Anxiety on menu for dining chains

Popeyes touts its Louisiana roots. Cinnabon was started in a suburban Seattle mall. And Ted’s Montana Grill is designed to capture the spirit of Big Sky country.

All these restaurants and many more, though, are based in Atlanta. New York, Los Angeles and Chicago might have reputations as U.S. culinary capitals, but Atlanta sits atop the food chain — home to more major restaurant brands than any other metro area.

Through corporate relocations and the work of local entrepreneurs, the city has become the headquarters for six of the 50 largest U.S. restaurant chains, according to the most recent sales estimates by Technomic, a Chicago research and consulting firm.

Arby’s, Chick-fil-A, Church’s Chicken, Hooters, Popeyes and Waffle House are all based here.

The growth of the restaurant industry has given Atlanta a diverse set of restaurants and a deep roster of emerging brands.

“Atlanta has never really gotten its due,” said George McKerrow Jr., who’s been involved with the industry on a local and national level for more than 30 years.

It also has put the city at the center of one of the most trying times for the industry. Restaurants face a difficult year ahead as customers cut back on spending in the midst of a recession.

“Listen … right now, every dollar is hard to come by,” said McKerrow, who founded LongHorn and is now president and CEO of Ted’s Montana Grill. “It’s always been that way, but it’s accentuated even more.”

Factors in appeal varied

Atlanta’s status in the restaurant industry is a lesser-known side of the city. It typically grabs business headlines as home to Coca-Cola, Delta, Home Depot or UPS.

The area, though, has grown in the past three decades to become a force in dining.

Several of the major chains, such as Chick-fil-A and Waffle House, were started here. Others, such as Church’s, Hooters and Popeyes, were moved here.

Arby’s, the largest Atlanta-based chain, was started in Ohio but has had its headquarters here twice in its history. It moved back in 2005 after a stint in Florida.

Arby’s merged last year with Wendy’s to create the Wendy’s/Arby’s Group, the third-largest fast-food company in the United States behind McDonald’s and Yum Brands, owners of Taco Bell, KFC and Pizza Hut. The Wendy’s chain is still based out of Dublin, Ohio.

No one factor is responsible for making the area a restaurant hub, industry experts said.

Atlanta has benefited from being the heart of a fast-growing Southern economy. It provides a warm climate and low-cost area for doing business.

Suburban sprawl has made metro Atlanta prime testing ground for drive-through and fast-food restaurant concepts. Hartsfield-Jackson International, the world’s busiest airport, also is a major asset.

Restaurant executives need easy access to outlets spread out over large geographies.

“I think all of the things that keep us high on the list of states that attract new businesses and entrepreneurs is what pulled the various companies to relocate here,” said Jim Squire, director of franchise development for Norcross-based HoneyBaked Ham and chairman of the Southeast Franchise Forum.

Diners trading down

Like the rest of the industry, Atlanta restaurants face their worst market in decades.

Restaurant and bar sales are expected to fall 2.6 percent in 2009, according to Technomic, the Chicago restaurant research firm. Sales at full-service restaurants are expected to drop 6 percent, while sales at limited-service restaurants are projected to be flat.

People are trading down to less expensive restaurants and eating more meals at home, said Ron Paul, Technomic’s president and CEO. More restaurants, particularly full-service establishments, will close this year, he said.

“Consumers still love restaurants,” Paul said. “It’s just that they feel strapped. … That doesn’t mean they’re not going to come back. They are, but it’s going to take some time to get them back, and they may not go back to the same places.”

Restaurant expansion also is being slowed by problems in real estate and banking. Major developments, where restaurants were hoping to open new outlets, are being stalled.

Potential franchisees are having a tough time getting loans, said Rupert Barkoff, a franchise attorney and expert with Atlanta-based Kilpatrick Stockton. The industry faces the same uncertainty as the broader economy, he said.

“The problem is that you can’t just look at the trends,” Barkoff said. “We’re operating outside the ballpark now.”

