As some bricks-and-mortar retailers fight declining foot traffic and sales, a new sector is falling victim nationally to fickle consumers: restaurants.
Just like at retailers, restaurants have seen falling traffic over the past year — a trend that is leading some chains to pull back on expansion or close stores altogether.
Still, like many national trends that bubble up in the biggest cities, this one hasn’t quite made its way to Omaha. And if it does, it’s likely to be more modestly felt than in bigger markets, restaurant owners say.
Industry analysts say several factors are at play in the national slowdown:
» Prices have gone up at many restaurants, making eating out less attractive.
» Diners now have what may be the widest smorgasboard of restaurants ever to choose from. Add in delivery options and online ordering, and the competition is fierce.
Local owners — of both chains and their own concepts — say they’re watching and waiting for a possible eventual slowdown in restaurant sales or expansions. But Omaha is still a healthy market, and should still see growth this year, they say.
“It’s not that we don’t feel the effects, but we’re not as boom-or-bust,” said Nick Hogan, chief executive of Flagship Restaurant Group, which operates Blue Sushi Sake Grill, Roja, Blatt Beer & Table and Flagship Commons at Westroads Mall. “I think that’s true in this instance.”
The company also operates restaurants in Lincoln, Denver, Dallas and Fort Worth, Texas.
In Omaha, the number of restaurants remained flat between 2015 and 2016, according to data compiled by research firm NPD Group. It’s the latest year for which data are available.
Nationally, on the other hand, the number of restaurants shrunk by 2 percent during the same period.
Digging deeper into the data shows that so-called quick-service restaurants — which include fast food like McDonald’s and also fast-casual chains like Panera Bread — grew by 2 percent in Omaha during that time; full-service restaurants pulled back by about 2 percent.
In both of those categories, Omaha still is in better shape than the rest of the country. Nationally, quick-service was flat and full-service fell by 3 percent.
None of Flagship’s Omaha restaurants has been heavily hit by the national trend, but the same-store sales metric, which measures year-over-year sales at stores that have been open at least a year, are not growing as rapidly as they were a few years ago, Hogan said.
“We’re obviously all paying close attention to it,” Hogan said of the national slowdown that might be knocking on Omaha’s door.
What’s the reason for it?
“There’s a lot of kind-of theories,” he said. “Some restaurants are doing really well and some chains out there are struggling. Nobody can put their finger on where the problem is.”
One possibility Flagship is starting to guard against: competition from online ordering. Flagship’s top performing restaurant, a Blue Sushi in Dallas, is piloting a delivery program, and that’s a big contributor to its success, Hogan said.
“Maybe the lesson is food is not quite as untouched by the whole Internet fundamental thing as everybody thought it might be,” Hogan said.
Since the recession of 2008-09, restaurants nationally had been growing about 1 percent a year in number of visits, said Bonnie Riggs, restaurant industry analyst for NPD Group. About a year ago, traffic turned negative, and that trend has continued and is expected to continue this year.
Pizza and burgers, especially, have become increasingly competitive, Riggs said.
Fast-casual restaurants — the hybrid between a sit-down restaurant and fast food — had been considered the “darling of the industry,” Riggs said, growing at 8 to 9 percent in visits year-after-year. A lot of the growth was driven by expansion, which now has slowed, as well.
Even in Omaha, two fast-casual pizza concepts have closed after just a year in business. Uncle Maddio’s Pizza, which opened near 132nd Street and West Center Road, closed earlier this year. Pie Five Pizza also closed one restaurant at 72nd Street and Cornhusker Road earlier this year.
“The bloom may be off the rose, so to speak, because that space has gotten pretty crowded,” Riggs said of pizza and burgers.
Also pressuring restaurants, in general: Labor and health care costs have been rising, forcing razor-thin profit margins. Restaurant operators are raising prices in response and relying heavily on part-time labor, and consumers have noticed, Riggs said.
“It’s gotten to the point where consumers have put the brakes on and said, ‘It’s not a good value for what I’m paying,’ ” Riggs said.
That’s especially true when customers can find prepared meals at grocery stores or at new chains like Eat Fit Go, based in Omaha. The chain, which sells ready-made, healthy meals to be heated up in a microwave, has opened 24 stores in the past 16 months and has 84 in the pipeline in new markets like San Diego; Scottsdale, Arizona; and Atlanta. It’s also piloting selling the meals inside some Fareway grocery stores in Des Moines.
The chain’s average sale is $40, President Aaron McKeever said.
“I think people are busier than ever,” McKeever said. “Sitting down in a restaurant is becoming harder and harder to do. Everybody just has a busier lifestyle.”
In addition to Eat Fit Go and delivery services like Blue Apron, a glut of new chains and concepts have also upped the ante for restaurants.
Casual dining and quick-service, traditionally known as fast food, have been the hardest hit in the industry so far, forcing them to slow expansion or shutter locations.
Still, there are bright spots, Riggs said. Restaurants that have found their niche have remained successful. Chick-fil-A, which focuses on providing excellent customer service, continues to grow. Domino’s has cornered the market on online ordering. Specialty coffee shops like Starbucks also continue to grow rapidly.
“There are pockets of growth, but many of the traditional quick-service places are not faring well,” Riggs said. Subway, for example, has put the brakes on new locations.
Cutchall Management Co., which owns concepts locally, including Jams, Famous Dave’s, Sonic and Domino’s, has been able to weather the declining traffic easily because of its diverse portfolio, said Greg Cutchall, the company’s founder and chief executive.
“I think there’s been some over-expansion by some brands in some markets and some segments that probably plays as big a role, if not a bigger role, than the other thing, which is, ‘Are people eating out less often?’ ” Cutchall said.
Cutchall said sales are up year-over-year, and the chatter about declining traffic hasn’t affected his expansion plans: The company opened or acquired seven new restaurants over the past six months, including three Domino’s Pizza locations and a new Sonic, which is slated to open this week in La Vista.
The company did close one underperforming Famous Dave’s restaurant in Council Bluffs about a year ago, Cutchall said.
The continuing expansion of fast-casual and fast-food concepts in Omaha may be due to the fact that Omaha — by nature of its size — is a secondary market, not yet over-saturated, Riggs said. Most chains go into larger markets like Phoenix, Kansas City or Chicago first.
Also expected to drive more restaurant growth this year are two major developments: The Capital District at 10th and Capitol Streets, and the Boys Town West Farm development near 144th Street and West Dodge Road, said Boh Kurylo, a senior vice president and broker who focuses on retail and restaurants at Lerner Co.
Kurylo said he already has signed four new restaurants, bars or entertainment concepts for the Capitol District, meant to be a shopping and entertainment hub, but said he’s not at liberty to announce who they are yet.
“Omaha’s kind of come back on the map because of the scope of these two large, unique projects,” Kurylo said.