Wednesday, July 27, 2011

Sandy Beall's different drummer

Give one of those inaudible dog whistles a blast and see if Sandy Beall cocks an ear. The Ruby Tuesday CEO must be picking up signals other restaurant executives can’t detect. Why else would he be reading the marketplace so differently?

Almost every chain, from McDonald’s to Applebee’s, has cut back its company-run restaurants to free up capital and lower risk. Not Ruby, the operation that Beall founded while he was still in college. In the past year it’s purchased 109 stores from franchisees.

So how’s that working out? From April through June, Ruby’s net income was depressed by a 24.3% drop in franchise revenues, which typically have a profit margin just this side of legal. The offset was a 12.6% increase in revenues.

But Beall’s not budging. “No, no, no,” he told financial analysts during a conference call. “We run company-owned operations. We sure as hell wouldn't have bought them back, if we're going to refranchise them.”

That wasn’t the only time during the call that portfolio managers asked about Ruby’s recent tactics. Several wondered aloud about the direction of the chain’s menu. For direct competitors, the watch words have been value and nostalgia. Witness their reliance on burgers and their slider variants.

What’s new on Ruby’s bill of fare? Trout almondine and spaghetti squash,” which I personally find appealing,” said Jeff Omohundro, the restaurant analyst for Wells Fargo Securities. “But I just wonder if there might be some overreach relative to a broader Ruby Tuesday audience.”

Beall responded that the dishes are a choice for 3 or 4% of guests, and “it didn't hurt us to have it.”

But the analysts didn’t let the point drop. “There was a period in which you had kind of tweaked the business around, put some emphasis against appetizers and your burgers, and it seemed like the business really took off,” noted Morgan Keegan’s Robert Derrington. “Is there anything to be gained as we look back in time about that relative to your dinner house strategy?”

“We do not plan to turn back into a burger joint,” answered Beall.

Some of the moves seemed to have analysts doodling question marks as they listened to Beall and his team. For instance, EVP Kimberly Grant observed that most of Ruby’s recent sales decline has come during weekday dinnertimes.

Didn’t the chain run a Tuesday steak and lobster promotion to counter that trend? Is that tactic still being tried?

“No, we shifted that to being all-weekend promotion,” Beall said in response to the question.

Monday, July 25, 2011

McCafe on a bun?

This should sound familiar: Restaurant upstarts take a commodity product you’d find on any menu, raise the quality and price, and cultivate a cult-like following.

After Starbucks did it with coffee, McDonald’s eventually responded with McCafe, a line-up that promises quality beverages at a much lower price. By all accounts, it’s been a smash.

So Big Mac isn’t waiting as long to employ the same defense against upscale burger purveyors like Five Guys, Smashburger and Bobby Flay. The rise of the so-called premium burger segment is providing McDonald’s with the cover to slide higher quality choices into its mix and trump the newcomers on price, COO Don Thompson explained last week.

“Frankly, I think it’s good for us,” he told investors. “It's a benefit because those premium burgers have higher margin and we've got some of those same premium burgers.”

Translation: It’s McCafe on a bun.

Thompson noted that the tack is already working with McD’s Angus one-third-pound burgers. Expect to see more choices in that price and quality strata, he advised during the analysts conference call.

Thompson noted that those new choices could be imported from McDonald’s operations in Europe, including the 1955, a burger the chain is marketing in Germany with a fictional pedigree. Commercials suggest the oversized bacon burger was invented by a housewife in Chicago, whose recipe was just recently discovered by a McDonald’s crewmember in Deutschland.
“Europe has already tested the 1955 very successfully,” Thompson observed.

He also mentioned the Big Tasty, another premium choice that McDonald’s started offering in Europe, with and without bacon, around the start of 2011.

Thompson didn’t mention the Pub Style Burger, a product that drew considerable attention from bloggers after word leaked of its test in the Midwest. But he did note that many of the analysts on the call were aware of some U.S. initiatives featuring premium burgers.

“I'm really looking forward to us having even more premium burgers,” he commented.

Price-wise, the entries will be positioned as a value relative to burgers of comparable quality. Thompson said McDonald’s can afford to undercut the competition because of “our supply chain and the efficacy of it.”

He also noted that the premium play will extend to chicken. Some U.S. markets are already offering premium chicken sandwiches.

Friday, July 22, 2011

The news gets personal

An obscene part of my day is spent online, scouting for news, glints of a trend, or the radar beeps of a new direction in dining. Usually it means wading through the type of informational detritus that makes me a leper at cocktail parties. (Bet you didn’t know Brad Pitt wore a chicken outfit for El Pollo Loco, or that Barry Manilow wrote many of the catchiest fast-food jingles. I’ve got a million of ‘em.)

