Myth busting

A confused figment of my imagination writes, “Hey, Restaurant Reality Check, how am I supposed to tell fact from fiction in the age of The Onion, the Borowitz Report and KFC’s publicity department? Some of their made-up restaurant stories sound more believable than the real thing. How can a non-cynic know when he’s being fed a whopper?” (signed, Believing It—Or Not?)

Dear Believing,
I was discussing the very thing yesterday with Henry Kissinger and the Fonz. You just can’t tell these days who’s pulling your leg and who’s merely covering the Republican presidential candidates.

Fortunately for you and your confused peers, Restaurant Reality Check can recount how a few persistent myths were disproved, decidedly, by recent industry developments.

Wall Street firms have a hammerlock on executive compensation outrages. A Friendly source—note the capital “F”—blew that one away. In case you missed reports in mainstream media like The Wall Street Journal and The Huffington Post, the restaurant industry has its own instance of a CEO enjoying big-dollar privileges while the corporate rank-and-file burn their pink slips for warmth.

According to the reports, Friendly’s CEO Harsha Agadi billed the company for $234,000 in day-to-day expenses in the year preceding the restaurant franchisor’s recent bankruptcy filing. The charges didn’t include the $190,000 Agadi submitted for relocation.

The contrast with the plight of Friendly’s workers is what made the story a hot one. More than 600 lost their jobs when some 60 stores closed.

We can also refute at this time that the Fribble lobby has secured a federal bailout for the family chain.

E-mail is killing letter writing. Not in the restaurant business. Hundreds of stationers could pop for a second home this year because of the business they’re reaping from disgruntled shareholders and the chains they’ve targeted for takeover.

This morning, for instance, Cracker Barrel shareholders were sent a letter from CEO Sandy Cochran, spelling out why they should rebuff Sardar Biglari in his attempts to wrest control of the family chain from current management. She countered Biglari’s assertions by explaining the chain’s business-building strategies, point by point.

The communication was in response to an 11-page letter that Biglari sent last week to the same recipients. Taken together, the two missives might have made Cracker Barrel’s shareholders the most informed in the business.

But that’s not the only volley of letters helping the Postal Service. Cosi and Brad Blum, the Olive Garden alumnus who wants to run the fast-casual chain, have stamp dispensers churning as well.

Ditto for the CEO-turned-advisor of Wendy’s, Roland Smith. Recent SEC filings include Smith’s resignation letter, which in turn referenced other missives during the summer. The communications indicate that Smith stepped down because he didn’t want to leave Atlanta, where the chain is currently headquartered. It’s moving back to the suburb of Columbus, Ohio, where it was founded.

Smith has been succeeded as CEO by Emil Brolick, who’s collecting $1.1 million in salary, with the opportunity to earn another $1.6 as a bonus. Smith was in the same ballpark.

Survival has supplanted concept development. According to the conventional wisdom, restaurant companies are too preoccupied with survival to consider the development of new concepts.

Not any more.

The last two weeks brought announcements of new concepts from such celebrated operators as Starbucks (Evolution Fresh Juices), P.F. Chang’s (Pei Wei Asian Market, which of course has nothing to do with Chipotle’s launch of ShopHouse Southeast Asian Market), IHOP (IHOP Express) and Jamba Juice (JambaGo, the juice chain’s riff on an express format).

Okay, enough myth busting for now. In our next installment, we’ll take on Yeti and the promises of restaurant unions.

Blurring restaurant lines

You can make a strong argument that line-blurring has been the most successful restaurant strategy of the last 20 years. Without the daring to nudge a familiar type of restaurant into another category’s turf, we never would’ve had fast-casual, a blurring of the lines between fast-food and casual dining, or hybrids like burger joints run by celebrity chefs (think Daniel Boulud’s CBDB’s or Marcus Samuelsson’s Marc Burger).

Now two of the earliest and most successful proponents of line-blurring are smudging a different boundary.

By the industry’s standard definition, Mimi’s Café and Cracker Barrel fall into the category of family restaurants, or what were called coffee shops in the pre-Starbucks age. A key feature was serving breakfast, a rarity among full-service places. Indeed, a heavy morning clientele was one of their signatures. Ditto for selling more soft drinks than wine, beer or spirits. And their menus were as broad and mainstream as what we in the East would find at a classic diner.

