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Washington capitalizes on dynamic dining scene

September 19, 2008|%20frumkin

Washington capitalizes on dynamic dining scene


D.C. restaurants thrive in hard economy



WASHINGTON (Sept. 15, 2008 ) —Veteran restaurateur Robert Kinkead Jr. acknowledges that the fine-dining business in the nation’s capital has softened over the past year. But, he adds quickly, it’s not as bad as some other parts of the country.


The chef-owner of Kinkead’s in Washington and co-owner with his brother, David, of Sibling Rivalry in Boston, Kinkead says the D.C. dining scene has not been immune to the nation’s perfect storm of economic troubles.


“But measuring it against Boston, we’re doing comparatively well,” he says. “It seems that restaurants there are feeling it much worse than we are here.”


Experts agree that the heady growth that has marked the D.C. restaurant market for the past decade has indeed slowed as consumers rein in spending and costs climb. But they say the area, which will be home to Nation’s Restaurant News’ Multi-Unit Foodservice Operators, or MUFSO, conference Oct. 12-15, nevertheless appears to be weathering the storm more auspiciously than some other metropolitan areas across the nation.


“We’re having a good year, despite the economy,” says Dan Mesches, owner of the Star Restaurant Group, which includes Zola and the Spy City Café. “Even when people are down in Washington, you don’t see huge decreases like in other places across the country.”


Rick Hendrie, senior vice president of marketing for the Boston-based Uno Restaurant Group, says the casual-dining chain’s 20-plus outlets in the Washington area are on track to post better sales figures in 2008 than they did in 2007. “We’re bullish about the D.C. area,” he says.


Buoyed by the stabilizing presence of the sprawling federal bureaucracy, a healthy tourism industry and a still-growing private business sector, Washington so far has largely dodged the economic bullet that has hobbled other restaurant communities in the United States.


According to the National Restaurant Association, eating-place sales in the district are expected to hit $2.3 billion in 2008, up 4.6 percent from $2.2 billion last year.


Long considered to be an underserved foodservice market, Washington has emerged as a sophisticated dining destination in its own right, attracting top culinarians from out of town to the area some now refer to as “New York on the Potomac.” Los Angeles chef-restaurateur Wolfgang Puck recently debuted The Source at the Freedom Forum and Newseum complex, while Alain Ducasse, Eric Ripert and Michael Mina all have either opened or are in the process of opening signature restaurants in hotels here.


Moreover, established favorites like Robert Wiedmaier, Jamie Leeds and Michel Richard also have branched out beyond their successful signature properties to open new iterations. Leeds, who runs the Dupont Circle hotspot Hank’s Oyster Bar, has opened a British-style gastropub called Commonwealth, while Richard has piggybacked on his popular Citronelle with Central by Michel Richard. Meanwhile, Wiedmaier, who owns and operates Marcel’s and Brasserie Beck’s, plans to open a new restaurant in a Kimpton hotel in Alexandria, Va.


In Washington’s white-hot downtown core—a 140-square-block, one-square-mile area extending from the Capitol to the White House and Massachusetts Avenue down to the Mall—15 new white-tablecloth restaurants opened last year and 15 more are expected to open this year, says Karen Sibert, director of marketing and communication for the Downtown D.C. Business Improvement District.


The BID area, which includes the Walter E. Washington Convention Center and the Verizon Center, currently is home to nearly 130 fine-dining restaurants, she says.


Meanwhile, Sibert estimates that high-end restaurants in the neighborhood account for about 9 percent of all ground-floor retail space, while casual restaurants account for another 11 percent. Fast-food outlets, delis and coffee shops encompass 11 percent of retail space.


“There seems to be no shortage of new restaurant openings,” says D.C.-based food and travel writer Tom Head.


Tourism, which historically has proven to be a critical economic component to the district, has managed to remain high and help supplement the city’s dining business. In 2007 visitor spending topped $5.5 billion, a result of a 7-percent increase in overall visits to Washington, according to a study published by Destination D.C., the district’s convention and visitors bureau. Approximately 16.2 million visitors traveled to Washington in 2007, compared with 15.1 million in 2006.


Food and beverage expenditures increased 2 percent, to $1.4 billion in 2007.


Spurred by a weak dollar, international travel rose 13 percent, to 1.2 million, in 2007. While that figure represents less than 10 percent of the total number of visitors, higher-spending international guests generated 27 percent of all expenditures, the study shows.


Hotel occupancy also increased, rising from 71 percent in 2006 to 74 percent in 2007. While overall projections for 2008 have been running flat through July, hotel occupancy reached a record 89 percent in April and 85 percent in July, an all-time high for the month.


However, Destination D.C. projects that visitation to Washington is expected to decline in 2009, due to the city hosting fewer conventions, increasing competition, reduced domestic-flight capacities and other factors.


But observers say some of those factors could be offset somewhat by the U.S. Presidential inauguration in January 2009, which is expected to drive business in the district.


