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.

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.

Sociologists in the dining room

Restaurateurs have to master a slew of jobs if they hope to succeed: Marketer, artist, trainer, buyer, motivational speaker, equipment repairman, even plumber. Now market conditions are requiring them to add a new title to the list: Sociologist.

Economists and politicians have noted during the new-year fit of prognostication that two seismic shifts are our shaking our culture. Both promise to profoundly change who restaurants serve, and how.

Indeed, the impact of one is already evident in New York City, Los Angeles, Las Vegas and the other wellsprings of mainstream trends. Experts give it names like “income gap, “ “wage discrepany” and “economic polarization.” Simply put, it’s the tendency of the rich to get richer while the middle and lower classes struggle harder to hold onto what they have.

Fine-dining places have noticed. Many are resorting to the sort of big-ticket indulgences that we saw in the 1990s—astronomically priced meals, decadent specialties and beverages, and high-priced experiences like having the chef devoted for the night to a single party’s service.

Some are installing a mini-restaurant within their dining rooms to serve the financial wildcats who’re collecting six and seven-figure bonuses again. In Las Vegas, high rollers can indulge at Shaboo, a dining room inside BarMasa, an outlet of famed sushi chef Masa Takayama. In Washington, D.C., powerbrokers vie for one of the few seats at Minibar, the exclusive sub-eatery of Jose Andres’ Café Atlantico.

Ironically, that tangent is coming as the rest of the industry veers in the direction of value. The Sonic drive-inn chain recently explained to investors that it was keeping the introductory reduced price of a revamped hotdog, even though the freeze kept check averages flat. Then again, maybe that’s the objective, given consumers’ ongoing propensity to sticker shock.

Consider that even fast-casual chains like Fazoli’s are adding lower priced (and lower calorie) small plates.

A new study commissioned by Tyson Foodservice shows that the five strongest draws for restaurant customers today are all value-related (in descending order, two-for-ones, dollar menus, discounts, price promotions, and full-service restaurants' combo deals.)

All things considered, you can’t help but conclude he industry is drifting toward either end of the socio-economic spectrum, just like society itself.

At the same time, and not coincidentally, some commentators have noted an historic shift in the earning potential of blue-collar Americans. When U.S. automobile factories and steel mills were booming, workers could afford a comfortable middleclass life. Now many of those jobs have disappeared, and plenty of the remaining manufacturing line posts are paying far less. There’s less money left for dining out.

Yet virtually every mainstream fast-food concept would attest that its core user—the legendary superheavy user—is a blue collar male between 19 and 35 years old.

That foundation market may be eroding, which explains why there’s a clear drift in the design of quick-service places toward more residential designs. They’re trying to position themselves as the places where youngsters can comfortably hang out and be entertained while they munch and sip. The settings are intended to make moms comfortable, too.

Both trends are slow moving. The restaurant industry appears to be adjusting quickly. Just ask any sociologist.

Discounting = heresy?

A week later, the mob has yet to form. But it’s just a matter of time until torch-wielding restaurateurs chase down Walker Smith, the eminent trend reader, for challenging their conviction that the earth is flat.

Indeed, the heretic sledge-hammered a foundation of the industry’s belief system right before the trade’s eyes, at the People Report Best Practices Conference. Frugality is not the default mode of today’s consumers, he thundered. Cheap isn’t the fix they’re craving.

You could almost hear the gasps of everyone in the room with a dollar menu or a you-pick-three deal. I half expected them to bar the doors and shout, “We can’t let this get out. The board will have our hides.”

Yet Smith, a mesmerizing speaker, had the evidence to keep nooses from being tied. This is not a recession where consumer spending was eroded, he asserted. Rather, confidence ebbed as the risk of losing a job or a home grew exponentially.

But marketers would be foolhardy to equate that fear with stinginess, he continued. Look at sales of smart phones and high-tech entertainment equipment. Indeed, Smith predicted that the iPad, the gizmo of the moment, “will quickly replace the PC.”

“The major lesson from this recession,” he told the 250 restaurateurs in attendance, is “risk translates into prioritization. Your job is to get back on their priority list.”

