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Some Local Restaurants Are Setting a Course for Expansion

Despite a national economy that one research firm says is taking the biggest bite out of independently run eateries, some San Diego-based restaurant operators are actually growing their presence with new locations.

Premier Food Concepts LLC this month will open its fifth Luna Grill in Eastlake, with a sixth set to debut at Liberty Station in November. Donovan’s Steakhouse earlier this year debuted a seafood-focused format at its third restaurant that opened downtown in 2010, and Cohn Restaurant Group Inc. plans to launch its 15th restaurant at an Escondido Lexus dealership in early 2012.

The expansions come as New York-based NPD Group Inc. reports that U.S. restaurant locations in operation declined by 2 percent over the past year, for a loss of 9,450 restaurants. The bulk of the declines were among independent eateries, which lost a net 8,650 locations, while the ranks of chain locations remained relatively unchanged.

Difficult Times for Independents

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NPD’s annual restaurant census found the same general trends holding true in the San Diego metro area, with chain locations dropping 1 percent while independents declined 3 percent. Local independent eateries still outnumber chain locations, by a count of 3,301 to 3,000.

Greg Starzynski, an NPD director who tracks the food-service industry, said the national decline in independent units was the steepest the company has seen since it began the census in 2001. “A volatile economy, more frugal consumers, and a lack of financial backing have made it a difficult business environment for independent restaurants,” he said.

In spite of the challenges, established local operators say they’ve found ways to remain financially viable and competitive with national chains, and ultimately grow their local presence.

At Premier Food Concepts, Chief Executive Officer Sean Pourteymour said the recipe includes keeping close watch on fluctuating commodity prices and making necessary menu adjustments that allow the company’s Luna Grill eateries to maintain quality. The private company posted 2010 sales of around $3 million, and Pourteymour said it will set its sights next year on the Orange County market.

The restaurants favor health-oriented and preservative-free items, such as Mediterranean-style salads and kabobs, with prices in the $7 to $11 to range and takeout services geared to busy families. Since opening its first Carmel Valley restaurant in 2004, the company has found other reasonably priced but strategic locations elsewhere in the region, and it was actually approached by leasing officials at Liberty Station, the Point Loma mixed-use development that was once a U.S. Navy training base, about setting up shop there.

“Good locations are as tough to find as they always were and they can still be relatively expensive,” Pourteymour said. “But it does help when the landlord comes to you first about locating somewhere.”

Other operators say the San Diego region has its share of restaurant turnover, but also has a year-round mix of visitors and loyal natives who keep the local scene relatively stable compared with other regions.

‘Balanced Economy’

“It helps that we have a balanced economy,” said Brian Kelley, chief financial officer at Donovan’s Steakhouse. “If one industry struggles, another thrives.”

Kelley said the private company’s sales have generally been even with 2010, and well ahead of 2009. Its La Jolla restaurant was less impacted by the recession than its main downtown location, partly because it is less dependent on convention-related business.

With the economy improving, the company has been able to use its newest Gaslamp Quarter restaurant, Donovan’s Prime Seafood, to accommodate large corporate and convention groups when things are booked up at its nearby steakhouse in the Gaslamp.

David Cohn, president of Cohn Restaurant Group, said the privately held company generally has not seen dramatic sales fluctuations over the past two years at its restaurants, which include Corvette Diner, Indigo Grill, The Prado at Balboa Park and the upcoming Vintana in Escondido.

He said local restaurateurs’ growth projections have “come down to Earth” since the recession hit, and his company has become more strategic about opening locations in underserved areas that show potential for rising demand, such as North County.

In popular hubs like the Gaslamp, he said there is little sign that independent restaurants are waning. “When a restaurant closes, it doesn’t take very long for another restaurant to replace it,” Cohn said. “And a lot of times when you see a retail store close, it’s replaced by a restaurant.”

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