2011: A year of less?

The new year is only a few days old, but a 2011 trend is already showing on restaurant menus. If the trajectory holds, this is going to be 12 months of subtraction, as in yanking out calories or additives—or, in the case of Panera Bread Co., both.

This week my local Panera mixed a new option into its rotation of soups: All-Natural Chicken Noodle, with a mere 130 calories per serving. I can attest that it was good. Darn good, in fact, though I acknowledge a bias toward anything that reduces guilt and the consumption of nasty chemicals.

But it wasn’t as good as the store’s previous addition, an all-natural steak chili made from brisket and served with cornbread cubes. It gets a higher grade despite having a higher calorie count.

I know about the calories because they’re now posted on the menu board, as they’ll soon be depicted in California because of mandates passed some time ago. You have to wonder if that’s a factor for this latest less-is-more movement.

Then again, I don’t think Culver’s operates in any areas with calorie-disclosure requirements. Yet the Midwestern burger and frozen custard specialist officially kicked off a promotion today of what it’s calling Mindful Choices, or meals containing fewer than 500 calories. The components were already offered. What’s new is spotlighting them as a packaged meal.

The other factor clearly coming into play is the propensity of consumers to include losing weight among their New Year’s resolutions. Indeed, Applebee’s is playing off that wave of pledges with its newest menu additions, which include two reduced-calorie cocktails. The mojito and Long Island Iced Tea join a 100-calorie margarita introduced last year to form a new SkinnyBee drink line.

The chain also extended its array of entrée selections with fewer than 550 calories.

All in all, 2011 is shaping up to be a year of shaping up.

A game-changer named Abe Gustin

The restaurant industry lost one of its revolutionaries last week, though it’s strange to apply that label to an arch capitalist like Abe Gustin.

He’ll be remembered as the person who founded Applebee’s, even though the concept was actually the brainchild of Bill Palmer, now of Up The Creek Without a Paddle. What Gustin truly founded was a simpler, far more effective approach to franchising, with the principle of partnership elevated to an art form.

Plenty of franchisors pledged to make their relationship with franchisees a symbiotic one, but Gustin had learned how empty those words could be. As he would candidly recount in interviews, being a franchisee of Taco Bell in the mid-1980s had taught him how subordinate the licensee could be. He felt the home office was dictating the terms and controlling franchisees’ growth, instead of working in tandem.

Gustin said he tried to set up Applebee’s franchisee programs to be just the opposite. For one thing, he limited the number of franchisees to a few dozen, so the field-level operators wouldn’t be competing with one another for turf, sales or employees.

And they were given a firm say in what they served, and not only through the advisory council that virtually all chains set up to give franchisees a voice in shaping menus. Long before local specialties were given the spotlight they get today, Applebee’s franchisees were invited to fill out their menus with regional specialties. The home office set about 80% of the listing, and the field operators chose the rest.

More important, franchisees attested that the home office heard what they said—maybe not all the time, but enough to make them feel they had a strong influence on the brand’s direction.

When franchisees felt their territories were running out of room for more Applebee’s restaurants, the home office went out and bought a second franchise concept, Rio Bravo. Since it, too, was developed in part by Palmer, headquarters figured it was the right means for franchisees to keep opening outlets.

It was wrong, as franchisees and investors soon let management know. Rio Bravo didn’t work for the system, so the brand was divested. Everyone went back to expanding the Applebee’s chain again, using smaller prototypes and smarter siting strategies.

The proof of Gustin’s approach to franchising was Applebee’s phenomenal growth. Before he controlled the brand, it was owned by W.R. Grace, which treated it like a glorified lemonade stand. It grew to 42 stores, if memory serves me correctly, which made it a miniscule part of the chemical giant’s portfolio. Its other restaurant holdings, just to put it in perspective, were Del Taco and Houlihan’s.

When Grace decided to exit the restaurant business and sell those brands, no one seemed to even notice Applebee’s. Houlihan’s was the plum. With barely any notice taken, Gustin was able to secure what would become casual dining’s longest string of restaurants.

