Friday, January 27, 2012

Don't look now but...

Because of Twitter, you can get a heads-up on restaurant developments long before they’re covered in the traditional sources of industry news. But the story behind the news story is a different matter. Consider, for instance, these little-noticed wrinkles in two heavily covered recent events.

Danny Meyer is selling splinters of his empire. The famed restaurateur drew tremendous coverage (including here) when he disclosed in a cookbook that he had agreed to sell his Eleven Madison Park to the starched outpost’s manager and executive chef. Less noticed was the bombshell that he’d served up another piece of his business, this time to the company led by the owner of the Miami Dolphins, Stephen Ross.

Ross’ Related Cos., perhaps best known as the developer of New York’s chi-chi Time Warner Center, acquired an undisclosed stake in Meyer’s Union Square Events catering and restaurant-management operation for an amount that wasn’t revealed. The purpose is to pair the two companies’ expertise in developing real estate complexes worldwide, but the process is starting with the partners’ backyard.

They’ve announced that they’ll be part of the 26-acre Hudson Yards project in New York, a venture that aims to turn the old train tracks and industrial space on Manhattan’s Far West Side into a new hub of consumer activity. Few details have been revealed about the foodservice aspect, but Meyer isn’t known for peddling the same ol’ same-old.

Taco Bell redefines who’s a competitor. No, this has nothing to do with the much-covered Cantina Bell menu, which has been identified in virtually every news story as the Mexican giant’s response to Chipotle’s success. I’m talking about the new breakfast menu, a.k.a. the First Meal bill of fare, which is studded with names that vie with Taco Bell for share of stomach and franchisees.

The roster includes a pastry item from Cinnabon, Focus Group’s bakery chain, and coffee from Starbucks branded as Seattle’s Best (curiously, a former sister of Cinnabon). You can find those brand names in a number of locations beyond their namesake stores. Seattle’s Best, for instance, is also available in Burger Kings, Subways and plenty of other foodservice outlets.

There’s even a Seattle’s Best coffee flavored with Cinnabon-brand cinnamon. Clearly licensing has become a big business for each.

But each still has a sizeable network of its own retail outlets. At one time, the industry would’ve clutched its chest at such brand-name mixing. Certainly franchisees would have. Then they would’ve dialed their lawyers.

It’s part of a new wave of cross-branding—led at least in part by franchisees. A Burger King franchisee, for instance, is serving as the test partner for a new collaboration with Friendly’s. The ice cream chain hopes to open at least 10 downsized Friendly’s Scoop fast-casual-style outlets this year. The first is co-branded with a Burger King store run by New Jersey franchisee.

Bet you might’ve missed that angle in all the coverage of Friendly's comeback efforts.

Friday, January 13, 2012

Drugstore cowboys

A bunch of drug sellers plan to muscle into restaurants' turf, so some heads are likely to get banged. Luckily, bandages and aspirin will be near at hand.

Gauze, pills, lotions, and trusses were how those interlopers formerly made their money. But now drugstore dons like Duane Reade, CVS and Walgreen's are ripping out aisles of stethoscopes and canes to showcase sandwiches, salads, muffins, coffees and a host of other lunchtime and breakfast staples. At one of the prototypes near our New York offices, you can grab some made-to-order sushi along with a tube of Preparation H.

The restaurant business has harumphed a little about the charge of discount retailers into foodservice. Walmart, Target and Kmart could all draw blood because of their traffic and sheer might, as any thinking chain-restaurant operator will tell you. But until that happens, how much hand-wringing can you do? There's next week's sales target to hit.

If that lukewarm concern has been voiced about drugstores, I've yet to hear it. The business seems to regard the phenomenon as more of a curiosity than a threat.

That's not the case in the c-store industry, which fears a distraction from its quest for more fast-food sales. At a recent conference for that business, drugstores were repeatedly cited as a looming threat, as were dollar stores, the super-discount retailers who've presumably been helped by the economic downturn. They, too, are experimenting with ready-to-eat foods, mindful that the big quick-service restaurant chains don't have a monopoly on 99-cent sandwiches and drinks.

The issue for all those challengers is quality. Can they match the caliber of what's offered in a downtown takeout shop where food is the focus, not the add-on sale to a prescription for suppositories.

Here's some food for thought on that question, a video shot by Angel Abcede from our sister publication, CSP. It's a look at Walgreen's new food-heavy prototype in Chicago. You'll get a good read on the quality of food that's being offered by that chain. Afterward, you might want to see what sort of deal you could get on ulcer remedies.

