Conventional wisdom once held that grocery stores and fast-food restaurants were recession-proof.
When times are hard—so the thinking goes—people forgo the high-end eateries for more affordable dining or chow down at home.
These days, however, that adage is only partially true.
Revenue reports in Business Report’s list of Top 100 private companies indicate that fast-food restaurants like McDonald’s and Raising Cane’s are doing just fine, but some grocers are flat or experiencing some decline.
Associated Grocers, which retains its No. 4 ranking, has dropped $20 million in revenues from 2008, or 2.8%. Lyons Specialty Company, which ranks No. 32, has increased almost $5 million in revenues from 2008, or 5%. Meanwhile, McDonald’s revenues rose $12 million in 2009, or 7%. And Raising Cane’s brought in $12.9 million more than in 2008, an 11.4% increase.
The recession isn’t completely to blame for the new paradigm. The market share of the nation’s supermarkets has been steadily declining over the past decade.
Jay Campbell, CEO of Associated Grocers, says one of the biggest factors is that traditional supermarkets aren’t the only ones competing for food dollars now. Target and Walmart now offer groceries, frequently at lower prices because of their volume-buying power. Gas stations, convenience stores and pharmacies like CVS and Walgreens now carry food items as well. Whole Foods, which on the other end caters to the organic- and prepared-food crowd, also competes for the same dollars.
“You are always going to have people sensitive to price,” Campbell says. “But there are consumers that value high quality, good value, friendly service and a clean store. And that’s what our retailers offer.”
But the recession also is a factor. In lean times, consumers tend to “trade down”; people who bought higher-priced brands in good times buy generic labels or choose a less-expensive product, like hamburger over steak, in tougher times. And that means a loss in sales for the grocer or wholesaler.
Grocers have also seen a deflation of prices in dairy, produce and meat products, which is a rarity. Campbell estimates deflation is to blame for Associated Grocers’ losing as much as $9 million in revenues last year.
Hugh Raetzsch, president of Lyons Specialty Company, says his business benefited from the fact that it does more than sell groceries; Lyons’ primary clients are convenience stores, and the firm’s candy and tobacco sales made up for decline in grocery items.
“Overall, sales have been relatively flat or down a little bit,” Raetzsch says.
Gas prices last year partly were to blame. “When gas was $5 a gallon and customers had only $20,” he says, “it was unlikely they’d spend $5 inside the store.”
The only exception to the trend among the Top 100 firms was Pay-Less Supermarkets, the parent company of LeBlanc’s Food Stores, which saw double-digit revenue growth of 14% in 2009 and jumped six spots to No. 28 on the list. The family-owned firm has opened new locations in Hammond, Walker and Zachary in recent years.
In a statement, owners Marcy LeBlanc and Randy LeBlanc said that, even though last year they opened another new location, “we continue to put more emphasis on growing our same store sales, and we believe this has had a great impact on our sales growth.”
They also credit clean, modern facilities; broad selection, including ready-to-go sushi and baked chicken; what they term “aggressive pricing”; and customer service.
Hamburgers, French fries and chicken fingers are another story. As the recession drags on, fast-food establishments are proving to be resilient.
Analysts credit Louisianans’ busy lifestyles, combined with value menus that offer customers an entire meal for under $5 in the time it takes just to get seated for fine-dining, for the success of chains like McDonalds and Raising Cane’s.
“Restaurants that offer a good value for the amount spent are doing well in this economic climate,” says Wendy Waren, vice president of communications for the Louisiana Restaurant Association. “Consumers are looking for alternatives to get the best bang for their buck.”
Numerous efforts to reach John Valluzzo of Valluzzo Management in Baton Rouge were unsuccessful. McDonald’s of Baton Rouge ranks No. 17 in the Top 100, an increase of three spots from last year. The company had revenues of $178.2 million in 2009.
Raising Cane’s, the chicken-finger restaurant that got its start in 1996 near the North Gates of LSU, even after a business professor and several banks said the concept would never work, ranks No. 25, also up three spots from last year.
Clint Penfield, director of the Baton Rouge operations, sees expansion driving revenue growth. The company, which in January 2009 opened its Dallas-area office as part of an effort to help the chain become bigger, earned more than $125.6 million in 2009.
In the past 12 months, Cane’s has opened 13 new restaurants, nine of which are company-owned; four are franchise locations. The firm now has 80 locations in 13 states; another Baton Rouge site will open in October on Florida Boulevard in front of Cortana Mall.
Penfield says Cane’s is perceived as a “very good value” because of the quality of the food for the price. “Because of our growth in new markets,” he says, “what we see is continued sales building year over year, regardless of what is going on in the economy.”
