P.R.’s restaurant sector optimistic despite challenges
People in Puerto Rico are spending less when dining outside the home, but they are still eating out and that is good news for local restaurants.
The outlook for the restaurant industry in 2017 holds some promise of economic activity centered on moderate growth and investment in new outlets and upgrading of existing facilities, especially in the fast-food sector which is dominated by the leading U.S. franchises, industry executives said in recent interviews.
Still, 2017 is bound to be challenging. For one, Puerto Ricans are continuing to leave the island in search for jobs on the mainland due to the island’s long-running economic crisis.
“The market is shrinking significantly. Nowadays, the island consumes 1.5 million less meals daily than it did in 2006 as a result of the population loss. For that reason, competition right now is based mostly on price,” said Carlos Morell, president of Caribbean Restaurants LLC, which operates Burger King in Puerto Rico.
Franchises planning to add or upgrade outlets include McDonald’s, whose first store of the year will open soon in Hato Rey at an investment of more than $1 million, and Chili’s Grill, which intends to upgrade at least four outlets at a cost of $1.2 million, or $300,000 per outlet.
Burger King, the island’s top selling fast food franchise, has no plans for expansion but will remodel 12 of its highest yielding stores at an investment of more than $6 million, Morell said.
Caribbean Restaurants owns and operates 190 Burger King and Firehouse Subs — its other franchise brand — restaurants on the island.
Subway, which prides in having more locations than any other franchise on the island and rakes in some $115 million in yearly sales, could add up to 10 new outlets this year.
The company also plans to boost purchases of locally sourced products and soon will unveil a major renovation project featuring a “Restaurant of the future” design.
Investment opportunities still available
The restaurant industry will continue to provide opportunities for investment with franchises offering the ideal vehicle for local entrepreneurs who have a winning food concept and want to expand rapidly, said consultant Francisco Rivera-Badia, whose firm, All Around Franchise, focuses on developing local franchises.
Food trucks, niche concepts and both local and stateside franchises are good choices for people interested in the restaurant business as they require a lower investment and involve less risk than opening a full service restaurant, he said.
Price competition will remain fierce among chains but look to consumers finding their own ways to lower the bill when they dine out.
“People continue eating out but they don’t spend as much,” said Ramón Leal, president of the Puerto Rico Restaurant Association (ASORE, by its Spanish acronym).
He said instead of ordering a beer, consumers will opt instead for a glass of water.
In addition to heading ASORE, Leal is vice president of operations at International Restaurant Services Inc., which operates the Chili’s Grill & Bar brand in Puerto Rico and owns all 22 restaurants in the chain.
With new administrations in Puerto Rico and the U.S., count on the restaurant industry to initially take a wait-and-see attitude as players assess what to expect from Gov. Ricardo Rosselló and President Donald Trump.
Leal applauded the newly signed Labor Reform Law that allows employers to adopt flexible scheduling and reduces employee benefits: they will now have fewer vacation days, get paid overtime at time-and-a-half instead of double time, and receive a reduced, mandatory Christmas bonus. The legislation also struck down the Closing Law.
However, like others in the private sector, Leal wants to see more from the Rosselló administration, including reforms in permitting and taxes.
“The government can’t keep strangling the private sector,” he said, noting the many taxes enacted in recent years but singling out the 11.5 percent Sales and Use Tax (IVU in Spanish) for its deleterious effect on his industry, which he described as one of the most important in terms of employment.
The island’s 4,300 eateries (spanning a multitude of options that range from full service, casual and fast-food restaurants to cafeterias and bakeries serving meals) employ nearly 100,000 people in direct and indirect jobs.
Leal said the industry is not against contributing its fair share but would like the government to allow restaurants to charge a lower IVU preferably set at an intermediate rate, say four or five percent.
Subway’s ‘restaurant of the future’
With more than 200 outlets run by 53 franchisees, Subway has a presence in 65 of Puerto Rico’s 78 municipalities.
This year the company plans to add between five and 10 new outlets although some of these restaurants could include relocations to more attractive sites, said José E. Vázquez-Barquet, chief operating officer of Island Development Co., the chain’s master franchisee in Puerto Rico.
The average investment in a Subway restaurant is $150,000. Subway will soon be unveiling a major “Restaurant of the future” upgrade project aimed at giving its outlets a fresh new look that, according to Vazquez, is “very easy on the eye” and ensures better interaction between employees and customers.
Under the new redesign, Subway restaurants will scrap the earthy color scheme customers have grown familiar with in favor of primary colors and lots of white and off-white. Vázquez said the Subway Corp. is trying to keep the new design cost within the same range of the “major upgrade” franchisees are required to make every 10 years. Minor upgrades are required every five years.
New outlets opening later this year will feature the redesigned look.
In a move that should be welcome news to the local food sector, Subway is actively working on increasing its purchases of locally grown or processed foods from 15 percent to more than 60 percent, or higher, over the next two years, according to Vázquez.
Potential suppliers will be required to meet the highest quality standards and certification requirements, he said.
Subway is constantly working on enhancing its menu offerings and will continue to do so, Vázquez said. While consumers in Puerto Rico are looking for price value they also expect “quality, a positive experience, and good service,” he said.
“The value equation is very important.”
McDonald’s marks 50th anniversary
The famous hamburger chain this year celebrates its 50th anniversary in Puerto Rico and what better way to kick off the celebration than with the opening of restaurant number 103.
The new outlet, currently under construction in Hato Rey, is scheduled for completion in March, said Gabriel Serber, regional director of Arcos Dorados, McDonald’s master franchisee for Latin America and the Caribbean.
The new restaurant will incorporate some features found in McDonald’s “first and only ecological restaurant in the Caribbean” in Plaza Guaynabo. Opened in 2014, this outlet is among a small number of LEED-certified buildings in Puerto Rico.
These include LED lighting and a system to capture water from air conditioner condensation to be used in cleaning the parking area.
“Water is a scarce resource and we use a lot of water daily,” Serber said.
As for the company’s plans for the year, the executive said “we are analyzing the market. Our vision is to keep growing the brand.”