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Gas prices a risk for casual restaurants, Starbucks

LOS ANGELES (Reuters) - Record high U.S. gas prices threaten a new level of pain for casual dining restaurants stuck between value-oriented fast food and high-end eateries whose customers can afford to shrug off the economy’s woes.

A barista serves a cup of Pike Place Roast, Starbucks new everyday brew, during the kickoff of a coast to coast tasting in New York's Bryant Park April 8, 2008. Record high U.S. gas prices threaten a new level of pain for casual dining restaurants stuck between value-oriented fast food and high-end eateries whose customers can afford to shrug off the economy's woes. REUTERS/Keith Bedford (UNITED STATES)

Shops and restaurants around the United States are reporting fewer visitors in the face of a credit crunch, mortgage crisis and price and fuel inflation.

Now-common $4-per-gallon gas is a psychological jolt for many, said Bob Goldin, executive vice president at restaurant consulting firm Technomic.

“It’s been a tipping point,” he said, forecasting fewer visitors and less spending at mid-tier restaurants and coffee chain Starbucks Corp.

While the high-end restaurant segment caters to wealthier people who are less likely to feel the pain of $4 gas and fast-rising grocery bills, casual dining restaurants cater to many of the same people who are being hardest hit by the housing-led economic downturn.

As those diners tighten their belts, they visit casual restaurant chains such as the Cheesecake Factory Inc and Chili’s Grill & Bar owner Brinker International Inc less often. When they do visit, they spend less.

“Casual dining and Starbucks definitely are at risk,” Buckingham Research analyst Mitch Speiser said.

Some consumers have traded down to fast-food chains, which have found their niche by focusing on value-oriented “dollar menus.”

Starbucks, which had previously seemed immune to economic gyrations, reported its first quarterly drop in domestic traffic in November.

The company since has been grappling to revive U.S. sales growth at the same time that consumers are looking for easy ways to cut expenses. At the same time, new competitors are rushing to market with lower-priced coffee drinks.

CEO Howard Schultz has blamed the housing meltdown for weakness in Starbucks’ U.S. business and said that customers were cutting back on coffee purchases and not trading down to lower-priced competitors.

Representatives from Cheesecake Factory and Brinker did not immediately respond to requests for comment. A Starbucks spokeswoman declined comment.

Steve West, an analyst at Stifel Nicolaus, said consumer spending is weaker across the board.

“The consumer is hurting on all fronts,” said West. Like other analysts, he expects gas prices rise further. “It’s going to get tougher,” he said.

Not everyone is so sure.

“We’re seeing consumers cutting back on their spending like everyone is seeing ... it’s not anything more than what we’ve seen in the” February quarter, said Rich Jeffers, spokesman for Red Lobster and Olive Garden chains parent Darden Restaurants Inc.

“Folks are still making sure they look hard at how they’re spending their discretionary dollars,” Jeffers said.

Reporting by Lisa Baertlein

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