liquor license broker

Chains move into Pittsburgh market despite shrinking population, onerous tax increases: Local economy will not support such growth, some claim

PITTSBURGH -- Despite doom-and-gloom claims that this city is dying and public officials have no clear plan for resurrecting it, several high-profile chain operators are setting up shop here.

Four months ago The Cheesecake Factory opened a 350-seat unit on the city's South Side, which Howard Gordon, the chain's senior vice president of public relations and marketing, believes will yield revenues "as strong as any of our other units around the country."

Panera Bread has added seven units in Pittsburgh in the recent past, ringing the city with its bakery-care concept. "We see a lot of opportunity in that area," said Ron Schaich, chief executive of the St. Louis-based company. "There is a need for more different types of concepts, a desire for more variety in dining choices in the city."

Red Robin Gourmet Burgers just opened a casual-dining branch at The Waterfront, a major retail and entertainment complex along the Monongahela River in suburban West Homestead, and Kim McBee, Red Robin's director of marketing, said the company is looking at four more locations in the Pittsburgh area.

Fuddrucker's is scheduled to follow suit at The Waterfront by April, and McCormick & Schmick's and Fatburger's are among other chains slating Pittsburgh debuts.

However, despite the optimism exhibited by Gordon, Schaich and other restaurateurs, the city still could be seen as being in decline.

The Pittsburgh metropolitan area for more than a decade has been losing population at a rate of about 1 percent per year. The city's transformation from a manufacturing economy to a service economy, a term used as long ago as 1975 by the late mayor Richard Caligiuri, has yet to be completed, even though the area bills itself as being the 10th-largest corporate center in the nation.

The Golden Triangle--the downtown area situated at the confluence of the Monongahela, Allegheny and Ohio rivers--is anything but golden these days. A beautiful new convention center thus far has failed to attract major trade shows, and onerous surcharges, such as the recently levied 50-percent parking tax, are driving away businesses and visitors from the city, according to some restaurateurs.

Last year the region was dealt a severe blow when bankrupt US Airways decided to drop Pittsburgh as one of its hub cities, making it even harder to convince companies to relocate here.

So why, with such a depressing outlook, are restaurant chains flocking to the area?

"There is still a perception that there were never enough retail and restaurant options to begin with," said reporter Tim Schooley, who writes about the restaurant industry for the Pittsburgh Business Times. "Operators see that the average resident today is older and has more disposable income, and so Pittsburgh continues to develop in spite of itself."

Schooley also noted that several new retail complexes are luring many restaurants. In addition to The Waterfront, South Side Works, across the Monongahela from the Golden Triangle, and Robinson Towne Center, located near the airport, have attracted new outlets.

"These developments are a rare opportunity for operators to come in and put up new buildings, as opposed to trying to renovate existing spaces," Schooley said.

Jim Frye, a native of nearby Latrobe, Pa., who developed the now-defunct Italian Oven pizza chain more than two decades ago, agrees with Schooley.

"Operators began coming in several years ago and didn't see a lot of chains, so they considered this virgin territory," said Frye, who recently reformulated the Italian Oven into Italian Oven Cafe-Pizzeria and opened the first unit just south of the city in the suburb of Brentwood. "I'm afraid that what they're going to find is that all we're doing is just trading dollars."

Herky Pollock, executive vice president for CB Richard Ellis, a commercial real-estate firm in Pittsburgh, has brokered deals in the Pittsburgh area for several restaurant chains, including Baja Fresh, Darden, Panera and Restaurant Development Group, so his view is more upbeat.

"By and large, the chains are not worried about trading dollars or a relatively small customer base," Pollock said. "What they are trying to do is offer the city more variety. Pittsburgh has always been seen as a blue-collar, meat-and-potatoes kind of town, but that image is slowly changing. These operators are helping that image change."

Not everyone shares Pollock's view of chains as entirely beneficial to the city's economy. Terri and Ned Sokoloff, who operate Specialty Group, a company that helps secure both spaces and liquor licenses for potential restaurateurs, are worried that the influx of chains might homogenize the city.

"Outside chains view us through a different set of glasses than we do ourselves," Terri Sokoloff said. "Chains don't see Pittsburgh as a saturated market. But when some chains come in here, you have to wonder whether they are coming for the restaurant business or for the real estate. Do they have an exit strategy in place before they even get in?"