But Mimi’s and Cracker Barrel never exactly fit the specs. Yeah, they do considerable breakfast business. But these aren’t your father’s Denny’s or Village Inn. Slip into a Mimi’s at lunch and you’ll find plenty of office workers, not families. And the menu is more ambitious than the roster for many upscale casual places.

Cracker Barrel also has that casual feel, and its reliance on a country-store schtick is reminiscent of the heavy-duty theming that’s common in casual dining (think Friday’s, Lone Star or Olive Garden).

Now those non-comformists are blurring the line again, this time by shifting into the pricing strata right below them. Both have just unveiled new lunch deals that rival the value and convenience afforded by fast-food outlets.

Cracker Barrel’s new offer is a line-up of daily specials that sell for $5.99 each. Consider for a moment that $5 is the going bargain rate for a sandwich at sub specialists like Subway. At Cracker Barrel you can pay just a buck more for meatloaf and mashed potatoes, a chicken pot pie, or a turkey platter with the usual trimmings.

Mimi’s is stressing speed of service along with the low prices of its midday options. It guarantees that its new Express Lunch service will take no more than 15 minutes. For $6.99, that gets the customer servings of soup and salad. For $1.50 more, they can get the soup or salad with half a sandwich. A soda adds just another $1 to the check.

Mimi’s may be venturing into fast-food territory, but it’s not dropping its competitive challenge to casual places. Also new on its menu is a takeout deal that might turn the heads of consumers who use casual restaurants’ curbside delivery services. Priced at $25 each, the meals are marketed as sufficient to feed a family of four. The options include such comfort favorites as pot roast, chicken parmigiana and turkey.

It’s also added a new Happy Hour deal: wine flights for $5.

Clearly the chalk marks between segments are still being smudged.

'Attention, Central Casting'

We’ve decided to recount the week’s restaurant-related developments in cinematic form. So heads up, Casting. Here’re the players we’ll need to play the central characters.

Grab a guy in whites and put him in a serious suit. Yesterday’s announcement of a new president for the La Madeleine bakery-café chain probably took no one by surprise. Phil Costner, as COO, was the heir apparent. Still, his appointment is remarkable, especially for industry professionals who make their living in a kitchen. As far as we know, he’s the only chain president to reach that perch through menu R&D, and he’s one of the few chefs to head a system of significant size (Steve Ells of Chipotle and Kerry Kramp of Sizzler being the others).

Put Sigourney Weaver in a Cracker Barrel cap… As tough as she was in “Alien,” the veteran actress will have to show more fortitude in her depiction of Sandra Cochran, the new CEO of the family restaurant chain. On Day Two of the job, Cochran had to contend with a demand by shareholder and takeover artist Sardar Biglari that he be ceded a seat on Cracker Barrel’s board. The demand was put forth on a website created by Biglari to blast the chain’s direction and management. And then, just to add the icing on the cake, Cracker Barrel reported a 36% decline in quarterly net income. You have to wonder if prior CEO Michael Woodhouse called to provide moral support—the Bishop to Weaver’s Ridley.

…And get me one of The Borg guys from “Star Trek” to play Biglari. “You shall be assimilated. Resistance is futile.” The thirtysomething activist shareholder followed the same plan he’s pursuing at Cracker Barrel to wrest control of Steak ‘n Shake and Western Sizzlin’. Clearly he intends to prevail similarly at Cracker Barrel, his most mainstream target to date.

Who’s today’s Jimmy Stewart? Whoever he is, get him to play Craig Meier, the CEO of the Frisch’s family restaurant chain, which also operates a number of Golden Corral franchisees. The company’s sales dropped 4.6%, so Meier took a 26% pay cut. Clearly this guy couldn’t work on Wall Street without being some suit’s bitch. The cut brought his pay down to about $700,000—for overseeing a company that brought in $303 million. Take that, Gordon Gekko.

