Paul Baldasaro, chief operating officer of Atlanta-based Buckhead Life Restaurant Group, said his company has the same reaction that consumers have each week when they see their grocery bill.

"If they're at the grocery store and they look at a gallon of milk and it says $3.90 or $4.00 and they're like 'Wow,' " Baldasaro said. "Well, that's what we say when we sign the invoice at our restaurants, too."

Alison Church/AJC (ENLARGE)

Chops Lobster Bar food runner Manuel Nava carries plates out to guests during the dinner rush.

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Restaurants, though, have to be careful about how they deal with cost increases, said Baldasaro, whose company owns 12 metro Atlanta full-service casual and high-end restaurants. They must walk a fine line between offsetting costs and keeping customers satisfied, he said.

"If it's a major company or if it's a mom and pop restaurant, they're all fighting for the same guest," Baldasaro said. "The first thing we need to do is never cut the guest experience."

With the U.S. economy stalling, restaurants are being pinched on both ends. Expenses are rising as food and energy costs go up. Increases in the minimum wage also are hitting restaurants.

At the same time, revenue growth is slowing as consumers become more budget-conscious, selecting lower-priced dining options or choosing to dine at home instead.

Technomic, a Chicago-based restaurant research firm, projects retail sales for the U.S. food service industry to grow 2.2 percent in 2008, down from a 3.8 percent increase in 2007.

Full-service restaurants started taking a hit in the third quarter of last year, said Ron Paul, president and CEO of Technomic. Businesses have tightened up on expense reports and convention travel, taking away some of the full-service traffic, he said.

Fast-casual and fast-food restaurants, though, also joined the slowdown in the first quarter of this year, Paul said.

In an effort to keep customers dining out, restaurants are offering more value meals and combos, smaller portions at lower prices and adjusting their menus with lower-cost items, he said.

"If they're a beef and seafood house, maybe, now they'll have some chicken," Paul said.

Whether they run fine-dining, fast-casual or fast-food outlets, Atlanta-based restaurant chains are pushing value.

Buckhead Life has kept its portions and recipes intact during the downturn, Baldasaro said. Its restaurants include Pano's & Paul's, Chops Lobster Bar and Buckhead Diner.

"There's no reason to cut portions. There's no reason to cut quality if you want to stay in business," Baldasaro said. "The customer is very savvy. Our guests would know if they came in one of our restaurants and we changed something."

Buckhead Life has found success by offering options for price-conscious customers. Guest traffic rose in May with two weeks of promotions featuring an appetizer, entree and dessert for $29.

Buckhead Life might bring back the $29 promotion in the fall, Baldasaro said. For the summer, it's continuing a program that gives customers an additional 20 percent on restaurant gift cards.

To cut costs, Buckhead Life has placed a greater emphasis on cutting waste, Baldasaro said. It's making sure perishable items, such as lettuce, are moved more quickly, he said.

"We've very focused on rotating our product through the facility quickly — not letting things sit on the shelves," Baldasaro said. "Ultimately, it ends up being better for our guests."

Atlanta-based Focus Brands also is putting an emphasis on quality and service during the downturn, said Steve Romaniello, the company's president and chief executive officer. Focus' restaurants include Carvel, Cinnabon, Schlotzsky's, Moe's Southwest Grill and Seattle's Best Coffee on military bases and some international markets.

In the past six months, Focus has adjusted prices to help offset costs, Romaniello said. But it has maintained portions and continued to invest in new products, he said.

Moe's will roll out new burritos and guacamole later this year, Cinnabon is in the midst of renovating its bakeries, and Carvel has added a new line of drinks, Romaniello said.

Schlotzsky's is testing table service, bringing the food to customers instead of having them pick up orders at a counter, he said.

"We hope that if we can get through this and distinguish ourselves by continuing to offer the same high-quality food service and even better service, while some others are making cuts, we can come out of this stronger than we went in," Romaniello said.

Church's Chicken, an Atlanta-based fast-food chain, has seen its same-store sales rise during the downturn, but it's required careful adjustments to its pricing and promotions strategy, said Farnaz Wallace, executive vice president and chief marketing officer for Church's.

Church's has increased prices twice over the past year, Wallace said. The company, though, rolled back one of the price increases on dark meat after seeing customer reaction, she said. It was able to keep price increases on mixed chicken and tenders.

"Strategically, we try to target those items that address the less price-sensitive customers," Wallace said

Church's hopes a steady stream of new items will bolster sales, she said. It will introduce special limited time only menu items, such as boneless wings and country fried steak, in 8 of 12 months this year. The restaurant chain also plans to test a 99-cent value menu.

In addition, Church's franchisees are spending an average of $90,000 per outlet on renovations, said Doug Pendergast, Church's executive vice president and chief franchise officer. Sales have risen 15 percent to 20 percent at stores that have completed the renovations, Pendergast said.

Cutting costs can help in a downturn, but restaurants have to focus on quality or they risk turning off customers for the long-term, Wallace said.

"There's only so much cost-cutting measures will get you or passing on price increases to customers," she said. "Eventually, they're going to stop coming or they're going to start coming less often."