Undaunted, National chains eye L.A. (Up front).

Volume, as they say in the restaurant business, cures all evils.

In Los Angeles, those evils include higher wage rates, fluctuating energy costs, and real estate prices that appear to have remained immune (for the time being) to the national economic slowdown.

Yet, national restaurant chains are still licking their chops at the prospect of entering the L.A. market. The reason: a potential 9 million diners.

"We are actively looking for additional sites," said Rick Walsh, senior vice president of corporate affairs at Orlando, Fla.-based Darden Restaurants Inc.

Darden, seeking to expand the local presence of its Red Lobster and Olive Garden brands, is joined in its push here by Brinker International Inc., headquartered in Dallas.

Jesse Rehmeier, Brinker's regional real estate manager, said the company will go forward with the opening of three to five restaurants in Los Angeles County in 2002. Last month, it signed leases in Westwood Village for a Chili's and Corner Bakery, both of which are scheduled to open toward the end of next year. Brinker also will open a Maggiano's Little Italy in The Grove at Farmers Market next spring.

Rehmeier contended that challenging economic conditions have made identifying sites and, ultimately, deal making, easier for the established chains.

"The tougher times have made it challenging for the smaller restaurateurs, and that has made us more attractive to landlords because we have proven concepts," he said.

In Santa Monica, where higher utility costs have softened interest, Kyle Kavanaugh, president of Main & Main Inc., is not surprised that the larger mid-priced chains continue to inquire about locations throughout Southern California.

Besides working with Brinker to find sites for its Macaroni Grill concept, Kavanaugh, whose firm specializes in finding locations for retail and hospitality clients, said Phoenix-based P.F. Chang's China Bistro has shown interest in expanding upon its five-unit presence in Los Angeles County.

"You can't avoid some of the volumes that the people who have a presence here are doing," said Kavanaugh.

This continued interest comes at a time when even the most seasoned restaurant operators are challenged by recent business conditions.

Corte Madera, Calif.-based Constellation Concepts, whose local high-volume operations include Marina del Rey's Cafe Del Rey and Westwood's Napa Valley Grille, surprised many last month by shutting down California Cafe in The Shops at Mission Viejo.

Temporary power problems

Tim Smith, Brinker's director of communications, conceded that energy prices have cut into Brinker's statewide operations. "Over half of our utility costs increase nationwide are in California," said Smith, who estimated that 10 percent of the company's units are in the state.

Power-related cost issues are temporary - Smith said "the utility situation has calmed down a bit" - but wages remain a potentially greater impediment to restaurant expansion here.

California's mandated hourly wage for so-called front-of-the-house personnel - including waiters and busboys - exceeds that of all but two states.

California is one of seven that does not have a reduced wage for tipped employees, and its minimum wage will jump to $6.75 an hour next year.

The Federal minimum is $5.15 an hour, but it allows for a reduced wage, commonly known as a "tip credit," to be paid to all tipped employees. The Federal "tipped wage" of $2.13 an hour is used by 13 states while 30 others have adopted reduced wage rates for tipped employees.

"Eighty percent of our staff is tipped employees," said Tony Palermo, a partner in Tony P's Dockside in Marina del Rey. "It puts the labor dollar up so high that its hard to pay for the back-of-house."

Despite these challenges, local consultants believe that the sheer number of potential diners in Southern California ensures that major chains will continue to look for local sites, business conditions notwithstanding.

"The cost of doing business is high here but the rewards are very high," said Janet Lowder, president of Rancho Palos Verdesbased Restaurant Management Services.

In fact, Lowder views the failures of existing restaurants as opportunities for companies in the financial position to expand. "If restaurants are going out, it may be a good time to get new sites."