It would grow to far more than 1,000 restaurants, a size more befitting a fast-food chain than a group of full-service places. But Gustin and his lieutenants—some might say disciples—made it happen.

The fuel was franchisees’ capital. Gustin kept the fire stoked.

The industry shall miss him for sure.

Ruby Tuesday's new seafood concept

As if Ruby Tuesday didn’t have enough choices on its menu of development options, the casual-dining giant is prepping one more type of restaurant it can use to replace weak namesake stores. The company alerted investors earlier this week that it will open a “seafood health concept” later this year.

Management didn’t divulge the name or many particulars about the venture, saying only that it would be one more option for salvaging underperforming Ruby Tuesday sites. Executives lumped it together with the two replacement concepts that were identified earlier, Jim ‘n Nicks and Truffles.

Like those, they explained, the seafood restaurant could replace a played-out Ruby Tuesday at a cost of under $500,000, and generate annual revenues of more than $1 million.

CEO Sandy Beall explained that 23% of a Ruby Tuesday’s guests, or roughly one in four, already order seafood. “It’ll just be a more seafood-oriented Ruby Tuesday, really,” he said during the conference call with analysts. “And it’s very relevant based on what people are eating and their health and so forth.”

The big benefit, he said, would be differentiation from all the other so-called grill-and-bar concepts, like Chili’s, T.G.I. Friday’s and Applebee’s

An analyst voiced his concern that Ruby Tuesday would be entering a sector where even long-established brands are facing considerable challenges. “We can all think of the biggest fish in the sea who is struggling with difficult trends,” said Robert Derrington, the restaurant analyst for Morgan, Keegan. He didn’t name that brand, Red Lobster, by name.

He noted, however, that Ruby Tuesday had experience with seafood restaurants.

Yes, said Beall. The company ran the L&N Seafood Grill chain when both casual-dining brands were part of Morrison, a large contract-feeding company.

Investors also heard the Ruby’s plan to use several young concepts as its expansion vehicles. It recently secured rights to develop units of Lime Fresh Mexican Grill, a fast-casual chain that currently has six stores open.

“As far as the economics go, it's really very, very similar to Chipotle,” said chief marketing officer Mark Young.

Wok Hay, a fast-casual brand that Ruby’s acquired several years ago and subsequently upgraded into a full-service operation, wasn’t mentioned. Ruby had cited it several months ago as a possible replacement concept for tired Ruby Tuesday outlets. It also cited it at that time as a restaurant that could be built on new sites.

Meanwhile, management noted that the first Jim ‘n Nicks is open and generating sales that should top $1.5 million on an annual basis.

They said Ruby’s first Truffles, an upscale casual format, would open next month.

'Sorry about the pennies.'

If recent restaurant valuations aren’t a fluke, gas stations will soon be giving away a casual-dining place with each fill-up, 200-seat grills will be awarded for good report cards, and the keys to sandwich joints will be used as stocking stuffers—“Collect all 20.”

Those situations are more plausible than the prices restaurants have recently been fetching. Consider, for instance, that Applebee’s parent agreed last month to sell 63 restaurants to a franchisee for $32 million, or about $508,000 per establishment. Sales would cover that figure in a matter of months. And these units were in Minnesota and Wisconsin, not Detroit, Port-au-Prince or Siberia.

Still, those dollars sound sweet compared with the outlay for the 10 remaining outlets of the bankrupt Ham’s Restaurant chain. A local concern bought the Carolinas-based brand and the restaurants for $360,000—on a per-unit basis, about what a family would pay for a decent sedan.

In a buyer’s market like the current one, it shouldn’t be a surprise that Max & Erma’s was set to be sold for $24.8 million. It’s unclear how many units of the venerable Midwestern grill-and-bar chain are still in operation, but official reports pegged the tally at the end of last year at 68 company stores and 28 franchises.

Sure, the chain is bankrupt. But that price prompted the current owner to join forces with another financier to tender a bid of $32 million. The court overseeing the chain has yet to say publicly if that offer will bump the prior bid, or if there are complications.

