Wednesday, March 31, 2010

This stinks

Restaurants have been blamed for many of the earth’s social ills, from obesity to litter to rendering family dinner obsolete. Now it’s being charged with hurting the earth itself.

A new study from Minnesota academics has concluded that restaurants are significant contributors to air pollution. The culprits are the smells given off by a sizzling steak or a baking loaf of bread, since what hits your nose are really little bits of food matter. If food and smoke particles were confetti, eateries would be a veritable non-stop New Year’s Eve celebration, the authors concluded.

Meanwhile, restaurants are drawing heat (and fines) for a clogging of the civic arteries. A number of locations from coast to coast are discovering their infrastructures can’t handle the industry’s output of FOG, the label they’ve given the industrial cholesterols of fat, oil and grease.

If you think that stinks, you’re absolutely right, say the critics. In places like Scottsdale, Ariz., a drainage backup turned an upscale shopping area into a place where sewage workers would hold their noses. Tightly.

Now the Phoenix suburb wants to keep the air smelling like a forest breeze by banning restaurant garbage disposals, which grind food scraps into a mush that can be rinsed down the drain. If the places can’t get rid of food waste that way, reason the proponents, the restaurants will find another way to dispose of their trimmings and plate scrapings. Pipes, air quality and a town’s effluent waters will be spared.

That’s hardly the lone solution to the issue. Other areas are taking the wrist-slap approach, fining places that clog the pipes, or sending them the Roto-Rooter bill for snaking out the muck.

Addressing the polluter accusations is something the industry needs to address from a centralized, 50,000-foot perspective. But the FOG issue should be seized as an opportunity to resolve two problems in one flush.

Ask any national chain about composting, or deflecting food scraps from the waste stream for use by agriculture or industry, and you’ll hear how difficult it is to take that greener course. The pertinent regulations are currently a hodgepodge, varying widely from haven to haven. Even if you can navigate the quagmire, there’s usually no infrastructure in place to handle the output.

They also lament that few areas are striving to create a system, much less a universal program that’d be the same from Maine to California.

Much has been reported in the last year or so about turning used fryer oil into biodiesel fuel, and that’s a real movement. But, as hotel chains readily attest, it’s still hard to put a reclamation program in place in some areas. In any case, the process has to be set up market by market, instead of plugging into a common network.

As the FOG issue continues to fester, the industry faces an opportunity to promote composting on a concerted basis. A botched effort would really be a stinker.

Tuesday, March 30, 2010

Flapjacks for flyers?

IHOPs may soon be firing up the griddle at airports, travel plazas and other alternatives to the usual street-side location. The pancake chain said it plans to pursue nontraditional sites as a result of hiring Bill Alexander, a longtime Brinker International veteran, as its new vice president of franchising and business development.

Brinker’s workhorse brand, Chili’s, has been a standout success among full-service concepts in developing airport locations. Romano’s Macaroni Grill, Alexander’s previous charge, recently started opening units in those venues.

IHOP didn’t say if the push for alternative locations will bring more IHOP Cafes, the mini-units that a franchisee has opened in San Antonio. The two stores currently open feature a limited menu of items like “mini-melts,” wraps, smoothies and coffee based drinks.

Family specialists like IHOP have lately been pursuing alternative sites and more engaging formats as means of reinvigorating the wheezing segment. Denny’s, for instance, has been experimenting with grab-and-go variations of the familiar coffee shop, and recently agreed to take over more than 130 truck-stop restaurants that had been operated by the bankrupt Flying J chain. It also opened one a scaled-down unit on a college campus in San Bernardino, Calif.

Sunday, March 28, 2010

Welcome back, happy hour

Gather ‘round, youngsters, and hear of a day when casual restaurants were known as “fern bars,” and loaded potato skins were about the coolest thing you’d find on a restaurant menu. Heck, you could even drink legally at age 18 back then, provided mom or dad would loan you the Nova or Maverick.

In the keen competition for young imbibers, places would offer a passel of attractions under the common slug of Happy Hour. A typical element was offering two drinks for the price of one, though the deals could range to such drool-inducers as getting your second and third drinks for a penny, or women drinking for free all night. We’d shop the various offers to determine who had the best giveaway. Life was sweet.

Then came the crackdown on drunken driving, a worthy cause that tarred happy hours as a major threat to innocent lives. They had to go, insisted groups like MADD. Restaurants tried to save the draws with adjustments like free food or bans of two-for-one, but the breed was clearly doomed.

