California upstaging downturn

California upstaging downturn – Advertisement: Focus on California

California thrives on image, and knows well how to turn the tables on the rest of the country when it comes to eating out in hard times. The power of appearances, which has gotten Californians through catastrophes ranging from earthquakes to forest fires–combined with a dose of welcome new investments–is giving economists, government officials and business leaders the tools to soften the state’s downturn. And it seems to be working.

Each week, small pieces of good economic news emerge in the Golden State, adding up to a re-awakening of the California dream for restaurant operators. Nearly $1 billion of new cash is pouring into the home building industry. Banking institutions are posting record profits for the first time in years.

Tourism is rebounding overnight and lines are forming outside popular restaurants in San Francisco, a sign–like something akin to a restaurateur’s Ground Hog Day–that dining out is going to be alive and well in the rest of the state.

Selling more ideas

The magnitude of California is staggering, regardless of the economy. For example, the 5.6 million people who moved there in the past decade equals the entire population of the state of Massachusetts, and more people live in California than in three-quarters of the countries of Europe.

Restaurant operators, beating back the economy’s downturn as though it were just another forest fire, are marketing themselves in ways, they should have done years ago. Some are calling up customers in their neighborhoods asking which special they want delivered to the door, while some higher-priced places are creating alternative dining rooms with discounted menus.

Californians love to go out and be seen, and only in Southern California can status come from showing how much money you can save eating out at mid-priced places. The beneficiaries are operators such as Craig Nickoloff whose Claim Jumper restaurants throughout Southern California use a gold miner’s theme so Californians can get back to their roots-and pay an average $12 per check, with liquor. “Our idea has been paying off for 15 years during every recession–we use high value and reasonable prices–but it’s really paying off now,” says Nickoloff. Each restaurant grosses an average $4.3 million, and he’s opening three more this year.

A time to buy

Another flip side of recession is that the price is right for supplies. Equipment discounting and weak prices at the wholesale level for everything from paper goods to coffee are at least some comfort to operators. Limes, for example, have skidded by as much as half from the 1980s, to just $14 for a 40-pound case. Sam Hirabayashi the U.S. Bureau of Labor Statistics commissioner for the Western region, said the inflation rate in California of a minuscule 0.28 percent in December was the lowest there in 24 years. “Prices in Southern California dropped 0.3 percent in December. There is a discount mentality that is taking hold on more than just the wholesale level.” The best news restaurant owners have heard in a while is the resurgence of housing, the state’s largest industry. Where new homes rise, new restaurants open. A year after the infamous “credit crunch” slammed into California’s real-estate industry, it is slowly picking itself up. Nationally, the housing industry has led the country out of eight previous recessions, and is poised to do it again.

Economic massages

California is building a better defense against recession than the Northeast had attempted to put up a year ago. California has started applying liberal doses of confidence to its economy in the right places, and often.

State Treasurer Kathleen Brown expects a major boost from the state moves to switch $700 million of its investment

Restaurants Growth in California

no alcohol served beer/wine full bar service

1990

33,569 20,371 11,015

24,294 16,076 10,830

1980

Source: State Board of Equalization Permits

portfolio from stocks for direct invesments in California’s small businesses, housing and agriculture.

It came just a week after California’s Public Employees Retirement System, the nation’s largest pension fund, decided to pour $225 million into building more than 7,500 single-family homes in California. San Diego employees’ pension fund is considering doing the same.

Economists believe those kinds of economic massages can head off paralysis before it grips the California consumer. “The recovery finally is starting in the Northeast but could have come sooner if attitudes were better. We intend to avoid the Northeast’s mistakes,” says Bob Patterson, an analyst at the accounting firm at Coopers & Lybrand, Los Angeles. “I believe Californians have mre confidence in their economy, and their spending habits will be looser.”

Californians are starting to recover from their initial panic that the defense industry–employing more than 300,000 in the state–might be knocked for a loop in Pentagon curtailments of future spending. While some defense contractors such as United Technology Corporation’s plan to cut 13,900 jobs, a closer examination shows that California may not be hit as hard as originally thought. In California, at United Technology’s City of Industry factory, just 400 will be let go, and that won’t be for another 12 months, the company said.