Maybe it’s just waiting for someone to return some bottles and pose a sweeter offer.

A thaw in big-chain thinking?

Slowly but audaciously, big restaurant chains are starting to address the public’s interest in localized ingredients and preparations.

You can see it in two high-profile introductions of the past week: Cheesecake Factory’s relaunch of its burgers as regionalized “Glamburgers,” featuring ingredients associated with a particular place, and Applebee’s debut of what it describes as “neighborhood-inspired Realburgers,” with flavors ascribed to three local preferences.

No, these aren’t products made with West Virginia ramps or Jersey peaches. A cynic would say the burgers embody culinary clichés of certain regions—pulled pork as a topping on Cheesecake’s Memphis burger, for instance, or the hoagy roll used for Applebee’s Philly Burger, which is dressed with the standard cheesesteak fixings.

But at least the big systems are trying to get away from their One Bland Taste Fits All myopia, an orientation that’s clearly less feasible today. Cheesecake is actually using goat cheese and arugula on its Sonoma burger. By big-chain standards, this is bold stuff.

Connecting an ingredient or item to a region, or using components actually sourced locally, isn’t completely alien to the chain market. Small systems like Burgerville and Smashburger have been doing it for some time. As RestaurantRealityCheck noted last fall, New England’s D’Angelos and Papa Gino’s now use cheeses from Vermont for a number of their selections. Louisiana officials were delighted when local Outback Steakhouse units decided to stick with locally caught shrimp.

But those noble efforts were undertaken on a relatively small scale. Bigger chains just couldn’t overcome the logistical issues, much less the need to be one thing to all people. That coast-to-coast consistency is viewed as absolutely necessary when you’re spending millions of dollars to advertise via national media.

The new endeavors of Cheesecake and Applebee’s are hardly bungee jumps off that safe ledge. But they may signal a change in the hoary thinking that a chain should offer what works for its well-grooved systems, instead of serving what consumers want.

Meanwhile, in non-Tiger news...

‘Tis the season to hunker down and hope for a better next year, so the restaurant business hasn’t exactly been cranking out news like an elf production line. But a few little-noticed developments in recent days might prompt some hmm’s among the ho-ho-ho’s.

Applebee’s experiments with a server-calling system. A number of franchised stores here and there are testing a tabletop device that allows guests to summon their server if something is needed. Patrons press a button on a tabletop console, which causes a watch-like device worn by their waiter or waitress to vibrate, according to a story in the Sun News, a South Carolina newspaper.

The set-up also monitors how long the guests initially sit before a server approaches. When a hostess seats a party, she waives a watch near the tabletop console. That causes the watch of the wait staffer assigned to the table to vibrate, and an unseen timer starts. If the server doesn’t show within a minute, the manager’s watch buzzes. Then a painful electric shock is directed at the tardy server. Okay, I made that up. But it’s an interesting idea.

Server alerts have been tried for eons. The 160-year-old Tadich Grill in San Francisco, for instance, features tableside buttons on the wall that patrons can press for service. A similar set-up is a signature of a classic watering hole in New York City, the International Bar.

It says a lot that those places are known for the novelty (and kitsch) of having a server-summoning system. Plenty of other converts presumably discovered that the set-up detracted from a guest’s experience. When you have to buzz for someone to take an order, you’re unlikely to coo over the attentive service you’re getting. Unless it’s handled well, patrons might as well take a number, as if they were at the supermarket deli.

Goofy has been pink-slipped by a Disney World restaurant. Other characters had their hours cut, according to a recent post on Examiner, the network of blogs that’s been set up as grassroots news service.

If the posting is accurate, I might soon spot Goofy in a state unemployment classes. The ‘Ohana Restaurant in the Polynesian Resort of Disney World was dropped Pluto’s packmate from the character rotation, or the circulation of people in Disney character costumers during meals, according to the report.

