Being part of the train wreck

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

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

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

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

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

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

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

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

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

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

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

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

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

More thinking outside the bun

The news seeping out of Yum! Brands' annual financial conference in New York suggests 2010 could be a year of hyperactive menu development for Taco Bell, the franchise company's biggest brand.

Among the changes previewed was the Mexican chain's use of two proteins that have yet to appear on its regular menu: carnitas, or Mexico's version of pulled pork, and shrimp, which is scheduled to be used in a premium ($2.79/each) taco.

Among the other products already been greenlighted, according to Janney Mongtomery Scott analyst Mark Kalinowski, are a bargain priced (89-cent) 5-Layer Burrito, and Taco Bell's first soft taco, which will feature the new carnitas.

Every year Yum holds a meeting with restaurant analysts like Kalinowski to familiarize them with the strategies of the company's chains. For the benefit of those who've been caught in a pesky time warp for the last four decades, the other brands include Pizza Hut and KFC.

A situation to watch, Part I

So many jaw-dropping situations, so little time.

During this extraordinary period for the restaurant industry, you can get a research-worthy case of whiplash from trying to watch all the dramas unfolding in the business. Instead of rubberizing your neck, consider a focus on this standout among the nail biters. Its only rival as a potential tell-all book is the other situation that's not to be missed, detailed in Part II below.

Steak 'n Shake 'n Biglari, or What Would Warren Do?
If Warren Buffett asked business bravehearts who should succeed him as Holding Company Guru, Sardar Biglari would be the guy jumping up and down with his hand in the air, yelling, “Me! Me! Pick me!!”

Instead, Biglari has set out to prove himself the de facto heir to the Bard of Omaha. Buffett became the second richest man in America in large part by spotting repairman’s specials that were undervalued. He gathered them into what’s now Berkshire Hathaway, a holding company he turned into a cash-flow machine by adding insurance companies to the portfolio.

Biglari, a thirtysomething business school grad who has cast a former professor as his Charlie Munger, is apparently trying to follow Buffett’s blueprint to a T-square. First he bought the wheezing Western Sizzlin buffet chain, then turned around and amassed a major stake in Steak 'n Shake, a burgers-and-fries chain with the distinction of offering table service. His investment allowed him to wrest control of Steak 'n Shake from a management team that was likely drawing death threats from investorsecs.

Amazingly, Biglari has been able to bring his two flagging operations together without being lynched by those investors, probably because they welcomed any change in leadership. Among the reasoned objections they might have posed was how a company could turn around both brands simultaneously, when reviving just one of the flatliners would be a Harvard Business case study.

Then again, hasn’t Buffett done that time and again?

Even more of a parallel was Biglari’s use of Steak 'n Shake Holdings to buy about a 10% interest in—surprise, surprise—an insurance company, Fremont Michigan InsuraCorp.

You can read all about Biglari’s efforts when he releases an extended and likely candid letter to investors next week. It’s exactly what Buffett does every year in his legendary reports to Berkshire’s shareholders.

The key question to keep in mind as you munch some popcorn and watch this CNBC saga unfold: Has Biglari actually duplicated Buffett’s magic formula, or is he merely reciting a spell without the mojo to make it work? Is he really going to conjure the money?

A situation to watch, Part II

Kona Grill: Hail the brave newcomer
Not so long ago, fans of professional wrestling could get their oohs and aahs from the conference calls of Kona, a small casual dining chain known for its sushi. You couldn't stage the sort of hostility that crackled between investors and management.

Here’s a snippet that’ll probably make it to the Kona Grill: Grill This boxed set, which the home office should consider marketing as a gift option this season. It starts with the preamble to a question that portfolio manager Thomas Lynch really, really wanted Kona CEO Marcus Jundt to answer, and goes downhill from there:

Marcus, I’ve noticed on previous calls and on this call that you’ve been a little bit reticent about answering questions. So as I go forward, I’d like to give you the opportunity to show shareholders that you’re accountable and you really know how to operate this business… What changes are you going to make? Who is personally accountable? And specifically in management, what changes will you make?...Can you address that?

Jundt, it immediately became apparent, was no Dale Carnegie disciple. “I’ll address the question in the manner in which I want to address it,” he shot back.

Lynch followed with questions about an agreement to sell a big chunk of stock to Jundt’s father at a price of just $1.19 per share.