Now come ample indications that happy hours are making a comeback, this time with the focus on food and quality drinks, not cheap intoxication. P.F. Chang’s, for instance, is offering sake for $4 (for a “large jar”), high balls for the same price, and decent wines for $5. For $6, you can get spare ribs, shrimp or seared ahi tuna. This is not your old uncle’s happy hour.

Then again, there are some familiarities. The Z’Tejas casual chain, for instance, offers a bunch of items at half price, or two-for-one if you prefer that frame of reference. But these are appetizers, not Mellon Balls.

Cheesecake Factory is doing the same thing, at least in some markets. Sure, you can get a Cosmo and similar specialty drinks for $5. But the spotlight is on 15 appetizers available for half price from late afternoon to early evening.

The Happy Hour is clearly back, this time as a way to enjoy foods at a steal. I’ll still miss my Alabama Slammers for 50 cents, but four mini spring rolls for $2, or free sliders, isn’t a bad draw. Especially if you can get a Pabst Blue Ribbon for $2, or not much more than we’d spend back in the day.

It’s enough to knock you off your platform shoes.

Wednesday, March 24, 2010

Putting away fat kids' toys

The supervisor of California’s Santa Clara County has hatched a new plan for combating childhood obesity. In a state renowned for incubating outlandish notions, this one could be a Hall of Famer.

The reasoning goes like this: Kids get fat if their parents buy them too much fast food. The little dears bug Mom and Dad to pop for burgers and fries because they want the toys that come with the meals as freebies. Ergo, outlaw the premiums and you break the cycle. Before you can yell, “Cut recess,” the tykes will be reaching for carrot sticks and broccoli florets as they stare slack-jawed at some sort of screen for five hours.

I'll wait a minute here as the libertarians and activists move through their ritual war dance, which can be summed up as, “No, YOU are! And that’s not how to solve this problem.” Ten points to whatever side used the “R” word first, as in, “It’s the parents’ responsibility,” or “The big fast-food chains have to take responsibility for what they’re serving.”

The rest of you can join me here in the middle, dodging the spittle flying from both sides. Maybe we can slip in the observation that a magic-bullet solution just isn’t going to work with a problem that’s been decades in the making.

Sadly, the strategy is simple. Have kids burn more calories than they ingest and the problem’s solved. All you have to do is reverse a four-decade trend that’s left us with firmly entrenched behaviors.

Forcing that about-face will be tough. But we’d better get to it, instead of looking for push-button solutions to an intractable problem.

Saturday, March 20, 2010

Orlando starts its push for the NRA show

Looks as if Orlando is starting a full-court press to become the next host of the National Restaurant Association’s annual convention.

The Florida city ran an ad Friday in SmartBriefs, the NRA’s daily e-mail newsletter for restaurateurs. “Meet in Orland, Save $20 million?” read the headline of the pitch.

It explained that the Society of the Plastic Industry will save that much by shifting its big trade show to Orlando in 2012 and 2015. The savings, along with the service provided by the city’s convention center, “led SPI to leave Chicago after nearly 40 years and meet in Orlando,” the ad explained.

The NRA has held its trade show in Chicago for about 60 years. It’s committed to holding the mega-event in the Windy City’s McCormick Place through 2011. The association has worked with the convention center and the unions that serve it to bring down the cost of exhibiting, a complaint of some participants.

Before the NRA re-upped with Chicago in 2006, Orlando and Las Vegas had reportedly tried to land the convention.

The NRA show is one of the nation’s largest trade expositions, with attendance typically topping 75,000, not counting exhibitor personnel. Last year’s turn-out was dampened by the economy to about 38,000, with another 15,500 supplier company representatives also participating.

Putting more fiber in boards

As you probably suspected, restaurant CEOs are constantly pestering me for advice on exterior shrubbery and other headquarter flourishes. Consider this recent missive, for instance:

Dear Pietro, as I like to think of my design muse,

Like a pack of other restaurant companies, we recently recast our board to silence the jackals who’ve been yipping that our directors are too chummy with management. Just because they’re shareholders, these whiners figure they can tell us what to do. As I was griping to the board during our weekly poker game, the outsiders have no idea how to run a restaurant business, particularly one as tight-knit as ours.

