I made a Flash graphic today that shows unemployment rates for June 2009 in the nation’s biggest metro areas. In other news, the prospect of staying in Chicago doesn’t look so hot. Check it out and view the whole story at Medill Money Mavens.
Big City Unemployment
Customers Michelle Mingey and Anne O'Malley enjoy a happy hour cocktail at Morton's The Steakhouse in downtown Chicago. Chicago-based Morton's Restaurant Group Inc. is relying on bar-based promotions to help see the company through the recession.
The recession is taking a bite out of Morton’s Restaurant Group Inc.’s business and stock price.
Business travelers, who account for a significant portion of the restaurant group’s patronage, are staying away from the company’s steakhouse restaurants, where steaks range in price from $37.50 to $57 and a side dish from $8 to $10.50. The company has expanded its customer base and maintained crucial market share by relying on an in-house trendy bar area and dining room and bar promotions.
Cowen and Co. LLC analyst Paul Westra said Morton’s is moving in the right direction by introducing new promotions and extending old ones.
“Morton’s, I think, is very smartly evolving a little bit more,” he said. “The environment isn’t completely cigars and Sinatra. They can skew a little bit more toward Ruth Chris … but still be the only business-centric steakhouse out there, and that’s a nice place to be. They own the sandbox.”
Morton’s stock closed Tuesday at $3.74, just a few dollars above its 52-week low of $1.42 reached on Feb. 3 and less than half of its 52-week high of $8.31 reached on June 5. Analysts and shareholders said it will take an increase in corporate travel budgets, plus an overall turnaround of the economy, to get Morton’s stock moving again. Four of seven analysts polled by Bloomberg LP have a 52-week price target consensus of $5.
Morton’s stock is “one of a few hundred, if not a thousand” companies hurt when the recession began to take hold in early 2008, said Alan Parsow, a fund manager with Elkhorn, Neb.-based Elkhorn Partners Ltd. Partnership.
“The extreme pessimism was so low that they were giving these [stocks] away,” said Parsow, whose fund holds 47,200 shares of Morton’s stock according to Bloomberg. “They all got down to well below what the intrinsic value of the corporation was.”
Morton’s stock is inexpensive because of an economy full of skittish investors, Westra said. He doesn’t have a specific 52-week price target but expects the stock to increase a minimum of 10 percent over the next 12 months. He estimates Morton’s will earn 20 cents per diluted share in fiscal 2009 and 35 cents per diluted share in 2010.
“It’s hard to judge when the timing will be of any [economic] recovery, but we think that the valuation is worth the investment,” he said. “Intuition would tell you that ‘Hey, long term, Morton’s is not going away.’”
Morton’s is succeeding in navigating the current economic environment by “going on the offense” and reaching out to potential customers through promotions, something the company typically avoids, Westra said.
Not surprisingly, Morton’s isn’t sitting on the sidelines and waiting for the economy and foot traffic to improve. It aims to attract a non-traditional clientele base and boost revenues by offering promotions in its upscale, in-house Bar 12-21. The bar area has already proven its worth as newer Morton’s restaurants built with it have posted revenues that are 15 percent higher than older restaurants that weren’t built with the bar, Morton’s executives said in a first-quarter earnings call in early May.
Bar regular Bill Ruiz, said recently that he’s noticed attendance dwindling at Bar 12-21 at the East Wacker Place location due to the recession, but he noted that Morton’s problems aren’t unique.
“There’s going to be people who are going to cut back, but I think it’s doing better than most other restaurants of this type,” said Ruiz, who owns a breakfast restaurant around the corner.
Morton’s Chief Executive Officer Thomas Baldwin said in a recent interview that Bar 12-21 is an important strategy for combating a bad economy, noting that the normally 60 percent male clientele base tends to be more balanced between men and women during promotion hours. The bar menu includes “value-based” items such as bite-sized filet mignon sandwiches and special prices on wine and beer. These promotions help create what Baldwin called a “high energy environment” on par with other bars catering to an upscale clientele.
“Obviously the recession impacts everyone and we recognize that,” Baldwin said. “We’ve been in part impacted in reduced business travel in the convention cities … what we’ve tried to do is drive guest frequency.”
In other efforts to grow, Morton’s opened a restaurant in Mexico City in March, released a cookbook last month and extended the decade-old summer steak and seafood promotion program until the end of this year. The latter, Baldwin said, may not be continued year-round in 2010 if economic conditions improve.
“It will probably run every summer, and we’ll see about the other times of the year,” he said.
Sidoti and Co. LLC analyst Michael Podhorzer has a 52-week price target for Morton’s of $7, and he estimates the company will earn 53 cents per diluted share in 2010. Podhorzer said the financial health of the company is improving, and he expects Morton’s to report positive free cash flow in 2010. He also likes Morton’s willingness to adapt.
“It’s tough for them to really have an influence on their stock price,” Podhorzer said. “Basically they’re just running the business and not worrying about their stock price, buying back debt and strengthening their balance sheet at this point. It’s all they can do.”
Podhorzer said touting Bar 12-21 is a wise choice to drive revenue.
“It used to be a holding area,” Podhorzer said of the pre-Bar 12-21 space at Morton’s. “Now it’s a destination.”
When Lisa Santos opened the upscale Southport Grocery and Café Inc. nearly six years ago in the Wrigleyville neighborhood, her eatery was the result of several years of planning and a lot of sleepless nights.