“There are a lot of high expectations about the inauguration,” says Lynne Breaux, president of the Restaurant Association of Metropolitan Washington.


According to Destination D.C., past inaugurations have increased January hotel occupancy by an average of 4 percent in total room revenue for the month.


Yet, while the Washington area in general appears to be weathering the economic downturn better than some other urban centers, there indeed have been some casualties. Earlier this year McCormick & Schmick’s Seafood Restaurants Inc. closed Restaurant K, which had occupied the space vacated by the short-lived Jimmy’s on K and had been developed to showcase the cooking of chef Alison Swope. While the Portland, Ore.-based company blamed the closure on economic conditions, one source at the 220-seat operation said Restaurant K had been unable to attract sufficient dinner business.


Another K Street tenant, Legal Sea Foods, also closed its doors, but has since been

replaced by the Peacock Grande Café.


Experts point out that soaring rents in the D.C. area have accounted for several notable foodservice fatalities. Mesches said the Star Restaurant Group closed the trendsetting Southwestern restaurant Red Sage after a 15-year run, pointing out that its lease had been doubled. Kinkead also closed his Colvin Run Tavern in suburban Tysons Corner, Va., citing “a landlord issue” as the chief reason.


Real estate lawyer and broker E. David Harrison of EDH Associates Inc. in Georgetown, notes that leased-space costs almost have doubled from the $30 to $35 per-square-foot mark a decade ago across the city.


“People are paying $50 to $55 for ‘A’ sites now,” he says. “But then you have to add another $15 [per square foot] for pass-through operating costs like electricity, gas and water.”


Restaurant space in Georgetown, which he characterizes as “hot as hell,” runs closer to $60 to $70 per square foot, he says, adding, “But there are no spaces there anyway.”


Competition for restaurant space has grown even fiercer in Georgetown since officials have declared a moratorium on granting new liquor licenses. “Adams Morgan also is restricting licenses,” Harrison says.

The downtown core, which includes such neighborhoods as Penn Quarter, Capitol Hill and Chinatown, remains extremely popular, he says.


“Everyone wants to go down to 7th Street near the Verizon Center,” he says. “Lots of luck.”


Among other neighborhoods that have been heating up is the U Street Corridor, north of the convention center, which is in the process of gentrification.


“We’re seeing new neighborhoods like the U Street Corridor exploding,” Kinkead says. “Areas north of the convention center, which had been dicey, now are seeing retail and restaurant openings and people moving in.”


However, the welcome mat is not out for restaurants at all new downtown office buildings, Harrison points out.


“Many [building owners] would rather have retail tenants who can pay the high rents,” he says, “and if they go out of business, they leave a nice, clean space.”


At the same time, the downtown area appears to be approaching build-out, Sibert says.


“There’s not much available land left,” she says. “In 1997 there were 115 surface parking lots in the area; today there are 19.”


But while competition grows more intense for the best sites in the district, a handful of top chefs from out of town are finding welcome new homes at newly opened or renovated hotel properties. Eric Ripert, of Le Bernardin fame in New York, has opened the Westend Bistro by Eric Ripert in the Ritz Carlton, while San Francisco’s Michael Mina is opening the newest branch of his Bourbon Steak in the Four Seasons. Also, later this month famed French chef-restaurateur Alain Ducasse plans to open a second location of his popular Adour by Alain Ducasse in the St. Regis.


Development also continues in the Maryland and Northern Virginia suburbs, although that too has slowed somewhat, observers say.


“Bethesda [Md.] is still pretty hot, although I think it’s overbuilt,” says Michael Sternberg, owner of Harry’s Tap Room in Arlington, Va., and partner in Enovo Restaurant Ventures with Michael Kaufman and Stamford, Conn.-based contract company Centerplate Inc. Sternberg and his partners are planning to open a second Harry’s location in Fashion Centre at Pentagon City in Arlington.


Harrison agrees that Bethesda is still booming.


“There are about 300 restaurants there now, although many of them are tiny,” he says. “Everybody is trying to find a place there. Each week a new one opens.” He estimates new tenants are paying $40 per square foot and up for restaurant space.

The 195-seat Redwood, a high-profile newcomer to Bethesda, also is part of the wave of new wine bars opening in and around the city, Head notes. Others include Proof in Penn Quarter near the Verizon Center, Cork Wine Bar on 14th street N.W., Sonoma on Pennsylvania Avenue S.E, and Mendocino Grille and Wine Bar on M Street.


Observers also point to Rockville, Md., as an area that is heating up as a restaurant destination. Rockville Town Center, a recently built mixed-use development in the middle of the city, features nearly two dozen restaurant properties, including Gordon Biersch, Così, Moe’s Southwest Grill, and Five Guys Famous Burgers and Fries.


However, some suburban areas that were churning several years ago have begun to calm down in the present economic environment. Sternberg says that while areas close to the district in Northern Virginia remain relatively popular, business has slowed further out.