But we did what they wanted—this is proxy season, after all. Like Panera Bread, Red Robin, Spicy Pickle, Noble Roman's (and soon Denny’s), to name a few, we tried to put more fiber in our board by seating some fresh blood.

So now we have plenty of newbies to haze on our quarterly fishing trips. But I was thinking we should dazzle the big-name additions by upgrading the board table itself. No more Ikea for us, my man!

But I don’t know what’s “in” with the big-bonus crowd this year. Cherry or teak? Modern or Art Deco? Reclining chairs or beanbags? And what about the ice buckets?

Please, tell me how to upgrade our board in a meaningful way. Help us deliver the professionalism that investors are badgering us to deliver.
--Designing exec

Dear Designing,

Since dueling is no longer in vogue, I can only aim a pistol at your reasoning.

For one thing, why do you even want a table or boardroom? Why aren’t the directors gathering in a restaurant, at a secluded table that would otherwise be hosting guests guests? Why not take a look at the business from the perspective of customers and employees?

And why would you want a table that could star in a Pledge commercial? A tabletop should reflect the work that’s done on it. Yours should look rougher than Keith Richards face.

Coffee rings would attest that this was the scene of late-night marathons to hammer out tough decisions, not the setting for some quick rubber-stamping between tee times. A bloodstain here or there would suggest that many an Armani had been torn in the bare-knuckled brawls over strategic direction. It’d reassure shareholders that the chairs—purposely weighted to prevent throwing—were inhabited by independent thinkers, not human bobble-head dolls that perpetually nod yes.

And the whole room should be speckled with enough food stains to make the cleaning staff throw in their scrub rags. Restaurants companies are in the business of selling food and beverage, yet menu issues are seen as trifling matters beneath the dignity of a board. Leave that to some senior citizens you lure in from the mall for a focus group.

You’ll find plenty of distribution experts serving as restaurant-company directors (including two in the past week’s wave of new appointees). But except for Steve Ells of Chipotle and Kerry Kramp at Sizzler, are there any true menu specialists, any trained chefs or R&D pros, currently serving on the board of a public restaurant company? Directors in whites are rarer than good Martin Short movies. And that’s just wrong.

Indeed, there’s a lot that’s wrong with restaurant boards. This season has brought more changes in composition than the industry has seen in years. The incoming class includes such standouts as Lloyd Hill, the longtime CEO and director of Applebee’s (now at Red Robin’s table); Mo Siegel, founder of the Celestial Seasonings tea company, now advising the Spicy Pickle chain; and Thomas Lynch, who’s returning to a seat on Panera’s board after proving during a Kona Grill conference call that he’ll speak up when he sees something that troubles him about the management of a company.

Still, the industry has a lot of work to do. Insiders say there’s the lingering tendency to keep someone in a board seat because he’s been with the company from its inception and deserves to be recognized as an elder statesman. Never mind that he made shakes or managed the prototype unit, flexing skills that have little to do with directing a big public company.

That situation is certainly far less common today, a testament to how far the industry has come. But it still has a ways to go, and that’s a movement that can’t be tabled.

Sunday, March 14, 2010

Bottled up on soft drink taxes

Anyone seen the restaurant business? Big trade, lots of forks, all kinds of uniforms? It’s usually a considerable presence, but lately it could qualify for one of those “Missing” alerts on milk cartons. The industry is facing a serious crimp in its livelihood, a threat that could still be countered or reshaped into something less damaging. Yet the restaurant industry is nowhere to be heard in the debate over soft-drink taxes.

The argument has grown into a loud non-stop fight here in New York. Turn on a TV during a heavily watched program and you’ll likely see a plea to protect the health of children for “a few extra pennies.” By taxing soft drinks, the commercials explain, New York State can save more children from obesity and the terrible illnesses it triggers, like diabetes and heart disease.

Then again, you might catch a spot featuring a grocer from the inner city, explaining that most of his customers shop with a list, to keep their purchases to what’s needed, and a calculator, to make sure they have the pennies to afford what’s in their carts. Please, it implores, tell your state lawmakers not to support Gov. David Paterson’s proposal to levy a tax on soft drinks, because it’ll only hurt the poor.

In case your cable is out, you can catch the same sort of messages in newspaper ads, local media coverage and op-ed pieces. There is a tremendous amount of noise on the issue.

Yet you won’t hear the restaurant industry’s voice.

