Holiday-Party Cheer Driven by CEO Confidence: EcoPulse
Landry’s Inc. is encouraging companies to get a jump-start on planning end-of-year parties at its restaurants by offering a little extra holiday cheer if they book by Nov. 1: a free gift card.
Many executives are taking advantage of this promotion, locking in reservations before the “frenzy and insanity” sets in, said Nicki Keenan, senior vice president of sales for the Houston-based operator of the Morton’s, Vic & Anthony’s Steakhouse and McCormick & Schmick’s chains. With less than 90 days until Christmas, revenue in its private-dining segment already is “pacing ahead” of last year -- “a very positive indication for the holiday season.”
At other U.S. high-end restaurants, such bookings also are poised to grow modestly this year. Corporate dining in November and December could increase by “mid-single digits” compared with 2012, said Larry Miller, founder of MillerPulse.com in Atlanta, which provides a restaurant-industry performance-benchmarking service. That increase follows two “strong” years of gains between 8 percent and 12 percent, as spending on these types of events rebounded after collapsing during the 18-month recession that ended in June 2009, he said.
“The trend for fine dining has been pretty good so far this year,” suggesting executives will spend more to treat employees or customers to holiday parties, Miller said. With reservations for fourth-quarter banquets starting to come in now, restaurateurs will provide good insight into the pace of bookings -- a barometer of how leaders feel about business prospects -- when they report earnings next month, he said.
Del Frisco’s Restaurant Group Inc. (DFRG), owner of Del Frisco’s Double Eagle Steak House and Sullivan’s Steakhouse, will release fiscal third-quarter results on Oct. 9. Ruth’s Hospitality Group Inc. (RUTH), with its Ruth’s Chris Steak House and Mitchell’s Fish Market chains, is scheduled to follow Oct. 30.
Companies have started making reservations at Del Frisco’s locations for the holiday season, with some re-booking last year’s event as early as July, said Sherry Joseph, director of national sales for the Southlake, Texas-based operator. The bulk will come in between mid-October and late November -- “the high volume time when the phone is really ringing.”
Monitoring this type of corporate spending offers investors a way to gauge executive sentiment about the health of U.S. business activity, according to John Manley, who helps oversee $222.7 billion as chief equity strategist for Wells Fargo Funds Management in New York.
Holiday parties are a discretionary form of spending -- which many companies scaled back or eliminated during the recession -- and also serve as an investment for retaining employees and thanking customers, he said. “This is a place where shifts in growth expectations will show up very quickly.”
Sentiment among chief executive officers averaged 5.83 in July and August, up from 5.35 in the comparable two months of 2012, according to Chief Executive magazine’s confidence index, which is based on an e-mail survey. Between 2003 and 2007, sentiment among these executives averaged 6.53.
Budgets for corporate holiday parties have been “a little tighter” since 2008, a “catastrophic” year when many companies canceled these events altogether, said Malcolm Knapp, a New York-based consultant who has monitored the industry since 1970. While these events have come back, many executives still are worried about the perceptions associated with throwing a very lavish affair, he said.
Sales at U.S. steakhouses are up about 3.8 percent this year through August, compared with the same period in 2012 when they grew 3.9 percent, according to the Knapp-Track High-End Steak Chain Restaurants Index. This measure, which captures both corporate and consumer dining, rose 0.2 percent in November and 2.5 percent in December last year, months that were “nothing to write home about,” Knapp said.
Amid the budget debate in Washington, some businesses probably will be in a “wait and see” mode for party-planning, making more last-minute decisions this year than last, Knapp said. “To some degree, the holiday season is up to Congress.”
Disputes over federal spending between House Republicans and President Barack Obama risk a government shutdown starting Oct. 1, because budget legislation hasn't been approved for the new fiscal year.
While it’s “an open question” how private dining will compare with last year, smaller-budget parties -- such as individuals in a department and groups of families or friends going out -- probably will be strong, helping to offset potential weakness on the corporate side, Knapp said. “People like to celebrate some Christmas cheer together.”
If executives are feeling budget-conscious, event managers at Del Frisco’s locations “will find a way to make it work,” Joseph said. Holiday parties could range from lunch -- starting at about $25 a person -- to a cocktail reception and sit-down dinner without a pre-determined budget, she said.
Similarly, “people still are buying on a value proposition” at restaurants owned by Landry’s, Keenan said. In addition to catering menus to offer diners the most for their money, sales people must “know their markets” and be sensitive to industries in their area that are booming or hurting, she said. “The last thing a company wants to be seen as doing is spending money frivolously.”
Corporate-dining revenue in 2012 probably was only about three-fourths of its pre-recession peak, according to estimates by Bryan Elliott, an Atlanta-based analyst at Raymond James Financial Inc., adding that restaurateurs don’t report this specific type of revenue. There’s a “modest normalization” of budgeting to entertain clients or boost employee morale under way, though it still may be a few years before spending bounces back, he said.
“I expect corporate dining to be in line to a touch ahead of last year,” reflecting a business and economic environment that’s been “kind of static,” Elliott said. He maintains a strong buy recommendation on Del Frisco’s, a market-perform on Orlando, Florida-based Darden Restaurants Inc. (DRI), which owns The Capital Grille, and an underperform for Ruth’s, in Heathrow, Florida.
Airline bookings and hotel-occupancy rates -- proxies for the business economy -- are up, suggesting that entertainment-related spending could follow suit, Miller said. Executives also may be willing to throw a party to keep their businesses on track, Manley added.
“Good companies always treat their customers and employees well, particularly when they think there’s more competition,” Manley said.
Early forecasts suggest a mixed bag for the holiday retail season. Total holiday sales are estimated to rise as much as 4.5 percent, in line with last year, according to Deloitte LLP, a New York-based consulting firm. Meanwhile, Chicago-based researcher ShopperTrak said sales in stores may advance 2.4 percent in November and December, the smallest gain since 2009.
That’s why Manley will be monitoring this “interesting” gauge of business health, he said. “Holiday parties are a leading indicator of executives’ thoughts about the future.”
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