The Number One way to do it, Smith contended, is through innovation. Left unsaid: “…not a price you can’t refuse.”

Second, surprisingly, in the Gospel of Smith: “Do something that helps people control their health.”

And third: Make it something that the buyer enjoys.

I’m sure it was just a coincidence that Smith left the conference as soon as his speech concluded, ostensibly to head out for another engagement.

I swear I could hear a posse being formed.

BK's new breakfast items--and ongoing pricing mess

Any commandos looking for near-term work in the Miami area? Some of us are considering a raid on Burger King’s headquarters to rescue the chain’s menu-development team. Management must be working them 24/7 to get the sort of product output we’ve been seeing, and the volume is about to increase with the rollout of several new breakfast items.

Those additions will include a new muffin sandwich and a breakfast bowl, according to executives of Carrols Corp., the chain’s largest franchisee and a likely sympathizer with our mission. In talking with investors today, the officials indicated they’re not exactly overjoyed with the products pouring out of the franchisor’s test kitchens.

Indeed, analysts were advised during the conference call that Carrols can’t provide them with a general outlook for its Burger King restaurants because of “uncertainty regarding the impact of new product introductions,” in the words of CFO Paul Flanders.

He and his colleagues explained that next in the staging area for BK are a number of higher-priced items, including ribs and additions to the XT premium burger line. Although Carrols is “cautiously optimistic” about the sales prospects for those additions, the ka-ching may not be as loud as BK hopes because of tight consumer spending and widespread discounting by competitors, said president Dan Accordino.

Carrols noted that its BK units were selling only 24 Steak House XT burgers a day, though supporting advertising had yet to begin. Still, “I’m not certain that the units are going to be terribly significant,” said Flanders.

That’s not to say aggressive discounting has worked well for BK, either, Accordino remarked. He cited the chain’s controversial $1 double cheeseburger, a product other franchisees have slammed as a giveaway that costs them money.

The bargain-priced item isn’t delivering sustained sales, contrary to the chain’s hopes, Accordino explained. Orders have tapered off since the deal was introduced last fall, with comp sales at Carrols’ BK units falling about 8% year-over-year during the first six weeks of 2010, the stock analysts learned.

Even with that decline, the $1 double accounts for 10% of sales at Carrol’s BK units. However, “while we're selling a lot of sandwiches, our incidence of drink and fry add-ons is not that high, making the gross profit contribution less appealing than we had hoped,” Accordino said.

That’s on top of the margin damage fellow franchisees had feared, he indicated.

The assessment is damning for BK because Carrols was one of the franchisees that remained loyal to the home office after fellow licensees sued to kill the double deal. The franchisor eventually agreed to reformulate the sandwich, taking out a slice of cheese and holding the $1 price. The true double cheeseburger (two patties, two slices of cheese) is being repriced at $1.19.

That overhaul will bring the $1 sandwich’s food cost below 50%, said Carrols CEO Alan Vituli. More importantly, he suggested, the $1.19 double cheeseburger might wean customers off what BK has termed “extreme affordability.”

“What we’re experiencing is that extreme affordability is converting too many of our core customers to extreme bargain seekers with no interest in looking beyond the extreme market,” Vituli said.

New coffee to pop up at Jack in the Box

Burger King grabbed the headlines this week with its agreement to start serving Seattle’s Best Coffee, Starbucks’ secondary brand. But Jack in the Box hinted yesterday that more coffee news is percolating.

While the regional burger chain is experimenting with new flavors of shakes and smoothies, “We’re also looking at our coffee program,” CEO Linda Lang told stock analysts. “More news on that later.” She was responding to a query about how the burger brand might respond to initiatives like the one that had been disclosed by BK.

“Would you consider a branded product or do you need a branded product?” the questioner pressed.

“I don’t think you necessarily need a branded product,” responded Lang. But she wasn’t providing details. “we’ve looked at the different options and will be talking about that soon.”

During the conference call, Lang also acknowledged that Jack’s Southwest Chicken Bowl, introduced late in 2009, bowl wasn’t exactly a hit.

