Is polished casual the fast-casual of casual?

Fast-casual brands may be the cool kids in the chain-restaurant schoolyard right now, but a rival clique is forming. Judging from the buzz, it’s a matter of time until operators are pining to be part of that polished-casual crowd.

Consider how prominently the emerging sector figures into Restaurant Business’ Future 50 report, an annual listing of the fastest-growing small-to-mid-sized chains (defined by Technomic as having $25 million to $50 million in sales.) In past years, the ranking abounded in concepts that are now major parts of the mosaic, like better-burger joints, Korean-style fro-yo shops, or wings-and-beer specialists. None of those were as prevalent this year as polished casual chains. Six were on our just-published list, including Cru—A Wine Bar, Burtons Grill, Stanford’s, and Cooper’s Hawk.

Simultaneously, the greybeards of mainstream casual dining are charging upmarket into the polished tier. Look at the new siblings of Red Lobster and Olive Garden: Eddie V’s (No. 15 on our Future 50 list) and Wildfish Seafood Grille, which Darden Restaurants purchased in a surprise deal. These aren’t the sorts of places where blue collar consumers pack the booths for an all-you-can-eat crab deal.

They’re more in the level of Seasons 52, Darden Restaurants’ California wine bar and seasonal specialist.

Ruby Tuesday, meanwhile, is developing an upscale licensed concept called Truffles Cafe, while switching some of its old and tired namesake restaurants to a new, fresher, more polished brand called Marlin and Ray’s.

Clearly investors are attracted to the sector. Bill Foley, for instance, is purchasing J. Alexander’s after adding Stony River Legendary Steaks to the portfolio through the acquisition of O’Charley’s.

And Centerbridge Partners, a private-equity firm, is in the process of buying P.F. Chang’s.

It’s easy to understand why the action is shifting to the polished strata of casual dining. There’s more of an emphasis on wine and liquor sales, and the food portion of the ticket is considerably higher, yielding better returns on the considerable investment in a sizeable restaurant.

But the real driver might be the trend in consumer tastes, which can be summed up in one word: Better. Better burgers, better coffee, better beer, better cupcakes, better burritos. Why not better dining in a casual setting?

It’s the same dynamic that’s remaking the quick-service sector. Everyone wants to be in fast-casual, even longtime traditionalists like Taco Bell, Fazoli’s and Pizza Inn.

 Polished casual truly is the fast-casual of casual.

Colorful duo behind the J. Alexander's buy

Today’s big news turns a spotlight on two longtime industry figures who aren’t often center-stage, despite strong claims to stardom.

Bill Foley is the more familiar of the two, a carry-over more from his days as the kingpin behind Carl’s Jr., Hardee’s and several other regional chains, from Taco Bueno to Rally’s. At one point he ran a veritable restaurant empire, but more remarkable was how he got started.

Carl Karcher, the Carl in Carl’s Jr., ran into trouble because of some real estate deals. Because the parent of Carl’s Jr. was a public company, a rescue of the concern’s founder was a dicey business for the home office. The company’s CEO and Karcher had a very visible struggle for control of what Carl, a textbook entrepreneur who started with a hotdog cart, had built through the sweat of himself and his family. 

The very public battle was waged on radio stations and in newspapers within Carl’s stronghold of southern California. Public sympathy was clearly aligned behind Karcher, but that didn’t bail him out of a mountain of debt.

Enter Foley, who headed what at the time was believed to be the nation’s largest title insurance company. Like a white knight on noble steed, Foley provided the money to rescue Karcher from serious financial difficulties. But, in the process, he slickly ended up controlling Carl’s Jr. and the concepts it later amassed, including Hardee’s, Green Burrito and a host of other smaller brands. Karcher was gradually phased out, and Foley became the burger king.

The purchase of the Hardee’s regional burger chain and the subsequent acquisition of its largest franchisee, Advantica, mired Foley’s restaurant diversification in trouble, and, after a 12-year run, he stepped out.

