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"Reviving the Economy: What Should Business Do?" -Restaurant Recession

SUSIE GHARIB: Hard times are on the menu at many of the nation's restaurants and a growing number are hungry for customers. As we continue our series "Reviving the Economy: What Should Business Do?" Erika Miller reports, the recession has many restaurants cooking up new ways to beef up business. ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Le Cirque restaurant in Manhattan is legendary for many things including its elegant dining room, haute cuisine and famous patrons. Now there's another reason to eat here: value. For the rest of the year, Le Cirque is offering three- course fixed price lunches and dinners at $24 and $35 respectively that's filling up the tables, although owner Sirio Maccioni concedes it's not much of a money maker. So are you noticing a change in your customers' behavior? Are they spending less? Are they ordering less?


MILLER: How much less?

MACCIONI: I would say 20 percent

MILLER: The recession may be the biggest challenge facing restaurants, but it's far from the only one. The cost of many ingredients has been rising as well as the minimum wage in many states. Those factors, too, can take a big bite out of profits. But Le Cirque has opted not to cut staff or lower food quality. Instead, it's finding ways to cut costs that customers won't notice.

MACCIONI: You cannot make a big change. You can make a lot of change.

MILLER: Little changes?

MACCIONI: Little changes. You can be careful of the payroll. You have to be more careful of the waste because in a restaurant there is a lot of waste, eh?

MILLER: Mauro Maccioni is Sirio's son and a co-owner of the restaurant. He wants Le Cirque to stand out from the other fancy restaurants.

MAURO MACCIONI, CO-OWNER, LE CIRQUE: We're fortunate, we have a long- standing reputation. We have a very strong customer base and we feel like that's going to be what's going to help get us through this whole mess.

MILLER: The restaurant business has always been ultra competitive, even before the recession. According to some estimates, at least 60 percent of new restaurants fail or change ownership during the first five years. Common mistakes include bad location, lack of experience and paying too much for rent. The National Restaurant Association's Chairman Michael Kaufman also says restaurants should learn a lesson from the retail industry about the danger of over discounting.

MICHAEL KAUFMAN, CHMN., NATIONAL RESTAURANT ASSOCIATION: Once a customer associates a deal with a restaurant, it's kind of what you're seeing on the retail side, the expectation develops to say, well, you know in the retail side, 80 percent off is now kind of the entry point for what is a sale.

MILLER: This year, restaurant industry revenues are expected to grow a modest 1 percent nationwide for full service restaurants. That would be the slowest growth since record keeping began in 1970. And that doesn't necessarily mean any increase in profits because most restaurants have knife thin margins. Trouble in the industry also spills over to the rest of the economy. That's because restaurants generate about 4 percent of the nation's gross domestic product and employ 9 percent of the workforce. For its part, Le Cirque says it's making money these days, but just barely. Like many restaurants, it's waiting for the tables to turn when business is once again sizzling, not fizzling. Erika Miller, NIGHTLY BUSINESS REPORT, New York.