Having just seen (again) Steve Martin’s classic sketch regarding Christmas wishes from an old Saturday Night Live, I’m tempted to follow suit, but will try to resist. Still, if I were granted just one wish this Christmas, ...

I’d wish for confidence. There are hazards remaining between us and a robust recovery, including the still-unresolved issue of commercial real estate defaults across lenders’ (and investors’) portfolios. Still, most economists and analysts believe that this issue, as well as others, is already factored into the cost of debt and equity (share prices and private valuations) at this point. A little confidence -- on the part of investors, who have stalled on opportunities because of uncertainty; on the part of lenders, who (institutionally, at least) no longer trust their own judgment in identifying good opportunities; and most of all on the part of consumers, who will be hesitant until the jobs picture is clearer -- could do wonders for the restaurant industry in 2010.

If I were granted more wishes, ...

I’d wish for an easy way to track what’s happening across this industry. We sometimes forget just how vast the restaurant industry is. No one source provides a complete snapshot of what’s going on, and perhaps it’s impossible, but wouldn’t it be nice ...

I’d wish for a clearer understanding of the “rules of engagement” among operators, lenders, and investors. Said more clearly, I’d wish that operators, in particular, understood that, for the most part, there ARE no pre-established ground rules, and each engagement between operator and lender, or operator and investor, must include agreement on the rules of engagement for that particular relationship. All parties would be happier, and relationships likely more profitable, if this were understood up front; apart from some legal boundaries regarding lenders (which might be a useful topic for a future column), it’s fair to say that financial relationships among investors, lenders, and operators are like Tolstoy’s description of unhappy families -- each is unique.

I’d wish for non-fat pie that tasted like the real thing. Hey, nobody said these were easy, and I’d really like that! It’s not quite up there with economic confidence, but you can’t blame me for dreaming.

I’d wish that investors, lenders, and operators recognized the deficiencies and risks of their two most common metrics. Public equity analysts, in particular, have trained both their investors and the companies they cover to focus on “comp store sales”, almost to the exclusion of all other measures. There’s no denying the value of positive comps, but there’s also no denying the things it ignores -- customer counts and promotion-driven sales, among others. Similarly, private investors and their lenders focus so strongly on EBITDA (remember -- earnings before interest, taxes, depreciation, and amortization) as a basis for valuation that they sometimes de-emphasize things like the necessity of re-investment. As I’ve suggested in the past, and will no doubt repeat ad nauseum in the future, there are many other considerations which should influence proper valuation (and therefore help to avoid over-levering operations) beyond same store sales and EBITDA.

I’d wish for more creative thought among marketers. Is there nothing better to offer than discounting? Granted, in tough times, it’ll attract customers who might otherwise have chosen to stay home, but it also (1) trains those customers to be enticed by further discounts, and (2) suggests that perhaps the offerings WEREN’T appropriately priced beforehand. Neither of those results in loyal, satisfied clientele.

Still, if I could only wish for one thing, it’d be confidence -- for the consumer, the operator, the lender, and the investor. Merry Christmas, Happy New Year, Peaceful Solstice, and Joy to all who celebrate.

Views: 3

Tags: discounting, economy, valuation

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Comment by susan holaday on December 28, 2009 at 1:04pm
Liked your blog and agree with your wishlist - I'd broaden (excuse the word) the wish for fat-free pie to fat-free desserts that taste like their fat-filled counterparts, having just had a massive piece of wonderful carrot cake with cream cheese frosting!
Confidence is probably what is most needed - it could make a huge difference if everyone from consumers to operators to lenders had more. When you say you'd like a single source to track everything in the industry, the closest I've seen is Technomic.
Comment by Samuel Nicholas Borgese on December 28, 2009 at 11:15am
Rod,

As always a thoughtful and thought provoking article. All your wishes (sans the fat free pie) hit the mark on what the broader restaurant industry should place on its objectives for 2010. More and timely data; open agendas between operators, equity and lendors; focus on the elements of success beyond and in addition to SSS and EBITDA; and, more creativity in marketing with a move away from restaurants operating under outlet mall retail strategies.

My wish is that your wishes for 2010 all become reality.

Sam

Non-Operator
Comment by FohBoh on December 28, 2009 at 8:42am
Good post, Rod. FohBoh is trying to help at least one of your wishes come true by offering this platform for user generated commentary and interaction. A single source for all the industry is our dream too :-). To that end, 2010 marks the beginning of our effort to build a next generation online community that will source and deliver industry news, information, events and offer displaced food industry journalists a place to be heard. Frankly, the more FohBoh members, the more content and the more value it [we, as in the industry] offers its members.

On discounting, we believe that the miracle of technology will help this effort, assuming operators begin to embrace what the new, and inexpensive Web 2.0 has to offer. We should offer more information on this topic to our members in 2010, for sure. Here's one idea, embrace digital tagging, like MS Tags or QR Coding. This will be big when combined with mobile marketing campaigns in the years to come.

Confidence for all stakeholders is a must for us to move ahead. FohBoh believes there should be more dialog and less one way communication. Lenders, investors, analysts and those FohBoh members seeking capital, should use the FohBoh platform to interact and engage more. Maybe just initiate one topic at a time? Perhaps we can get John Hamburger from the Restaurant Finance Monitor to establish a presence here to get the ball rolling.
Comment by Michael Biesemeyer on December 26, 2009 at 4:30pm
I’d wish for an easy way to track what’s happening across this industry. We sometimes forget just how vast the restaurant industry is. No one source provides a complete snapshot of what’s going on, and perhaps it’s impossible, but wouldn’t it be nice ...

@Rod: I think that your wish is about to come true. There is an increasingly vibrant, intelligent, and valuable exchange of information about our industry taking place on the Internet, and applications to access and measure that conversation are quickly being developed.

What types of information are you most interested in? I, for one, would love to see a micro-lending community (something akin to KIVA) created for the restaurant industry. Imagine a community of 100,000 small investors, teaming with person-to-person loans.

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