Keg sizzles on yin and yang of recession

David Aisenstat is one of those lucky Vancouver souls who can stay at home and still see the full splendour of the famed Celebration of Light fireworks festival as it sparks and sparkles over English Bay.

But that simple pleasure had fizzled out for this year, as the recession toppled the already tottering financing of the Vancouver summer event. Fizzled, that is, until Wednesday, when another Vancouver icon stepped in to help – the Keg steakhouse chain, headed by Mr. Aisenstat.

The Keg's president and chief executive officer is being modest, demurring from claiming the main credit for saving the festival. Instead, he muses about the “yin and yang” of the recession, which has dried up funding for events such as the Celebration of Light just when people could use a little inexpensive frivolity. “It's probably the time it's the most beneficial,” he says.

When times are tough, life's little pleasures are all the more needed. And, as has become the Keg's good fortune, steak dinners seem to be one of those little pleasures. Announcing his company's sponsorship of the fireworks festival, Mr. Aisenstat alluded to the Keg's relative prosperity even as consumer spending shrivels.

Again, he's being modest. Even a brief examination of the Keg's financial statements, by way of its associated income trust, shows that the steakhouse chain more than held its own in the opening stages of the economic downturn. In the fourth quarter, the Keg's gross sales were up 7 per cent from the year-ago quarter; on a same-store basis, sales were down 2.2 per cent. A decline might not seem terribly impressive, but it is better than how its part of the industry is faring – a little better, if you use the restaurant industry's projections of a 3.1-per-cent decline in the coming year, and a lot better, if you use some analysts' forecasts of an 8- to 10-per-cent decline in casual dining receipts.

The Keg Royalties Income Fund, paid out from a percentage of sales, has been able to maintain distributions. And while those units have tumbled from their highs of a year ago, they have rebounded smartly in the past two months – even as the economic outlook has darkened – as the steakhouse chain's resilience has manifested itself.

So, what is the Keg's secret? The yin and yang of the recession, to borrow Mr. Aisenstat's phrasing. The turbulent economy may mean that some diners eat out less often – but when they do, they want to be sure that the experience is enjoyable. For those customers, the brand power of the Keg will be a draw. “We're pretty reliable,” Mr. Aisenstat says. “You go to the Keg, you know what to expect. We're not trying to confuse people.”

The company's financial statements bolster the argument for brand power, in a reverse fashion. Same-store sales in the United States, where the Keg doesn't command the brand presence it has in Canada, were down 16 per cent in the fourth quarter, versus just a 3-per-cent decline in Canada. Currency fluctuations limited the damage to the chain's numbers, but the difference indicates that the familiarity of the chain is a major asset in this country.

Part of the Keg's success also comes from its skill in being able to balance the need for freshening its menu with the imperative of not abandoning its culinary roots, says Doug Fisher, president of food service consultancy FHG International Inc. In doing so, the Keg has concentrated on building new items around its central menu of grilled beef.

Take one of the latest new appetizers: grilled flatbread with tomato sauce, bocconcini cheese, fresh basil and a balsamic glaze. On its own, it's a dish that seems a little out of place sitting next to a baked potato. But such changes, along with seasonal promotions, have allowed the chain to freshen its menu without resorting to the kind of brand-blurring disasters that seem to stalk successful restaurant chains.

The yin and yang of the recession could be helping the Keg in another way, Mr. Aisenstat says. Even though most consumers haven't been directly hurt by the recession, economic worries are undoubtedly keeping them from buying new cars, new homes and other big-ticket items.

But a $100 steak dinner? That's one of those little pleasures that is all the more enjoyable when times are tough. “It's a relatively inexpensive luxury,” he says.

PATRICK BRETHOUR

Globe and Mail  March 13, 2009