Wednesday, January 11, 2012

Presidential hopefuls & the restaurant business

Everyone knows that Herman Cain honed his leadership style in the restaurant business, first at Burger King, then Godfather’s, and finally the National Restaurant Association. But his departure from the presidential campaign hasn’t left the industry without an associate in the race.

With the exceptions of Ron Paul and Rick Santorum, all of the major candidates have a connection of some sort. Here’s a quick review of those sometimes scandalous ties:

Mitt Romney: The biggest check ever signed by the private-equity pioneer was a $1 billion pay-out to Tom Monaghan for Domino’s Pizza, which Romney’s employer, Bain Capital, would own for a number of years. The company subsequently purchased a piece of such industry giants as Dunkin’ Donuts and Outback Steakhouse. Bain earned a significant return from Domino's and Dunkin' through their respective stock offerings.

Newt Gingrich: An early scandal for the former House Speaker centered on his second career as educator. The restaurant business caught a little mud in that flap, too.

The fiery polemicist was accused of taking sizeable contributions from lobbyists who allegedly wanted him to air the views of their clients to the business students he was instructing at the undergraduate level. News reports identified one of those contributors as the Employment Policies Institute, a group formed by S&A Restaurants alumnus Rick Berman in part to protect the interests of several major casual-dining chains.

According to the allegations, the EPI wanted Gingrich to present minimum-wage employers in an attractive light. The group never commented on the assertions, and Gingrich denied that he skewed his lectures to accommodate its interests. But one of the documents that came to light at the time included a note from Berman to Gingrich, thanking him for his help.

Jon Huntsman: His connection is on the supply side of the restaurant business. Huntsman’s father, Jon Sr., was the founder of a chemical company called Hunstman Corp., which invented the clamshell burger box. Its major customer: McDonald’s, which spec’d the new container for the Big Mac.

The elder Huntsman later founded a private equity firm, HuntsmanGay, whose investments include a stake in a company that sells Mama Rosa’s pizza through convenience stores. Mama Rosa’s also supplies pizzerias with dough balls and pizza crusts.
I’ve yet to find a connection between the restaurant industry and Rick Santorum, the former Pennsylvania senator, though I first learned of him and some industry-aligned views from the then-director of the Pennsylvania Restaurant Association.

Similarly, there’s yet to be a direct tie revealed with Ron Paul, the libertarian candidate. But he does share the name of perhaps our industry’s best-known researcher.

Monday, January 9, 2012

Ruby sweats its upkeep bills

Ruby Tuesday hasn’t exactly pursued a me-too strategy for the post-Recession, as Restaurant Reality Check noted six months ago. So how’s that contrarian approach working?

Not well, judging from the company’s financial results for the October-through-November period. As you might have heard, Ruby lost $2 million for the quarter, compared with a net income of $4.6 million for the same period of the prior year.

Buying restaurants from franchisees, a 180-degree departure from what most chains are doing today, helped to raise revenues by almost 6 percent. But the gain was far more than offset by debt expenses and a steeper-than-expected decline in unit sales, which came despite new service and value initiatives.

Does that mean the company is scrapping its contrarian views? Well, yes and no.

As we noted here in July, the company’s namesake chain is betting it can win more bargain-hunters by giving customers access to its salad bar without an add-on charge. It’s sticking with that more-is-lots-more approach. In a call with financial analysts, executives spoke cryptically of additional service enhancements that are currently in test at 10% of company-run Ruby units.

They didn’t reveal all the components of the new Surprise & Delight initiative, but did divulge such components as shaking martinis tableside, and having servers grate Parmesan cheese onto patrons’ entrees after they’re served.

But the biggest disclosure was a mention that Ruby plans to follow the herd for a huge savings on routine restaurant upkeep—repair & maintenance, or R&M, in industry parlance. Instead of letting each restaurant handle that function, Ruby is going to centralize control, “which a lot of the QSR chains and some of the other casual dining chains have gone to,” explained CEO Sandy Beall.

Ruby is confident it can deliver millions in savings by consolidating its expenditures for R&M. “It's approximately [a] $40 million spend a year annually, and we believe that through using a consolidated group that we can better monitor our rates and our costs on the actual parts and what have you,” said EVP and operations specialist Kimberly Grant.

“It's basically bulk buying power for the services we're participating with,” added Beall. “It's like a huge co-op, so better pricing.”