I initially suspected he got a job as the mascot for a Major League Baseball team, since a Goofy would fit just about any of the squads. But that doesn’t explain why Rabbit, a Winnie the Pooh character to which Disney owns the rights, is also gone.

Meanwhile, Eeyore, Piglet, Tigger and Pooh himself reportedly had their circulation hours cut.

And all you see on the airwaves is non-stop reporting about healthcare.

Restaurant marketing makes the list of 2009 campaigns to remember. Unfortunately, the campaigns may not be remembered for reasons the industry should cherish.

For instance, the Wall Street Journal ranked Burger King’s de-friending crusade on Facebook as the year’s fourth best marketing program. In case you’ve forgotten the furor it sparked, the campaign rewarded Facebook users with a Whopper coupon for every 10 acquaintances they “de-friended,” or publicly designated as someone they didn’t want as a friend anymore. About 234,000 people were informed of their newfound leper status before Facebook asked Burger King to knock off the high school nonsense.

It’s vexing to see that effort on the Best of the Year list when KFC’s plug from Oprah Winfrey is on the Worst-of roster. The talk-show hostess informed viewers that they could try KFC’s new Kentucky Grilled Chicken for free, triggering a run on the Colonel’s old Kentucky chicken home.

KFC halted the giveaway, saying supplies had been depleted. But it was never clear if the chain rain out the new product or merely didn’t want to give away that much free food.

In any case, the cut-off triggered more media coverage than we’d see until Tiger was brushing broken car window off his Nike shirt. The logo would be torn off later, no doubt to Woods' delight that nothing else was torn off his body.

The search is on. And on. And on.

KFC is hunting for the next Colonel Sanders. Papa John’s wants to find the muscle car that founder John Schnatter sold in 1984 to fund his first pizza. Applebee’s announced Tuesday that it’s commencing a search for America’s “real heroes.”

Add in the now-routine pursuit of customer’s ideas for new menu items, from doughnuts (Dunkin’ Donuts) to desserts (The Cheesecake Factory), and you have to wonder why restaurant chains still bother with ad agencies. They might be better off with Dog the Bounty Hunter, or even Elmer Fudd.

Call it the American Idol Effect. Restaurants are counting on the intrigue inherent in a quest to snag the attention of a public that avidly tunes into talent searches, “America’s Most Wanted” and the “National Treasure” franchise.

But they’re making a mistake if they view white-bread searches as the way to interact with customers, the arch objective in the age of Twitter and YouTube. They might as well announce a hunt to find America’s most adept flagpole sitter.

Many of the searchers should consider how Papa John’s is conducting its search. The objective is the 1972 Z 28 Camaro that Schnatter sold for his start-up investment in the restaurant business. The funds were used to convert the closet of a relative’s bar into a pizza stand.

The now-3,400-unit chain is backing up the search with live updates on Twitter and postings on a microsite, www.papasroadtrip.com. Schnatter himself is supposedly waging the search, but he brought along two interns to generate photos, videos and blog dispatches.

Papa John’s is also using a new gimmick that’s touted as a bridge between the real world and the virtual one. Customers can scan the image of a Z 28 from a Papa John’s pizza box and upload it as a virtual vehicle. The image then becomes an avatar of sorts, a visual point for taking the user on the search. It's as if the car is the sort of marker you'd use in a Monopoly game.

Finally, the search component is backed up with good ole TV advertising. Schnatter is shown delivering pies, so the focus isn’t completely off the chain’s product. There’s also the teaser of a $25,000 reward for the long-lost car.

The marketing ploy may be a search, but it’s supercharged with plenty of ways of interacting with consumers. That blend of the old with the new is increasingly being cited by social media gurus as the way to really cut through the clutter.

Lend a shoulder for headhunters to cry on

I’m holding a tissue drive for the industry’s executive placement specialists, commonly known as headhunters. They’ll likely be burning through Kleenex this week after what must’ve been excruciating months of watching the grass grow, the bills pile up, the accountants nixing luxuries like a communal box of nose dabbers. Now that the tears are being shed in joy instead of despair, why not let them sob and honk a bit?   

