Flat sales and declining traffic spell tough times ahead for many in quick-service and casual dining.
On a recent Sunday afternoon, nearly a dozen cars idled at Super Deluxe, creeping around the drive-thru at this just-opened burger joint from Portland food heavyweight Micah Camden. It’s not an uncommon sight at Super Deluxe, located at 5000 Southeast Powell Boulevard in Portland, where customers have reported wait times as long as 30 minutes. Meanwhile, fresh, hot Whoppers sizzled on grills across the street with virtually no line — a tumbleweed may as well have blown past Burger King’s sign.
The half-brother to the popular chainlet Little Big Burger, which Camden co-founded in 2010, Super Deluxe does not deviate much from its sibling’s simple menu of gourmet beef patties and truffle fries. The main difference? Super Deluxe has a drive-thru. It’s likely the first drive-thru that the city’s food critics have paid much attention to in ages.
This means that the year’s most buzzed-about opening in one of America’s densest restaurant scenes happens to be a rather conventional fast-food outfit, one whose website proclaims: “Great burgers and cars make this country run.” And historically, that was once an apt manifesto.
But don’t mistake the new kid on the block as a beacon of hope for the industry at large. Despite news stories that appear to tout an uptick in sales for major players like McDonald’s, foot traffic in most restaurants has trended steadily downward since 2015 — dropping 1.1% this past July, the 29th consecutive month that restaurant data firm MillerPulse tracked such declines nationwide. Negative traffic is now the norm.
In this frame, Super Deluxe sounds more like an anomalous success story driven by a wave of so-called “foodie” hype. It’s a somewhat ironic fast-food parable that underscores how so many others in the hospitality sector struggle to keep pace.
Super Deluxe in Portland
Headlines tell of the pains of national franchises and mega-chains, who continue to announce dramatic closures. In the past year alone, some of the biggest brands in quick-service and casual dining have together announced shuttering thousands of retail stores, including such household names as Subway, Applebee’s, IHOP, Chipotle, Starbucks, Outback Steakhouse and Buffalo Wild Wings.
Perhaps unsurprisingly, “restaurant apocalypse” is the buzzword du jour.
In Oregon it’s a volatile moment for what you might dub “non-foodie” establishments — not just fast-service drive-thrus but also casual sit-down chains and 24/7 truck-stop eateries. Many of these local restaurateurs are reconsidering their business models and marketing plans as they face rising costs of doing business, generational changes in consumer behavior and a highly competitive market.
The fact that the profit margins for many such businesses are as thin as paring knives exacerbates the challenges the sector faces.
“Nationally, an average of 95 cents of every dollar customers spend in restaurants goes into the food, employees and place,” says Jason Brandt, CEO of Wilsonville-based Oregon Restaurant & Lodging Association (ORLA), which advocates for Oregon’s nearly 10,000 food-and-drink establishments, which account for 197,400 jobs and amount to nearly $8 billion in annual sales.
“Due to increasing labor costs, we are seeing price increases for consumers, which in turn make dining out less affordable for working families,” Brandt tells me. “Sales for many industry members remain flat, with increasing pressures on their margins to sustain their operation.”
RELATED STORY: FOR EMPLOYERS, TIMES ARE TIGHT
In other words, as business owners see the hard costs of doing business rise — like maintaining a physical location and paying staff — consumers see prices spike. Many would-be diners are instead choosing to stay home, especially budget-conscious millennials, whose frugal spending habits are a symptom of unprecedented levels of student-loan debt. Industry analysts say the youngest generation in the workforce opts to eat in, preferring the convenience of delivery services, cook-at-home subscription boxes like Blue Apron and grocery stores.
These problems are not exclusive to the non-foodie set, but since casual and quick-service restaurants have so often fumbled at attracting younger demographics, they must compete more fiercely for a shrinking, aging audience. Per-person restaurant visits are the lowest they’ve been in 28 years, and four out of five meals are now eaten at home, an increase from a decade before, according to researcher NPD Group. The firm even reports nearly half of meals purchased in restaurants are take-out orders.
There are, of course, bright spots. Yet local business leaders have found that staying relevant requires a concerted, multipronged approach.