One of California’s biggest defense firms, Northrop, sees a bright future even if the Pentagon limits the B-2 program, saying Northrop will emerge as a vibrant company with a $2 billion line of credit for future acquisitions.

After years of turmoil, the state’s thrift and banking industry troubles may be ending. Five major savings and loans posted record gains, making 1991 a strong comeback and a start for replenishing the building industry with cash.

“Good news is infectious,” says Gerald Breitbart, head of government relations, California Restaurant Association.

Food follows money

For large and small builders, there is a spark of revival. Tony Mon, an independent builder, gathered more than $60 million from investors and a staff of 12 in Burbank to start up a home building firm, Pacific Greystone Corp., buying land at a steep discount from lenders seeking to unload. He’s building homes for first-and second-time buyers. “It’s just a matter of getting in on the bottom,” Mon says. “Restaurant people love new neighborhoods.”

The state’s second largest builder, The Presley Cos., recently went public, raising $65 million to pump into building more new homes across the state. The real estate bargains, with buildings going for as little as 35 percent of replacement costs, is attracting tens of millions of dollars of invesment money–mostly from Taiwan, Hong Kong and South Korea.

And not surprisingly, those kinds of restaurants are also popping up in Southern California to cater to the rising population of wealthy Asians relocating to California. Jan Lowder, president of Restaurant Management Services Inc, a consulting firm in Rancho Palos Verdes,

Restaurant spending statewide

no alcohol beer/wine full bar service

$9.4 million $5.8 million $8.1 million

Source: State Board of Equalization 1990 Permits

says: “Following the people who have the money always works. The Pacific rim cuisine is becoming a hot concept O Thai, Singapore, Malaysia, Korean. They’re the ones who’ve been buying up the real estate sine the Japanese dropped out.”

Time for good times

The most promising concept attracting the large operators is entertainment, which, after all is America’s most endeared product.

Planet Hollywood, after a smash opening in New York, is opening at Universal Studios to go head to head against the Hard Rock Cafe in Beverly Hills, San Diego and San Francisco. Using show business and celebrity themes, movie posters, costumes and the like, these entertainment restaurants are considered to be winners. “As we surface from the recession these next few months, entertainment concepts will do great because people have deprived themselves for so long that when they see the light at the end of the tunnel, they’ll really want to have fun,” says consultant Lowder.

She says the Southwest, open-pit bar-b-que concept still has room to grow. “This is great for food costs and hasn’t seen all its potential yet.”

Keeping a restaurant’s name in the public eye is always an expensive proposition and even more vital when the dining population wavers.

Enterpreneur Shane Walters found a way for restaurants to court potential customers who live nearby, and slash ad costs in half.

Walters uses a database, address-specific or total saturation is needed, to mail a glossy color newsletter to residents. The publication, “The Appetizer,” features a dozen restaurnats in each issue every two weeks, flattered by photographs with prices and mini-reviews.

Menu call home

The joke that Los Angeles is 100 suburbs in search of a city works to the favor of restaurants. Niches and neighborhoods are the name of the game, and owners are following customers into their homes to add business.

John Sawyer, owner of Broker Grill, devised a database on his regular customers and rings them up at home to see which of the nightly specials they might want delivered. “We’re doing reasonably well with this. We’ve also made larger portions and lowered our prices in the last six months.” His small 35-seat restaurant is on Melrose Avenue, one of LA’s few “walking streets,” and draws heavily from foot traffic. “The customer you know is the one you have to take care of,” says Sawyer. “And you have to be a good at guerrilla marketing.”

Operators are fine-tuning frequent dinning clubs, giving away free champagne and a night on the town to frequent customers. At the upscale Chez Melange in Los Angeles, where a check is averaged about $30 per person, a customer who spends $500 a month there gets a free bottle of Mumms and special attention from the staff. A $1000 customer gets a free night in a top hotel and a meal. Owner Michael Franks, who runs the program at his four other white table cloth restaurants, said: “I sometimes wish we’d done this long ago.”