From the standpoint of the industry, he virtually disappeared. Indeed, if he was known at all, it was as a supplier to high-end eateries. He bought a bunch of wineries in Napa and Walla Walla, Wash., and was reported to be in Montana, enjoying his wealth and wine.

Then he popped up again in 2007 through the purchase of several small, Montana-based restaurant chains. We’re talking about such powerhouses as MacKenzie River Pizza Co., Mambo’s, Craggy Range Bar and Grill, and Corner House Grille. With not much more than a dozen or so units, Foley seemed as if he was buying a diversion, if not a place where he could have some food with his wines.

Obscurity briefly returned, with the notable exception of Foley’s emergence as one of the bidders for Wendy’s.

Now he’s back in remarkable force. Taking advantage of the industry’s downturn, he snorked up Village Inn, Bakers Square and Max & Erma’s, all of which had gone bankrupt.

O’Charley’s and its little sisters, the Stony River Legendary Steaks and Ninety Nine casual chains, followed.

Then, on Friday, his Fidelity National inked a $72-million deal to buy J. Alexander’s, a polished-casual concept that many have likened to a lower-ticket Houston’s.

If the deal goes through, according to Fidelity, Foley will have a portfolio consisting of 674 restaurants and six concepts.

Which brings us to the other figure involved in the J.Alexander’s deal. With the pending retirement of Ruby Tuesday’s Sandy Beall, Lonnie Stout II may be the longest serving CEO in casual dining.

He’s definitely been one of the more distinctive. Long before Warren Buffett made the CEO’s annual letter to shareholders something that investors actually read, Stout was using that podium to go far beyond the usual pap.

In one of the more memorable installments, Stout laid out the travel policies he’d set for himself and the rest of J. Alexander’s team. This was at a time when CEOs' self-pampering and perks worthy of kings were prompting investors to yelp about too much indulgence.

J. Alexander’s investors needn’t worry, Stout convincingly argued. When it comes to travel, for instance, budget hotels like Red Roof Inns were just fine for him and the executive team. And if the company’s leaders should ever drift away from that frugality, the shareholders were to call him and snap them back, loud and pointedly.

Stout's post-acquisition fate was not disclosed in the announcement of the purchase. Other strong executives who've been brought into Foley's fold, like O'Charley's CEO David Head and concept chief Marc Buehler, were smartly kept in their posts. 

In any case, it'll be fascinating theater, watching these two characters while they uncharacteristically wear the limelight.

What's happening in the restaurant business

What kind of days are these for restaurants? It’s time to take a quick pulse check.

Concept-o-rama: Not long ago, you would’ve been hard-pressed to name a new restaurant concept that deserved more than a yawn. Most were just scaled-down versions of a struggling brand looking to cut its costs and facilitate expansion.

Today is a different story. Starbucks alone has three ventures in the works that could probably survive on business from rivals checking these potential Next Big Things. The chain just revealed that it plans to open a Tazo “tea bar” in Seattle this fall to showcase 80 signature teas, available straight or in custom-blends. For those of you keeping store, this is in addition to the La Boulange bakery chain, which it intends to grow outside of the Bay Area, and Evolution Fresh juice bars, only one of which is currently open.

Here’s another one for the new-format list: Pret A Manger is working on a suburban version internally christened Pret Local. Insiders describe it as more of a traditional fast-casual concept, where customers will be presented with their orders instead of having to grab the salads and sandwiches off shelves.

Experienced operators wouldn’t be hatching new market entrants if they weren’t confident the consumer demand and supply of capital were there to foster growth.

Indulgence is on the surge: Consider the tourism lure that Philadelphia flycast onto the internet yesterday. Not one bargain was touted. Nor did the announcement play up Independence Hall or the city’s other historical attractions. Instead, the hook was a chance to sample milk shake after milk shake at the city’s dining outposts.

Or if you prefer something a little harder core, literally, there was a run-down of the ice creams, frozen yogurts and other frosty treats that a visitor can sample.