“That was not one [of] our stronger products,” she noted, according to a transcript of the call provided by SeekingAlpha.com.

Lang explained that the item, an extension of an older line of rice-based meals in a bowl, was priced at $4.29, and many franchisees charged “significantly” more than that. She suggested going above $4 in the current environment is not prudent, adding that Jack’s just-introduced grilled sandwiches have been much better received. The sandwiches are priced at $3.99.

That prompted more head scratching by Robert Derrington, the restaurant analyst who’d asked about coffee. “Given that your company generally is pretty sophisticated about testing products before you roll them out, did you know in advance that the Southwest Bowl wouldn’t do as well, and if so why did you proceed with it?” asked Derrington, who tracks restaurant stocks for Morgan, Keegan.

Lang countered that the bowl was a niche product, and noted that new products are always tested in “limited markets,” not in a full-blown dress rehearsal.

Other revelations concerned the relatively stronger performance of Qdoba, Jack in the Box’s secondary franchise chain. The smaller but more expensive brand posted a comp-store sales decline of 1.7% for the quarter ended Jan. 17, compared with an 11.1% freefall at company-operated Jack outlets.

“:We’ve seen reports of a boost in confidence among the more affluent segment of the population while consumer confidence among those with lower income levels have remained depressed,” said Lang. “We think this helps explain the divergence in sales trends at Qdoba verses Jack in the Box.” Qdoba has the better-heeled clientele, she suggested.

Mind the recent signs of improvement

Be careful where you drop your gloom because you don’t want to crush any of the green shoots that sprouted in the restaurant industry last week.

Let’s recap:

McDonald’s, a chain that looked as if it’d finally been tripped up by the economy, explained to investors that it’s paying attention in 2010 to building check averages, a surprising admission given the discounting that’s still rampant in fast-food. The segment’s leader isn’t abandoning its quest for bargain hunters. To the contrary, it’s rolling out a Dollar Menu for breakfast and the Mac Snack Wrap, an item so low priced that execs term it a “fourth-tier” item, below your run-of-the-mill bargain.

Still, officials are pushing items like the Angus burger and continuing the rollout of frappes and smoothies because of the boosts they’ll deliver to tabs and profits. Even the Mac Snack, essentially a Big Mac served in a tortilla wrap, fits the strategy. The chain believes the item’s low price will convince customers to buy it as an add-on to what they normally get, putting more money in the till.

McDonald’s wouldn’t be devoting attention to that end of the pricing barbell if it didn’t feel the opportunity is there.

Panera Bread, meanwhile, said the restaurants it manages took in 9.4% more year-to-date in January than they did during the same period of 2009, after rising 9.6% in December. The January figure is particularly encouraging because McDonald’s mentioned to investors that bad weather probably depressed sales for the first half of the month by 3% a day.

Starbucks’ comp sales increase for late 2009 wasn’t quite as robust, with “just” a 4% gain. But a full percentage point came from increased traffic, a term that wasn’t been heard much last year, unless you were talking about the situation at unemployment offices.

In the full-service sector, Chili’s lifted the dome off a new menu that’s as radical—and sensible—as anything the chain’s ever done. What makes it so bold is the surrender to simplicity. For one thing, the bill of fare runs to only eight pages, a 50% cut from the tome it replaces.

But what’s really significant is the Doh! that must have precede it. The chain is basically a grill, like a neighborhood bar, with good burgers, ribs and other relatively simple preparations. The items left on the menu aren’t cutesy-named knock-offs of the trendy stuff someone dressed in black might hunt in the casual hotspots of New York or Chicago. Chili’s recognized what it was, and what it should become again, and shifted back there.

A smaller, simpler menu means better execution and a shot at better food. The side benefit is presumably quicker service, since the kitchen staff can prepare more of a relatively few items, which become that much more familiar.