It’d be wrong to single out New York restaurateurs for their silence. It’s no different in the slew of other places that want to extend the sin tax to chocolate milk, sports drinks or other sugared soft drinks. Some locations even want to levy the sales tax on bottled water and diet drinks.

Sports drinks? Bottled water? Sugar-free sodas? They don’t sound like obesity contributors to me. And, indeed, if you look at the measure’s supporters, you’ll see unions and other groups behind it. They care less about childhood obesity than using the proceeds from the tax to prop up the state’s wheezing healthcare system, a major source of membership.

So where’s the challenge from restaurateurs on that point?

The industry’s silence is perplexing because soft drinks are the trade’s big profit contributors. The reticence seems downright reckless when you consider that some experts are already proposing that a sin tax be extended to restaurant foods. No less a body than the American Medical Association has raised the possibility of tacking an 18% tax on pizza to discourage its consumption.

If governments start using food prices as a light saber to prod consumers in a direction deemed healthful by arbitrary authorities, we’re really heading into trouble.

So where are the cries of protest from franchisees, regional chains and other local restaurateurs?

Friday, March 12, 2010

Who should be buying Carl's Jr.

I’m sure the Vegas odds-makers are already taking action on who'll be the next owner of Carl’s Jr. and Hardee’s, the two main brands in the portfolio of CKE Restaurants. Thomas H. Lee is the favorite, with a deal already on the table to buy it for about $928 million, including debt. Then came word yesterday that Nelson Peltz, the bwana who deftly bagged Wendy’s in 2008, was giving CKE’s slightly bald radials a kick.

They may be the most likely buyers. I keep thinking about who might be the most appropriate buyer, from the standpoint of all parties concerned.It makes me wonder if the big casual-dining companies have the Poppers to reconsider their longstanding pledge never to veer out of that market.

It’s almost a reflex with concerns like Darden, Brinker and OSI (the parents of Red Lobster, Chili’s and Outback Steakhouse, respectively). Ask what new businesses might be a worthwhile acquisition or start-up and they’ll invariably conclude with, “…and of course it’d have to be something in casual dining, since that's where we want to stay.”

Meanwhile, they’re having their turnips mashed by quick-service and fast-casual concepts.

They should consider the bold move of buying a quick-service brand and supercharging it with their casual know-how to create the ultimate fast-casual player—a contender genetically engineered to provide cloth-napkin-caliber service and food, with the value, speed and less-processed foods that have established concepts like Panera and Chipotle as the brands of choice among younger consumers. It’d be the veritable Mike Tyson of the sector.

Carl’s would be the perfect subject for the experiment. It’s been trash-talking for years that it offers a burger comparable to what patrons would find in a casual restaurant, for less than two-thirds of the price. To launch the Six Dollar Burger (it actually sells for under $4), the chain even set up a fake restaurant where patrons were charged $6 for the sandwich. Patrons paid without complaint.

Sure, the acquisition would put those casual-dining giants squarely in franchising, a realm where they’ve at most dabbled before, preferring to grow through corporate development and joint ventures. But their current business models aren’t exactly the envy of the business world. Becoming full-fledged franchisors would really open the valve on cash flow.

Meanwhile, the Carl’s and Hardee’s systems would greatly benefit from the training, research and awesome support services provided by the likes of Darden and Brinker.

It’s a deal casual-dining hunter and quick-service should pursue, especially when you consider that CKE might change hands for just over $1 billion. It’s a buyer’s market, to be sure.

Friday, March 5, 2010

Talk about your hot seats

They’re dead men walking—three longtime CEOs, all with unusual backgrounds for a restaurant official, all having served for considerable stretches in the corner office.

Each still has his job for the time being, with no indication they’re backing off the charge of captaining chains through the Great Recession. Yet for Dennis Mullen of Red Robin, Nelson Marchioli of Denny’s, and Andrew Puzder of Carl’s Jr. and Hardee’s, it’s just a matter of time until they’re sitting with an HR representative, going over their exit packages and stock options.

Each is the victim of a peculiar time warp. Two pronounced trends of the pre-Recession industry have popped back up like spring crocuses to undermine their tenure. Private equity firms are back on the prowl for restaurant bargains, and, suddenly, activist investors are barking orders again to the management of publicly owned chains, as Mullen and Marchioli can readily attest.