It was food tourism in a 16-oz. cup.

Restaurants 2, puritans 0: Establishments in two temperance zones could soon have an easier time of slaking customers’ thirst for something stronger than birch beer. Utah’s legislature voted this week to grant 90 more liquor licenses to restaurants in the Mormon stronghold. Remember, this is the state where you can’t mix drinks in the open because the seduction of making an Old Fashioned could lead kids down the wrong road. Ninety licenses in a state that measures 85,000 square miles isn’t going to change the culture, but it’s a step in the right direction.

Meanwhile, outdated restrictions on drink promotions continue to be beaten back. Hayward County in California’s Silicon Valley voted yesterday to allow restaurants and other alcohol servers to drop the price of drinks between 4 and 9 p.m. You can even feature live music! But dancing remains verboten.

Did we go too far?

Will you put the weapon down so we can talk about this? Some of you are pissed, big time, because of the nuclear option Tom Feltenstein suggested this issue in a roundup of tactics for besting the competition. Okay, in this instance the projected outcome was the death of a rival restaurant. And that, you’ve screamed loud and clear, is going too far.

Strangely, the flashpoint isn’t the tactic itself but the matter-of-fact observation that it could force a competitor to close. Before publishing the article in our Skills section, we discussed Tom’s recommendation because it definitely went beyond offering superior food or service. Some might call it a dirty trick.

He advised restaurateurs who see a sparkling new competitor open nearby to snuff it right away, not by starving it of business but by sending too much traffic its way. The idea was to feed the newcomer more volume than its staff and inventory could handle, leaving customers frustrated and unlikely to return.

“Let’s say your new neighbor, “Burger Emporium,” is planning its grand opening a block away from your fast food restaurant,” Tom wrote. “You take out a full page ad, inviting all the customers who share a the same trading area to go to the Burger Emporium grand opening. Also run a direct mail campaign conveying the same message to 10,000 people in the zip codes you share with your competitor.

“A store that used this incredibly powerful tactic ran its competitor right out of business shortly after its grand opening.”

Who knew Tom could be so diabolical? (Those of you with your hands raised can e-mail me at promeo@cspnet.com.)

One of you called to alert the editorial team that we had one less subscriber. Other love missives were delivered via e-mail. Given the count of how many people read the story online, we’re likely to get more of those mash notes in the days to come.

Obviously we don’t regard a potentially lethal marketing idea to be a sacrilege for the industry. Isn’t generating casualties the blue-sky objective of any ad campaign, menu revamp or chef change? They’re called killer ideas for a reason.

And what’s the alternative? Aiming only to make rivals a little hungrier, not to starve them? To leave them marginally profitable, just not fat and happy?

That’s our position, though we’re open-minded enough to reconsider. We know what the First Objectors think. What we’re wondering is the take of everyone else. Did we let Tom go too far?

In return, we leave you with this quick listing of the Five Most Controversial Stories in Restaurant Business’ publishing history:

--A cover story that looked at the not-so-subtle prejudice in some industry quarters against gay employees. One letter written in response addressed me as Mr. Homeo.

--An editorial insisting that guns have no place in restaurants, a response to the National Rifle Association’s announcement that it planned to open a shooting-themed eater-tainment place in Times Square to teach the world that firearms and foodservice are a wonderful match.  We can’t take credit, but the restaurant was never built.

--A cover story headlined “Bloody Murder,” looking at the prevalence of shootings in restaurants. The cover was a silhouetted gun, the tracing of a pistol brought in by a staffer for that purpose, set against a blood-red background. Many readers thought it was too lurid. Some of us on the staff agreed. 

--A cover story that looked at a statistically proven racial bias in tipping. New research showed that African-Americans tipped less than Caucasians, validating a widely held contention among servers. We looked at how the disparity had prompted full-service chains to avoid black neighborhoods, and what some people were doing in the industry to resolve the issue. The angle was, How does the industry address this issue without looking prejudiced? The reaction we often caught: Just running the story is proof of your bigotry.

