No expense safe as restaurants wring out costs

DANA POINT, California (Reuters) - Restaurant owners are wringing every last bit of fat from their operations as recession-weary diners pinch pennies -- and no extra phone line, idle manager or expensive lease is safe.

Managers are attacking every expense, industry executives said. They're imploring landlords for breaks on rent, reducing staffing during down times, simplifying menus so food requires less preparation and cutting utility bills.

Executives and analysts gathered at the ICR XChange consumer-oriented investor conference in California this week said they expect another difficult year as the industry retrenches.

"We are looking for an improvement in traffic. We'll believe it when we see it," said Wedbush Morgan analyst Brian Moore.

Restaurant chains have already made big cuts in expenses, such as new locations, bonuses and staff hours in more than a year of declining home values and a credit crunch.

Virtually every restaurant chain has curbed expansion plans and revamped staffing to save money.

Coffee chain Starbucks is closing 600 U.S. cafes. IHOP and Applebee's parent DineEquity is selling its weakest eateries while reeling in vacations and executive bonuses. Industry leader McDonald's Corp took a piece of cheese off its $1 double cheeseburger and renamed the remaining product the McDouble.

Restaurant companies are looking for even tighter expense controls and examining budgets on a line-by-line basis as the recession means customers are changing spending habits in ways that could be permanent.

Wendy's/Arby's Group Inc Chief Executive Roland Smith said cutting costs can be a "nickel and dime" business.

In addition to targeting major expenses, the fast-food chain owner is asking store managers to disconnect unused phone lines, to work side-by-side with employees when they can and to avoid expensive spikes in electricity use by switching on lights, grills and other equipment in stages.

"Those types of decisions are the ones that will help us enjoy higher profitability going forward," Smith said.

Operators ranging from seafood chain McCormick & Schmick's to upscale steakhouse owner Ruth's Hospitality Group and regional taco chain Rubio's Restaurants Inc are once again taking a scalpel to costs.

McCormick & Schmick is looking for savings in all areas.

"We are not shy, we've gone back to everyone," said Emanuel Hilario, McCormick & Schmick's chief financial officer.

RAY OF LIGHT?

Rubio's Chief Executive Dan Pittard is pushing for deals as the economy has its way with weak restaurants and retailers.

"At first we were depressed with all of this, then we started looking at all the opportunities," Pittard said.

The company recently bought a San Diego radio spot at a 40 percent discount and is joining the industry's shift to lower-cost e-mail promotions.

As restaurants slash plans for new restaurants, construction costs are also coming down. For example, a new Rubio's restaurant in Utah will cost $70,000 less than the normal $250,000 cost, he said.

"If you think the deals are good today, they're going to be better later this year," said Pittard, who said his chain will negotiate hard on 63 leases coming up for renewal over the next two years.

The CEO also wants take over vacated restaurant sites rather than building new ones.

"We expect to get prime sites in great trade areas and we are going to avoid centers where the large boxes are closing," Pittard said, referring to big retail stores that anchor many U.S. shopping centers.

(Reporting by Lisa Baertlein; editing by Carol Bishopric)