Fine-dining blues: High-end restaurants facing bitter challenges

By Paul Davis

The Business Journal of the Greater Triad Area

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Jan. 12 — After more than 30 years in the restaurant business, Ken Lutz is looking to reinvent himself in the wake of a sluggish economy and its impact on fine dining in the Triad.

Last week, Lutz closed Market Street West Steakhouse & Tavern, a fine-dining eatery in Greensboro that had been in business since 1971. By the Super Bowl, he will reopen as Cooper's Ale House, which will have a sports theme and a more casual feel.

"Over the past three years, the (Triad) economy has been lousy," he said. "Sales started to drop off, then 9/11 hit. I just feel that the trend has changed, and that less-formal dining is where it's at right now."

Just a mile to the east, Mary Lacklen is getting used to the new site of Bert's Seafood Grille. The location had housed Mosaic, a progressive restaurant that she opened in the Gate City two years ago. Mosaic never took off, so Lacklen shut the eatery down in November.

The stories told by Lutz and Lacklen are strikingly similar to those of other failed fine-dining concepts in the Triad: Business continued to be slow, even while expenses continued to increase.

Those experiences do not shock Lloyd M. Gordon, president of GEC Consultants Inc., a Chicago-area restaurant-consulting firm. He says that since the recession of 2001, upscale restaurants nationwide have faced the worst market in his 50 years in the consulting trade. He says it will only get worse in 2004.

"If you don't have a solid clientele you're going to hurt," he said. "Meanwhile, restaurants have been hit in the pocketbook by higher operational costs, and the chains are expanding. I think the mom-and-pop restaurants, in particular, are really getting squeezed, and more will be going out of business."

Many closings in 2003

Market Street and Mosaic were not the only fine-dining establishments in the Triad to close in 2003. White Oak Restaurant and The Half Shell in Greensboro, VinTerra Bistro in High Point and Staley's and Cafe McMillans in Winston-Salem were among the casualties in the Triad last year.

Basil's Trattoria & Wine Bar in Greensboro soon will be added to the list. Marty Kotis, president of Kotis Properties, said the restaurant will shut down over the next few months.

The partners of Noble's Restaurant Group, which owns Basil's, did not return calls seeking comment. The group also owns J. Basul Noble's in High Point and Noble's Grille in Winston-Salem.

Gordon, who describes fine-dining eateries as those with seafood or prime beef as main menu fare and where the bill for two could top $100, says the sluggish economy and continued job losses have white-collar professionals spooked.

Gordon says those who earn $100,000 to $200,000 a year are substituting casual restaurants for fine-dining, while those earning less that $100,000 are turning more often to fast food.

"People don't stop eating," he said. "They just move down a level."

But the costs of running a high-end restaurant keep going up. In addition to higher utilities costs felt by all restaurants, upscale locations have been battling higher costs for their main fare of seafood and prime steak. Lacklen, at Bert's, said prices for some fish, such as grouper, have nearly doubled in the past two years.

Gordon attributes rising food costs, in part, to the Atkins diet, which encourages the consumption of high- protein foods in lieu of carbohydrates. Beef prices hit an historical high in October.

Seafood prices also are climbing as certain fish populations dwindle and as various governmental agencies impose restrictions on harvesting certain types of fish.

Restaurateurs such as Lacklen have the opportunity to raise prices to keep up with their costs; Bert's, for one, prints out a daily menu to reflect new prices. But restaurant owners say such swift action only puts more dishes in a higher price bracket, which can impact demand from diners.

Experts predict that fears over mad cow disease will reduce beef prices by 10 percent in 2004. Gordon, however, says studies by his firm show that demand for prime steak likely will not diminish.

But Lacklen is not convinced, believing fears over mad cow disease will create more demand for seafood dishes. Higher seafood costs, she predicts, will inevitably offset any price breaks on beef.

Other challenges abound

Lacklen says she feels additional pressure from the influx of large chain restaurants, which can buy seafood and steak in larger quantities, thus cutting their costs.

In the last year, for instance, Outback Steakhouse Inc. has opened Carabbas Italian Grills in Greensboro and Winston-Salem and a Bonefish Grill in the Gate City.

"I feel that the chains have moved here and sort of stolen our thunder," Lacklen, at Bert's, said. "It's kind of sad to think that in a few years the market may be completely dominated by chain restaurants."

Gordon, the consultant, says chains are placing a tremendous amount of pressure on locally owned restaurants. He does note that local eateries have a few weapons available to fight their larger competitors.

"Mom-and-pops can react quickly by taking items on and off the menu and by cutting and raising prices," he said. "They can increase and decrease staff at the turn of the hat. That's what a smart independent must do to survive."

Gordon adds, "They also are a member of the community, and they can use that to help them stay in business."

But even the most savvy restaurateurs may find it difficult to lease space in the Triad, say some real estate experts.

Kotis, who is looking for a restaurant to replace Basil's, says he is not interested in leasing space to another upscale eatery.

"Fine-dining has been killed in this marketplace," he said. "Mosaic is gone, and most of the others have been suffering."

So re-invention has been a course of action for entrepreneurs such as Lutz and Lacklen, who are using their existing space to house new eateries.

Even so, Lutz and others say pressures still exist, and that the survival of their new eateries depends on people returning to the dinner table.

"If you do enough volume, the costs will take care of themselves," Lutz said. "But when the volume isn't there, it hurts everything."