That’s precisely what the new CEO of Shari’s Cafe & Pies has sought to do at the iconic Oregon chain. Upon taking the reins last year, Samuel Borgese immediately began implementing a broad strategy to revamp its aging image — refreshing the menu, updating the branding and announcing plans for remodels.
Instantly recognizable by the patented hexagonal design of its restaurants, which provides most guests with a window seat, Shari’s got its start in Hermiston in 1978. It soon gained popularity for its specialty pies, with each kitchen today turning out around two dozen pies a day. The following decades saw the chain grow into the top family-style franchise in the Pacific Northwest, now with more than 90 locations in six states, all of which stay open at all hours. Borgese intends to keep the Beaverton-based brand in the No. 1 spot.
The recent changes seek to refocus marketing efforts on Shari’s regional roots, Borgese tells me. “I think the company strayed away from it for a number of years and, therefore, may have lost some of its loyal customer base that liked the fact that it was a Northwest brand,” he says. “I’ve embraced that, and we’re seeing a good response.”
Shari’s CEO Samuel Borgese points out seasonal specials posted in the kitchen.
The tagline “Northwest fresh” sums this up. Seasonal menus tout regionally sourced ingredients such as Columbia Basin-raised beef, Willamette Valley-grown vegetables, marionberry pies and a wine list featuring local vintners. In hopes of appealing to the sympathies of progressive patrons, the company advertises its sustainability efforts, from recycling cooking oil into biodiesel fuel to only using LED light bulbs. Shari’s also launched online ordering more than a year ago, a service that likely appeals to a younger demographic than its largely baby-boomer base.
None of these are surprising moves. In fact, they seem like pages torn right out of the Oregon culinary playbook — a state that has a marked locavore sensibility. The Portland family-style chain Elmer’s, for example, goes a step further than Shari’s and lists its suppliers on its website. And the Vancouver, Washington-based fast-casual Burgerville has made local sourcing one of its key differentiators, from Tillamook cheese on its burgers to Hood River strawberries in seasonal shakes.
It’s hard to say if any of these actions on their own could shift the trajectory for such a business. But so far for Shari’s, the early financial results look promising. In the first two quarters of 2018, Shari’s reported the highest same-store sales growth among family-style restaurants in the Northwest as well as positive guest counts, according to data from reporting firm Knapp-Track.
Franklin Webster Sr. at Shari’s in Beaverton
It’s a notable rebound, but Borgese makes clear that he is not attempting to merely chase millennials with gimmicky tactics, something many of his competitors have done, which he describes as “inauthentic.”
His counsel to others in the sector: “Don’t just look for clever ways of recapturing your costs through the consumer, but look internally at ways you can operate efficiently and deliver a menu your consumer can afford.”
Success, of course, requires presenting customers with crave-worthy options that make them want to return. Critics mostly gave Super Deluxe so much love because they prefer its cheeseburger over the competition’s. But a key lesson for operating a profitable food-and-drink business is that it has a lot less to do with the food than most diners might think. Success in this market requires a different mind-set.
Take a cue from the management at the Indian Head Casino, owned and operated by the Confederated Tribes of Warm Springs, which recently held the grand opening for a 13,000-square-foot travel center and truck stop in Madras.
Before deciding to break ground, the casino conducted research and identified compelling market gaps: More than 1,000 big rigs pass through the town a day, but only one other truck stop operated nearby. It had limited parking, and area businesses had complained to City Hall about 40-foot-long semis parking on the street in front of their properties, blocking their signage. The nearest truck stop with the kinds of amenities they planned to offer was more than 100 miles away.
“A full-service travel center was missing in this corner of Central Oregon,” says Belinda Chavez, Indian Head Casino’s director of marketing. “The key market motivators were to meet that need and also to provide locals access to affordable fuel prices, quick lunches and another restaurant.”
The Confederated Tribes of Warm Springs recently opened a 13,000-square-foot travel center and truck stop in Madras.
Outside of the state’s major cities, Oregon can resemble a food desert. Limited dining options also means fewer competitors nearby. And Highway 26 provides a steady flow of traffic between Portland and Bend. So Indian Head decided to build the Plateau Travel Plaza on tribal land near the Madras Municipal Airport.
Simply opening a new restaurant or deli in this climate would come with a host of its own challenges. Operating a big facility in Madras complete with a casual sit-down restaurant (the Three Tipis Cafe) serving all-day breakfast, as well as a 3,000-square-foot convenience store, a mini on-site casino, shower and laundry rooms, and secure overnight truck parking complicates those dynamics quite a bit.