The week is less than 48 hours old, yet we’ve already seen two screaming indications that companies are making big hires again. Lane Cardwell, a longtime veteran of casual dining, was appointed CEO over the weekend of Boston Market. On Monday evening, Carin Stutz, a standout who seemed on the CEO track at Applebee’s, was named COO of Global Business Development for Chili’s parent, Brinker International. They’re the sort of placements that give headhunters the vapors, a giddiness they likely haven't felt in awhile.  

Both of the week’s marquee recruits are huge talents, and, interestingly, both were previously under-employed. Their return to full-time duty suggests the smart companies are starting to raid the considerable bench of talent that’s been formed by the cut, cut, cut imperative of the last nine months. The mindset might be shifting back to assembling a standout team, instead of hacking one to bits for the sake of a budget.  

That possibility seems more likely when you consider a few big-name hirings in April, like Bennigan's recruitment of David Goronkin as its new leader, or Real Mex Restaurants' appointment of Dick Rivera as CEO. They, too, were previously under-employed What seemed at the time to be exceptions to the rule may in hindsight be the early indications of an emerging trend.

If the recent developments are indeed the first signs of a shift, it’ll be high-five-worthy news for headhunters. So, please, do your part as they cry for joy. Steal all the tissues you can from your accounting department, and donate them to a worthy placement agency. 

Has the sizzle gone out of their fajitas?

Casual-chain execs should stop worrying about when the recession might end and turn their attention to the real issue of their segment: Has casual dining jumped the shark?  

There’s a mindset taking hold that young people in their late teens are forsaking the Chili’s, T.G.I. Friday’s and Applebee’s of the world. As a longtime veteran of that sector observed, his 19-year-old daughter wouldn’t be caught dead in one of those places. She and her friends prefer fast-casual specialists like Panera, Pei Wei or Chipotle—concepts that promise better, less-processed food at a more affordable price, without the complications of sit-down service. 

Drinks, a big part of casual restaurants’ appeal for Baby Boomers, aren't that much of a draw to the younger set. You can get a water, tea or Red Bull just about anywhere.   

Fellow blogger and casual-dining stalwart Lane Cardwell has similarly heard the rumblings. As he wrote in a recent posting…   

It appears from conversations with a large number of restaurant operators that there is a generational divide that exists between fast casual and casual dining. The younger Gen X'ers and older Millennials (ages 18-35 ) seem to prefer fast casual and Baby Boomers seem to prefer casual dining.

He speculates that younger patrons are drawn by the newness, faster pace and pricing of fast casual, while those of us with a few more miles on the chassis appreciate the familiarity of the big casual brands and the comfort of table service.   

It’s a generational divide the industry has seen before, ironically when casual dining really caught fire in the 1980s. Beforehand, one of the dominant chain sectors of the business had been family dining, populated by brands like Howard Johnson, Denny’s, Coco’s/Carrows, Village Inn/Bakers Square, Bob Evans, Big Boy, Shoney’s, JB’s and a host of others.   

It’s no secret that those concepts had the sort of experiences in the 1990s that could fuel a thousand blues songs. They had their fans, but their fans were growing older and older. The diehards' sons and daughters just didn't have the same regard for the brands.

Some are altogether gone today, and the others are far different animals than they were in their heyday.   The market moved on to other concepts, and they were left behind. 

Is the same thing happening to casual dining?   No one really knows. But it’s a much more deserving target of mental energy than trying to guess when consumers will spend again. 

Survival tactics 2.0

Restaurant chains agree the economy stinks. But their ways of contending vary more than Sen. Burris’ recounts of his Blago dealings. Here’s a rundown of what several brands have recently identified as their updated coping strategies:

Applebee’s: The near-term emphasis, executives said during their conference call, will be on restaurant operations, both to bolster unit-level profit margins and to provide a better experience for the guest. One of the butt magnets to be used near-term is an updated menu sporting new types of foods and beverages, according to Julia Stewart, CEO of franchisor DineEquity Inc. The introduction is slated for mid-April, with more products to be introduced and promoted throughout the year, she said.