In Mullen’s case, the dissatisfied shareholders already have goaded his company to form the committee that will select the next CEO. Meanwhile, the company is publicly saying that it expects Mullen to continue serving as chief of the casual-dining chain until his contract expires in December—of 2012.

It’s like the warden coming to size up a condemned man’s bunk while the gallows is still being built, then asking if the guy can put in a few hours on the license-plate line the morning of his hanging.

But that’s hardly the only weirdness to the situations. On Feb. 26, CKE Restaurants announced that it’d agreed to be acquired by Thomas H. Lee Partners, the private-equity company that also owns a big stake in Dunkin’ Donuts. The announcement was immediately followed by speculation that the buyer would give Puzder the heave-ho because of the weak recent performance of CKE, particularly its Carl’s chain.

On the very same day, Puzder was named the 2010 winner of the Silver Plate Award for the quick-service sector. One of the industry’s most celebrated honor, the Silver Plate recognizes the executive who’s done the most outstanding job within his or her respective market segment. In short, Puzder was being named the best in his field on the same day the internet buzzed with certainty that he was about to feel a silvery axe.

Meanwhile, as one of nine Silver Plate winners, Puzder could still be named the industry’s operator of the year, the winner of the Gold Plate Award, in May. The voting for that honor was conducted earlier in February. So he could get a pink slip and a Gold Plate almost simultaneously.

Interestingly, all three of the marked executives hail from decidedly non-traditional backgrounds for restaurant chain leaders. Puzder, for instance, was a lawyer who came to the business after the holding company that owned Carl’s Jr. went out and added Hardee’s to its portfolio. Involvement on the legal side led to broader executive responsibilities and ultimately a top-level executive post.

Mullen started his career with PricewaterhouseCoopers, one of the nation’s largest accounting firms. He also logged time with Boston Chicken, serving as its CFO, as well as the brands that now constitute Eateries Inc. He’s been CEO of Red Robin for four-and-a-half years.

Marchioli is the only restaurant CEO to my knowledge who climbed to that post through purchasing and quality assurance, the nitty-gritty operations that are critical to a company’s viability, but seldom get any appreciation from outsiders. He was a bug hunter.

He may find himself grappling with a different sort of nuisance, at least from his standpoint. Two investment groups have demanded that they be given three seats on Denny’s board. In making that demand, the stakeholders provided a list of complaints about the company’s management, including its breakfast giveaway.

That program has been one of Marchioli’s most publicized undertakings. Some might say it’s one of the things he’ll be remembered for.

Tuesday, March 2, 2010

Is Biglari making a run on Denny's?

Two investors in Denny's Corp. announced this morning that they're seeking three seats on the restaurant company's board because of dissatisfaction with the chain's direction and management. If their proxy challenge is successful, we may see the boldest takeover attempt yet by Sardar Biglari, the crafty and intriguing thirtysomething who has set out to build a restaurant empire.

Adding Denny's to his fold, or even attempting it, would be a moonshot compared with Sardari's previous efforts to become the Warren Buffett of the restaurant business. The pillars of his holding company right now are Western Sizzlin, a fairly sleepy steak-and-buffet chain in the Southeast, and Steak N Shake, the retro burger-and-shakes concept he's aggressively trying to turn around, with noticeable success.

Right now, he's ostensibly not involved in the effort to force a change in Denny's board--and, by implication, its management. But one of the gambit's principals is Jonathan Dash, identified as a director of Western Sizzlin and an advisor to the chairman and CEO of Steak n Shake. That'd be Mr. Biglari, folks.

Dash is joined in the quest for board seats by David Makula, the founder of Oak Street Capital Management investment firm, and Patrick Arbor, a futures trading veteran. They and the parties they represent claim to hold a 6.5% stake in Denny's.

Biglari wasn't mentioned by name, just inference.

In announcing their board bids, the challengers commented, "The weaknesses of Denny's management have forced us to seek changes to the board in the interest of all shareholders. If the status quo is maintained, we are deeply concerned that the Company's future will mirror its past. " The announcement proceeds to spell out what should be done to shake the brand out of its purported inertia.

It's deja vu all over again for those who remember the statements Biglari issued before beginning his successful takeover of Steak n Shake. The precise words may be different, but the assertions are nearly identical.

Steak n Shake's parent company, by the way, is changing its name to Biglari Holdings Inc.

Stay tuned for this one.