Thu, Oct 18, 2001 page24

• Beef demand shrinks drastically

  MEAT MARKETS With many would-be convention-goers canceling their trips to big US cities, steakhouses and restaurants will be hit hardest by the slowdown

  • BLOOMBERG
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  Tony Durpetti estimates sales at his Chicago steakhouse, Gene & Georgetti, fell by US$150,000 last month because so many convention-goers and business travelers canceled trips to the city after the Sept. 11 terrorist attacks.

  The number of patrons dropped as much as 40 percent in the week and a half after the attacks. With fewer people plunking down US$34.50 for an 500g filet mignon, Durpetti said he was forced to cut back on meat purchases that run US$200,000 a month.

  

  Chef Mario Navarro checks on the steaks under the broiler at Gene & Georgetti steakhouse in Chicago, Illinois. Fewer people are eating out since the Sept. 11 attacks.

  PHOTO: BLOOMBERG

  "It was bad for everyone in September," Durpetti said.

  

  Waiter Carlos Munoz serves steaks and fried potatoes to patrons at Gene & Georgetti's steakhouse in Chicago, Illinois.

  PHOTO: BLOOMBERG

  "Convention people are a little bigger spenders. If they don't come here, we've got a problem." And so do meat producers. Gene & Georgetti, which had US$8 million in revenue last year, isn't the only restaurant to lose business. Fewer people are eating out since the attacks, eroding demand in the US$41 billion US beef industry.

  About 15 percent of annual US beef production is consumed at steakhouses and restaurants where patrons pay US$20 or more for entrees, said Andy Gottschalk, an analyst at HedgersEdge.com LLC, a research firm in Greenwood Village, Colorado.

  White Tablecloth

  So-called white tablecloth restaurants will be hardest hit by the slowdown, which may trim overall beef demand by 1.5 percent over the next year, Gottschalk said. That could mean about US$600 million in lost revenue to beef producers, grocers and restaurants, analysts said.

  "When you look at the price of beef, what supports it is not the price of a hamburger," said University of Missouri economist Ron Plain. The key to beef prices is demand for choice cuts, such as steaks and roasts "and a majority of that is consumed at restaurants rather than at home," he said.

  The busiest month

  October is usually the busiest month for conventions, which have mostly resumed their schedules but probably won't be as well attended, as businesses cut back on travel and spending. More than half the travel managers at 60 US companies told the National Business Travel Association they will plan fewer trips.

  "The large corporations may be sending two people instead of four, and they're staying one to two days instead of four," said Susan Gayford, co-owner of the Chicago Chop House, which sells 450g roast prime rib for US$23.95 and a 1.8kg Porterhouse steak for US$85.95.

  About 60 percent of Chop House revenue comes from business travelers. Sales are down as much as 25 percent since the attacks last month, though Gayford said business has mostly recovered.

  "You tighten your belt a little," she said. "Things you may have spent money on before, you don't do it." Chicago last year hosted 7.6 million convention travelers who spent an estimated US$4.2 billion, according to the Chicago Convention and Tourism Bureau. Nationwide, business travelers accounted for spending of about US$185 billion, according to the Business Travel Association.

  Even before the attacks, Chicago expected a drop to 7 million convention visitors because of the slowing economy, and restaurants in other cities are reporting fewer patrons.

  Smith & Wollensky Restaurant Group Inc, with 14 restaurants in cities such as New York, Las Vegas and New Orleans, has reduced hours 15 percent for non-salary workers since last month, Chief Executive Alan Stillman said. The cuts affect more than half the workers at the company, which also won't hire more managers because of the slumping economy.

  Business is down

  "There's no question business is down," said Gene Zuriff, director of strategic planning for Smith & Wollensky. At the company's flagship steakhouse in mid-town Manhattan, which had about US$27 million in revenue last year, sales are down about one-third since the attacks, compared with the same period last year.

  "Your suburban people aren't coming in for dinner, the tourist is not here, the business traveler isn't around as much," Zuriff said. "There's no question business doesn't look very bright." Shares of Smith & Wollensky are down one-third since the attacks. The stock closed at US$3.87 today.

  Demand sliding

  Even before the attacks, beef demand was sliding as the economy sputtered. Consumer confidence fell to a five-and-a-half-year low in September, and the nation lost 199,000 jobs last month, the biggest decline in more than 10 years.

  US beef producers may also face declining demand from their biggest foreign customer, Japan.

  The US Meat Export Federation said shipments to the country may fall as much as 20 percent in October after the country found its first case of mad-cow disease last month. Japan last year bought 368,000 metric tons of US beef worth US$1.47 billion, or nearly half of total exports.

  Slumping demand comes after a surge in wholesale beef prices this past summer as the economy grew. While retail prices remain high, wholesale beef is 10 percent lower since the end of May.

  Supermarkets may soon pass along lower prices to consumers.

  "There will be some dampening of prices," National Cattlemen's Beef Association economist Chuck Lambert said.

  To be sure, low prices not last beyond this year.

  "People want to get out and escape and have some recreational activity," said Hudson Riehle, a senior vice preside at the National Restaurant Association. "Even as the economy has softened, there's still the essentiality of dining out." Demand probably will recover just as beef supplies fall, because ranchers are sending fewer cattle to feedlots to be fattened for slaughter, the cattlemen's group said.
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