Restaurant and food-making industries expect a hearty year

Not even a mad cow can stop consumers from stampeding to tables

January 11, 2004|By Delroy Alexander | Delroy Alexander,CHICAGO TRIBUNE

CHICAGO -- Even the first case of mad cow disease in the United States has been unable to put a damper on what promises to be a good year for most restaurant and food manufacturing businesses.

Sales and menus remain solid, with consumers still buying millions of burgers and steaks, even after the confirmation of a single Holstein cow in Washington state with the brain-wasting malady.

"We remain positive about 2004," said Robert Ebbin, director of project research at the National Restaurant Association, adding that it is difficult to judge the impact of mad cow disease on the industry.

"That really will depend on how much of the beef supply, beef prices and consumer confidence are impacted. Since it hasn't yet had a direct impact on any of the large operators, the effects have been contained," Ebbin said.

Beef industry players say that because the nation imports slightly more than it exports, there might be a ready market at home for cattle initially destined to go overseas but grounded by bans by more than 30 countries worried about the disease.

From big to small in the restaurant industry, few seem to have tempered expectations for a strong year.

"In the two days immediately after the news broke, our sales were up 12 percent," said John Bettin, president of Morton's Steakhouse. "We are very optimistic about the current year."

After a period of retrenchment, Morton's again is looking to expand in several metropolitan markets, he said, echoing the plans of bigger players in the industry.

McDonald's Corp., for example, plans to refurbish or "re- image" about 15 percent of its 13,600 U.S. restaurants -- approximately 2,000 stores this year at a cost of up to $300 million.

The world's largest restaurant chain has seen a revival and double-digit sales increases since autumn and has narrowed its focus further, hoping to entice more customers back to its stores.

"Our goal is to increase momentum throughout 2004," James Cantalupo, McDonald's chief executive, said recently. "We still have a lot of hard work ahead."

Cantalupo plans to focus on just two other brands in the United States, as well as get a better grip on the main burger business.

"We will concentrate our efforts primarily on Chipotle and Boston Market in the United States, concepts that have potential for long-term growth and benefit to McDonald's," Cantalupo said. "These two brands are sizable companies that can operate autonomously. We believe this new focus and discipline makes the most sense for our company."

The renewed confidence in its "fast casual" concepts comes as growth in the restaurant business in general picks up, according to the restaurant association.

The restaurant business in all its forms accounts for more than 4 percent of the country's gross domestic product. The industry expects sales to grow to $440 billion in 2004 from $403 billion last year, according to Ebbin. Excluding menu inflation, this translates to real growth of 2 percent.

The most robust sales growth in four years will mean that for every $1 million in extra sales, another 40 jobs are created in the labor-intensive industry, which will account for 13.5 million jobs by the end of 2004.

While all key areas of the business are expected to grow, full-service and white-table waiter operations will grow slightly faster than quick-service chains and burger joints, as the latter category struggles to retain, recruit and train staff needed for the expected growth.

Snacks and the nonalcoholic beverage business at clubs are expected to be the fastest-growing segment of the sector.

Although it accounts for a small fraction of sales, at $18.6 billion, the segment is expected to grow 5.7 percent this year, according to the restaurant association, largely because of the increased focus beverage companies place on the business and the wide range of offerings.

Chicago-based research company Mintel said it expects "functional beverages" to top $13 billion by 2008.

Posting a growth rate of at least 7 percent in each of the past five years, drink makers such as Pepsi Co.'s Tropicana Pure, Coca-Cola's Minute Maid juices, Odwalla and SoBe will again capitalize in the $9 billion business by serving up a mix of energy-boosting drinks and trendy nutritious supplements.

Industry experts expect the emphasis on trying to make life healthier and yet at the same time more convenient for the primary food preparer, which in the majority of homes is a woman, will continue.

"I suspect we are going to see more low-carbohydrate offerings," said Harry Balzer, a vice president at Chicago-based NPD Group, which tracks consumer eating habits. "I don't think you'll see companies remove [carbs] entirely. They'll just have a separate offering, much like with the low-fat thing a few years ago."

A decade after consumers' buying habits turned to reducing the fat content in food, the latest push is likely to influence food makers looking for ways to sell higher-margin products.

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