Sunday, July 29, 2012

Why does Wall Street hate you?

Ask anyone in the business to name the highest-flying restaurant chains and you’ll likely hear four names: McDonald’s, Chipotle, Starbucks and Buffalo Wild Wings. Mention any of them to a financial analyst and you’ll see how a bull reacts to a red cape. Or maybe I should say a bear. 

All those consistent overachievers have been slammed in recent days by investors howling about everything from sluggish consumer spending to heightened competition, climbing commodity costs and global economics. As if the industry never faced those challenges before.

To put it in perspective: In less time than it takes to move through the lunch line at Chipotle, the company lost 20% of its value. The worth of Starbucks’ shares dropped 11% in a day. And that was after reporting an 8% rise in comparable store sales for a quarter.

In fairness: Stock pickers aren’t seeing monsters under the bed. Starbucks, for instance, missed its earnings expectations, which in the financial world is worse than kicking your grandmother. The chain acknowledged that sales have been “noticeably down” in many markets since late spring.

BWW was forsaken because of concerns about the cost of chicken wings, its main sales and traffic driver.

Still, which company would you rather own? Your current one, or one of those four industry leaders

The choice is even easier when you consider the question of the moment: If that’s how investors are reacting to the mega-four, how’re they reading everyone else in the foodservice business?

We’re of course about to find out. In one of those bad timing breaks, the investing public is getting the chance to vote with its dollars on three new issues. Chuy’s, Del Frisco, and Ignite Restaurant Group, the parent of Joe’s Crab Shack and Brick House Tavern, all recently went public. The parent companies of Carl's Jr. and Outback Steakhouse are about to go back to the public equity markets.

The implications could be chilling. What’ll be the takeaway for the private-equity companies that scarfed up restaurant chains right before the Great Recession with the intention of flipping them? We’re at the four-year mark, and five years is often the trigger to enact the exit strategy.

And how about mergers and acquisitions? There’ve been a number of stock purchase offers recently, from P.F. Chang’s to California  Pizza Kitchen to Benihana. Will that accelerate as stock prices are hammered?

Stay tuned. We’ll try to differentiate the bulls from the BS.

Saturday, July 28, 2012

A death in the Chick-fil-A mess

Don Perry, the point man in Chick-fil-A's efforts to counter a PR firestorm, died Friday morning. The chain confirmed Perry's sudden death, but did not cite a cause. A relative of Chick-fil-A president Dan Cathy told a local tv station that Perry suffered a heart attack.

Follow-up reports tied Perry's death to the pressure he's presumably been under since Cathy indicated to a religious paper that his definition of families and married couples does not extend to same-sex relationships. Earlier news reports revealed Chick-fil-A has supported rightist groups that oppose same-sex marriage.

Cathy's comments drew outrage from consumer groups and politicians from Massachusetts to California. Elected officials in San Francisco, Boston and Chicago, among other municipalities, vowed to prevent Chick-fil-A from opening restaurants in their area.

In the center of that outrage was Perry, coordinating Chick-fil-A's efforts to calm the public.

I had the pleasure of dealing with Perry many times over the years (he spent 29 of them with Chick-fil-A.) He was a real pro. If he was indeed a casualty of the controversy, the situation is that much more shameful.

Tuesday, July 24, 2012

Eat Mor Crow

You know things aren’t going well when Kermit the Frog tells you to buzz off. But that’s just one of the shin kicks Chick-fil-A has caught since its president blurred the line between his religious beliefs and one of the most laudable consumer businesses in America.

The backlash against Dan Cathy’s narrow characterization of marriage and families has come at drive-thru speed. In case you’ve been in a coma, Cathy touched off a firestorm with his assertion that a traditional man-woman pairing—“the biblical definition of the family unit”—is also Chick-fil-A’s read of what a married couple should be.

The inference: The family oriented chain doesn’t see much legitimacy in same-sex commitments.

Here’s a quick rundown of public reactions thus far:

--The Onion reported to its avid fans that Chick-fil-A’s next menu addition will be the Queer Hatin’ Cordon Bleu, which the satirical paper describes as a “vehemently anti-gay rights sandwich.”

--A Facebook page has been created to spread the word that Aug. 3 is National Same-Sex Kiss Day at all Chick-fil-A restaurants. Invitations were sent via the social media service to 28,300 people, some 3,000 of which have already said they’ll participate. The idea is to scandalize the chain (and prove a same-sex kiss won’t draw divine retribution) by promoting lip locks that day between bites of waffle fries and chicken sandwiches.

--Television personality and former U.S. Presidential candidate Mike Huckabee has declared Aug. 1 as Chick-fil-A Appreciation Day. The subtext is that a company can have its own views on same-sex marriage and family values.