Quicker kitchen output gives customers an option of getting in and out of the restaurant quickly, if that’s what the occasion warrants, or hanging back with a few more margaritas, if that’s the preference that night. Executives of the chain’s parent company, Brinker International, have been talking for some time about the need to let patrons decide the pace and extent of a visit. Presumably that objective was brought to light by research. In any case, it appears the chain has taken a big step toward complying with the desire.

Chili’s traffic and sales are still declining, executives acknowledged, but the downdraft has moderated appreciably. And they cited the new menu as a foundation for the chain’s identity going forward. The brand appears to have found itself.

Being part of the train wreck

A butterfly flaps its wings in China and McDonald’s ends up cutting its breakfast prices. Okay, there’s the profound factor in there of consumers waving new pink slips, but you get the idea. Despite considerable efforts to counter a stinking economy, restaurants are still being skunked by cascading forces beyond their control, unemployment being the main one.

Yesterday’s development was resounding confirmation. When the economy slipped in ‘07, breakfast afforded a rare spot of opportunity for fast-food restaurants. A majority of consumers still consumed their first bite of the day at home, posing a gigantic potential market. Not surprisingly, the big chains mobilized for an a.m. market surge, often starting with an upgrade of their coffee.

Few charged as forcefully as McDonald’s, already the sector’s breakfast king. Breakfast, beverages and snacks would be its growth areas, executives assured investors and franchisees. And it looked as if they were dead-on; those markets fueled a sales increase for the chain, at a time of significant decreases for most of the major fast-food slingers.

But rising unemployment started taking its toll. With almost one in five Americans “under-employed,” according to the experts, fewer consumers were venturing beyond their front doors in the morning. Breakfast traffic eroded, and those who still were heading to an office or shop floor were far more stingy with their pennies, a reflection of declining pay and often fewer incomes within a household.

McDonald’s responded by posting a new cut-rate breakfast menu in some of its markets. Yesterday, amid indications of further sales erosion, headquarters confirmed that the new a.m. bargain array would become an across-the-chain feature. Consumers trying to tighten their budgets will be enticed with a Dollar Menu of five items priced under $1, beginning next month, officials told the business media.

The brand’s closest rival, Burger King, had adopted dollar breakfast deals some time beforehand.

And if those two bellwethers are doing it, the pack is sure to follow.

But breakfast isn’t the only meal where lines have been thinned by unemployment. Yesterday I moderated a webinar that included representatives of several quick-service chains. One pointed out that it’s far tougher to sell lunches when fewer people are away from home for the midday meal. Those who do work are brownbagging it more often, and spending as little as they can when they do have someone else prepare their meal, he said, echoing the grim assessments of other experts.

And then there’s the phenomenon of furloughing, or cutting employees’ work schedules. Many employers now require those still on the payroll to skip several Fridays a month, with their compensation trimmed accordingly. Others are being forced to take additional weeks of vacation, though without compensation.

In short, the lunch market is being cinched far tighter, and those still in it have less money to spend.

Of course, it’s not as if the dinner market is booming. One of my webinar panelists works for a high-end concept that figures about 80% of its checks are charged back to employers on expense accounts. And it’s not as if travel or entertainment budgets have escaped the machete.

Most restaurant chains have tried to counter the curtailed spending at all times of day by flashing some astounding bargains. Even if that worked as well as they might hope, it leads to all kinds of problems, not the least of them being how the public can be weaned off deals when unemployment falls back to conventional levels.

In the meantime, those of us who are unemployed are grateful to have our Sausage McMuffin for a mere buck, or what we once might’ve given as a tip to the guy at the deli who prepared out usual breakfast.

More flamebroiling tempers at BK?

A financial analyst may have inadvertently fanned the broiler flames at Burger King, where franchisees have squared off with the home office over the deeply discounted Double Cheeseburger.

The Wall Street Journal reported online this afternoon that Morgan Stanley had advised investors to reconsider their positions in McDonald’s because the burger giant is being sapped by competitors’ discounts. BK’s $1 Double Cheeseburger was specifically cited by the brokerage, where analyst John Glass handicaps the restaurant sector.

If investors pull their money out of McDonald’s because it’s being hurt by Burger King, is it such a leap to assume some will shift it over to Burger King Holdings, the keeper of BK’s castle?

