EATING SMARTER: Considering tighter budgets, people going to restaurants seek good food, service, at reasonable prices, says Gediminas Balnis.
KLAIPEDA - As the crisis-stricken economy bounces back and starts to exhibit more vitality, for hundreds of Lithuanian and foreign-owned restaurants, a good deal of uncertainty still lingers, as the recovery efforts are being hampered by rapidly increasing food and inventory prices. The latest research on restaurant business risk, conducted by Creditreform Lietuva, has shown that the sector’s outlook remains gloomy for 2011, while the hotel sector has received a brighter assessment. According to Romualdas Trumpa, Creditreform Lietuva deputy director, only restaurants belonging to large restaurant chains will do better this year, for one reason - they possess sufficient financial resources.
Altogether, the hospitality market has been severely hit by the downturn, reporting a whopping 36 percent plummet in the hotel sector, and a 32 percent fall in the restaurant sector. In addition, Creditreform Lietuva points out that over two years, from the fall of 2008 until 2010, 30 percent of restaurant staff has been laid off, a sign of a troublesome market. The lay-offs were a result of slumping restaurant sales, dropping from 539.7 million litas (154 million euros) in 2008 to 342 million litas in 2010. Among the other setbacks for restaurants, Trumpa emphasizes difficulties in the domestic market - still little domestic market consumption, growing food and stock prices, and a shortage of capital. “Only large restaurant chains can count on a better industry outlook this year, as they can rely on the cushioning effect of available capital. Weaker establishments may not even live to see the kick-off of the season,” Trumpa inferred.
Though the restaurant market has been through the economic turmoil, seemingly not all entrepreneurs seeking their fortune shun it. Thus, in 2010, with 2,772 public nourishment establishments operating in the country, 10 percent of restaurant bankruptcies were evened out by a 9 percent increase through the opening of new, similar establishments. “Though the market sector is quite risky, it does not deter many from trying it out. For example, in Vilnius last year, the opening of new restaurants outweighed all shutdowns, 80 against 75. If we take a closer look at the market novices, it is clear that a sheer majority of them are fast-food undertakings, focusing mostly on offering dinner. Obviously, quality-wise, it is a drawback, but it is a repercussion from the current trends in the industry,” Stanislav Kizenevic, president of Lithuania’s Restaurant Chefs and Confectioners Association, pointed out to The Baltic Times. According to him, the retreating crisis is welcoming money-savvy pizzerias, sushi bars, kybyn places or little bakeries.
Gediminas Balnis, chairman of the Viciunai Restaurant Group’s board, the second-largest restaurant group in the country, agrees with this estimation, claiming, jokingly, “Nowadays, rich men present their wives not only with beauty salons but also with cafes. Big restaurant chains are not toys.”
Having doubled its turnover over two years, Viciunai Group is still in a fierce chase after Cili, the largest restaurant and cafe chain in Lithuania, which is in its second decade of operations. The market leader, Cili Holdings manages five trademarks: Cili Pica, Cili Kaimas, Cili Kinija, Tokyo and Cili Kava chains, totaling 80 restaurants and cafes. Besides, this successful joint has been rapidly expanding lately, opening up new restaurants in Latvia and Russia. It is reported that the holding company generated over 133 million litas in revenues from sales in 2009, a roughly 30 percent plummet from 2008. In its prime, Cili Holdings had planned its expansion even to India, but due to these cumbersome years, the plan was put on hold.
Regarding the market giant’s activity in 2010 and this year, no one from the holding company could be reached for comment. In rare public statements, Cili Holdings director general Valdas Tekorius expressed his concern recently over increasing stock prices, but the pizza behemoth, he said, was not planning to increase pizza prices. “However, we will have to be smart in some way to get around the stock price increase, probably by getting rid of a part of a dish, or maybe giving up a part of our profit,” Tekorius said to a news outlet. However, the Cili Holdings director did not keep his promise – Cili pizzerias were among the first to hike up menu prices, by 5-15 percent. Others were quick to follow the holding company, also raising prices by 5-12 percent. “With provisions and stock prices skyrocketing roughly 15-30 percent, there is no other way out of this plight, except to increase the prices of the final products. Though our sales volume reached the pre-crisis level, we have to take into account a 3 percent larger value added tax, compared to 2008. However, we will try to be more lenient and raise the prices as little as possible,” Balnis claimed to The Baltic Times.