--Boston mayor Thomas Menino has publicly pledged to block development of a Chick-fil-A in a tourist-trafficked section of the city.

--Sitcom stars Ed Helms (“The Office”) and Michel Urie (“Ugly Betty”) have used Twitter to voice their disagreement and disapproval of Cathy’s assertions and Chick-fil-A’s position.

--Then there’s the cluck-you from the Muppets, whose characters were among the giveaways included in Chick-fil-A kids’ meals. Jim Henson Co., the Muppets’ puppet master, cancelled the deal and said any proceeds its gotten so far will be donated to the Gay & Lesbian Alliance Against Defamation.

Chick-fil-A has tried to conduct some damage control, declaring on its Facebook page, “The Chick-fil-A culture and service tradition in our restaurants is to treat every person with honor, dignity and respect – regardless of their belief, race, creed, sexual orientation or gender.
“Going forward, our intent is to leave the policy debate over same-sex marriage to the government and political arena.”

Thursday, July 19, 2012

Will the suburbs be Itsy Bitsy and Teeny Weeny?

The strangest part of the story isn’t how Doug Guller bought a town, though it’s jaw-dropping that you can find one on Craig’s List for a decent price. The big whoa! is that Guller intends to use the fiefdom to market his breastaurant chain, Bikinis, and vice-versa. 

It’s not just a matter of developing a Bikinis in the town, though that’s presumably in the works. Guller is renaming the whole town Bikinis, in a section of Texas hill country that he’s dubbed the Texas Triangle.

For those of you trying to find it on Google Maps, the town was previously called Bankersmith. Spotting it on a map could be a pretty good vision test. Here’s a hint: It’s land-locked so bikinis would only be worn poolside.

Or in one of the Bikinis units. A two-piece is the official uniform of the bartenders.

If this development is true to what was extensively reported, Guller’s plans to turn the town of Bikinis into a tourist destination. You have to assume the bikini may be the uniform of choice for a number of local businesses. Gas stations, maybe.

This idea of using a town as a restaurant marketing tool might have legs. We know of at least one more concept that should try it. Get on the stick, Burgerville.

Friday, July 13, 2012

A follow-up on the news

Our poster-vet gets a job. To put a face on the 200,000 potential job candidates who’ll be mustered out of military service this year, Restaurant Business focused on Rita DeSanno, whose 25 years of feeding Marines didn’t spare her from worries about finding a civilian foodservice job. Our point was that DeSanno, like her comrades in uniform, could be an outstanding hire for any foodservice operation.  Why weren’t you jumping at the opportunity? We even offered to put any interested employers in touch with DeSanno—an opportunity that drew e-mails (and outright job offers) from a number of you.

 But you were too late. DeSanno informed us Monday that Camp Lejeune, the big Marine base, had hired her as a civilian in its feeding operations. She’ll continue working with the Marine Corps Food Service Office while pursuing degrees in hospitality management and business administration.

In our opinion, it was your loss.

Happier still? Chef Eric Justice wasn’t unhappy with life as the head of R&D at Pei Wei Asian Diner. He just wasn’t happy enough, as he told us back in January. It wasn’t the job, he recalled in our cover story. It was his attitude—toward work, his family, his health, everything.

The story spelled out Justice’s re-invention of himself as a happier person, starting with an adjustment in how he related to everyone around him. He was so elated with the payback—the satisfaction that seemed to be missing from all his various roles—that he felt compelled to help others function in a healthier and more satisfying mode. Hence his address on happiness to the International Corporate Chefs Association, and his willingness to be completely forthcoming for our story.

We learned yesterday that Justice is directing his efforts toward the well-being of impoverished children. He and Shawn Davidson, managing director of Culinary Concepts Group, have teamed up on a non-profit endeavor called Chefs4kids, aiming to combat childhood hunger. The venture raised $20,000 to help fund an orphanage in Ethiopia, and more recently launched a food cart in Haiti.

Justice, it seems, remains fully charged about his two passions: Food, and helping others capture the happiness he’s achieved.

Tuesday, July 10, 2012

The phenomenon of the restaurant-supplier restaurant

From very different sectors of the country come two very similar news developments. In Smithfield, Va., home of restaurant supplier Smithfield Foods, you can now grab a sandwich or box lunch from Taste of Smithfield, a restaurant opened by the company to showcase its meats.

Meanwhile, up where fast-walking people talk with a different sort of accent, you can now treat yourself at midday to a “yogurt-infused” sandwich or salad at The Yogurt Culture Co., a new venture of Dannon Co. The featured yogurts: Dannon’s, of course, but small-batch versions rather than the familiar mainstream types you’d buy in a supermarket or deli. The place is geared to grab-and-go business and, befitting its location in a major New York business center, is open only for breakfast and lunch.

