So long to a legend

One of the establishments that shaped the U.S. restaurant industry—the trade’s own Chuck Berry—will shut its doors for good on Dec. 31. After 91 years, Regas Restaurant will no longer show the business how important service can and should be.

You might not have heard of it, but the chances are extremely high that you’ve felt its influence. If you dined at a P.F. Chang’s, for instance. The company is co-led by Rick Federico, one of the many, many industry standouts who learned the business from paterfamilias Bill Regas, a true legend.

When I was the editor of Restaurant Business magazine, we ran an annual feature called the Undercover Service Report, where the editors and our freelancers acted as finicky customers to test the service mettle of various restaurant chains. Bill wrote me a letter, saying that the story would be a yawner if places could just remember to put the customer first. By all accounts, his family’s Knoxville institution never forgot that imperative.

Dave Thomas, the founder of Wendy’s, would remember his education at Regas decades later. Thomas started working there at age 12. According to the legend, he was fired in short order because he didn’t agree with management. He supposedly vowed never to repeat his mistake and lose another job. Working with management became a hallmark of his time at KFC, where he first became a multi-millionaire, and then Wendy’s.

Despite the trajectory of Thomas’ career, the Regas’ influence was felt mainly in casual dining, not quick service. Indeed, Brinker International, the parent of Chili’s, bought rights to build a chain of Regas-inspired restaurants. The name was changed to Grady’s, and the concept was watered down, starting with the ice cream, then moving to other aspects.

It proved to be a bomb for Chili’s, which sold the rights to Quality Dining, a Burger King and Chili’s franchisee,
which completely re-engineered the DNA.

The times apparently caught up with the Regas, however. Business by all accounts has been down, so the current owners decided to shut down with the close of the year.

But fans should take heart: The restaurant closed once before, in 2000, only to reopen in ’02.

It’s been navigating the changes in consumer tastes and its local market place ever since. That process may end, but the restaurant’s influence lives on.

Who should be buying Carl's Jr.

I’m sure the Vegas odds-makers are already taking action on who'll be the next owner of Carl’s Jr. and Hardee’s, the two main brands in the portfolio of CKE Restaurants. Thomas H. Lee is the favorite, with a deal already on the table to buy it for about $928 million, including debt. Then came word yesterday that Nelson Peltz, the bwana who deftly bagged Wendy’s in 2008, was giving CKE’s slightly bald radials a kick.

They may be the most likely buyers. I keep thinking about who might be the most appropriate buyer, from the standpoint of all parties concerned.It makes me wonder if the big casual-dining companies have the Poppers to reconsider their longstanding pledge never to veer out of that market.

It’s almost a reflex with concerns like Darden, Brinker and OSI (the parents of Red Lobster, Chili’s and Outback Steakhouse, respectively). Ask what new businesses might be a worthwhile acquisition or start-up and they’ll invariably conclude with, “…and of course it’d have to be something in casual dining, since that's where we want to stay.”

Meanwhile, they’re having their turnips mashed by quick-service and fast-casual concepts.

They should consider the bold move of buying a quick-service brand and supercharging it with their casual know-how to create the ultimate fast-casual player—a contender genetically engineered to provide cloth-napkin-caliber service and food, with the value, speed and less-processed foods that have established concepts like Panera and Chipotle as the brands of choice among younger consumers. It’d be the veritable Mike Tyson of the sector.

Carl’s would be the perfect subject for the experiment. It’s been trash-talking for years that it offers a burger comparable to what patrons would find in a casual restaurant, for less than two-thirds of the price. To launch the Six Dollar Burger (it actually sells for under $4), the chain even set up a fake restaurant where patrons were charged $6 for the sandwich. Patrons paid without complaint.

Sure, the acquisition would put those casual-dining giants squarely in franchising, a realm where they’ve at most dabbled before, preferring to grow through corporate development and joint ventures. But their current business models aren’t exactly the envy of the business world. Becoming full-fledged franchisors would really open the valve on cash flow.

Meanwhile, the Carl’s and Hardee’s systems would greatly benefit from the training, research and awesome support services provided by the likes of Darden and Brinker.

It’s a deal casual-dining hunter and quick-service should pursue, especially when you consider that CKE might change hands for just over $1 billion. It’s a buyer’s market, to be sure.

Another ex-Quiznos heavyweight resurfaces

Steve Provost, the one-time George H. Bush speechwriter and longtime executive of KFC, has joined Brinker International's Maggiano's Little Italy chain as senior vice president of marketing and brand strategy. But the real point of dramatic interest is that he's no longer with Quiznos, which he served as chief marketing officer.

