Business lunches curbed

Business deals and strategies are more often than not pitched outside of formal offices over five-course meals meant to impress, and agreements are settled with hand shakes and toasted with expensive wines before they're legally official. Client dinners, business lunches and catered conferences have created a steady demand for the fine-dining restaurant industry, but tightening company budgets has translated to leaner times for restaurants that have counted on corporate clientele.

The client breakdown of the Zátiší Group's restaurant and catering business has always been corporate-heavy, and, while that demand has taken a sharp downturn, it's a better position to be in than restaurants that are more dependent on tourism, said the group president and CEO, Sanjiv Suri. In an indication of just how hard restaurants have been hit, that better position means business is down only 30 percent, compared with the 50 percent many restaurants in the center are dealing with, he said. That downturn has been nearly steady since August, with the exception of a typically profitable September.

"It depends on the location, but it's definitely in that range of 50 percent plus. In a way, we're fortunate, but it's still bad. This," he said, pointing at the 30 percent figure, "is bad."

After the group cut 250 full-time employees down to 212, costs still needed to be trimmed to balance the slowdown. In fine-dining restaurants, 55 percent of operating costs are fixed, Suri said, and companies in the hospitality industry spend a large part of their budgets on labor, so rather than scale back the quality of ingredients, restaurants are often forced to shuffle the work force.

"Everybody in the team felt that we'd taken away all the fat, and now it's just bone and muscle," Suri said of the layoffs. "The team recommended that any more cuts would hurt our competitiveness, so they agreed to take salary cuts. Proportionally, the highest levels took the biggest cuts, and the dishwasher[s] took the lowest cuts."

Events postponed

While many midlevel restaurants that cater to tourists are overpriced in relation to value and services, fine-dining restaurants have higher costs that are both justified and harder to reduce during financial difficulties, said Pavel Hlinka, president of the Czech Association of Hotels and Restaurants. Ingredients are fresher, rent for good locations is higher and even waiters who must know two to three languages command higher wages. In the short term, the top restaurants might see profits squeezed as a result, but their level of service means clientele will remain loyal throughout the crisis.

"At the moment, they're in trouble, but I don't think it's forever," he said. "Business is not done by phone or video conferences; people have to meet. Companies will discover soon that if they would like more business, they have to travel, etc."

As business lunches dwindle, so do conferences that bring big profits to caterers and hotels. The Zátiší Group has three catering units, one that works exclusively for events at the Congress Center. In addition to the inevitable downturn in seminars and conferences, many events that had been planned in better times are being postponed indefinitely.

"They say, 'It's not canceled, we'll hold it in six months,' but what that really means is don't count on it; it's mostly likely gone," Suri said.

Circles and solutions

Empty dining rooms may be the more visible effect of the economic climate, but restaurants are facing serious pressures from landlords and banks that were more manageable during more prosperous times. Banks are revising policies that make it harder to refinance loans or take out new ones to remodel, while landlords aren't budging on the high rents that made more sense when customers were still coming in.

"Most [landlords] also have loans with the bank they used to reconstruct or build the property, so that's why they need the same amount from the restaurateur," Hlinka said. "It's a circle."

While restaurants ride out the recession, owners are coming up with creative solutions to keep customers coming in. After the owners of the Prague restaurant U Petrské věže announced that diners could pay what they felt like for meals, the two-week promotion was shortened to one when customers simply didn't pay. The Zatiší Group's Žofín Garden will try a similar tactic, but with a base price of 195 Kč ($8.82) for a business lunch buffet.

"We're putting more time and energy into our clients and understand what their needs are right now, where we can fit into that structure and how we should modify our services or practices," Suri said.

Claire Compton can be reached at
ccompton@praguepost.com