TEMECULA: Vicious cycle claims popular restaurants

Recession, lack of advertising, bad timing on loans cited as culprits

By AARON CLAVERIE - Staff Writer | Saturday, December 27, 2008 5:07 PM PST ∞

TEMECULA ---- It's a vicious cycle.

The national and regional economy soured and Temecula residents who used to dine out once a week or more ate at home instead.

Lighter cash registers caused some of the restaurants to cut expenses, including their advertising budgets. With less visibility in the community, restaurants started to see even fewer customers and some have been forced to close their doors in recent months.

It's not just small eateries in strip malls or fast food places that have been hammered of late. The list of Temecula restaurants that have been shuttered recently includes some national casual dining chains such as Tony Roma's, On The Border Cafe and Ruby's Diner.

The loss of the Tony Roma's, a Jefferson Avenue fixture for years, was particularly shocking to some longtime residents who recall the restaurant's heyday in the 1980s, when it and the nearby Hungry Hunter were the only two national chain restaurants in town.

Advertising goes

Matthew Burlile, a marketing expert who runs the Web site www.temecularestaurants.com, said a lot of restaurant owners really aren't enthusiastic about advertising, one of the elements he thinks has exacerbated the already dire economic situation.

"It's amazing," he said during a phone interview. "They think that just having the restaurant means people will show up."

Instead of spending on traditional advertising ---- newspapers, television, radio and the Internet ---- restaurants seem to focus on coupon books or entertainment guides, Burlile said.

Those are viable mediums, but Burlile said a lot of restaurant owners don't seem to do much more than that.

When he has visited restaurants trying to drum up advertising for his site, Burlile said he's been surprised to find resistance to even bargain basement-priced ads. And this was during cheerier economic times.

On the message boards hosted by Burlile's Web site, Temecula residents have been weighing in on the closures and commiserating about the loss of their favorite eateries.

"Looks like Ruby's just closed down. One of the few places my kids wouldn't complain about when we went out to eat," wrote a user identified as "Disco340" in mid-November when the local diner closed.

A Temecula-based business broker, D. Joe Atchison, said many people who opened restaurants or bought franchises in recent years took out huge loans and used their homes as collateral.

As the value of their homes dropped and the economy stagnated, the restaurant owners were suddenly faced with multiple debt obligations that they couldn't cover.

And now, he said, "they're losing their business and house."

In one example Atchison shared, the owner of a popular restaurant In Murrieta, a place that pulled in $1 million annually, fell behind on his loan and his rent and he was forced to close his doors.

The next tsunami

In 2009, Atchison expects similar scenarios will be playing out across the region and nationally.

He called it the next tsunami.

A Tony Roma's spokesman said the Jefferson Avenue restaurant was closed by the franchise owners, two business partners, not as part of any corporate decision.

A Brinker International employee working in the company's investor relations office said the company, which owns the On The Border Cafe franchise rights, did not have any comment on the closure.

Earlier this month, Brinker, which trades under the stock symbol EAT, sold its majority share in the Macaroni Grill franchise to help pay down outstanding debt, according to financial reports. Its shares jumped on the news of the sale but analysts polled by Forbes.com aren't expecting much next year due to the growing trend of typical causal dining customers choosing to eat in or pick up a lower-cost fast food meal.

Alice Sullivan, the Temecula Valley Chamber of Commerce president, said she doesn't think the recent closure of some chain restaurants means residents are shunning those types of eateries in favor of locally owned restaurants, which are also struggling.

"You don't hear that from the community," she said.

What she does hear is genuine excitement when a new restaurant opens, chain or not.

"People go and they have to see what's new," she said.

In coming months, the expansion of The Promenade mall will bring new chain restaurants such as P.F. Chang's and Ruby Tuesday.

Unless there is a sudden shot of adrenaline injected into the economy's heart, those new restaurants probably will siphon off dollars that have been going to existing restaurants, making their outlook even bleaker.

Trying to help

Sullivan said the chamber is doing what it can, including forming a restaurant committee that meets and shares ideas on how to best manage the notoriously hard-to-run businesses.

Next month, there will be a presentation on how restaurants can tap into social networks such as Facebook to boost market share.

These kinds of meetings are especially important for non-chain restaurants, she said, because they don't have a playbook from the corporate office to follow.

Mike Murphy, a restaurant consultant who works at Los Angeles-based Brand IQ, said he agrees with the idea that the restaurant industry is caught in a vicious cycle, but he went a step beyond.

He used the perfect storm analogy, saying there are multiple swirling vortexes of bad economic news merging together.

For instance, during the economic boom times of the early 1990s there was tremendous construction activity in Riverside County, northern San Diego County and other high-growth spots throughout the state, areas where Murphy has clients.

With that development came chain restaurants, safe bets for both franchise owners and the residents who moved into the new neighborhoods that took root.

That pattern was replicated many times, in many of the different communities served by the state's freeway system.

All of a sudden, Murphy said, people started looking around and saying, "Do we actually need so many of the same type of restaurants?"

Price increases

Another vortex engulfing restaurant owners is commodity prices, he said.

Restaurants that tried to raise prices to cover the rising costs of the ingredients for their dishes made customers think hard about their decision to eat out.

Even a price difference as small as $2 is significant enough to change someone's decision to dine out, Murphy said.

Regarding the advertising cutbacks, Murphy said it's natural for restaurant owners to trim those expenses from their budgets.

"You can't cut back on liquor purchases, electricity bill or the rent. You cut something you don't have to," he said.

In his experience working with restaurant owners, he said, they have no problem advertising when they can afford it.

Murphy wrapped up his comments on a positive note.

Just as negative forces conspire to form a cycle or vortex, restaurant owners have the tools in hand to get it spinning in the opposite direction, he said.

Successful restaurants, and there are still plenty around, take the time to identify exactly what their customers want and then they work to provide whatever that is ---- value, interesting experiences, friendly service, what have you ---- consistently.

Contact staff writer Aaron Claverie at (951) 676-4315, Ext. 2624, or aclaverie@californian.com.