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Some see profits in new restaurants, cafes, pubs popping up across Alaska

Andrew Halcro

Over the last few years, new restaurants have sprouted like dandelions in Anchorage. Judging from their acceptance by the marketplace, the only elasticity these new entrants are putting to the test isn’t supply or demand, it’s consumer waistbands.

Alaska has a habit of breaking nationwide restaurant sales figures. At least three current restaurants operating in Anchorage today broke their respective companies one-day sales record the first day they opened. In 1984 when McDonald's opened up in Juneau, the line was two miles long.

Today in Anchorage, finely decorated new cafes, pubs and restaurants have begun attempts to increase their appeal to the 25-54 age demographic. "Customers want something new in the dining experience, good food and a fun atmosphere," said Damien Owens, the co-owner of Ling & Louie's restaurant.

According to the Alaska Department of Labor, between 2006 and 2011 restaurant employment grew by 5.5 percent versus 4.1 percent for overall employment. The numbers for May's 2012 food services employment for Anchorage was up 300 over year-ago levels. So what’s cooking with the growth in the restaurant industry?

“A little more than half of the food dollar is spent out of the home,” said Neil Fried of the Alaska Department of Labor Statistics in an interview with andrewhalcro.com.

According to National Restaurant Association (NRA) projections, in 2012 Alaska’s restaurants will registered over $1.2 billion in sales. For every dollar spent in Alaska’s restaurants, it generates an additional 63 cents in sales for the state’s economy. The restaurant association also projects that in 2012; restaurants in Alaska will employ over 29,000 workers, which represent 9 percent of the total workforce. And, every $1 million spent in Alaska’s restaurants generates an additional 20 jobs.

Dale Fox, President and CEO of the Alaska Cabaret, Hotel, Restaurant and Retailer's Association (CHARR), a restaurant trade group, said his membership had doubled in the last six years. “We have several different issues that our members are concerned with,” Fox told andrewhalcro.com. Driven by tourist season and Anchorage’s propensity for dining out, the restaurant industry has weathered the 2008 economic meltdown better than most industries.

When asked about the rapid expansion of eateries in Anchorage and how firms can stay sharp, he said the industry works on very slim profit margins, so cost containment makes a huge difference. He went on to tell the story of how a local restaurant owner placed a take out order from his own restaurant. When he received his order, there were fifteen napkins in the bag. He figured he had just lost 20 cents on the sale

Over the years, many larger restaurant chains have looked at Anchorage but could never figure out how they could get their supply chain costs down to a reasonable level. That’s why most chain restaurants are locally owned and operated through a franchise agreement.

However Olive Garden, who recently opened in East Anchorage, made the numbers work. In response to the overwhelming numbers it has enjoyed at its first restaraunt, Olive Garden has launched plans to build a second restaurant in the Dimond Center.

But as Bruce Burnett, a commercial property expert and owner of TGIFridays told andrewhalcro.com, “Olive Garden is in different financial situation than most of its competitors." In fact, Olive Garden is paying cash for its Dimond store just as it did with its $3 million Tikahtnu location.

Flush with cash, wanting more than to park profits in the stock market while getting no substantive return, they have elected to invest some of their reserves into new un-tapped markets. The end result is they'll have no debt service, they'll be operating in two target rich environments, and they'll benefit from increased national marketing.

Aside from the larger national brands that have entered the Anchorage restaurant market, there have been many smaller more niche restaurants as well. Over the last few years we’ve seen a wide selection of worldly cuisines introduced that has given consumers exceptional choices.

“Asian Fusion is hot right now,” said Fox. But with everything he added, “You have to keep yourself current. You’re hot today and not tomorrow.”

Ling & Louie’s is a fairly new entrant into the Anchorage eating scene. Located inside the University Center in Midtown, Co-Owner Damien Owens and his staff are three weeks from celebrating their one-year anniversary. When considering what type of fare to offer, Owens said they immediately focused on the growing popularity of Asian Fusion cuisine.

“We see tremendous growth and staying power by offering the true sense of Asian food,” Owens told andrewhalcro.com. His company has added 40 new jobs since opening, and the business continues to grow.

The restaurant business is not for the faint-hearted in Alaska. Even with significant amounts of disposable income being thrown around at fajita platters and grilled salmon, the cost structure due to distance from markets makes it tough to make money. It’s not uncommon for shipping to add up to 2 or 3 percent an Alaska restaurant's gross.

One major hurdle of effective cost containment comes when the franchise agreement includes an expansion clause, forcing the operator to move into markets that might not be profitable.

The recent demise of one national franchise operating in Alaska was due to a similar clause.

In exchange for the right to have exclusive territory, the franchisor agreed to open additional restaurants in the Mat-Su Valley and Fairbanks. While their Anchorage location was profitable, the other two couldn't pull their weight, and the debt reached the tipping point.

Today Alaska has the highest percentage of restaurants per capita in the United States.

By 2022, the National Restaurant Association predicts that the industry will experience an increase of 15.3 percent in job growth in Alaska. “As long as Alaskans have tremendous disposable income and maintain their love for eating out, we’ll continue to see new entrants into the market,” said Fox.

Hey ... can a brother get a Carnegie Deli?

Andrew Halcro is the publisher of AndrewHalcro.com, a blog devoted to Alaska issues and politics, where this commentary first appeared. He is president of Halcro Strategies and Avis/Alaska Rent-A-Car, his family business. Halcro served in the Alaska House of Representatives from 1999 to 2003, and he ran for governor in 2006 as an Independent.