The last few days have brought discoveries of a different type, Sadly disposable for most people, in or out of the industry, they’ve definitely gotten under my skin.

Not that they’re out of the ordinary. You would not believe how many stories appear in local papers or the news services about violent crime that erupts in or near restaurants, particularly on weekends. It can be gruesome stuff. But little is as affecting as the news briefs that appeared this week about an incident at a Dave & Buster’s I routinely pass.

It occurred last fall, but full details apparently weren’t revealed until recent court dealings. A 23-year-old man went into the food-and-games establishment and approached an 8-year-old who by all accounts had been selected at random. The adult drew a knife and stabbed the boy in the back five times, then dashed away.

The attacker was grabbed while he tried to hide in a bathroom by the boy’s father and another customer. Authorities found a note in the man’s pocket, explaining as if it was a to-do list that he intended to kill a child that day.

Fortunately, he failed. Now he’ll be working off a 14-year prison sentence as the boy and his family contend with the memory.

Far less gruesome was the release of a code of behavior that definitely drew my attention. I ran afoul of Tim Zagat 12 years ago by responding in a column to his declaration of a Diner’s Bill of Rights. I actually took issue with only one provision, an assertion that restaurants field any special dietary need posed by a customer. Still, mutual acquaintances informed me that I’d drawn some bad ratings from the dining-guide mogul.

I still believe the point of annoyance was a suggestion that a dining-out code should go both ways; restaurants were entitled to certain behavior from their customers. For instance, abuse of a server or disregard for the comfort of fellow patrons should be prohibited, enforceable by a boot out the door.

This week Zagat issued the sort of list I was envisioning, a set of dining etiquette rules. I agree with him on every point of the new do’s and don’t’s, particularly the stipulation on handheld distractions: “Do not talk, text, tweet, e-mail or surf the web at table.”

It’s interesting that he put that responsibility in 1999 on the restaurant, stating that the establishment should ensure a cell-phone-free dining room. But, as the Zagat notes in its preamble to the new behavioral code, times have changed.

Today, I’d say his etiquette rules should apply to the people who interact with restaurant customers. If servers use their cell phones while they’re within view of diners, they should have an immediate meeting with the manager, provided he or she isn’t tweeting. Sadly, that's too often the case, and it's a personal ire-raiser.

Finally, it was a point of personal annoyance that the watchdogs at Center for Science in the Public Interest missed an irony in their newly released roster of the unhealthiest restaurant foods.

Among the winners of the group’s annual Xtreme Eating Awards was Cheesecake Factory’s Ultimate Red Velvet Cheesecake, a single dessert that weights three-quarters of a pound and packs 1,530 calories. How could a chain even develop such a gut buster?

Well, it didn’t. The delectable was the brainchild of a customer who participated in a contest two years ago to find Cheesecake’s next cheesecake addition. Patrons were invited to submit recipes for the sort of products they’d like to find. Some 10,000 were entered.

Then customers were asked to vote on their favorites among the finalists. The Red Velvet won handily.

In short, patrons demonstrated that it was the sort of choice they wanted when they dined out.

It’s proof of the industry’s longstanding argument that its job is to give patrons what they want, not what they should be eating.

Tuesday, July 19, 2011

New breed of restaurant weeks

Now that every nook and cranny has its own restaurant week, a growing number of locations are tweaking the formula to create a second promotional opportunity for local eateries.

The twist is showcasing local ingredients as part of the deal. Not only can foodies try the must-visit places at a discount, but now they can bask in the locavore movement, munching on fresh and artisan products from producers just a morel toss away.
Washington, D.C., jumped on the bandwagon with the inaugural Eat Local First Week, which concluded for participating restaurants last week. It’s not be confused with the Farm-to-Street Block Party, where local beer and wine makers had the spotlight.

The much-bigger and more heavily marketed DC Restaurant Week begins next month, a warm-weather follow-up to the Restaurant Week that was held in mid-January.

Not all the new restaurants weeks are big-city affairs. Ohio’s Athens County is in the midst of its local-food restaurant festival, 30-Mile Meals. Thirty restaurants are featuring foods from farms and producers within a 30-mile radius of Athens, Ohio, the home of Ohio University.

There’s an obvious limitation to the local-foods restaurant fests: For most areas, the promotions have to be held in the summer or early fall, when local produce is in season. Yet summer is typically the busiest seasons for restaurants. They need the boost in winter, when patrons are loath to leave the warmth of their homes and brave icy roads.

It’s not an issue for Sonoma County, Calif., whose farmers and artisan producers are busy all year. So it can focus on local produce during late February.

Other areas are obviously exploring the shoulder seasons, where some produce might be available, but has to be supplemented with foods like cheeses, beers, wines and even seafood.

