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.