Cracker Barrel: Management spoke less during its conference call about speeding service, the focus of past confabs, and far more about delivering value. The chain is about to roll out a line of lunch and dinner skillet meals that will be priced from $7.99 to $8.99, including salad and bread. Executives acknowledged that their Best of the Barrel initiative, an effort to streamline the menu by loping off less-popular selections, proved a mistake. “Customers were disappointed to see their favorite food items no longer available,” said CEO Michael Woodhouse. It was a lesson, he said, “we learned the hard way.” No mention was made of an initiative to speed service by using holding equipment for items like bacon and sausage.

Domino’s: “We’re working very hard to be a bigger player in the late night business, particularly with some of our new products,” said CEO David Brandon. He asserted that the pizza chain’s initiative for stretching its sales day the other way, into lunch, has been successful. All stores are now open for the meal, which Domino’s is pursuing with its new line of delivered oven-baked sandwiches.

Famous Dave’s: The emphasis appears to be on helping franchisees survive the downturn. The assistance includes a switch to shorter-term purchasing contracts and the development of more secondary suppliers, to increase competition. Meanwhile, development requirements for franchisees have been suspended through 2010. Licensees that open a store get a cut in royalties for the first year of operation. Advertising royalties have been halved, to .5% of sales.

Texas Roadhouse: Management stressed this week that traffic and guest spending levels are the big problems confronting the bargain-priced chain. Longer term, said CEO G.J. Hart, the company is focusing on the cost of new restaurants. Hart said the home office hopes to bring down the current outlay of $4.1 million, or roughly what the unit will do in annual sales, in part by locating stores in strip malls. “We’re also evaluating conversions,” he said.

A sign of the times

This morning the parent of Applebee’s and IHOP posted a net loss of $137 million for the last three months of 2008, the result of having to reset the value of Applebee’s “goodwill,” or the worth of its name and other intangible assets. In other words, DineEquity Inc. determined the brand equity of the company it bought in 2007 for $2.3 billion is worth about $148 million less today. That left shareholders with a loss of $8.15 for every share they hold.

Yet DineEquity’s stock price has climbed about 20% so far today because the company would’ve posted a profit without the write-down—of roughly $5.7 million. That’s for a company that franchises nearly 1,400 full-service restaurants.

That kind of a week

Some weeks you might as well use a reporter’s notebook to level wobbly restaurant tables. The industry just isn’t making any news.

This, clearly, is not one of them.

Before Day One was officially two hours old, we already had McDonald’s posting another Ripley’s-caliber financial result (domestic comps rising 5.4% in January, a month regarded by most restaurant-chain execs as a possible violation of the Geneva Convention); Starbucks’ unveiling of new breakfast bargains; Domino’s launch of a new ad campaign that humorously riffs on the economic stimulus package and the formation of a new White House cabinet; and Applebee’s getting hit with bad news that few could have imagined (it's not meeting the thresholds needed to maintain its 90% tax abatement on the office it kept in Kansas after being sold to DineEquity in California).

This is also the week KFC is scheduled to introduce its value menu, which will almost certainly be backed by a huge marketing push.

More definitely to follow. Buckle your seatbelts.

Michael Dell proxy gets say in Applebee's management

Insiders have been saying for months that Michael Dell of Dell Computer fame has been closely scrutinizing Applebee's and the operation of its parent, DineEquity. Those parties say Dell has become interested in the restaurant business, and in a turnaround of Applebee's in particular.

But the only outward sign had been the announcement in December that Southeastern Asset Management, an equity company affiliated with Longleaf Partners Fund, was planning to take an active role in the management of DineEquity, in which it holds a significant stake. Dell was an investor in various funds affiliated with Longleaf, which in turn has held a significant number of shares in Dell Computer.

SAM is reportedly DineEquity's largest shareholder. Michael Dell is the second largest.

