2002 Top 100 Independent Restaurants
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With sales momentum and customers lost to swift and unfriendly socio-economic currents, the year past brought many challenges to independent restaurants. Operations that take their place among Restaurants and Institutions’ list of the Top 100 independents battled hard to maintain or regain their positions.
Sadly, what was lost in 2001 goes deeper than financial records alone reflect. Windows on the World atop 1 World Trade Center in New York City—and for the past two years No. 1 among the Top 100 restaurants—is not in that spot nor in this year’s rankings. So loved and revered by its global clientele was the restaurant that its sales through the first eight months of 2001 alone could have placed it in the top five independents. But to do so would have measured the restaurant solely in monetary terms. The absence of Windows on the World from this year’s list acknowledges that its importance to the industry as well as to its loyal patrons went far beyond daily receipts.
When business travel was suspended and tourism slumped in the weeks following September 11, independent restaurants took the hardest hit. According to Rosemont, Ill.-based NPDFoodworld’s research, traffic at small chain-restaurant operations was up 7% from September through November, while major chains realized a 3% traffic gain. But independent restaurants felt a 2% decline. For the restaurants that comprise this year’s Top 100, total sales were $1.127 billion, down 3.3% from last year’s list.
In some markets, New York City especially, fourth-quarter sales declines were much steeper than 2% or even 3.3%. “2001 was the worst year I’ve ever had in 30 years in the restaurant business, even before September 11,” says Alan Stillman, chairman and CEO of Smith & Wollensky Restaurant Group (SWRG) in New York City. Its independent concepts in Manhattan include Maloney & Porcelli, The Post House, The Manhattan Ocean Club and Cité. “Until the stock market moves constantly in the right direction and companies start letting employees travel and take other people out to lunch and dinner, we won’t have much of a recovery in the restaurant business. I suspect this will last until the end of summer or the beginning of fall.”
The depth of the challenges faced should not obscure the success achieved by some. The Varsity in Atlanta once again served more than 2 million guests and more than 1 million had a meal at the Rascal House in Miami Beach. Across the nation, doors remained open, customers still came and enjoyed a respite from workaday concerns.
Each of the restaurants on the Top 100 was challenged in unexpected ways. Most responded with resilience and resolve, refusing to be defeated by the strong forces that worked against them.
In San Francisco, the sales decline that began in the last quarter of 2000 with the brownouts of the energy crisis was exacerbated by the collapse of the high-tech bubble. A weakened restaurant industry then took another hit from September’s terrorist attacks, says Pat Kuleto, whose Pat Kuleto Restaurant Development & Management Co. operates the city’s Boulevard, Farallon and Jardiniere.
“All our restaurants had regained their pre-September 11 position within 30 days of the attack,” he says, although he adds that in the first days after the terrorist attacks “We thought the world would not start up again.”
Changes in travel habits have shifted Kuleto’s customer base to include more local diners. “We’re feeling a general increase in sales,” he says. “People are dining out again. But they have really changed their spending and travel habits—we’re getting more people driving to San Francisco rather than flying, and they’re paying more attention to their bill.”
And while entrée prices remain unchanged, many chefs have put more emphasis on mid-range items, “choosing more cost-effective foods, more comfort foods, and being creative in how we’re spending,” Kuleto says.
At Boulevard, top-flight wines sales have fallen by as much as 25%, although overall check averages are down only 10%. “People are being more realistic. There’s not this feeling of ‘Whoopee! Let’s celebrate!’ Instead, there’s greater value awareness,” he says.
Kuleto notes that the wine industry is reacting by lowering prices. “But it’s a short-lived phenomenon that consumers should take advantage of while they can,” he urges.
Sales at The Clubhouse...Where You Belong in Oak Brook, Ill., were slowing before September, so initiatives were taken that lessened the blow the restaurant might otherwise have felt in the fourth quarter, says Matthew Flandermeyer, Clubhouse vice president.
The menu was revamped to add upgraded specials with “enhanced flavor appeal” but not higher prices. A Valued Member loyalty program (automatically tracking points earned via a designated credit card) was instituted. The five-year-old restaurant has built a loyal clientele, Flandermeyer says, which helped maintain sales. Newer Clubhouse units in Atlanta (opened in 2000) and Costa Mesa, Calif., (1999) felt greater impact from the economic downturn before and after September 11, he says.
“People are eating as well and as much as two years ago, but not as often,” SWRG’s Stillman says. “In New York City, people are still not comfortable coming back into the city at night, or asking friends or partners to meet them in the city at night.”
Despite that, menus have remained untouched. “If you start altering the menu to cater to a different crowd, adjusting the quality and size of what you serve, you change the whole image of the restaurant,” Stillman says.
Coping with diminished traffic thus far has meant cutting staff hours, but not layoffs. “I don’t believe in that,” Stillman says. “We made less money in 2001; hopefully this year we’ll make more.”