Ned Sokoloff's assessment is even harsher.

"Chains are sucking the life and personality out of Pittsburgh," said Ned Sokololl, the firm's primary liquor license broker. "We lack the energy of [cities like] Atlanta, Chicago and New York [that would enable us] to sustain this restaurant growth. Nevertheless, I still have five or six appointments a week from people dying to get into the business."

One reason is that even some longtime local operators still profess optimism in the city's revival. One local chain, the Eat 'n Park Hospitality Group, plans to open a new concept in the area of the Golden Triangle known as the Cultural District. The 240-seat upscale casual restaurant, which will be called Six Penn Kitchen, will differ vastly from the company's traditional Eat 'n Park family-dining concept.

"We believe that the downtown Pittsburgh market is on the verge of a rebirth because of the growth of the cultural district and the convention center and the stadiums on the North Shore," Mark Broadhurst, the company's director of concept development, told the Pittsburgh Business Times.

Shortly after Chicago-based Restaurant Development Group closed Nick and Tony's Chophouse in the USX Tower last September, local restaurateur Ed Dunlap, owner of LeMont and The Colony, announced plans to take over the space with a 300-seat Mediterranean concept to be called Cafe Euro.

And operators of the Big Burrito Restaurant Group, which began in 1995 with the opening of the first Mad Mex casual Mexican restaurant near the University of Pittsburgh, continues to open new and increasingly upscale restaurants for different sections of the city, such as Shadyside and The Strip District. Its newest restaurant, Eleven, is among the priciest in the city and competes with such upscale restaurants as Lidia Bastianich's Lidia's Kitchen, Pittsburgh Fish Market and The Carlton.

But for those and other restaurants to achieve long-term success, experts believe the city needs to affect a new long-term strategy for growth.

In a position paper published a year ago The Allegheny Institute for Public Policy cited two problems driving people and business out of the area.

"First and foremost is the burden of city and city school taxes," according to the institute. "Tax data from 14 comparable cities were analyzed to examine the share of these taxes as a percentage of all taxes and as a percentage of income. The four cities where city and city school taxes represented the largest share of both also saw significant decreases in population over the decade. These were Pittsburgh, Cleveland, Cincinnati and St. Louis."

The institute also questioned the city's decision to use venues that have been built in the last five years, such as the two sports stadiums, as part of its economic-development strategy.

"Pittsburgh [joined other cities] that hitched their hopes to stadium-driven economic-development schemes that have not panned out as promised," the position paper stated.

Jim Frye is one restaurateur who agrees with that assessment.

"I think we've done things a little backward here," he said. "We should have attracted young people by luring new businesses and providing more affordable housing. Those new people would have demanded the amenities, like new sports stadiums. Instead, we built the amenities and hoped the people would come in."

Kevin Joyce, owner of The Carlton restaurant and treasurer of the Pennsylvania Restaurant Association, called the city's politicians" shortsighted."

"The parking tax is a perfect example," he said. "The city raised the parking tax, and the occupancy rate in office buildings downtown declined. Companies relocated to the suburbs."

"The city also needs to get its act together with the convention center," he added. "We have an architecturally magnificent building there, one that people will be talking about a hundred years from now, and nobody's seeing it. We need a strong sales force to attract conventioneers. If you bring in the conventions, the restaurants will do well, the hotels will be stronger and the city will regain its vitality. It can all snowball."

Pittsburgh at a glance

Population: city--326,600 (2003 est.); Allegheny County--1.26 million (2003 est.); metro area--2.36 million (2000)

Rate of population decline: 1% per year (est.)

Median income: city--$35,625; county--$38,125 (2002)

Rate of income growth: 1.7% (2001 to 2002)

Minimum wage: $6.15 per hour

Average wage: $17.78 per hour (2002)

Median age: 36

No. of restaurants: 5,208

No. of hospitality and leisure workers: 102,000 (metro area)

Unemployment rate: 5.1%

Average rant per square foot: $22.02. (National rate: $25.30)

Comparison of annual
spending on food
away from home:

Pittsburgh            $2,192
New York              $3,197
Boston                $2,324
Philadelphia          $2,232
National average      $2,243

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