Now Dell's interest is out in the open. DineEquity announced today that it has appointed Howard M. Berk to its board of directors. Berk is a partner in MSD Capital LP, a fund that manages the wealth of Michael Dell--the MSD of MSD Capital--and his family.

Julia Stewart, meet Michael Dell. And that's not a Mac your using, is it?

DineEquity franchises IHOP as well as Applebee's.

Another super-sized franchsee goes bankrupt

A reader of my blog on the Fohboh social networking site pointed out another major restaurant bankruptcy that came to light earlier this week. John Gantes, head of the 110-unit Breckenridge Group, a multi-concept franchisee in southern California, reportedly filed for personal bankruptcy in late 2008 and is now trying to reorganize his sprawling operations.

Breckenridge is a franchisee of El Pollo Loco, Famous Dave's, Johnny Carino's, Burger King, Applebee's, Bruegger's, Ruby's Diner and Arby's, according to the Orange County Register.

The OCR story sites court documents indicating that Gantes owes $280 million.

The week also brought an acknowledgement from Domino's that nine of its franchisees had gone bankrupt, and a Ch. 11 filing by the parent of the Black Angus steakhouse chain.

Simon didn't say 'do that'

The following is a public service announcement to the nation’s casual restaurant chains.

Have you lost your minds?

Part of the reason you’re currently living a blues tune is a lack of differentiation in your menus. Every concept could rename itself That Place Serving a Bloomin’ Onion, Nachos, Fajitas, Burgers, Spinach Dip and Margaritas, and it wouldn’t be lying. A follow-the-leader approach led everyone toward a cliff.

So how are you trying to right the situation? Consider the latest promotion from Applebee’s: A $9.99 sirloin served with two sides. In a stunning coincidence, the LongHorn casual chain is also featuring a $9.99 steak dinner as of this month. And Outback has been selling a 6-oz. sirloin as part of a dinner for a penny less than $10 for a number of weeks. What are the odds???

At least Ruby Tuesday and T.G.I. Friday’s, two concepts that had their starts as “fern bars” (youngsters, ask your folks, but DO NOT bring up leisure suits), are resisting the temptation to copycat. As Ruby CEO Sandy Beall told investors last week, “We believe our burgers offer [an] incredible, differentiated and value category that resonates well with our guests.”

Okay, the chain also noted during the conference call that it was pushing a $5.99 burger with all-you-can-eat fries. But it’s sticking with a key point of differentiation. I mean, what other casual chain offers burgers? It’s not like Chili’s or Red Robin are known for that item.

And Friday’s? Well, consider the promotional head-turner it started pushing yesterday. Here’s the headline from the announcement: “T.G.I. Friday's Restaurants Unleash The 'Ultimate' Burger.”

I think I need a margarita. Or a ‘Rita. Or maybe a Lobsterita.

What are the odds???

Reading the ink blots of recent developments

Here's a blog entry I posted on Fohboh, a social network for members of the restaurant industry (Fohboh stands for front of the house/back of the house):

I seem to be out of sync with fellow Fohboh-ers on an issue that threads its way through many of the blogs and discussions here. Try as I might to catch the economic optimism shown by my community mates, the gauges I’m reading on the industry’s near-term prospects tend to fluctuate between sobering and scary. But read on, because this is actually a positive post.

First, the harsh realities. Consider some of the this week’s news stories.

DineEquity, the parent of Applebee’s and IHOP, announced that it’ll suspend dividends for the foreseeable future to pay down the debt weighing profoundly on the company. Indeed, the industrial-sized IOU is proving more of a burden than anticipated. DineEquity planned to pay back what it borrowed to buy Applebee’s by selling company Applebee’s units to franchisees. But the licensees can’t get their hands on capital in the current credit freeze. There really hasn’t been a Plan B.

