News Column

Local Eateries Prep for Health Reforms Impact

Jan. 14, 2013

Sandra Pedicini

Restuarants

One of the biggest tasks for restaurant companies in 2013 will be preparing for the following year's federal health care changes that require large employers to insure full-time workers.

"There's still a lot of people trying to figure out what the true impact is going to be," said Rick Van Warner, president of Orlando-based retail and restaurant consulting firm Parquet Group. "It's substantial no matter how many ways you crunch the numbers. There's going to have to be some way to adjust and absorb it."

Under the Affordable Care Act, or "Obamacare," large companies will have to provide employees working an average of at least 30 hours a week with health insurance or face fines starting in 2014. Many are expected to limit employees' schedules as a result, experts say.

"I think they will keep hours down," said Matthew Snook. a partner with human-resources consulting company Mercer. "I don't think they'll publicize it, certainly. It's very easy for them to manipulate their employees' hours in such a way that they can avoid people crossing the 30-hour threshold."

Restaurant owners will be particularly affected because of tight profit margins and their large number of employees, particularly those with irregular schedules, analysts say. The National Restaurant Association says the industry will employ 13.1 million people next year -- 10 percent of the total U.S. workforce -- making it the nation's second-largest private-sector employer.

The industry's response to health care reform came into the spotlight last year when Darden Restaurants began experimenting with giving fewer workers full-time schedules at its Olive Garden, Red Lobster and LongHorn Steakhouse chains to avoid higher costs of health care reform.

After warning investors of poor sales in its second quarter, Darden last month announced it would not cut its current full-time employees' schedules to part-time, and new restaurants will hire some full-time hourly people. However, Darden will not give details about how much full-time work will be available for new hires, particularly at newly opened restaurants, or what will happen to employees who had already been limited to fewer than 30 hours during the testing period.

Winter Park-based Ruth's Hospitality Group, Maitland-based Tijuana Flats and Orlando-based Planet Hollywood International, which also owns Buca di Beppo, would not answer questions about how they will deal with health care changes.

At a national gathering of restaurant owners and executives in November, trade publication Restaurant Finance Monitor reported "a huge number" raised their hands when asked if their companies would use more part-timers to deal with health care -- and only a couple said they wouldn't.

The Affordable Care Act also contains the requirement that chain restaurants print calories on their menus. Regulations are expected to become final in 2013 and while they likely won't be enforced until the following year, restaurants will have to start preparing. McDonald's and Panera Bread have already started printing calories and others are expected to follow next year.

"If they're changing their menus or putting up a new menu board or doing some menu changes in July, they don't want to have to print a whole new set," said Margo Wootan, nutrition policy director for Center for Science in the Public Interest, which lobbied for the restrictions. "They'll just do it then."

Also in the coming year, the sluggish economy and rising food costs will continue to pose a challenge for restaurants.

Some will continue to see declining traffic, wrote Andy Barish, an analyst with Jefferies and Co., in a recent note to investors. While high-end and low-end eateries will perform better, he said, casual dining will continue to struggle.

And an ultra-competitive environment, Barish wrote, "we ... believe discounting has found a permanent place on menus."

With restaurants having exhausted many of their cost-cutting opportunities, Barish said, profit margins will get tighter. And after raising menu prices by about 3 percent last year, he said, restaurants probably will stick with a more conservative 1 to 2 percent now.

But commodity prices are expected to rise 3 to 5 percent. Beef is expected to see double-digit inflation, because cattle herds have thinned as drought conditions drove up the cost of feed. Coffee and seafood prices are expected to decrease.

In Central Florida, Darden Restaurants' biggest challenge will be stemming sales and traffic declines at its Olive Garden and Red Lobster chains. The company has said it plans to discount heavily this year to help turn things around.

This year, it is expected to remodel several Olive Gardens in the Orlando area. Olive Garden has been transforming all its older restaurants into the newer "Tuscan Farmhouse" style. After reporting a 37 percent drop in profit for its most recent quarter, which it said was due partially to a backlash from its test of limited hours, Darden said it would likely scale back restaurant expansion in the fiscal year that begins in late May.

Tijuana Flats plans to reach 100 restaurants in 2013, opening 11 this year including a second on University Boulevard in Orlando.

Ruth's Hospitality Group, which owns Ruth's Chris Steak House, plans to open new restaurants in Denver, Houston (where it is relocating), and the Harrah's resort in Las Vegas. The company would not say whether it plans to restart growth of Mitchell's Fish Market now that sales have started to improve at that chain.

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Distributed by MCT Information Services



Source: (c) 2013 The Orlando Sentinel (Orlando, Fla.)


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