Off the Charts: Ireland’s Turnaround May Not Be So Rosy

TWO years ago, even as other troubled European economies continued to deteriorate, some economic statistics seemed to indicate that Ireland’s troubled economy had turned the corner and was growing again.

The government reported that gross national product had grown in 2010 for the first time since the country’s property bubble burst in 2008, and that its current-account balance had turned positive for the first time since 1999. A positive current-account balance was a sign that the country as a whole was already paying down its overseas debt. Since that was clearly not happening to the government’s debt, it indicated a sharp turnaround for the private sector.

Other statistics were not nearly as rosy. Unemployment was continuing to rise, and domestic demand — the total purchases by people and companies in Ireland — was continuing to fall. But the fact that Ireland’s current-account surplus had turned around when nothing similar had happened in such countries as Portugal, Spain and Greece was viewed as a clear sign of success for the country’s economic policies.

Well, maybe not.

John FitzGerald, an economist with the Economic and Social Research Institute in Dublin, pointed out last month that a quirk in the way the statistics are computed, coupled with fears of a tax law change in Britain, had produced unrealistic increases in both the balance of payments and G.N.P. figures beginning in 2009.

The reasons are complicated, but the quirk is retained profits of multinational companies that chose to relocate their nation of incorporation to Ireland, even though they were, in fact, based in Britain. The G.N.P. and balance of payments data allocate those profits to Ireland, he said in a paper, even though “there is no profit to the Irish economy.”

The G.N.P. figure is similar to the more widely known G.D.P. — gross domestic product — but it includes profits only of Irish citizens and companies, regardless of where they were earned instead of profits of companies operating in Ireland. In an interview, Mr. FitzGerald said the Irish statistics office understands why the numbers are misleading, but feels it cannot change them under European rules. He said that European Union taxes on its member countries were based on G.N.P. numbers.

The accompanying charts show the official figures, alongside Mr. FitzGerald’s estimates of the proper ones after adjusting for the foreign-owned profits. By his estimates, the balance of payments did not turn positive until 2012, when the surplus was much smaller than the official figure. Similarly, the G.N.P. did not begin rising until last year.

The International Monetary Fund, in its review of the Irish economy published this week, said Mr. FitzGerald’s numbers appeared to be better. “This adjusted G.N.P. path appears to be more consistent with other economic indicators, most notably domestic demand, which continued to fall in 2009-12,” the I.M.F. report stated.

The I.M.F. forecasts that domestic demand will grow by 1 percent in 2014 after six consecutive years of decline.

Government spending reductions are a major part of that weakness, but so is the country’s failure to fix the financial system. Despite huge bank bailouts that nearly bankrupted the government, the I.M.F. is still worried about the capitalization of the banks and concerned that little money is available for lending.

Mortgage problems continue to grow. On Friday the Irish central bank said that 25 billion euros of home mortgages — more than 23 percent of the total outstanding — were behind on their payments at the end of March. Unemployment has declined a little, but remains above 12 percent for adults and more than double that for people under 25.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

New Sbarro Pizza Recipe to Drive Chain’s Turnaround Plans

Executives at Sbarro, the chain ubiquitous at shopping malls and airports, are hoping to elevate their restaurants in consumers’ minds with a better quality of pizza.

Aided by some technological changes, the company will return to making tomato sauce fresh and shredding cheese in each restaurant, instead of using prepackaged ingredients. The reformulated pizza is intended to help transform Sbarro into a “fast casual” restaurant chain like Panera Bread and Qdoba, said James J. Greco, who became chief executive at the beginning of the year.

Such restaurants offer customers better food quality and specialization without full table service, thus falling somewhere between fast food, or what the industry calls quick service, and casual dining restaurants. Customers often can select the ingredients for, say, a basic item like a pizza or a sandwich, which is made in a few minutes and handed over a counter for a meal costing $8 to $15.

Several pizza chains that have emphasized quick service are making the transition to the fast-casual category, said Darren Tristano, executive vice president of Technomic, an industry consulting firm. Pizza Inn, which has 300 restaurants, recently started Pie Five Pizza, a fast-casual chain that bakes nine-inch pizzas “designed” by customers in five minutes. Naked Pizza of New Orleans and 800 Degree Pizza out of Los Angeles are other examples.