Okay, who’d be a good Lazarus? See if you can make him look like Craig Nickoloff, the founder of the Claim Jumper chain. Nickoloff sold the chain, second only to Cheesecake Factory in average unit volumes, to private-equity concerns that watched sales drop and drop and drop. Eventually, Claim Jumper went bankrupt and was bought at a bargain rate by Landry Restaurants’ Tillman Fertitta. Nickoloff had it made. But of instead of working up a sweat on a golf course, he just teamed up with the celebrated chef Michael Cimaruti to buy Silver Spoon, a wheezing landmark of the Los Angeles dining scene. They’ve indicated that the West Hollywood outlet will be converted into a restaurant called Connie and Ted’s, but haven’t yet revealed what the new concept will be like.

Okay, time to sketch out the storyboards….

Cracker Barrel's return volley

After losing customers to fast-food places, chains like IHOP and Denny’s are fighting back with grab-and-go outlets of their own. IHOP, for instance, is testing a limited-service mutation called IHOP Cafe, where the menu is limited to wraps, sandwiches and a few other portable items. Denny’s calls its entrant Fresh Express, a section set up within existing stores as a takeout station. Bakers Square and Big Boy have similar experiments underway.

But Cracker Barrel, one of that sector’s powerhouses, is betting against them. Instead of creating a new set-up for patrons in a hurry, the country-store-themed chain is trying to compress a sit-down meal into a tighter timeframe. Tests of the Seat to Eat program have cut patrons’ wait times for a meal to less than 14 minutes, CEO Michael Woodhouse told investors yesterday. Starting next month, the initiative will be expanded to include all stores, though the process will stretch to 18 months in part because of the capital requirements.

Executives didn’t reveal the price of changing units’ kitchen configurations to accommodate Seat to Eat, but they noted that it would be part of a $30-million budget that also covers maintenance and the opening of seven stores. Other comments suggested the outlay could be in the $13-million range, with about half spent in 2010.

Woodhouse called it “an integrative tool to drive store traffic and increase productivity.”

Dolly Parton offers quite a pair to Cracker Barrel

Dolly Parton provided two big things to the Cracker Barrel family restaurant chain during the first quarter: Exclusive rights to sell a  limited-edition “Backwoods Barbie” CD, which cracked the Top 20 on Billboard’s country charts; and a deal to sell 1,350 special edition Dolly Parton rocking chairs for $199 each, with all but 13 sold as of May 27.   

That’s more than a quarter of a million in sales from the rockers alone, according to the company, which offered up those tidbits during its conference call yesterday with financial analysts.   

CEO Michael Woodhouse also revealed that the chain will roll out a new billboard campaign starting next month. Among the themes that will be featured is the tagline, “Half restaurant, half store, all country.”   

Woodhouse also disclosed that the home office has reconfigured its test kitchen to mimic the back-of-the-house of actual restaurants. Previously, he indicated, a new menu item had to be shipped to stores to gauge the ease of adoption and what adjustments would have to be made before a rollout, wasting time and effort.  Makes you wonder why officials would’ve allowed a different set-up to be used for R&D in the first place.  

Under probing from the analysts, Woodhouse noted that weekday dinner service has been the company’s most challenging sales time. People still go out for dinner on weekends as their treat, but are clearly cutting back during the week, he said. 

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.

News of an unfamiliar sort

What’s all this unusual restaurant stuff I’m seeing on the wires? Could it be a dusting of good news? Indeed, if it weren’t for Starbucks’ warnings about the tough slogging ahead, restaurateurs might’ve thought we’d hit a time warp to more temperate times. And not all of the hurrahs are being generated by McDonald’s.

Gift card sales are expected to ebb this holiday season because dollars are tight and no one wants to get stuck with a gift card to a bankrupt store or restaurant. Yet Cracker Barrel said its card sales are running 7.6% above last year’s tally.

Jack in the Box said its company stores in California posted positive comps for the July-through-September period.

And McDonald's, a chain whose recent performance really calls for steroids testing, is betting it can raise the price of its popular double cheeseburger by roughly 20%, according to The Wall Street Journal.

Then there’s the macro news. The Dow closed up two days in a row. Part of the $800 billion in government aid announced today includes backup for institutions that extend Small Business Administration loans, the mother’s milk of restaurant start-ups. New Jersey passed a law today that intends to help small businesses through loans and credits for newly created jobs, a potential model for other jurisdictions.

Okay, it’s not exactly a click-your-heels-three-times kind of change. But in this environment, with parallels drawn constantly to the Great Depression, anything short of dire news feels like a Mary Poppins song.