In other words, the Double Cheeseburger appears to be helping the franchisor’s stock price. And that’s going to go down like three-week-old Onion Rings with franchisees.

They’ve argued that the quarter-pound Double Cheeseburger is boosting traffic and sales, the base for the home office’s revenues and profits, at the expense of unit-level profits. In filing a lawsuit a few weeks ago to halt the head-turning offer, an association of franchisees alleged they’re losing a dime on every Double they sell for a buck.

Now comes word that the deal is not only helping BK Holding’s revenues, but also boosting its stock valuation.

If you should see a torch-toting mob of BK franchisees outside the chain’s Miami headquarters, you’d best run for cover. It could get ugly.

Off with The King's head?

There’s probably no truth to the rumor that Burger King headquarters is planning a new line of kids-meal action figures called Butthead Franchisees (“Collect all the dolts--and their lawyers, too!!”) But the home office clearly isn’t friending some of its licensees on Facebook these days, and vice-versa. Though that’s sort of like saying Batman and the Joker had their inter-relational challenges. We’re probably only a snipe away from seeing The King in combat fatigues and camouflage face paint.

The flashpoint is the $1 Double Cheeseburger that the chain decided to promote systemwide despite a forceful don’t-you-dare from franchisees. In a gambit that drew more media coverage than Michael Jackson’s funeral, a group claiming to represent three-fourths of BK’s licensees filed a lawsuit to halt the promotion, arguing that the franchisor was fixing prices. The National Franchise Association said at the time of the filing that a franchisee stands to lose a dime on every double that’s sold.

By franchising standards, that sort of gripe is the equivalent of asking Mike Tyson if he prefers women’s clothing. But the association took the further step of sending a letter to each director of Burger King’s parent company, asking that they intervene to reverse management’s decision and set the home office on a more intelligent strategy. The elevated middle finger was leaving CEO John Chidsey, the director who crafted the current plan, on the mailing list.

That’s when things started getting really ugly.

Yesterday, someone leaked an e-mail to the Associated Press that had been sent to Franchise Association members over the weekend by Chuck Fallon, the Chidsey direct report who oversees BK’s North American division. It cautioned the dissidents that they could be limiting their growth opportunities with all the public grumbling.

“Bankers, landlords, suppliers and potential new franchisees are watching and listening,” the A.P. quoted Fallon as warning. The upshot, he said, could be less lending and less attractive terms—or a lower price should the malcontents look to sell their businesses.

A return volley has yet to be fired by the franchisees, or at least it’s not yet come to the attention of the media. But give it time.

Not that they’re the only franchisees who are ready to string up their franchisors during these trying times. NPC, Pizza Hut’s largest franchisee, told its shareholders in an earnings statement last week that the pizza brand and its marketing need to be handled differently, a veiled criticism of franchisor Yum! Brands. Making that observation in a financial statement is like telling a soccer mom that her kid couldn’t hit a barn with three free kicks.

And Quiznos franchisees probably have a rule that you have to pay a dollar everytime you mention the franchisor or otherwise cuss.

Because of its sheer size, BK is going to be the fracas in the spotlight. It’s just a matter of time until the feud starts snagging covered on CNN.

Outback's designs on another traffic builder

Studding the menu with lower-priced options hasn’t reversed a traffic fall-off at Outback Steakhouse, but another potential remedy is definitely putting more butts in seats, according to an executive of the chain’s parent company, OSI Restaurant Partners.

CFO Dirk Montgomery told financial analysts today that design tweaks at 50 test outlets are bringing “traffic lifts ranging from the low single digits to the mid single digits, say five, 6%.”

Those increases coincided with a 10.7% drop in Outback’s comps for the third quarter.

Montgomery explained that a variety of alterations to the outside and interior of the steakhouses is being tried. The packages range in cost from $100,000 to $400,000 per store, he added.

He stressed that the various features are still being tested, and that more elements will be tried in the field through 2009 and into next year.

Among the variables yet to be pinned down, he said, is the right level of spending, the correct balance of investment and payback.

