Despite gloomy restaurant outlook, optimistic Koch brings his Seven steakhouse out of Chapter 11

Minneapolis restaurateur David Koch is undaunted as he brings his high-end downtown restaurant Seven — The Steakhouse out of Chapter 11 into the toughest dining environment on record, according to the National Restaurant Association.

The two-year-old restaurant declared bankruptcy last April after what Koch describes as “a perfect storm” of the financial market meltdown, curtailed corporate dining and events, and rising commodity prices, as well as tight credit. In addition, Koch had one potential partner, troubled auto dealer Denny Hecker, pull out of the operation and withdraw financing.

Despite a gloomy forecast on the national dining outlook, Koch, who also built the now-closed Bellanotte at the Block E complex, sounded an optimistic note about Seven.

“It’s strong, and it’s here to stay,” he said in announcing the 26,000-square-foot restaurant and event site’s emergence from bankruptcy protection. He points to rising sales as one factor that enabled him to bring Seven out of Chapter 11 so quickly. He credits the support of his vendors, as well as partnerships with neighbors such as Pantages Theater in keeping the venue alive during a difficult fall and winter last year.

“Not only has business increased, but our vendors — the people we needed to keep moving forward — have been extremely supportive in helping us navigate Chapter 11 protection. When we first got into the concept of Seven, the economy was strong,” Koch said. “We opened for business, and you couldn’t get in. That first year, we dominated the city’s dining scene.”

But this year has been a tough one for Twin Cities’ high-end restaurants, with the closings of such once-popular spots as Morton’s and D’Amico Cucina in downtown Minneapolis.

Nationwide industry statistics through September show continued declines in restaurant sales, according to the National Restaurant Association’s comprehensive index of restaurant activity. The monthly index (PDF) stood at 96.0 in September, unchanged from August and tied for the second-lowest level on record. It was the 25th consecutive month below 100, indicating continued contraction in the industry.

Although restaurant operators continued to report negative same-store sales in September, the performance was an improvement over the record-low reading posted in August. Twenty-two percent of restaurant operators reported a same-store sales gain between September 2008 and September 2009, up from just 17 percent who reported a sales gain in August. Sixty-five percent of operators reported a same-store sales decline in September, down slightly from 68 percent reporting negative sales in August.

And the outlook remains grim. In addition, the survey reports that restaurant operators’ six-month outlook stood at 99.0 in September — down 0.9 percent from August and its first decline in three months. Twenty-eight percent of restaurateurs surveyed expect economic conditions to improve in the next six months while 20 percent expect economic conditions to worsen. The same question asked in the August survey drew a vote of confidence from 34 percent of operators while 19 percent expected conditions to deteriorate.

“While there were signs in recent months that the short-term outlook may be improving, the latest figures indicate that the restaurant industry’s recovery has yet to fully gain traction,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the association.

“Restaurant operators continued to report declines in same-store sales and customer traffic in September, and their outlook for sales growth in the months ahead remains mixed,” the association said.

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