Other investors joined in with questions about high turnover on Kona’s board, and what criteria was used to find directors.

The April call clearly did not go well for Jundt and his fellow execs.In the background, you can almost hear a mob forming, anoose in hand.

Stunningly, Jundt resigned a few months later, followed by his interim replacement several months after that.

And who’s ridden into the chain to revive its fortunes? One of the sector’s whitest hats, Mark Buehler. He was a standout marketer at Applebee’s, and was later hired to clean up Tony Roma’s and Lone Star. He’s earned his spurs and six-shooter.

Now he’ll be polishing up the badge and striving to right Kona as the new CEO and president.

There's no confirmation that shareholders bypassed a headhunter and actually summoned Buehler with the Bat Signal. But I’m betting Liam Neeson plays him in the movie.

More flamebroiling tempers at BK?

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

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

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

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

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

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

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

My crystal ball has some static

Call me old-fashioned, but there’s something perverse about running Christmas commercials during World Series broadcasts. Marketers are so determined to get a jump on the all-important sales season that we can only hope they’re flogging gift ideas for this year’s holidays, not 2010’s.

It shouldn’t be a surprise, then, that the year-end prognosticators are breaking out the tea leaves and animal entrails a bit earlier this year. It’s only Dec. 1, but at least seven lists of next year’s restaurant trends have already been divined and released by wise seers.

They vary greatly, to a degree I intend to explore here when the forecast tally climbs to 10, or probably sometime tomorrow morning. But suffice it to say we’re heading into a year where restaurants will simplify their menus, use more animal innards, and hawk fried chicken the way they ballyhooed sliders in 2009. Yes, fried chicken is widely expected to be the next pork belly, or the new bacon, depending on which forecast you read.

What surprises me on first flush is how few noted the two trends that will certainly be on my predictions list, which is on the to-do list right after “Finish leftover cranberry sauce.” Perhaps that’s because they’re not really great leaps from what was happening in ’09.

Chefs and restaurants at all price levels will continue to showcase burgers, to be sure. But, as a colleague from Restuarants & Institutions noted in a recent Twitter posting, tacos are replacing burgers as the low cost/high flavor item that’s being taken up by fine-dining chefs. Rick Bayless is featuring them at Xoco, Paul Kahan is showcasing his riff at Big Star, and today brought news that Traci Des Jardins will extend her early lead in the taqueria wave by opening a second Mijita in San Francisco.

The other prediction is more of a stretch, though there is some evidence to support my supposition. I think we’re going to see the opening next year of what, for lack of a better term, I’m calling whim restaurants—places were chefs can forego a set menu and instead indulge their creativity with whatever’s seasonably available and they feel like cooking. It’s sort of like being invited over to their home for dinner.

It’s exactly what Thomas Keller is doing to great effect at his Ad Hoc in the Napa Valley, or close to what Tom Colicchio has attempted with Tom: Tuesday Dinner, one of the more creative responses we saw last year to the economic freefall. When private-room bookings tanked at Colicchio’s Craft in New York City, the chef turned one of his function spaces in a restaurant-within-a-restaurant twice a month that he called Tom: Tuesday Dinner. The hook was that he’d plan the dinner and cook it himself while you watched, just as you might at the home of a friend. Except in considerably posh surroundings, with a polished staff waiting on you.

Tom: Tuesday Dinner was only open on two non-successive Tuesdays per month. Today Colicchio told Eater NY that he plans to open a restaurant next year that will use the same approach as the limited-time Tom: Tuesday. He suggested that the menu might not change nightly, a result of what he learned with Tuesday Dinner. He explained to Eater that he and his staff needed some time to master each dinner roster. Yet it was all for naught because then the menu would change. So they decided to stay with a menu for at least two successive Tuesday sessions, he recounted.

It remains to be seen if other chefs follow those two kitchen gods in developing concepts where they can indulge their creativity as the spirit moves them.

Fortunately, with probably a few dozen more forecasts to go, we may get an indication as to whether it will happen in 2010.

When to stay home

There are times when a restaurant employee provides the sort of experience you’d only believe if Larry David were on the scene. Witness what happened yesterday to my wife when she stopped at a Moe’s Southwest Grill to grab a quick dinner for us:

Wife, joshingly: “Hey, you forgot to say ‘Welcome to Moe’s!’”

Counter employee: “My mother just died so I really don’t have it in me. So, (very sprightly) what’ll you have?”