The chain also isn’t certain about what features to combine into a renovation package.

“It’s still too early for us to form conclusions about what the ongoing renovations strategy will be in terms of what elements we pick,” he explained.

Montgomery did not cite any specific design features but commented, “consumer perceptions of overall atmosphere have improved significantly.”

Published reports indicate that at least some of the interior designs play down the concept’s Australian theme.

Is salmon the new twofer?

Forget sliders, bundled meals and mini desserts. The hook for restaurant bargain hunters is being re-baited these days with lobster, crab and salmon.

Those are among the lures Ruby Tuesday is flycasting with its much-publicized new menu (the bill of fare landed lengthy features from The New York Times and AOL). The dinnerhouse chain added a lobster tail in late summer. Now it’s mixed the pricey protein into several dishes, including a classic surf and turf platter. Two tails share the plate with a seven-ounce sirloin, vegetables and a potato. This isn’t your two-dinners-for-$20 draw.

Nor is the new lump-meat crab cake, or the just-added Salmon Florentine platter. The chain is betting that a special-occasion dinner priced at an everyday rate—relatively speaking—will still be taken as a deal by consumers obsessed with economy.

It’s the credo being followed with considerable success by Panera Bread Co. Not coincidentally, the bakery-café chain has also used lobster as a draw, albeit a regional one. This summer units in the New England area offered a half-pound lobster salad sandwich for about $17 (at least in my area). CEO Ron Shaich explained at the time that the chain was focusing on the 90% of consumers who were employed, not the 10% that lost or couldn’t find a job.

Now, Shaich told investors last month, the chain is adding salmon, both as a sandwich and salad ingredient. He noted that the addition will boost profits while presenting customers with another high-quality choice.

Salmon is already on the menu of Panera’s arch-competitor (and Shaich’s former charge), the Au Bon Pain bakery-café chain. It recently added a sandwich of smoked salmon, egg and guacamole. Already on the menu was a breakfast sandwich of smoked salmon and wasabi, served on an onion dill bagel.

Touting quality in a pitch for deal hunters is a risky strategy, as Cheesecake Factory can attest. It’s a casual-dining leader in quality and portion size, yet it had to re-engineer the tome it calls a menu to include more straightforward bargains. Virtually every other casual chain has done the same, to varying degrees.

But there are signs the approach can work. Ruby Tuesday’s lobster tails, for instant, were generating 3% of a typical restaurant’s sales at the end of August, according to CEO Sandy Beall. That’s at a price falling between $17 and $19, he noted to financial analysts a few weeks ago.

He noted at the time that the chain’s emphasis on quality was helping to boost check averages, the Holy Grail for an industry limping through a steep drop off in customers.

Panera told the Wall Street Journal for a mid-August feature that its hefty lobster sandwich was selling well, but balked at disclosing the specifics.

Will it work? Well, there’s a reason chains have to give away new menu items to get them tasted. A quality item for a reasonable price has its appeal. But the absolute dollars are still going to be a yellow light for those of us who no longer find ourselves in a position to dine out regularly.

Don't bogart that financial statement

This week's earnings reports are giving the restaurant industry a new riff for its all-night blues jam. And, man, it's a killer. If the business could find enough green shoots, its best shot at solace might be to smoke 'em.

Consider, for instance, the meltdown at the high end of the casual market. The comp sales figure provide the slide work on this one: Morton's, down 26.1%; Ruth's Chris, down 23%; McCormick & Schmick's, down 17.3%; Benihana, down 13.1%. Keep in mind that several of those big-ticket players have already armed themselves with steep discounts relative to their usual prices. There's just not enough expense-account and top-ticket tourism business to avert a sales plummet. Ruth's Chris, for instance, said a continuation of its comps trend would cost each store about $1 million a year in sales.

But that's casual dining, and the top drawer at that. Surely it's a different story for fast-food.

Sure enough, comps ebbed only a little more than a percentage point for company-run Jack in the Box restaurants, and the damage wasn't much worse for the burger concept's little sister of a brand, Qdoba.

