Restaurants turn to menu changes, online

CHICAGO (Reuters) - Restaurant companies are offering smaller items, squeezing through price increases and trying to get customers to order online in hopes of preserving profits, while keeping cash-strapped customers ringing their registers.

These methods were touted by restaurant executives at the Reuters Food Summit this week, as they fight to keep profits and margins above water in an environment of soaring gasoline, wheat, cheese and other ingredient costs.

The increases have been accompanied by a sharp downturn in the U.S. economy that economists and even restaurant executives think has reached recession level.

Restaurant companies typically get hit early in an economic downturn because dining out is more of a discretionary expenditure. That has proven to be the case this time around, with casual dining chains being the hardest hit.

Customers "are going in with a budget in mind, and they are ordering around that budget," said Richard Federico, chief executive of P.F. Chang's China Bistri Inc (PFCB.O).

In order to try to get customers to come in more often, the Asian restaurant chain operator has added a single-serving lunch bowl to its menu. The item costs less for P.F. Chang's to prepare than other menu items, is less expensive for customers and gives the company a "reasonable" profit, Federico said.

Restaurant shares have been hit since late last year. The Dow Jones U.S. Restaurants and Bars index .DJUSRU is down more than 12 percent since the end of October, though the Standard & Poor's 500 index .SPX is off more than 15 percent during the same period.

PASSING ON APPETIZERS

Consumers who are still going out to restaurants are cutting back on what they order, whether that means doing without an appetizer or forgoing a drink with dinner.

"We can all pass on $10 glasses of wine," said Bob Goldin, executive vice president at Technomic, a food and restaurant consulting firm.

The pizza industry has also been hit, according to executives.

"I personally think we are in recession," Papa John's International Inc (PZZA.O) CEO Nigel Travis said.

Papa John's and rival Domino's Pizza Inc (DPZ.N) are both encouraging consumers to order via the Internet. People who order online tend to order more, adding chicken wings or a dessert to their orders, Travis said.

Both Travis and Domino's USA president J. Patrick Doyle said they did not plan to cut costs by making changes to their pizza. Yum Brands Inc's (YUM.N) Pizza Hut unit has started selling a budget-oriented line called Pizza Mia for as low as $5 a pie.

Pizza Mia uses less toppings and a different type of cheese, a spokesman said.

Domino's plans to offer "value" items that could include smaller pizza sizes, CEO Dave Brandon told Reuters, but declined to give details during the summit.

Papa John's has also increased menu prices a bit in the wake of higher costs, Federico said. The company is also cutting back on promotions, such as coupons, that did not actually make a customer decide to buy a pizza, but only lowered the price of a pizza they had already decided to buy.

Some food company executives have argued that as the economy gets weaker, food companies will benefit as consumers eat more at home.

But General Mills Inc (GIS.N) CEO Kendall Powell downplayed how much people will shift back to eating at home.

"Quick-serve restaurants, casual dining -- food away from home -- is really an embedded part of the way Americans eat now," Powell said. "That industry is a little more resilient than most people sometimes think."

One other place that executives can look to find profits is overseas. Domino's, for example, has about 40 percent of its systemwide sales overseas.

"We're happy to have a large portion of our business outside the U.S., while we figure out what's going on with the U.S. consumer," Doyle said.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Brad Dorfman; editing by Jeffrey Benkoe)