Sudden tourism surge

California’s giant tourism industry, generating more than $52 billion annually, was at one point seen as being flat for 1991. But hefty discounts have sparked a boom in recent weeks that could sharply revise the final reports by midyear.

At the country’s largest travel agency, Carlson Travel Network, its president Ron Letterman was jubilant about the sudden surge. “Our phones have been ringing off the hooks.” American West

Los Angeles vs. San Francisco

no alcohol served beer/wine full bar service

Los Angl. 11,846 4,597 2,740

San Fran. 1,187 1,113 891

Source: State Board of Equalization 1990 Permits

Airlines posted a 15% rise in paying passengers to West Coast destinations.

Disneyland is luring more local visitors by giving Southern Californians special discounts. Six Flags and Santa Cruz Beach Boardwalk theme parks are also up. “A lot of people are skipping long weekend trips and going out for a long-dining experience at a nice place closer to home,” says Fred Sater, a spokesman for the state Office of Tourism.

Bad times be damned

San Francisco prides itself on being an eating-out town, and a barometer for the state’s tourism in industry. ‘You can tell which spot is hot by how long the line is,” says Debra Selman of the San Francisco office of the state restaurant association. “This is truly a restaurant city, and people here are loyal about going out, no matter what.” Some of the current hot places: The Cypress Club and Aqua near the financial district; China Moon Cafe and Postrio in Union Square and the Flying Saucer in the Mission District.

The market doesn’t look bad for everyone. As Charles Frank, president of Restaurant Services in Burlingame, put it: “One person’s adversity is another person’s opportunity.”

“We’re seeing a growing pool of talented and bright executives ‘real hands on people’ that we’ve never seen before, and probably won’t ever see again. Some of these people may want a change from being rocket scientists and some may have always wanted to go into the food business anyway,” says Gerald Breitbart of the California Restaurant Association. “I’d be happy to land some of these people.”

Smoking big guns

The landmark show business restaurants seem immune to downturns; even in the worst of times, the show must go on. Power lunches and investor dinners are going strong at places such as Spago, Jimmy’s, Citrus, The Ivy and Toscana. “We have a busy cinema clientele, a worldwide clientele; it doesn’t change,” says Toscana owner Agostino Sciandri.

But Sciandri and other high profile chefs-to-the-stars such as Wolfgang Puck are upset about the total smoking ban that City Councilman Marvin Braude keeps trying to impose, after having lost earlier votes on the ban.

Puck, who’s not a smoker, says some good is emerging from owners banding together against the ban. “We’ve found a voice we didn’t have before. I really feel that we have enough government telling us what to do, in the kitchen and out of the kitchen.”

Other operators who live by the pulse of entertainment industry–the movie set caterers–are hoping that government will be on their side for once. Los Angeles, which has as many as 111 movies in production in a single day on city streets, wants to eliminate the lengthy red tape for production companies by setting up a single czarlike post. Movie producers are shooing movies closer to home to save money from distant locations, with shooting permits rising to 1,200 this year from just 500 in 1985. A typical movie pumps an average $1.2 million into the local economy, and up to five percent goes for food. City Councilman Michael Woo, spearheading the effort to end red tape, says: “It’s a nightmare for food operators to get the most simple permits to serve on a set. Regulations are costing them time and money.” Woo expects to set up the full-time post sometime this year.

School boom ahead?

Feeding school children is likely to be a major growth area if state voters get their way in November. An initiative proposed for the ballot would give $2,500 state scholarships, or vouchers, to every school age child.

The money would be used to pay private or parochial school tuiton. The result: private schools could start up with as few as 25 kids, and are expected to open even in store fronts.

The U.S. Commerce Department said California is expected to gain 3.4 million of the 18.9 million new jobs created nationally between now and the year 2000. That would give California 19 million jobs. California will continue to be the nation’s most populous state with 33.2 million people, at a 10-year growth rate ahead of 17.1 percent. It will also be the first in total personal income, up 33 percent to $568 billion.

COPYRIGHT 1992 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

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