But in analyzing the factors for the benefit of investors, Jack in the Box CEO Linda Lang acknowledged that breakfast, one of the areas of growth for the whole sector, had been weak.

"We also saw some fall-off in sales [of] side items, carbonated beverages, and shakes," added Lang. Throw coffee in there, and you have the key profit drivers of fast-food.

Jack's solution: Discount deeper. The chain recently added a head-turner called the Big Deal, a cheeseburger, taco, fries and a drink, for $2.99. And, says Lang, "We currently have additional value-priced product or promotions in test elsewhere in our system." She described them as "margin neutral or margin friendly," without revealing specifics.

BurgerBusiness, Scott Hume's site devoted to all things burgers, noted in a recent posting that $2.99 is the new $5, the rockbottom threshold where everyone wanted to be earlier this year. As he pointed out, White Castle and Sonic are already offering meals at that price level.

Even Hardee's, a proponent of heft, is dabbling with bargain-priced snacks, vis-a-vis its new biscuit holes.

Product giveaways have become a routine way for chains to flycast for more customers. But if an everyday meal costs a mere $2.99, will that hook stay as irresistible? Or might "cheap" become irreversibly associated in the public's mind with "quick-service"?

I don't know, but I bet we're going to find out.

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.

Man bites dog, sets own price

It's now a yawner for restaurants to flycast for customers by letting them pay whatever they decide a meal is worth. But you're definitely in man-bites-dog territory when the place resorting to that ploy is Le Bec Fin, the old Brahmin of Philadelphia's fine-dining scene.

Yet, for the next two months, patrons can visit the landmark on any Monday through Thursday nights, dine on a special menu created by chef George Perrier, and pay what they deem to be appropriate.

Of course, as always with deals too good to be true, there is some fine print. The offer is only available to the first 20 people who reserve a seat. They'll be served in a group, as if they were attending a banquet, and in family style (i.e., from big platters).

Still, it says a lot about the state of fine-dining that a place as renowned as Le Bec Fin has to resort to such a ploy.

Okay, time to go jockey for position. There's a rumor that Tavern on the Green is staging a flag-pole sitting stunt.

Tweet this

Social-media and other online marketing may be all the rage for restaurant chains right now. But when Red Robin wanted to generate some buzz for a limited-time promotional product, it decided the Old Media approach of a coupon drop would work just fine. And it bet right.

Coupons were sent to 5,000 households within a three-mile radius of participating company-run restaurants, chief marketing officer Susan Lintonsmith explained to financial analysts during a call. The call was held in late May, but a transcript wasn’t released by the financial site SeekingAlpha.com until this morning.

The coupons entitled the recipient to a $3 discount on Red Robins’ Burning Love Burger, a spiced-up sandwich served with Jalapeno Coins, a side made from the spicy peppers. The item was touted as a limited-time item. Translation: Get it while you can.

About 8% of the recipients used the coupon, “Which is significantly higher than what is typical for these type of mailings,” Lintonsmith said. She noted that the targeted mailing was complemented with online advertising, including banner ads and videos.

The acceptance prompted Red Robin to add the Burning Love as a permanent offering last month.

The mall-based chain switched its promotional focus to sliders last month. The key marketing components were 15-second cable spots—and another coupon drop.

YouTube: Good for the soul?

Catholics use the confessional to ask for forgiveness. Restaurant executives seem to prefer YouTube.   

The latest mea culpa was posted Thursday by KFC, after it infuriated freebie hounds by suspending a much-ballyhooed giveaway of grilled chicken.  “On behalf of all our employees and franchisees, I just wanted to apologize to you. The response to our Kentucky Grilled Chicken has been overwhelming,” chain president Roger Eaton says in the video. “So we can’t redeem your free coupon at this time.”   

Translation: Our chicken was so good that the moochers scarfed up all the samples we were willing to give away. But here’s a raincheck and a promise of a soft drink for your troubles.   