“Sbarro fits into the quick service category because of its price point and service format, where nothing is made to order,” Mr. Tristano said. “In malls and food courts, they’ve struggled during the recession, and in their stores in urban and suburban locations, they’re really up against much larger chains in the delivery space.”

A 56-year-old pizza chain founded in Bensonhurst, Brooklyn, Sbarro staggered into bankruptcy in April 2011 with more than $400 million of debt. Its sales, like those of many other restaurants, had slid during the recession as customers ate out less and prices rose for commodities like flour. It exited bankruptcy eight months later, after shedding 28 stores and securing a $35 million line of credit.

Now Apollo Global Management and more than two dozen other investors are banking on Mr. Greco to achieve the same kind of turnaround at Sbarro that he did in his last post, at Bruegger’s, the bagel chain. A private company, Sbarro said it had $650 million in worldwide sales in 2011, $420 million of which was in the United States.

“We have to change people’s perception of us,” Mr. Greco said over one of the company’s new cheese pizzas at its store north of Times Square. “We feel there’s no better way to do that than to get this pizza into as many mouths as possible as fast as we can.”

Thus, two vintage trucks are beginning a national tour, starting in New York and Los Angeles and working their way around the country, handing out free slices.

Mr. Greco faced a similar challenge at Bruegger’s, one of the many bagel chains that thrived during the bagel enthusiasm of the 1980s but suffered when consumer preferences changed. He added soups, wraps, salads and sandwiches to that menu and, while the stores still sell bagels, it is a place to have a light lunch today.

Bruegger’s was sold in 2011 to Groupe Le Duff, a French restaurant company that also owns Brioche Dorée, earning a hefty return for Sun Capital, the private equity firm that had hired Mr. Greco to fix it.

“He grew the brand and shifted it into a fast-casual place,” Mr. Tristano said. “He did a nice job of moving it more to a cafe.”

Since June, Sbarro has been testing a fast-casual format at 10 locations across the country. The updated restaurants offer pastas made to order in front of customers in 45 seconds in sauté pans on induction stovetops or in fast boilers sunk into countertops.

But the test has shown that pizza still drives Sbarro’s sales. Pizza accounted for almost half of sales in the test sites, according to Nation’s Restaurant News, while pasta generated just 6 percent.

For advice, Mr. Greco turned to a local pizza restaurant in New Haven, where he lives — though he would not divulge the name of the shop or its owner. The goal was to come up with a basic, Neapolitan-style pizza that could stand up to the local pizza wherever there is a Sbarro store. “Why can’t we do that?” Mr. Greco asked.

Along with changing ingredients, the chain is adding open-flame ovens to increase the “theater” of the experience as well as cut the time it takes to cook a pizza and reheat a slice.

To ensure consistency, the company long ago began making its tomato sauce and shredding its cheese in central locations and shipping it to restaurants.

Every pizza was the same — but every pizza did not taste as good as it could, said Anthony J. Missano, president of business development at Sbarro.

The company is now shipping whole peeled San Marzano tomatoes, which are put through a food mill as needed and made into a sauce with minimal ingredients at the restaurants.

Cheese is shipped in blocks and shredded on site as well. “People are much smarter about what they’re eating,” Mr. Missano said. “They have higher expectations of what they’re going to get when they go to a restaurant, and we’re going to give it to them with this new pizza.”

The next step in Sbarro’s turnaround will be to adjust its real estate mix. The company has about 1,000 stores, about 420 of which it owns; the rest are franchised. Four-fifths of them are in mall and airport food courts, where rents are high and it is easy for customers to move to a different counter.

Mr. Greco’s plan is to open new stores on street fronts, where the company has about 70 restaurants.

“It’s as if we are doing a jigsaw puzzle,” he said. “You dump out all the pieces on the table, sort through them and look at the picture on the box — except that instead of putting the pieces back together to form the picture, you have to make a new picture out of them.”