If you want a sense of how big the promotions can be, head to the Lone Star State next week for the Go Texan Restaurant Roundup, where places throughout the state will be featuring local foods. The event not only promotes dining out, but generates funds for local food banks.

The event, funded in part by the state, was started four years ago.

Friday, July 15, 2011

Ruffling feathers about KFC

It’s a canon of the chain-restaurant world that you speak of a concept’s founder with a reverence usually reserved for saints and Mickey Mantle. The only party held in higher esteem might be franchisees, typically lauded as the embodiment of entrepreneurship and operational know-how. They’re best mentioned with a bowed head.

So let us celebrate the honesty that Yum Brands CEO David Novak bravely showed yesterday in uttering what would normally be stigmatized as heresy on the grandest scale. He dared to speak candidly about the DNA of KFC.

That meant—steel yourself—voicing what could be construed as a criticism of Col. Harland Sanders.

Novak had been asked by financial analysts for “more color” (finance-speak for “the full story”) on the glaring discrepancy between KFC’s performances at home and abroad. Why was it such a favored son in China but a problem child here in the States? Couldn’t some of the best practices from overseas be programmed into domestic operations? After all, the questioner noted, that’s what McDonald’s does.

“I think there's just been a lot more innovation and breadth built into the menu in KFC in most countries outside the United States,” responded Novak. “I think Colonel Sanders kind of set the U.S. up with a heritage of small-box [stores serving] chicken on the bone, stay focused on your knitting. And so I do think that it's a little harder for us to transform the brand.”

While analysts were no doubt clutching their chests and donning garlic necklaces to ward off the bad juju, Novak went further: “And frankly, we don't have a franchise system that is as enlightened as our franchisees are outside the United States as well. So that's something that we have to deal with as well.”

Relations between KFC and its franchisees have likely served as inspiration over the years to Hatfield and McCoy kin. So it was doubly bold of Novak to be candid and deliver the transparency that investors deserve.

He’s probably in an office right now, holding his head as he screens calls and e-mails from irate parties. But he did the right thing.

As he noted during yesterday’s conference call, One of the things I take a lot of pride in on our company is we don't really like storytelling.

“Stories equal excuses.”

You can read the account yourself in the transcript posted by

Wednesday, July 13, 2011

Kids' stuff. And lots of it.

While Muffy and Scooter learn their isotopes at physics camp, restaurants are rethinking how to deal with the little dears and their schoolyard posse.

Recent days brought two major industry initiatives for bolstering school-aged patrons’ health.

Meanwhile, mom packs are forming in the blogosphere to shame a restaurant that decided it’d rather not risk the time-out behavior of bad boys and girls. McDain’s is banning all pint-sizers under age 6 from its dining room. You’d think from the reaction that the Pittsburgh-area establishment had suggested the tots be banished to Devil’s Island with nothing but a sharp knife.

Clearly, kids are in the foodservice spotlight, for better or worse. It’s no surprise, given how exalted they are in general society. The trophy industry must be going gangbusters now that hardware is bestowed on any tyke who’s a part of a team, class, playgroup or other social unit. If they show up, the big brass is theirs.

Along with the pampering comes a degree of protection that falls just short of a mandatory bubble-wrapping of any nippers who ventures outside their child-proofed home. That’s why we have a mother in Arizona who visited the playgrounds of 50 fast-food restaurants to video unsafe situations or to swap hard surfaces for bacteria. (In her defense, she found plenty.)

It’s also why a cross-agency federal task force has suggested that food sellers voluntarily meet certain nutrition standards for any product they advertise to youngsters.

Ironically, that effort came to light just as the restaurant industry was finalizing a program to offer more healthful choices to kids. The Kids Live Well initiative, officially announced today, will spotlight menus with better-for-you options for children. Nineteen chains representing some 15,000 establishments have already signed on for the program, a collaboration of the National Restaurant Association and the operator of

The unveiling came six days after the Culinary Institute of America went live with Menu for Healthy Kids, a website that provides recipes for schools and other operations that’d like to offer more nutritional kids’ fare. It also provides statistics on the issue of childhood obesity.

Those may be the big tidal developments in regard to healthier dining by children. But there are countless small developments.

Consider, for instance, that Olive Garden just changed its serving standards. Instead of giving youngsters French fries, they’ll now get grapes. In place of milkshakes, they’ll now sip fruit smoothies.

At the very least, that sort of effort deserves a trophy.

Monday, July 11, 2011

Signs the Apocalypse is upon us

Lawmakers in Newark, N.J., have lost their minds. They’re demanding that small restaurants post a guard on the premises after 9 p.m. And they really mean small. The mandate applies only to establishment with fewer than 15 customers a night, though it’s unclear how the traffic level will be verified. Obviously those places couldn’t afford to add a rent-a-cop. Why not just set a curfew of 9? As it is, a place that failed to comply would have to close by 10. Or, better yet, why not try to stop crime through law enforcement, not a crushing business burden?