“The first year was hard,” Santos, 46, recently said while sitting at a communal table in the café during a weekday brunch period. “I would lay in bed and all I could think about was [balance] spreadsheets. ‘Break even’ was in my head. It was horrible. I mean, it’s your dream and you know you’re not going to make any money for awhile.”
Santos placed ads in local papers and magazines, but she didn’t turn a profit for the first few years. Business started to improve, however, after WTTW profiled Southport Grocery on the food program “Check Please!” in 2004, and products such as a gourmet cupcake, made with European-style butter and pure vanilla extract, met critical acclaim. Eventually, Santos began sleeping at night.
(View photo and audio slideshow here.)
Southport Grocery had revenue growth of 3 percent to 8 percent each year between 2003 and 2008. Santos’ original staff of seven burgeoned to between 25 and 35 depending on the time of year.
Southport Grocery’s revenue growth came from several factors, including Santos’ experience as an accountant and the grocery’s location on Southport Avenue, a boutique-heavy shopping corridor attracting affluent young professionals. Many of the young professionals push strollers and Baby Mum-Mums, rice rusk crackers for toddlers, are Southport Grocery’s best-selling item.
These days, customers are loyal to the point that they’ll rearrange their schedules for a visit. Wrigleyville mom Amy Katz, a weekday patron with toddler in tow, enjoys brunch on the weekends but recently visited during the week to avoid the long wait for bread pudding pancakes on Saturdays and Sundays.
“I thought we’d treat ourselves,” Katz said, perusing the boxes of Baby Mum-Mums.
Lines may be long on the weekends, but the recession is causing Santos to cut costs in anticipation of falling revenues. Santos estimated that revenues will fall 10 percent this year compared with 2008. Santos started seeing her top line slip in December, a drop that was a first for Southport Grocery. Still, she expects the business to turn a profit in 2009.
To reduce her expenses and combat lower sales, Santos has taken to canning goods in-house, shortening business hours, lowering prices where possible, and buying items in bulk and repackaging them under a house label. Selling specialty items, such as salts and baking sugars, allows Santos to cut “about $2 or $3 off every jar” for the customer, she said. Santos is also teaching her staff to pickle and can foods under the Southport Grocery label.
“It’s a lot of work to kind of figure out, ‘How do we fit this new paradigm?’ [The recession is] not going away anytime soon. It’s your new set of rules that you have to play with,” she said. “It’s amazing what you learn about your business during those times.”
Like upscale retailers, the sluggish economy has caused angst in upscale food businesses, both large and small. The Goddess and Grocer Inc., a small business peddling similar products as Whole Foods Market Inc. and Southport Grocery, is showing signs of growth. It opened its third Chicago location in Lincoln Park in March.
Most people don’t realize the manual labor involved with running a café and grocery, Santos said.
“You know, people think like, ‘Oh your fiends will come in and you’ll have coffee with them,’” Santos said with a smile. “It’s like, ‘You’ve got to be kidding me.’”
In the face of recession, Santos’s customers and employees remain committed to the small, upscale grocery and café. Co-head chef Derrick Dejaynes, 30, started as a server three years ago, and head line cook Carlos Valasquez began as a dishwasher more than four years ago.
“I started from the lowest and I kept going up and up and up,” Valasquez, 28, said recently, whisking an omelet.
Chicagoans Leah Bleuer, 33, and Erin Ryan, 29, have been coming to Southport Grocery occasionally for years because, as Bleuer joked recently, the food is reasonably priced, unique and “made with love.”
Southport Grocery and Café is different from other boutique grocery stores because items offered on the shelves are also featured on the café menu, Santos said. She now spends little to no money on advertising, instead relying on word-of-mouth. However, she makes sure to pepper customers who subscribe to Southport Grocery’s e-mail and Twitter lists with special offers, including “Secret Suppers,” where guests can gather and sample her and Dejaynes’ dinner creations after hours.
Guest checks average between $12 and $15, more if patrons purchase wine with their meal or additional items at checkout, Santos said. She has added more locally grown or locally made products each year as she continues to network with fellow food connoisseurs.
“It’s refreshing to see places that are getting stuff closer to home,” cashier Adam Galik, 26, said.
Admitting she went through an uncertain time as the recession took hold, Santo said that in the long run she expects to weather the storm, thanks in part to her business knowledge, which she said gives her a unique perspective.
“We are very financially focused here, even prior to this, and I’m surprised even at what I’m learning,” she said. “I’m wondering about businesses that aren’t as financially focused, what they’re learning.”
Santos plans to increase her branding power, possibly by selling her own cheeses and meats at some point in the future.
“I think it’s taking this idea of things that we make, that also fit the grocery, that have our brand on it, as taking it to the next level,” she said.
this ain't your grandpa's newspaper anymore.
While I appreciate the commentary, this Editor & Publisher article tells me nothing new about the crazy state of journalism — we all know we need to adapt to new, multimedia skills. The journalists who make the most and know how to do the least ultimately won’t last. Yadda, yadda, yadda. I hear about layoffs nearly everyday, and it’s getting to the point where all of us in the newsroom say, “yeah, it sucks about the ____ Tribune/____ Star/___Times but we’ve just gotta lock in and keep on going.”
It’s like we were dinosaurs, and a meteor just hit the earth, and now we just won’t know how things turn out til we’re far away, evolved humans, looking over our shoulders at this mess.