Fast-food slowdown

Chick-fil-A, Atlanta’s biggest homegrown success with more than 1,400 outlets, has fared well in the recession. Sales rose 12 percent last year. While still adding outlets, the company’s growth has been slowed, said Dan Cathy, Chick-fil-A’s president and chief operating officer. Chick-fil-A plans to open 64 free-standing stores this year, about 10 fewer than last year, Cathy said.

Growth has been pulled back partly because the company takes a conservative approach to expansion and partly because construction of retail centers has tapered off, he said. “We follow the development cycles of the Home Depots, Lowe’s and Super Wal-Marts,” Cathy said. “A lot of those suburban developments were scuttled or slowed down or even just stopped.”

Chick-fil-A is fortunate to be in the fast-food segment during the recession, Cathy said. It also hopes to keep customers coming back through a new program called second-mile service, which focuses on etiquette training for employees.

“We think this is going to be especially appreciated by those who may not be eating out at fine-dining restaurants but appreciate being dealt with in a respectful manner,” Cathy said.

Time to improve service

Focus Brands is managing a range of food chains through the recession. Moe’s Southwest Grill, Cinnabon and Carvel Ice Cream are based in Atlanta. Schlotzsky’s, a sandwich chain, is part of Focus, but the brand is based in Austin, Texas.

Focus’ systemwide sales across all brands rose 29 percent last year to $951 million. The brands, though, are being affected differently, said Russ Umphenour, Focus president and CEO.

Focus has more than 2,000 outlets across all brands. Last year, the total units for Schlotzsky’s dropped by four, Moe’s was up 11 units, Cinnabon gained 55 outlets and Carvel fell by 36. For comparable store sales, Schlotzsky’s is up and Moe’s is down slightly, Umphenour said.

Cinnabon has been hurt by a drop in mall and airport traffic. A bitter Northeast winter has been a challenge for Carvel, he said.

Expansion will be conservative this year, Umphenour said. “We have a lot of people that are lined up to buy franchises,” he said. “The only issue is arranging financing.”

The key is to focus on the basics, Umphenour said. Before joining Focus, he spent much of his career in the Arby’s system, building an Atlanta-based company that became the largest Arby’s franchisee with more than 700 stores.

In tough times, good chains sharpen service and training, Umphenour said. They make sure stores are clean and provide quality food, he said.

“Some things haven’t changed,” Umphenour said. “Some things are always going to be there. The people who do the best job are going to not only survive, but do well.”

Silver lining in the end

For Ted’s Montana Grill, expansion has come to a standstill for now, said McKerrow, who co-founded the chain with media mogul Ted Turner.

After opening nine units in 2007 and three in 2008, Ted’s doesn’t expect a new outlet this year.

“Virtually every deal I was negotiating or planning to do has been pushed back,” McKerrow said. To save money, Ted’s is becoming leaner. It has cut staff at its support center, trained servers to handle larger seating sections and taught cooks how to prepare a wider range of foods.

To give customers affordable options, Ted’s has added a set of “Real Deals” that provide a three-course meal for $12 at lunch or $15 at dinner.

A silver lining, though, could be coming for well-run restaurants, McKerrow said. In a year or two, the field could be thinned, restaurants should become more efficient and rent prices for even prime locations are expected to fall, he said.

“There’s going to be some attrition, and that’s not all bad,” McKerrow said. “I think we’re going to come out of this in a few years a smarter society and a smarter business community.”

——————————

U.S. RESTAURANT HUBS

The Atlanta metro area is the headquarters site for more restaurant chains than any other metro area in Technomic’s most recent ranking of Top 50 U.S. chains by sales.

Atlanta (6): Arby’s, Chick-fil-A, Popeyes, Hooters, Waffle House, Church’s

Dallas (4): Pizza Hut, Chili’s, TGI Friday’s, Romano’s Macaroni Grill

Los Angeles (4): Taco Bell, IHOP, Cheesecake Factory, Panda Express

Denver (3): Quiznos, Red Robin, Chipotle

Orlando (3): Olive Garden, Red Lobster, LongHorn

Louisville, Ky., (3): KFC, Papa John’s, Texas Roadhouse

Minneapolis (3): Dairy Queen, Buffalo Wild Wings, Old Country Buffet

Sources: Technomic, AJC research