Ruth's O'Donnell: Making a plan work

This is the second installment of a three-part celebration of the industry's top turnaround stars. You can read the first installment, on Cheryl Bachelder, here.

The turnaround at Ruth’s Chris didn’t start out with a bang. It was more of the resounding-thud variety.

Like a lot of high-ticket concepts, the expense-account chain was kneecapped by the Great Recession. In February 2009, comps fell 23%. And that was after it’d rolled out a cut-rate deal to pull customers back. For a mere $39.99 per head, guests were treated to a three-course meal that included shrimp or a six-ounce fillet.

By Ruth’s-ian standards, it was a Dollar Menu. But the headwinds were too strong. Trade-offs to the discount lowered Ruth’s check average without drawing an offset in traffic. In short, it looked as if the concept was just discounting to customers it would’ve drawn anyways.

At the rate of decline, said CEO Mike O’Donnell, units would each lose $1 million in annual sales.

The next tactic didn’t work so well, either, or at least not at first. The chain put the spotlight on the flattop-grilled steaks and other entrees that had long been its signatures. They were grouped together into a special Classics menu. Customers would recognize the items, but not the prices, since they were lowered to a traffic-stimulating level.

Then came one of those smack-your-forehead moments. To hold down costs, Ruth’s simultaneously cut its advertising. So it had a deal, but no way of telling patrons about it. Guests were already in the unit when they learned of the special promotional session.

It didn’t look good for Ruth Fertel’s brainchild. But O’Donnell proved why he’s one of the toughest execs the industry has ever seen. His lengthy resume included stints during some of the roughest times at Champps, Sbarro and Ground Round. He’s also been fire-hardened by working at such operations as Outback and T.G.I. Friday’s. This is no crème puff.

He stuck with the Classics deal. Today, it accounts for about 30% of Ruth’s sales, which are on the rise. Traffic was up 3.3% in the second quarter, with a 2.4% rise in the average check, yielding an average sales increase per store of 5.8%.

Meanwhile, O’Donnell diversified the chain’s prices. A bistro menu put more affordable choices in front of customers, who could now return even if the company wasn’t picking up the tab.

He also pushed for group business, which had fallen like a stone. The installation of a satellite communication system provided an extra reason for businesses to hold their meetings at a Ruth’s, with banquet service included. In the second quarter, group sales were running 16% above the tally of a year earlier.

Now O’Donnell is trying to work the same program with Ruth’s secondary concept, the Mitchell’s dinnerhouse chain. The home office is diversifying the menu. While the Ruth’s brand is testing TV advertising, the smaller Mitchell’s operation is experimenting with radio.

Still, O’Donnell isn’t crowing about his company’s recent achievements. During a conference call with financial analysts, he was asked where the turnaround stands.

“Our everyday user continues to show improvement. Our business-to-business experience shows improvement,” he said. “So we think that as long as the economy continues or the higher end of the economy continues to do reasonably well, we will continue to track in that regard.”

I wouldn't bet against him.

Discounting at the sterling level

How do you tactfully offer a bargain when your customers view you as a Mercedes-class experience? That’s the quandary facing Ruth’s Chris Steak House, a longtime favorite of the expense-account crowd.

The chain tried a bundled-meal deal—the equivalent of a Dollar Menu to the Gold Card set—in February. Patrons could have shrimp, a six-ounce filet or several other upscale entrees, packaged with a side and a dessert, for a mere $39.95. By the standards of that segment, this was dangerously close to a tie-in with a blockbuster summer movie.

The nod to value played well with Ruth’s clientele. “It has been well received by our guests and is representing a sizable portion of our sales mix,” CEO Mike O’Donnell told analysts during a conference call today.

Indeed, he seemed to suggest, the promo might’ve been too well received. The chain’s typical guest check fell 6.5%, to $70. Ruth’s was getting less per guest, which would’ve been fine if more guests were drawn by the head-turner.

But comp sales fell by more than 23%. The numbers indicate that traffic was down as well as the average check.

So what’s a high-end chain to do?

The chain is currently testing a bistro menu in the lounges of six restaurants. A second possibility, a $19.95 steak-and-fries platter, is being tested during the normally slow beginning of the week at three locations.

But the chain’s not abandoning its prix-fixe deal, at least not this summer. Apparently the company feels it was enough of a brake on the traffic decline to keep it in place. O’Donnell cited expectations that the value offer might catch on and hit an “inflection point,” where it becomes a boon to traffic, even though the average tab might slip by a few more dollars. And as he noted in response to a question on that point, patrons can “buy up” to a $49.95 version.

I guess it’s like trading up to a large drink.