--A quote from Lee Iacocca in a story about KooKooRoo, in which he’d invested something like $10 million after retiring as the head of Chrysler. To draw dollars from a savant like Iacocca anointed the home-meal replacement chain as a concept to watch. But to quote Iacocca’s quote, “I don’t give a fuck about KooKooRoo.”

One-percenters put pizza on their plate

After the Porsche, the Learjet and museum-caliber art, what’s left for a real-life Horatio Alger to buy? The answer this week has been a restaurant chain.

Members of Donald Trump’s tax bracket have been scarfing up pizza concepts in particular the way you or I might buy a slice. Michael Greenberg, co-founder and president of sneaker giant Sketchers USA, was the most recent to indulge, plunking down an undisclosed amount of dough for an unrevealed stake in Fresh Brothers, an upstart pizza chain in Southern California.

Fresh Brothers has eight stores. Sketchers has 600 branches, each generating a high multiple of what a Fresh Brothers typically lands in sales ($1.5 million per unit, according to the pie maker). But a real-life rags-to-riches example has to keep his options open.

Look at Steve Wynn, who earmarked $4 billion last week to build what will be his second casino in Macao. Just to hedge his bets, the casino magnate dropped an additional $15 million for a 43% stake in the U.S. arm of Pie Face, an Australian pizza chain. Pie Face’s lone store is in New York City, where it’s served by a 6,000-square-foot commissary. Amazingly, more Big Apple units are planned.

Wynn and Greenberg aren’t the only one-percenters who can now eat free pizza everyday for lunch. Mark Cuban, the bad boy and internet mogul who owns the Dallas Mavericks, plowed some money into the Naked Pizza chain.

Outside the pizza segment, Dan Snyder, owner of the Washington Redskins, is also the money behind the Johnny Rocket’s retro burger chain.

Gazillionaires have long been a part of the industry’s landscape. Church’s, for instance, was once owned by David Bamberger, whom you might’ve seen Sunday night on “60 Minutes,” during a segment on mega-large game farms in Texas. People who boast mega-large game farms seldom tend to order off the Dollar Menu.

So why are these guys with plum-grade charge cards suddenly buying their way into the pizza sector?

It’s more a matter of growth chains providing a good opportunity to diversify portfolios and provide a significant ROI for a relatively small investment.

The only thing that could be better would be adopting a foodservice journalist with a blogging habit.

News of the day

It's been an eventful day for the restaurant industry. Here's a look at some of the news of note, along with a few quick takes on industry trends that are pushing into view:

Starbucks to fire up push-button Seattle's Best units
After moving into new products through acquisitions, Starbucks is blazing new channels for selling its coffee. The company announced today that it’s struck a deal with CoinStar to sell Seattle’s Best Coffee in “several thousand” vending machines for $1 a cup.  Read more

Chains challenge the magic of the $5 sandwich
The $5 hero, a powerful customer draw for Subway and its mass-market competitors, is getting new competition. Chains of a different stripe are challenging the sandwich giants’ signature value by introducing either lower-ticket alternatives or comparably priced options that promise better quality. Read more

Goodbye, Ruby Tuesday (founder). 
Sandy Beall, one of the last of the chain restaurant industry’s founder-CEOs, has agreed to step down as the leader of Ruby Tuesday as soon as a successor is found.  Read more

Trends appearing on our radar
Restaurants named after U.S. presidents (Washington already has Lincoln, and will soon have Teddy & the Bully Bar, named after Theodore Roosevelt…Single-cup drip-coffee specialists, a la Napa Valley’s Ritual Coffee…Restaurant partners trying couples therapy, even though their relationships are purely business-based. Just ask the guys in New York who run The Meatball Shop.

