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Economy, prices could crimp restaurants' gains

The U.S. restaurant industry is expected to show signs of life this year, but a still-tough economy and rising commodity prices could put a damper on those gains.

The food-service industry added 188,000 jobs last year, a sign consumers have more cash on hand and welcome news after three years of what Hudson Riehle, senior vice president of research for the National Restaurant Association, called the "most challenging period for the restaurant industry in its recent history."

Although employment remains well below peak levels, Mr. Riehle said he expects the positive trend to continue into 2011.

Technomic, a Chicago food industry research group, is forecasting a 1.6 percent increase in restaurant and bar sales this year over 2010, with the biggest increases predicted for bars and taverns. A recent survey by Nation's Restaurant News found more than 70 percent of restaurant operators expect sales to be up in 2011 from last year. About 45 percent said they expect to benefit from higher consumer spending.

Chuck Keagle, owner of Cask&Cleaver steakhouses in Rancho Cucamonga, San Dimas, and Riverside, Calif., and Sycamore Inn in Rancho Cucamonga, said the regional outlook is mixed.

Business had been on the decline throughout the region since 2007, Mr. Keagle said.

He closed four restaurants through the downturn, cut staff, and reduced costs to stay afloat. Sales began to level off in spring, 2010, and, by fall, his Rancho Cucamonga stores had begun to show modest improvement.

He said business there is up 5 percent to 8 percent year over year.

But in Riverside, sales remain flat. With the construction industry languishing and unemployment high, Mr. Keagle said, "We think that is going to be the story for Riverside for 2011."

Alessio DiSabatino, owner of Francesca's Italian Kitchen in Temecula, Calif., said business is down about 30 percent from prerecession peaks, but 2011 looks a little better.

Consumers aren't spending as they did before, but Mr. DiSabatino said he sees a steady mix of loyal locals and tourists.

"It's a struggling situation," he said.

At the same time, Mr. DiSabatino and other restaurant operators say higher costs for everything from meat, fish, and dairy to gasoline and utilities offset any gains.

U.S. Bureau of Labor Statistics data show wholesale prices for beef and veal were up 15.1 percent in December from the previous year, and dairy products were up 3.3 percent. Prices for fresh fruit and melons were up 3.9 percent; shellfish, 12.7 percent.

With consumer confidence still weak, operators can do little but absorb the extra cost.

"This is not the kind of market where you raise prices. It just isn't," Mr. Keagle said. "So we're just kind of taking a hit."

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