Jeff Owens, the chief financial officer for Clyde’s Restaurant Group, the 45-year-old locally owned and operated full-service restaurant company, agrees, saying the suburbs have been feeling the pinch of soaring gas and mortgage prices. He notes that while the company’s D.C. properties like the high-grossing Old Ebbitt Grill, Clyde’s and The Tombs are performing well, its midpriced concepts operating in the suburbs are down compared to last year. Owens projects total sales from the company’s 13 restaurants to be off by about 1 percent this year.


To help drive traffic and attract spending-conscious diners, Clyde’s has been offering some smaller-portion entrées. For example, he explains: “Customers have the option of ordering one crab cake instead of two. Those options have been pretty successful.”


Paul Cohn, owner of the nine-unit Capital Restaurant Concepts Ltd., reports a similar mix of sales. He says the company’s five restaurants inside the Beltway “are exceeding expectations” and that “downtown has been very strong.” Likewise, the company’s J. Paul’s in Baltimore’s Inner Harbor area is up 10 points. However, he notes that Paolo’s in Towson, Md., is down.


“People aren’t traveling as much this year; gas prices have hurt,” says Cohn, whose 25-year-old company also operates Georgia Brown’s, Neyla and Old Glory Bar-B-Cue. “So I think a lot of people have been staying home and rediscovering their areas. The Inner Harbor area has been trailing down for the last five years. But then this year it came back strong.”


Cohn says the company recently signed a new lease to open another J. Paul’s in Chinatown between 7th and 8th streets, an area he characterizes as the epicenter of downtown.


Hendrie says sales for Uno Restaurant Group have been trending upward in Greater Washington since 2007.


“In general we’re seeing good business,” he says. “There was trouble at one store in a mall in Maryland where there was a shooting and someone died. But we also had a couple of huge winners. Our Union Station outlet is doing huge business, and our Inner Harbor location in Baltimore is doing well.”


Hendrie says Uno also is looking at Washington as a possible location for its Uno Due Go fast-casual concept, the first of which is expected to open in the Dallas-Ft. Worth Airport this year.


Mesches’ Star Restaurant Group also has plans to expand. The company expects to open an as-yet-unnamed rustic Italian restaurant with a separate bakery in February 2009. The restaurant will encompass about 9,000 square feet of space while the bakery will utilize another 2,400 square feet. The bakery will produce breads for all of Mesches’ restaurants.


In general, he is upbeat about the district.


“I think we’re going to end the calendar a little bit up,” he says. “The year started slow, but it has been steadily picking up.”


Washington also continues to see growth in the lodging sector, experts say. This year saw the opening of the sprawling 300-acre Gaylord National Resort and Convention Center in Oxon Hill, Md. Located about eight miles south of the district, the property contains 2,000 guest rooms and some 470,000 square feet of convention space. The Gaylord will host this year’s MUFSO conference Oct. 12-15.


Victoria Isley, senior vice president of marketing and communications for Destination D.C., says a number of new properties are on the drawing board, like the Marriott Marquis, which is expected to break ground near the convention center soon. At the same time, she says there has been a “tremendous” amount of reinvestment in existing properties. Newly renovated hotels include the Park Hyatt, the St. Regis, the Donovan House and the Hotel Washington, which has been converted to a W Hotel.


But while new growth continues to drive the Washington market, some existing restaurants, notably those in the fine-dining sector, are feeling the pinch.


“New restaurants, like Central and Brasserie Beck’s, tend to be doing better than restaurants that have been open for a while,” Kinkead says. “People always want to see what’s new.”


He estimates that sales at his D.C. restaurant, Kinkead’s, have dipped about 4 percent since January.


“But I’ve heard that some other guys are down 10 [percent] and 15 percent,” he adds.


Owens of Clyde’s Restaurant Group also notes that the company’s fine-dining restaurant, 1789, is not up over last year.

“Fine-dining has been hit a little harder,” he says.


While consumer cutbacks in spending have taken their toll on operations across the country, a recent lobby reform bill passed by the federal government also is said to be impacting Washington high-end restaurants in particular. Called the Honest Leadership and Open Government Act of 2007, the measure limits lobbying activity and places more restrictions on gifts or meals for members of Congress and their staffs.


“It has cut into sales a little, depending on a restaurant’s proximity to Capitol Hill and its reputation as a government lobbyist hangout,” says RAMW’s Breaux. “But it has created some paranoia.”


Even with the challenges, however, D.C. restaurateurs generally tend to be upbeat about their prospects.


“The energy around the city is high,” Breaux says. “There’s still a lot of excitement.”


Kinkead says the closing of his Colvin Run Tavern hasn’t soured him on the idea of growth, either.


“My business plan now is to find a space where I own the building and can do what I want,” he says. “I might not go back into Tysons Corner, but I would look in northern Virginia, Baltimore or Annapolis. People are still opening restaurants, and I’m looking.”