Other operators, by contrast, are experiencing a rebound, crediting unusually warm winter weather, increased local patronage; stronger advertising and promotion initiatives; and menu adjustments that offer the value customers seek.
Sales at The Lobster House in Cape May, N.J., were 5% ahead of year-earlier levels after September 11. “The biggest [factor] was the weather,” says owner and vice president Keith Laudeman. “The other part is our location: you have to drive here, not fly.”
“I also think [people came here because] they want to be part of something real,” says Laudeman, whose family-owned restaurant is built on pilings over the water, tucked between a marina and a shipyard.
Other destination seafood restaurants are seeing stronger sales as well.
“September 11 hurt, but gorgeous weather [in the final months of 2001] helped,” says Christine Lloyd, marketing director for Gladstone’s Malibu, north of Los Angeles. Its nearly $14 million in sales last year were flat with 2000. “We’re a landmark. So the locals said: ‘Good, the tourists are gone. Now we can go [to Gladstone’s] in peace.’”
To maintain sales, Gladstone’s “purchased more aggressively to get price breaks we could pass on to guests.” For the third consecutive year, the restaurant ran an October lobster promotion, offering the crustaceans at $10.99 a pound. It sold 15 tons of lobster during the month, equaling the previous year’s volume. Smart buying allowed the restaurant to extend the promotion this year. Guests during October were enrolled in a new Lobster Club, allowing them to return every Thursday through year-end and enjoy lobster at the $10.99 price.
At Miami Beach’s Joe’s Stone Crab, open since 1913, the average waiting time for a table on Saturday nights still pushes three hours, and the 515-seat operation serves 1,800 to 1,900 meals. South Florida’s cruise and hotel bookings reportedly have been down as much as 30% in the last six months compared to the previous year, but Joe’s sales in February were even with the year earlier. “Actually [sales were] higher if you figure in that we stopped serving Sunday lunches this year,” says Marc Fine, the restaurant’s chief financial officer.
“I anticipate that March and April sales will be comparable to 2001,” Fine continues. “All in all, we’ve had very little impact from the September 11 tragedy. Joe’s is the most famous restaurant in South Florida; it’s a destination spot. When people come to the area, they want to eat at Joe’s.”
Still, Fine has noted a few differences. “Our main area of strength has been in wine, liquor and beer sales, which experienced a 10% increase,” says Fine, “I attribute that to tension over the stock market and sluggish economy as well as to the terrorism.”
Corporate cutbacks and smaller expense accounts are felt especially at lunchtime, where sales have been somewhat slower since October.
“We’ve broadened our lunch menu and even added a blue-plate special of the week for the first time,” Fine says. The special costs $10 to $12 while a typical Joe’s lunch runs $25 to $30.
Not surprisingly, restaurants that rely on local business rather than tourists, business clients and convention visitors fared the best when the economic climate changed.
Troy Hermanson uses the word fortunate in describing how Palisade in Seattle performed in 2001. The slight drop in sales, about 4% from 2000 levels, mirrors the downturn in business travel. “We’re fortunate that we’re a celebration restaurant,’’ the general manager says. “People come for birthdays, anniversaries, after the prom.’’
Though consumer spending habits remained the same, Hermanson finds that people are not eating out as much. “The people who come four times a year are coming in two times. They come for value,” he says.
In Indianapolis, more auto racing series, sports and conventions have spelled good news for St. Elmo Steak House. General Manager Cliff Clifford hired 12 new servers in the first half of 2001. The restaurant’s now-finished expansion provides added space, more seats and an improved production kitchen—a bonus in attracting more catering business.
Zehnder’s of Frankenmuth in Frankenmuth, Mich., opened in 1929, when the economic news was decidedly worse. CEO Al Zehnder says he expects good and bad cycles. Though 2001 was difficult, the restaurant still ended the year with a 5% increase in sales.
Zehnder’s patrons responded to the mild winter and the proximity of his restaurant. “Our market comes from a 200-mile radius. During nice winter weather, people want to get out of the house but they don’t want to travel far,’’ he explains.
Though business fell sharply last fall, the company ended the fourth quarter with a strong performance. Sales during the holiday period from October through December were 25% ahead of the same quarter last year.
To cope with the sales drop following the terrorist attacks, Zehnder cut some employee hours and eliminated one management position. “Things run in cycles, I know. But I’ve never seen anything as dramatic as this hit the industry as a whole.’’
At Brennan’s in New Orleans, where 75% of business comes from tourism and the remainder from locals, sales in February 2002 were 30% below the year-earlier level. But General Manger Clark Brennan is grateful for what they do have.
“I tell everyone that we could always be a lot worse off. Look at the people in New York City, in Afghanistan. I have a roof over my head and my family safe at home. Despite everything, I’m thankful to be where I am. We will ride out this storm.”