The announcement from Brinker, better known as the parent of Chili's, doesn't say when Provost (pronounced "pro-voe") left Quiznos. He was part of the dream team that Greg Brenneman, the turnaround specialist who led Burger King through its comeback effort, had assembled after buying a big stake in the franchisor. Among them was longtime Yum! operations chief Dave Deno, who was brought in as Quiznos' president in January 2008 and ultimately succeeded Brenneman as CEO. He was out five months later.

Provost, who joined Quiznos as CMO in 2007, was presumably one of Deno's direct reports.

Theno resigned for "personal reasons" in February, when Quiznos announced that top day-to-day responsibilities would be given back to Rick Schaden, a prior owner and franchisee of the company and still a significant stakeholder. Brenneman remains involved as executive chairman.

The other big-name member of the Deno team was Clyde Rucker, a Burger King alumnus who joined the sandwich franchisor at almost the same time as Provost did. In September, Rucker was named chief operating officer of Quiznos.

Quiznos, a virtually all-franchised chain, has been beset by rocky franchise relations for years. It recently has been very aggressive in marketing itself against competitors like Subway. Recent steps include the introduction of $5 toasted subs, which matched Subway's discounted price, and, more recently, the rollout of new sandwiches called Torpedos, as in the things that sink subs. They're priced at $4.

Quiznos has about 5,000 stores. Maggiano's has 45. Provost reports to Maggiano's president Wyman Roberts, who also serves as CMO for all of Brinker.

A news sampler to start the week

The last few days brought a number of interesting yet little-noticed developments within the restaurant industry. Taken separately, they’re mere curiosities. But as connected dots, they form a picture of how the business is changing with brutal times.

Gordon Ramsay said to be in financial trouble: The New York Post reported Sunday that stardom hasn’t shielded the ill-tempered chef from the economic free-fall. Foxtrot Oscar, his celebrated London restaurant, is now closed two days a week, and two of his other eateries there are rumored to be for sale, though Ramsay insists he’s not looking for a buyer, according to the tabloid.

“21” loosens its dress code: The famed New York playground of the rich and wrinkled has reportedly dropped the requirement that men wear neckties at dinner. Spats, however, are still recommended. Okay, I made that last point up. But the tie rule was equally as outmoded. Most old-guard restaurants would let you dine buck naked these days to put a butt in a seat. What’s covering said butt shouldn’t matter in an economic situation as dire as the present. It’s enough to make you fall off your polo pony—which, by the way, can no longer be valet-parked.

No more lunches for Boston’s Locke-Ober: The Beantown landmark has been keeping its doors shut until dinner since Jan. 1, but even a hometown newspaper didn’t notice until last week. That may explain why the service was discontinued. But it must’ve been a monocle-dropper to all the old Brahmins and blue hairs who’d been lunching there since the riffraff and nouveau riche started showing up. Where can a guy in tie and spats eat comfortably in a big city these days?

Pigall’s nee Maisonette fires down its ovens: The lone restaurant in the heart of the Midwest to earn a four-star Mobile rating has thrown in the napkin. Jean-Robert at Pigall’s, the Cincinnati restaurant that replaced the city’s famous Maisonette, is reportedly closing Feb. 28 because of strife among its partners and weak finances, which seem to go hand-in-hand these days. As a local newspaper notes, the announcement came on the same day the place was awarded its fifth four-star designation from the Mobile dining guide. It was reportedly the only eatery in Ohio, Indiana and Kentucky to earn that lofty assessment. The closing speaks volumes about the state of fine dining outside the coastal enclaves that serve an international trade.

Gladstone’s to open in LAX: A riff on the mega-volume Malibu landmark is scheduled to be unveiled on Thursday in Los Angeles’ Marquis de Sade-sanctioned airport. The outlet will be run by contract feeder HMSHost Corp., which is also operating a La Brea bakery inside LAX, whose lone redeeming quality is being only a shuttlebus away from an In-N-Out.

Brinker’s in-store gift-card sales tanked: Not all of last week’s news tidbits were cooked up by independents. The parent of Maggiano’s and On The Border told investors last week that its workhorse Chili’s brand suffered a 14% drop in sales of gift cards within the chain’s restaurants.

The impact was tempered, CEO Doug Brooks explained, by year-over-year increases in sales of the cards by retailers and other third parties. A major factor for the in-store decline, Brooks said, was the discontinuation of a “bounce-back” deal--exactly like the ones countless other chains adopted this year. Persons buying a card were given a $5 credit, a sort of commission, that they could redeem during a later visit.

Brinker determined that the incremental business wasn’t worth the give-away. So it dropped the deal for 2008—a year marked by the availability of similar come-ons from other chains.

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.