Plus, operating a travel center comes with its own industry issues: While a tried-and-true model, revenue highly depends on trends in fuel prices. Truck stops also cater to a profession where drivers have seen their real wages steadily drop over the past few decades.
“Sales for many industry members remain flat, with increasing pressures on their margins to sustain their operation.”
Jason Brandt, CEO of Oregon Restaurant & Lodging Association
The Warm Springs Tribes ameliorate many of these business risks with streamlined operations for both the casino and the plaza, Chavez tells me.
“Our food-and-beverage and service departments are coexisting. We have a single purchasing and accounts-payable department, for example, that manages how much we’re going to buy for both properties so that we can get the best price,” she says. “Menus are different for each of our restaurants, but from the back end, there are similarities, so we can work together to keep costs under control.
“It’s multiple nearby enterprises working together to benefit each other,” she says. “We’re utilizing our buying power overall for everything from advertising to energy drinks.”
The nature of Indian Head’s two distinct locations — their scale, proximity and diversity of services — makes them complementary. And the food-service establishments within both the casino and the travel center serve many customers who are first drawn for entertainment or fuel and then stick around for the food.
Despite the unique nature of this new opening, there is a big takeaway relevant to non-foodie ventures, a conclusion echoed by everyone I spoke with: Owners and managers today need to pay extra attention to the unsexy side of their operations — decision-making informed by data and research, smart sourcing and yield management, cost-effective accounting, and nimble marketing.
But with all that said, this is an industry that sometimes appears to operate solely at the whims of the gods — one marked by fleeting trends, where ventures quickly fail and new ones rapidly rise. And the current state of affairs is influenced by several turbulent, largely uncontrollable forces.
The most looming issue is undeniably income inequality. The narrative is widely known: The cost of living in Portland and cities around the state has risen significantly, but wages have not kept up.
This is why employees at a Burgerville in Southeast Portland have collectively organized a union. The corporation had refused to voluntarily recognize it until earlier this summer, when the Burgerville Workers Union became the first of its kind to receive federal recognition, forcing corporate leadership to the bargaining table. As gentrification continues to reshape cities and the affordability crisis blazes on, this historic step is surely only the first domino to fall, a succession that may transform the nature of employment in food service.
Burgerville experiences the tight labor market
What could this mean for restaurants in years to come?
For the sit-down types, ORLA anticipates that the model for many such eateries will come to more closely resemble quick service, with a much leaner service team.
“We are seeing less concern with the level of service and a stronger focus on the quality of the food,” Brandt says. “Will it be commonplace to find a ‘white tablecloth’ meal at counter-service restaurants in Oregon’s future? We believe the answer to that question will be yes.”
And don’t be surprised to see quick-service chains take it even further by actually automating their front of house.
Digital-ordering kiosks have popped up in a third of all McDonald’s locations, for example, and the company plans to have them in all its U.S. stores by 2020. That’s because cashier jobs are already easily automated, with at least some self-serve digital tellers in most grocery stores, pharmacies and big-box retailers. The food world is only now catching up.
It doesn’t seem outlandish to predict that the so-called restaurant apocalypse might very well end with a robot takeover. But that isn’t to say the future must resemble a “Black Mirror”-like dystopia.
I recently returned to Super Deluxe for dinner, this time on a Monday evening. I had a hankering for the simple magic of cheese melting on a beef patty on a Martin’s potato bun.
If Super Deluxe’s success highlights the challenges its fast-food rivals face, the persistent line of cars patiently waiting outside also stands as an example of how similar Oregon restaurateurs can still thrive in an industry defined by booms and busts.
Inside the restaurant’s compact dining room, all but two booths were occupied. One thing struck me: The crowd was not only comprised of the stereotypical Instagram foodies, who were, of course, there — hovering over a table with their iPhones. But I also saw a young mom sharing chicken nuggets with her two kids, a quartet of noisy teenagers and a college-age couple seemingly on a date. It looked like a focus group for the midterm election. As cheesy as it sounds, the reasonably priced menu had done something rare in these times: brought people together.
Never underestimate the power of a damn good burger.
To subscribe to Oregon Business click here.