He should’ve studied Domino’s handling of the employee shenanigans at a North Carolina unit to see what a regretful chain executive looks like. Patrick Doyle, the pizza chain’s U.S. president, came across as genuinely sorry and outraged that two knucklehead employees would mess with a restaurant’s food. “It sickens me,” says Doyle. “We sincerely apologize for this incidence…We are taking this incredibly seriously.”   

Let that be a lesson to any chain that’s considering a YouTube apology for lapses like, oh, maybe serving a snake’s head in some broccoli, or selling a Happy Meal with a condom inside.

That’s assuming T.G.I. Friday’s and McDonald’s will turn to the Tube for their make-nice efforts. Several other chains didn't use the video-sharing site to explain their big-time blunders. Instead, Quiznos just let its recent free-subs fiasco reek in public for awhile.  Crain’s Chicago Business quoted an official as charactering the Million Subs Giveaway as a marketing home run despite the fallout with some customers.   

Burger King apologized via more traditional media for its “little Mexican” depiction in a European ad campaign, but it has yet to address parents who are outraged by the chain’s SpongeBob SquarePants commercial for U.S. youngsters.   

Hey, it’s worth 15 minutes and the investment in a Flip video camera. 

The coffee (plot) thickens

You have to get up pretty early in the morning to get the jump on Dunkin’ Donuts, a concept that once advertised how ridiculously early it arises to make the doughnuts.   

McDonald’s is rolling its McCafe line-up of beverages into the Greater New York area. Starbucks announces that it’ll be selectively reducing prices in some markets, which means some stores in the Tri-State Area could be among the discounters. So what’s Dunkin’ doing? Rolling back its latte prices in a pre-emptive strike.   

The chain announced today that it’ll be permanently discounting the prices of “all sizes, flavors and varieties” of latte drinks by about 15%. No reason was given in English for the haircut, though there was some corpo-blather about the changes being consistent with the current “You ‘kin do it” ad slogan.  

Memo to Domino's: Think AIG, dammit

Domino’s has been hooking its marketing efforts to high-profile developments in Washington, like Obama’s appointment of a cabinet (the pizza chain now has a Secretary of Taste) or the bank bailout (today it launched the Big Taste Bailout, a promotion of $5 pizzas and sandwiches). But it’s squandering an opportunity by not jumping on the obvious take-off: The AIG Bonus Package.

“A deal so good they’ll try to overturn it,” the voice-over would explain. “No matter how badly you’ve screwed up, you deserve a payout for the ages. Now, at Domino’s, a soda’s only $1.65 for the first million served—or until the government stops us.”

Think I’ll send it off to Domino’s CEO David Brandon. There could be a free pizza in this for me.

Blue Sage gives patrons final say in pricing

Coming from a restaurant family, Chris Dussin presumably knows all the tricks for pulling first-time customers into a place. But the one he started using last week at The Dussin Group’s two Blue Sage Cafes in Portland, Ore., is probably a first for the son of Old Spaghetti Factory founder Gus Dussin. Indeed, the ploy is novel enough to snag headlines in several local media outlets, helping to achieve the desired end without a separate outlay for marketing or public relations.

Not that the technique is unkonwn. At least one restaurant in the United States has similarly let patrons set the price of what they’re served. The approach has more recently snagged publicity for restaurants in Toronto and the United Kingdom. It may be a matter of time until places embrace the name-your-price tactic as a standard promotional device for the Great Recession, similar to product giveaways in fast-food or the bundling that’s now widely evident in casual dining.

Dussin’s approach has a little more structure than some of the early pay-what-you-want incarnations. In at least a few of those pioneering efforts, patrons were asked after eating to fork over whatever they felt the meal was worth.

Dussin provides guests with what amounts to a manufacturer’s suggested retail price for food items. Customers are presented after the meal with a tab listing the prices of what they ordered. They in effect decide whether that price was worth it. If not, they counter with their final offer. Dussin told OregonLive.com that some guests had indeed penciled in a zero for their charge, but that others had volunteered to pay more than the listed price.

The Your Price is Right promo is scheduled to run at the two casual restaurants until early next month.

The Dussin Group also operates the Old Spaghetti Warehouse chain and another full-service concept called Fenouil.