Indie small dishes
Le Bec-Fin, Philadelphia's landmark fine-dining spot, is reopening under the ownership of Nicolas Fanucci, marking the end of the Georges Perrier era...Pinot Luongo is closing his Centolire after filing for bankruptcy for the one-time New York hotspot...Mickey Mantle's, where the Yankee great held court in his twilight years, is also closing.

Starbucks to try push-button Seattle's Best units

After moving into new products through acquisitions, Starbucks is blazing new channels for selling its coffee. The company announced today that it’s struck a deal with CoinStar to sell Seattle’s Best Coffee in “several thousand” vending machines for $1 a cup.

The machines, which will be branded as Seattle's Best outlets, will also offer more complex coffee drinks for $1.50.

Starbucks has said that it expects each machine to sell 10,000 cups of coffee per year.

CoinStar's namesake machines, which allow consumers to turn their loose coins into a shopping credit, are typically found at supermarkets. Its RedBox DVD vending machines are found at a variety of retail outlets, including convenience stores.

The deal between CoinStar and Starbucks extends to five years.

$5 deal gets some powerful new challenges

The $5 hero, a powerful customer draw for Subway and its mass-market competitors, is getting new competition. Chains of a different stripe are challenging the sandwich giants’ signature value by introducing either lower-ticket alternatives or comparably priced options that promise better quality.

And because two of those challenges are powered by the ad budgets of two Yum! Brands, it promises to be a bruising fight.

Pizza Hut is all but chopping on Subway’s mother in the new marketing push for the P’Zola, the latest attempt by Yum’s pizza specialist to crack the lunch market with some Italian-sounding hand-held item (the previous incarnation was the P’Zone). The introduction included what chain headquarters cheekily termed a “subway takeover,” or renting two cars of a Chicago “L” train line.

The P’Zola is priced at $3, or two for $5. And in case you don’t get the challenge posed to Subway, consider the trash talking of Pizza Hut CMO Kurt Kane: ““When we took a look at the sub category we decided consumers needed us to bring this same approach to that space.  We think people are quickly going to see they can get a lot more for their $5 with the new P’Zolo.”

Meanwhile, Pizza Hut’s Mexican sister is taking the quality tack. Taco Bell announced today that most of its 6,500 U.S. stores will add the Chipotle-inspired Cantina Bell menu next month. The burritos and bowls—Chipotle’s signature meals—will be priced under $5. Suddenly, Subway’s bargain-hunters will have a new choice, as will Chipotle fans who figure they can get the same for less.

Yum isn’t alone in trying to muscle into the $5 market. Togo’s, the regional sandwich chain, just unveiled a line of meals called Deli Deals, priced at—wait for it--$5 each. That includes the drinks and chips, which are ticket add-ons at Subway.

Goodbye, Ruby's founder. Who could hang a name on you?

Sandy Beall, one of the last of the chain restaurant industry’s founder-CEOs, has agreed to step down as the leader of Ruby Tuesday as soon as a successor is found.

Beall founded the casual-dining brand some 40 years ago, taking the name from a Rolling Stone song (and hopefully catching some buzz from the full-service sector’s hottest concept at the time, T.G.I. Friday’s).

Beall has governed his brainchild with a strong hand, even when it was part of a larger publicly held company, Morrison Inc. Among his moves was launching a slew of other casual dining and cafeteria-style brands. He also pursued the purchase of Pizzeria Uno, then backed off in the 11^th hour.

More recently, he’s led another diversification of Ruby, this time into alternative concepts outside its casual-dining niche. The company recently acquired Lime Fresh, a fast-casual Mexican chain, and has development deals for Truffles, a fine-dining restaurant, and Jim ‘n Nick’s, a barbecue joint. It also has an Asian concept, Wok Hay, that began in the fast-casual market but has since morphed into more of a traditional dinnerhouse brand.

Curiously, only Lime Fresh and a seafood start-up, Marlin & Ray's, were mentioned in the announcement of Beall's imminent retirement.

Ruby has had some pronounced ups and downs with its namesake brand in recent years.