If you have not noticed lately, some of our favorite restaurants in Houston are closing, and it does not look as if it’s going to stop any time soon. The national restaurant industry has been dealing with lower consumer spending due to both political and economic uncertainties last year, and the issues have been compounded in Houston by the collapse in oil prices. In addition, a saturated restaurant market and higher rents may have affected the number of restaurant closings.
Jonathan Horowitz, president of the Greater Houston Restaurant Association, feels that restaurant openings have been increasing over the past few years and that rents have been high for years. "They currently don’t show much sign of decreasing," says Horowitz. "I believe that at least one contributing factor to the increasing number of restaurant closures recently is the unusually high level of rent in the market."
Kevin Alexander, a national writer-at-large for Thrillist, believes that America’s golden age of restaurants is coming to an end, and while Houston’s outlook may not be as bleak, since 2015 there has been a steady decline in business for a majority of local restaurateurs.
A slew of restaurant closings occurred in 2016, and recently notable concepts Foreign Correspondents and Triniti Restaurant also shuttered. If critically acclaimed, nationally recognized restaurants are having a hard time in this economy, what does that mean for the rest of us?
There is hope. Many restaurateurs have not only survived, but have been able to thrive and continue to grow by providing greater value and improving service.
Are we really in a restaurant industry slump?
Aaron Lyons, founder of Dish Society, thinks so. “In general, you’re starting to see less traffic at restaurants and retail in general. My assumption is that people are buckling down on discretionary
spending due to economic uncertainty and the election. A lot of people that have lost jobs in the last year are either still out of work or taking lower-paying jobs. Expense accounts are getting eliminated or drastically reduced as well.”
Houston restaurant pioneer Tracy Vaught, whose concepts include Backstreet Café, Hugo’s, Caracol and now Xochi, believes we are in a slump and not just because of the oil industry. “Many restaurants have opened in the past year or so. The oil industry took a hit, and there has been a trickle-down effect to many business types, and we are all interdependent. Many restaurateurs opened new locations and are paying higher rents. There isn’t much wiggle room to survive when the lease is unfavorable.”
To maintain and even increase sales in this down market, Vaught has refocused on food quality, warm service and keeping her restaurants updated. “It is important to distinguish yourself from others in important ways so in certain situations, you are the first place that comes to mind. For example, who has the best happy hour, fajitas, martini, patio, wine list, affordable business lunch, etc.,” says Vaught. “Building relationships with guests is also important. We have been working on our e-mailing list so we can effectively communicate with our guests as well.” She also advises restaurateurs to “get small” expense-wise and do something noteworthy with their menus, but not necessarily a price reduction.
Vaught’s ability to weather the storm and increase sales during an uncertain time is the direct result of her experience, as she has dealt with several stock market declines and crashes before. “My most memorable was the Enron/Dynegy/Exxon/Arthur Anderson/SCI nosedive. It affected the whole city and beyond. It took Backstreet two years to recover from that. We did so many events with these companies, and we worked very hard to re-earn the business we lost but with new customers in a new environment. We combed over our menus, polished our service, looked for opportunities to make the restaurant look great and be more comfortable. Nothing was off limits for re-evaluation. We wanted to be our best.”
Value, value and more value
When the job market is unstable, consumers will always be more careful with their money. As a result, concepts that provide the most “perceived” value will gain the most customers during an economic downturn.
Paul Miller, owner of Gr8 Plate Hospitality (Union Kitchen, Jax Grill, The Merrill House), believes there is a higher level of expectation and an elevated focus on value. “I know there are a lot of people looking for a job, and there are a lot of people wondering how long they will have their job, and this obviously affects how they spend their money. I do believe the overall outlook in Houston is optimistic. The
guests that I talk to on a daily basis feel like the economy is going in the right direction, and I certainly hope this is the case.”
In order to meet the higher level of expectation, Miller has focused on value and service at all of his restaurants and venues. “At Jax, we have a very aggressive price point and fantastic food. We offer specials on a daily basis that come from guest requests. In the first quarter, we are featuring more salads and seafood because customers want more healthy options. The items that sell the best will
make their way to our permanent menu. At The Union Kitchen, we are working on a three-course menu at all locations. We are very aggressive on our wine pricing, and we do everything we can to deliver an exceptional dining experience.”
Miller also recommends reducing costs by putting pressure on the distributors. “We have to think of where we can save pennies and nickels on the ordering side, how we can have zero waste, keep inventory low and be as efficient as possible. Once the economy gets going again, all of these
strategies will continue to benefit us.”
The best defense is a good offense
Lyons believes that in a struggling economy, creating value and looking for alternative ways to increase revenue are crucial to survival. “Our traffic counts are up at both stores, but our PPA (per person average) is down. We’re putting more guests through the restaurants, but they’re spending less, especially on alcohol. We’ve gotten more aggressive with pricing on appetizers and desserts as well as
wine in an attempt to add more value to the guest. My goal is to always deliver a $30 experience for $15.”
Like Miller, Lyons is also refocusing on improving service and calling on vendors to help. “Now is the time to invest in training your staff on guest service. Better-quality service leads to higher sales and repeat business. Call your wine and beer reps and have them come in and do a training session with your staff. Have competitions with your staff and find ways to add value. Create a dessert flight with smaller-size portions that you can sell for a lower price. From a labor perspective, you could look at cross-training staff so they are more versatile and add more value during a full shift. I’d also say don’t do anything too drastic that you can’t recover from when things turn the corner and pick back up."
In a down market, it is common for restaurateurs to cut all spending and stop all growth strategies, but Lyons has been doing the opposite. As a result, Dish Society’s San Felipe location has experienced extraordinary year-over-year sales growth, mostly due to outside sales from delivery services and catering. “We recently just rolled out online ordering and hired a director of catering and events," says Lyons. "A majority of our growth is coming from outside sales, so we’re investing in optimizing those systems as well as managing a better guest experience inside the four walls.”
Thomas Nguyen is a co-founder of Peli Peli and Peli Peli Kitchen, South African concepts with locations at Vintage Park (110 Vintage Park Boulevard), the Houston Galleria (5085 Westheimer) and Spring Valley (9090 Katy Freeway) and a frequent contributor to the Houston Press.