Companies Take Power Lunch off the Dealmaking Menu
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% The major players in the high-end dinner house segment of the industry are all underperforming, says Paul. Same-store sales for Morton's (MRT), Ruth's Chris (RUTH) and Capital Grille (DRI) are all down 15% to 20% compared with last year, he says.
Expense Accounts Are Shrinking
"Ordinary consumers don't spend $75 to $100 per person on dinner during the week," Paul says. "They may splurge for special events, but the Morton's and Ruth's Chris's of the world are very dependent on business spending."
The cutbacks in expense-account dining may be hurting not just restaurants but also companies that relied on the food outings to move the business needle. Taking key contacts and influential clients out to fancy lunches and dinners seems to be quite effective as part of the delicate dance involved in closing a business deal, according to the survey of CFOs from 1,400 U.S. companies (with 20 employees or more).
Survey respondents most frequently cited restaurants as the out-of-office location where their biggest business success was achieved. Trade shows and conferences was the second-most-often-mentioned location, with 25% of respondents citing these. Nearly a quarter (24%) of those surveyed said their top business success was achieved in an office.
Meals Can Put People At Ease
"A well-chosen restaurant can offer a neutral, more relaxed environment than the office, often with fewer distractions," said Paul McDonald, Robert Half Management Resources' executive director. "Sharing a meal with clients or colleagues puts all parties more at ease and helps to establish rapport."
Although entertaining clients appears to be a successful dealmaking tool, it's unlikely -- at least in the short term -- that executives will use business meals as much as they may have in the past to close big agreements. For executives seeking to cut costs during the downturn, business meals appear to have become something of an expendable extravagance in 2009.
In addition to the restaurant traffic declines, the NPD Group reports an overall decline in dollars spent at restaurants for the year -- the first time that has happened since it began tracking the industry. Total consumer spending at restaurants fell 2% overall. Meantime, traffic at casual-dining restaurants was down 5%, and midrange and quick-service/fast-food restaurants each saw traffic declines of 4%.
No Rebound Before 2010's Second Half
"This recession is generally believed to be more severe than those in recent history, and this time the industry not only realized traffic losses, consumer spending declined as well," said Bonnie Riggs, NPD's restaurant industry analyst.
Restaurant traffic has declined for five straight quarters, and NPD projects it to keep falling until turning slightly positive in the second half of 2010.
Here's the tricky part as far as restaurants are concerned: If corporate execs can have business success without the expense of a meal, it could take a while before companies return to breaking bread with clients at pre-recession levels.
Says Paul: "There is no reason to believe that any uptick will take place right away."