The holding group includes such restaurant trademarks as Katpedele Bistro, Katpedele Pirkia, Carskoje Selo and Charlie Pizza. Recently, the second-largest restaurant group has opened up a pancake house chain, La Crepe. The first of these kinds of establishments were opened in Klaipeda and Vilnius. The company has invested over two million litas in their activities, creating 85 new work places countrywide. The market behemoth is intending to open four more pancake houses in Lithuania this year. ”There are not many pancake houses in Lithuania. We saw a niche in that segment of the market. Our research shows that pancakes are equally palatable to children, youth and their parents, or grandparents. We aim to cater to clients of different age groups. Since we have big experience in running other popular restaurant chains, opening and expansion of the La Crepe chain seems to us a natural and well-thought-out undertaking,” Balnis maintained. His restaurant group opened five new restaurants in 2010.
Viciunai Restaurant Group reported 35.4 million litas’ total revenue in 2010, an increase from 26.1 million litas in 2009. It plans to increase its sales to 50 million litas this year. “The numbers clearly point that we are back on track. When crisis-stricken, we thought about getting rid of loss-making and low profit establishments. Today our thoughts are focused on expanding our business beyond Lithuania,” rejoiced Balnis. However, his optimism is hampered by the possible consequences of a price hike.
Asked to predict trends in the market in the short-term, the entrepreneur said that he foresees a shrinkage in the exclusive, chic restaurant sector. “A sheer majority of people that can allow for eating out is just not the situation yet. With the economy recovering slowly and consumption growing sluggishly, people seek good food and good service for a reasonably good price. That is what our restaurants can offer, as fast-food joints are on the rise,” Balnis said. He also emphasizes a certain restructuring taking place in the market. “Many businessmen comprehend that large restaurant groups have the best chances to withstand different shake-ups in the market, and, most importantly, are in a better position when seeking profitability. Therefore, we may see some mergers and new big restaurant groups in the future,” Balnis predicted.
Speaking of the long-term prospects, despite the gloomy forecast for the restaurant market this year, the Viciunu Restaurant Group director remains upbeat. “Regardless of what awaits us next, the numbers of restaurant-goers will increase steadily. Only fifty years ago, for dinner, our grandmas would run into the backyard, catch a hen, cut its head off, pluck it, embowel it and throw it in a pot. Twenty years ago, our parents would queue up in Soviet-era lines, and, upon good luck, buy a hen and make dinner. However, nowadays, we are not up to either as, being time-savvy, we want a fast dinner. I reckon, slowly but steadily, we are accepting the Western life style – eating out is a distinctive part of it. It is just a matter of time when we all do the same,” Balnis affirmed.
Pizza Jazz is the third largest restaurant chain in Lithuania. It had been planning to double its revenues in 2011, to 60 million litas, up from 31 million litas in 2007, but due to the crisis and scratched expansion plans, if we believe public reports, Pizza Jazz’s turnover has not much surpassed the 2007 revenue level.