The news about dividends followed last week’s revelation that a big and powerful DineEquity shareholder, Southeastern Asset Management, is planning to take a hand in the company’s operation. Surprisingly, the coverage provided little information about SAM, which is actually an investment vehicle for a larger financial concern, Longleaf Partners Funds, which in turn is headed by a junior Warren Buffett named Mason Hawkins. Longleaf has or held significant investments in such other restaurant companies as Yum! Brands, Marrriott, and Wendy’s/Arby’s, and was a major shareholder of Dell Computer.

Hawkins, a guy who could pick up the tab if he lunched with Buffett or Bill Gates, is regarded as a very astute guy. And the investors in his funds include such business titans as Michael Dell, he of Dell Computer fame. Indeed, some insiders say Michael Dell has taken more than a passive interest in the workings of Applebee’s. The business has apparently piqued his curiosity.

Which brings us to some of the positives. Yeah, suspending dividends is an extraordinary move. But the action megaphones the message that DineEquity isn’t operating under a passive, business-as-usual mindset. And if it should lapse into inertia, investors who view it as a potential prize will ensure any lethargy is shaken off pronto. And they’ve shown that they know how to right or run a business. A kingpin of casual may soon be revived, which could help in elevating that whole wheezing sector.

There’s still plenty of bad news seeping out of that segment. On Tuesday, for instance, the private equity company that owns the Del Frisco and Sullivan’s steakhouse chains quietly shelved its plan to sell the operation through an initial public stock offering. The significance extends beyond Del Frisco, since the private-equity buying binge of 2005 and ’06 has left many private companies with restaurant companies they planned to spin off in a year or two. What are they going to do with those strained assets if individual buyers can’t get the financing, and the stock market is providing an unfeasible option? And while they’re waiting for conditions to improve, the private-equity firms have to run their holdings. They’d likely admit they’re asset portfolio managers, not restaurant operators.

Yet here’s some positive news: A financial analyst said he was told by Brinker Internatiional executives that the casual-dining giant still expects to sell its Romano’s Macaroni Grill chain by Jan. 1. Somewhere out there is enough financing to fund the $131.5-million deal.

The bad news: Brinker said it will cut 40 more headquarters positions, according to a Dallas news report.

And the even worse news: The company still faces a credit review by Moody’s, the debt-rating service, that could spell trouble for the company.

So I’m puzzled by the sunny perspective of others within the community. Sure, it’s not time to crawl out on the ledge. But these are extraordinarily dire conditions—hands-down the worst I’ve seen in 24 years of covering the business.

Nonetheless, I’m going to leave you with a positive recent story that virtually slipped by the industry: Ruby’s Diner, the well-regarded diner concept on the West Coast, broke the industry’s long-running hiatus from launching new concepts. The chain fired up the grills this week for a new, upscale venture called Ruby’s MotoDiner, whose checks are likely to top the typical tab at its parent concept by 20 percent, according to blogger extraordinaire Nancy Luna.

You don’t launch a new concept if Armageddon is ‘round the corner. Why bother having the menus printed?

But between now and the first bar of “Happy Times are Here Again,” we’ve got some tough slogging.

A seal of security for gift cards

Sales of gift cards are expected to be bah-humbugged this year by fears the issuing restaurants will go bankrupt, leaving card holders with worthless plastic. Today several major chains revealed they’re hoping to allay those worries by promoting what amounts to a Good Shopping Seal of Approval.

They’ve formed a self-policing trade group, the Retail Gift Card Association, that will extend membership solely to restaurant and retailing brands with “longevity in the marketplace” and a commitment to “customer friendly practices.”

In addition, participants are required to meet “a set of principles” that protect card buyers, according to the announcement.

The charter members include Applebee’s, Subway and Marriott. Their partners are the retailing giants Best Buy and Home Depot.

The association said it will be strict in enforcing its membership requirements, but expressed hopes that all retailers will meet those standards and qualify for inclusion.

Research from the National Retail Federation indicates that 3.1 percent of shoppers are cutting back their gift card purchases this year because of fears that the issuing store or restaurant will go out of business. The NRF is forecasting that sales of cards will drop 5% overall from last year’s levels, to about $24.9 billion.