The State Of State Restaurants

April 16, 2007
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GRAND RAPIDS — Like so many things, Michigan’s restaurant industry is lagging behind the national economy. With total restaurant sales volume of approximately $12.4 billion last year, Michigan ranked as the nation’s ninth-selling state in restaurant volume, but at an increase of only 4.1 percent. Only four states showed weaker growth. Projections show this year to be no better, with growth of 3.7 percent to $12.8 billion, a far cry from national growth estimates of more than 5 percent.

Jeff Lobdell, president of Grand Rapids-based Restaurant Partners Inc., which operates the Bagel Beanery, Sundance Grill and Omelet Shoppe chains, among other concepts, is the current chairman of the Michigan Restaurant Association. To gauge the local and state restaurant industry, the Business Journal recently sat down with the restaurateur at his new Omelet Shoppe location at BretonVillage shopping center in Grand Rapids

BJ: What are the key issues the association is looking at today?

Lobdell: There is a big battle over the budget and the replacement of the Single Business Tax, and always other issues popping up like the minimum wage and smoking bans. We’re very concerned that the legislature wants to triple the cost for annual fees for liquor licenses and increase the tax you pay on liquor.

I think it’s pretty well agreed upon that our economy is in the process of moving from a manufacturing base into more of a service base. The big hub of that is the medical industry, with the explosion on

Michigan Street
hill a key indicator of that. I think it’s great our state is looking ahead and wants to be in the forefront of the health and science industry, but we’re kind of caught in the transition.

If the state gives breaks to all the existing manufacturers who are struggling, and to all the new medical places that are coming in, something has got to give somewhere.

BJ: And it sounds like that might be the restaurant industry.

Lobdell: The hospitality industry is becoming collateral damage. Those of us in this industry think that we have a beautiful state, and that we shouldn’t necessarily just take the hospitality industry for granted.

BJ: What should the legislature be doing for restaurants?

Lobdell: We need to market our state to not only Ohio, Indiana and Illinois, but we also need to get people here to travel more and consume more dining experiences.

A lot of my fellow restaurateurs in northern Michigan are struggling right now. They say the gas prices last summer really, really hurt business. Not a lot of people traveled north. A lot of jobs have been lost in Michigan, and a good portion of travel tourism in Michigan is people from within our state. We need to convince them to vacation in western or northern Michigan as opposed to going out of state.

BJ: Perhaps the assumption is that people are going to eat either way.

Lobdell: At my place in Suttons Bay — Boone’s Prime Time Pub — head counts are only down 2 or 3 percent, but total sales are down 5 or 6 percent. People that were going for steak and fish are now eating burgers and sandwiches. Everybody is watching their pocketbooks right now.

When I talk to my fellow restaurateurs on the east side of the state, they’re singing the blues about how bad it is with the loss of manufacturing jobs, companies relocating. They’re saying, “Gosh, we wish we had it like you in West Michigan where the economy is that great.”

But I don’t know that our economy in West Michigan is really that stellar. We’re just not suffering as bad as they are.

BJ: Can the restaurant industry have growth if the state’s general economy doesn’t turn around?

Lobdell: No, we can’t. We rely on the growth of other industries for us to be healthy. When there is less disposable income, less people out there consuming, we fall to the rule of supply and demand. It seems like there is a good supply of restaurants, but the demand is not going up.

I will say that I’m very fortunate that my restaurants are primarily in Grand Rapids and the Traverse City area — seven of my 10 operations had sales in 2006 that exceeded 2005.

BJ: But that’s not the case overall?

Lobdell: No, it’s reversed — maybe three in 10 are up over last year. Food consumption was up, but due to a lot of national chains and new restaurants opening, I hear business was down for most.

In general, I think it’s a little tough out there, but not disastrous or anything like that. We are a little guarded.

BJ: It does seem like every day a new restaurant opens up.

Lobdell: I am concerned that we are overdeveloping, but you also see a lot closing, too. A lot of great restaurants are closing, like the Sierra Room (in downtown Grand Rapids).

I’ve been approached confidentially by two restaurants here in town that have been around a long time that are for sale. In one instance, I know it’s a good restaurant; the other one, there might end up being a bank there.

I think the restaurant operations that are out there that stay on top of things will survive. Everybody does need to eat, like you said, and if you do a good job, people will keep coming back.

But you’ve got to keep reinventing yourself if you want to be successful. At the Beltline Bar (on Division Avenue in Grand Rapids), last year was the first down year since we took it over — in part, I think, because of the job loss in Wyoming and Kentwood at Steelcase and others, and, in addition to that, two On the Borders (a national chain with a similar menu to Beltline Bar) opened up in town.

Where some restaurant owners might just hunker down, my philosophy is to reinvest. I invested $300,000 into the restaurant. We put in a new parking lot, a new bar, new ventilation system, bathrooms, and we built a curbside to-go station: The Big Enchilada Curbside.

BJ: It seems there has historically been animosity between local, independent restaurants and chain concepts. Is that true today? 

Lobdell: A lot of my fellow restaurateurs look at chains as this evil empire that we have to compete with. They do have deep, deep pockets where they can drop $3 million on a facility. They’ve got purchasing co-ops, so they can buy meat, cheese and bread 10 percent cheaper than a local person. They have such a great advantage over an independent.

In some sense, we look at them and feel we are at odds with them, but on the other side, they are our brothers and sisters. We need each other to stand up for the industry. We go toe-to-toe with them every day, but we still band together in the restaurant association.     

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