There’s always been crossings of the line between supplier and restaurant or supermarket. Lawry’s, the seasoning, was a creation of Lawry’s the restaurant. Toll House Cookies started as a restaurant product, then became a product of Nestle, and are now being featured in a chain of restaurants called Nestle Toll House Cafes.

You no longer have to use mail order to get Omaha Steaks, thanks to the Omaha Steak House, and you can skip a trip to the supermarket or big-box club and get a Bubba Burger at one of that company’s new fast-casual restaurants.

The prime example remains Pepsico Restaurant Group, known today as Yum! Brands. Its main brands, Taco Bell, Pizza Hut and KFC, were once holdings of the corporate giant. The objective was not so much to market Pepsi soft drinks, but to move more fountain business through a major channel. Those foodservice operations sell a lot of sodas, and the margins are incredible, especially when you’re buying from yourself.

PRG, of course, is also the most pointed cautionary tale. Because its chains were so large and such keen competitors for share of stomach, many other restaurants balked at carrying Pepsi products. The reasoning was, why strengthen the competition?

Yesterday’s entrants in the supplier-turned-restaurateur field clearly won’t have that problem, since both are single outlets.

Yet, interestingly, both were touted as “firsts,” which suggests others could follow.

I guess the Pepsi problem would be a good one to have.

Don't overlook this restaurant milestone

The retirement of Jim Skinner two weeks ago as CEO of McDonald’s drops the curtain on one of the greatest shows of leadership the industry has ever known. Skinner took the brand when it was struggling, after the two first picks of the board had died or been disabled by a terminal disease, and led it to a success that would have been hailed in the best of times. His backdrop was an economic meltdown unequaled since the Great Depression.

And, true to McDonald’s form, Skinner leaves the company in the capable hands of Don Thompson, a living example of Big Mac’s deep, deep bench.

But his retirement ends an era for the restaurant industry as well, as I was reminded in putting together a story on standout restaurant executives who served in the military first. Skinner may be the last example the business sees of an individual who climbed to the loftiest perches in the restaurant industry without a college degree.

Yep, Jim didn’t have a copy of his diploma because he didn’t get one. He took some business classes along the way, and was an officer in the Navy, which means he underwent the service’s formal training for high leadership posts. But, despite its obvious smarts, he didn’t have a sheepskin.

There are a few more examples elsewhere in the business, but they lead chains that aren’t near the scale of McDonald’s. Jimmy John Liautaud, the Jimmy John of Jimmy John’s Gourmet Sandwiches, famously chose the start-up of a sandwich shop over attending college or entering the service, the three career choices his father gave him. As Liautaud explained during a seminar at the National Restaurant Association convention in May, he wanted to drink beer and smoke pot, so he opted for business. And he succeeded because of smarts, hard work, and the willingness to take a risk.

Still, Jimmy John’s is no McDonald’s.

There are plenty of other entrepreneurs who stepped off the traditional high school/college/career track and found an alternative to their liking in the restaurant business. Maybe their ventures will someday grow to the size of a McDonald’s.

Indeed, that was a common story in the business at one time. Knowledge of the business’ nitty-gritty was more important than a degree, even when a peaked-cap uniform was traded for an executive’s suit.

But, as the industry is discovering, the infiltration of private-equity companies and the greater militancy of stock buyers are making years spent at a fry station look far less essential for a restaurant CEO than an MBA.

The entrepreneur may be the one who midwifes an idea, but then professional managers take over. Certainly that takes some color out of the business. But is that the only toll it takes?

Monday, July 2, 2012

Future painted by Future 50

The strong showing of polished casual chains (see below) was just one of the surprises in this year’s Future 50, Restaurant Business’ annual ranking of up-and-coming restaurant chains. Here are some of the other ah-ha aspects:

There’s a rebirth of the pizza sector underway. Eleven of the 50 industry’s up-and-comers—22 %—are pizzeria/Italian concepts. They range from Anthony’s to Zio’s. Alternate methods of fueling the ovens, like burning wood or coal, seem to be the points of differentiation from the old guard, along with using premium ingredients.

Breakfast/brunch/lunch (no dinner) concepts also had a strong showing in the growth rankings this year, as did bakeries (including two cake specialists, Nothing Bundt Cakes and Crumbs.)

Many of the concepts on our Future 50 list may be young, but the driving forces behind them aren’t exactly neophytes. Among the veterans nurturing upstarts are Nick Castaldo, formerly of Pollo Tropical, now with Anthony’s Coal Fired Pizza (along with Hall of Famer Dan Marino); Bill Baumhauer, formerly of Champps Americana, Fuddruckers and Planet Hollywood, now with The Egg & I; and Neil Newcomb, a co-founder of McAlister’s Deli, now affiliated with Brixx Wood Fired Pizza