It was just a matter of time, though the circumstances were somewhat of a surprise: Prince William is figuring into a restaurant promotion. It’s being waged not by a place on his West Coast itinerary, but in Washington, D.C. The new Café Rio Mexican Grill said it’ll add a burrito or salad to any order for a mere dollar during the three-day Prince William Extra deal, part of the fast-casual restaurant’s opening festivities. If you’re wondering about Café Rio, I have it on highest authority—its press release—that it’s the best restaurant in the country.

Local media are reporting that a waitress at a P.F. Chang’s in Connecticut was beaten by two women because she refused to split their check three ways. The assailants were arrested and identified as members of the dance troupe that performs with rapper Lil Wayne. According to the coverage, the duo and a third person in their party asked the unidentified waitress to divvy up their check. The server demurred, explaining that they should’ve let her know ahead of time that they’d need separate checks. After some friction, the guests departed but came back to get a cell phone they said they’d left. The argument resumed, and a fight erupted.

There's no word yet of security guards being mandated.

Jaw-dropper of the day (so far)

From the Wall Street Journal's website:
Trouble with the tax man: Dunkin’ Brands disclosed that the IRS is currently auditing its federal income tax returns for 2006, 2007 and 2008. The company’s IPO filing said the IRS “has proposed adjustments for fiscal years 2006 and 2007 to increase our taxable income as it relates to our gift card program, specifically to record taxable income upon the activation of gift cards.” Dunkin’ Brands said it is fighting the IRS on this point.

Call me cynical, but if the tax men are going after Dunkin', they're likely drawing a bead right now on other chains. if not every single one that offers gift cards.

Wednesday, July 6, 2011

Pizza Fusion's new step-sister

There was talk at the National Restaurant Association’s May convention that Pizza Fusion founder and capo Vaughan Lazar may be launching a second concept. Now the mystery is over: The venture is called Kapow! Noodle Bar, and it’ll debut this fall in Boca Raton, Fla.

Kapow’s Facebook page doesn’t address whether Pizza Fusion will be involved with the launch. But it states definitively that Lazar will be a driving force, along with chef Greg Shiff and local impresarios Scott Frielich and Rodney Mayo, the duo behind Dada and Tryst.

The page describes the venture as “earth-conscious,” like Fusion, and “stark and whimsical.” Specialties will include noodles, buns, barbecue, dumplings and salads, which will be locally sourced and “communal,” according to the entry.

Other reports cited a planned opening in September.

Tuesday, July 5, 2011

The $75,000 question

Never mind the fireworks. The boom that should’ve had restaurant executives covering their ears last week was the bombshell observation by the company that runs Olive Garden.

The comment slipped past almost unnoticed during a routine presentation to Wall Street analysts. That’s ironic, since the aside was a DefCon 4 alert for casual dining to reassess what market it serves.

Most of that sector stands in awe of Olive Garden, a concept whose middle American take on Italian fare generates $4.8 million in sales per restaurant, much of it from high-margin pasta choices. But lately, the bloom has been off the rosè.

Sales have uncharacteristically stagnated for the brand, while sister concepts like Red Lobster, LongHorn and Capital Grille have enjoyed the sort of same-store sales increases (3.8%, 6% and 7.9%, respectively) that make you suspect steroid use.

“It’s worth noting,” observed Darden president and COO Drew Madsen, “that we’re continuing to see a narrowing in the casual-dining user base.”

He explained that the percentage of customers from households with an annual income of at least $75,000 “has significantly increased their share of traffic, both during the recession and after.” Not coincidentally, patrons from homes with paychecks of $60,000 now account for an appreciably smaller part of Darden’s clientele.

Madsen didn’t specify if the rising share of traffic was the result of an increase in visits by the higher-income group, or of a drop-off by the lower-income crowd. Even when pressed by financial analysts participating in the call, he and other Darden officials would only talk in terms of “share of traffic,” not absolute changes in visits by either group.

They were more forthcoming about the implications of the shift. To appeal to both the higher-income customer and the one with less than $60,000 in annual income, Olive Garden will strive to deliver what the execs termed “price certainty,” or a clearer idea of what a customer will pay.

“Customers aren't looking for a discount,” explained Clarence Otis, Darden’s CEO. “But they want to kind of know a little bit more, with a little bit more precision, what they're going to spend when they choose to go out.”

The execs noted that a similar strategy has worked well for Red Lobster. They cited the example of the seafood chain’s current promotional deal, a four-course meal for $15 per person.

Madsen noted that Olive Garden will take a more tactical approach with its advertising in the near future, delivering more of a “short-term call to action” than “longer-term equity building.” Deals will also give a set price, rather than the “starting at” level of past promotions.