Restaurant Group Fortas goes fourth in the market leader standings, with 15 million litas’ turnover last year. Kestutis Markevicius, Fortas’ marketing director, reiterates that the crisis has especially stricken small restaurants. “Large restaurant chains, due to their larger resources, bigger experience and possibilities, have been rowing considerably safely and assuredly through the crisis and its aftermath. While some other restaurant chains are in a desperate pursuit of achieving a bigger part of the market share, that is not our strategy,” Markevicius emphasized. He said being focused mostly on the best portion-quality-and-price ratio, rather than reckless expansion, is Fortas’s priority. “The latter ratio has been long our motto. In addition, we focus on introducing new dishes, ecological products, matching nutritional products, and, in the end, creating a bigger surplus value. We pride ourselves on using more quality products in our restaurants than in similar establishments run by our competitors. In Fortas’ restaurants, we strive to make all products by ourselves, and to not use ready-to-cook items that were produced somewhere else. Thus, in every one of our restaurants, we make macaroni ourselves, manually. We have gotten rid of E-additives in our dishes, which is something our expansion-oriented competitors still lavishly use,” Markevicius said to The Baltic Times.
He admits that the restaurant market is quite complicated in Lithuania. “In Lithuania, we do not have many eating out traditions. Before the crisis, they were just forming and shaping up, but the crisis has stamped on the sprouts of the traditions as if with high-heeled shoes trampling them. Thus, it has to be begun again from scratch. Unfortunately, the efforts are hampered by an absence of a middle class in Lithuania. However, the restaurant culture is developing slowly, regardless of the adversities. Though price is of the utmost matter today, quality and reliability will prevail in the future,” Markevicius predicted.
When asked about the future plans of Fortas restaurant group, the marketing director said they are all about constantly improving quality, serving large dish portions, matching food ingredients, following European culinary traditions and introducing novelties. “As for expansion, we expect the opening of some new restaurants not only in Lithuania, but also in Latvia. Already this week in Riga we will begin testing our new trademark Foody, which will mark our wine restaurants,” Markevicius said.
Unlike other major restaurant chains, Fortas’ restaurants have not yet increased meal prices. “We are observing the market closely. Though we have experienced a rapid price hike of dairy products and flour, so far we managed to level off the increase by cutting part of our profit. We never hike prices by 15-20 percent, which is common at some of our competitors. If we come up with this decision, the price rise will not be very drastic, not exceeding 10 percent. In any event, it will not add more than one litas to the current dish prices,” the Fortas restaurant group representative acknowledged.
Stanislav Kizenevic, president of Lithuania’s Restaurant Chefs and Confectioners Association, notes that economic recovery “takes place somewhere else, but not in the restaurant business.” He is concerned over the in-depth changes in the market. “Sometimes I like to say that Lithuania is turning into a country of fast-food eateries. Specialized fish, meat and seafood restaurants have been hardest hit by the crisis. Therefore, many of them have been forced to close down, or had to take on small-investment undertakings, like switching to Chinese cuisine. The latter is trending in the market now. However, to be honest, I had expected it to have been even worse, with the crisis simply wiping away the fussiest gourmands.
Fortunately, it has not happened, as many people, despite the crisis’ aftermath, stuck to their eating habits, giving up the regularity of eating out,” Kizenevic said. According to him, the market has undergone some other substantial alterations recently as well. “With the overall frenzy for cheapness, many restaurants scramble to seek cheaper products, heedless of much of their quality. As, due to the crisis’ aftermath, many people have several jobs, there are swiftly popping up numerous fast food joints aiming to cater to their needs. Nowadays, even all-black-suit-and-tie business meetings are often arranged in these kinds of establishments. There is obviously less chic and elaborate finesse in most restaurants today.
For example, chefs, instead of preparing elaborate sauces themselves, as they did before the crisis, nowadays usually rely on ready-to-use sauces. However, the most established chic restaurants managed to stay afloat, though larger restaurant groups have swallowed up many single little cozy restaurants. Apparently, to go further, the European cuisine is being pushed away by the Asian cuisine, though the best Italian, French and Russian-cuisine restaurants, undoubtedly, will be around for a while. Besides, lately I observe an increasing army of foreign chefs, who replace their Lithuanian counterparts that have emigrated. The massive exodus of our best chefs is very disappointing,” Kizenevic said. With the slowly recovering consumption and rapidly increasing menu prices, he anticipates that the future holds much uncertainty for the market, even for the most established restaurants. However, he agrees, the worst for the industry is already in the past.