant Business, in its Sept. 24 issue, will identify San Diego County as the 12th most attractive area in the nation for “growth potential” of new restaurants. The county finished ninth during the 1990 survey, according to Tom Strenk, the magazine’s managing editor.
The survey, which is based, in part, on population growth and consumer-spending trends, attempts to quantify the “potential for growth before the market is saturated,” Strenk said.
Fat and other restaurant operators believe that the San Diego market is close to saturation.
“There are just so many, many restaurants that consumers can now choose from,” Fat said. “It used to be there were just a few restaurant openings each year, but now there are so many people can’t go to them all.”
Although the local restaurant association doesn’t track openings and closings, Fat and others said that at least 30 full-service restaurants opened in the city during 1990 alone. The number would swell dramatically if other categories--such as fast food--are included.
San Diego County is home to about 6,000 eateries, including about 2,900 full-service, sit-down restaurants, McIntyre said. The county had about 4,000 eating and drinking establishments in 1984, according to figures provided by the California Restaurant Assn. The entire state has about 65,000 eating and drinking establishments, up from 56,106 in 1984.
Restaurants continue to open--despite the closing of such well-known spots as Lubach’s downtown, Remington’s in Del Mar and L’ Escargot in La Jolla, “for the same reason that (developers) keep putting up office buildings,” said Bill Seckinger, vice president of marketing for Souplantation, which owns 25 restaurants in California and Florida, including five in San Diego. “The original sin in this business is to forget about the supply side of the equation and just concentrate on demand.”
Fat linked the dramatic increase in new restaurants to developers, who “now include as many as four eateries in their new strip malls. . . . In the old days, you might have had one new restaurant (per mall).”
“In the old days, when a new restaurant opened, everybody rushed over to try the new one out,” Fat said. “But now, there are so many new ones that it’s hard to try them all.”
While hotel developers must often convince dubious investors of a project’s merit, restaurant owners “are gamblers at heart,” Fat said. “We think we can open a restaurant and beat the odds. We don’t go through a lot of research. . . . It’s more of a gut reaction. We get a concept, and we think we can make it.”
During good times, that swashbuckling attitude might serve restaurant owners well. But, although “San Diegans have a high propensity to dine out, the bad news is that the number of eating establishments has grown exponentially” in recent years, Seckinger said.
Unlike past recessions, in which high-end restaurants were hurt most, the continued economic slowdown has taken its toll on everyone, from fast-food outlets to top-line restaurants.
“We’re having a rate war right now that started with Taco Bell,” said Fat, in reference to Taco Bell’s decision to chop prices on some basic items to 39 cents. Other fast-food chains quickly changed menus to incorporate lower-cost items, as have mid- and upper-scale restaurants.
“No one is immune to this recession,” Fat said. “The No. 1 thing you have to do today to survive is to come out with a value . . . something that’s perceived as unbeatable . . . whether you’re at the high or the low end.”
Seckinger said restaurants such as Souplantation, which are sandwiched between the lower-cost, fast-food restaurants and the higher-end, sit-down dinner houses, are in the best position to gain market share during this recession.
“People are trading down” rather that simply not eating out, Seckinger said, so patrons who eschew higher-end restaurants are now more likely to end up in mid-scale eateries. And, with fast-food prices inching up toward mid-scale restaurants, “more people are likely to move up rather than eat at McDonald’s again,” Seckinger said. “Mid-scale restaurants are really picking up steam.”
Souplantation, with five restaurants in San Diego County, also operates in Los Angeles and Orange counties, the Bay Area, Sacramento, Fresno and Palm Harbor, Fla. Despite the recession, Seckinger believes that Souplantation, which reported $50 million in revenue during 1990, could add a handful of new locations.
