Ugh I

Ruth’s Chris ran a promotion through the summer called Ruth’s Classics, built on several of the steakhouse chain’s most familiar specialties. The signatures were offered in specially priced meals that were intended to turn the heads of bargain hunters, but the chain decided to cut costs by holding back on advertising for the deals. “By and large the promotion was not seen as new to our customers,” acknowledged CEO Mike O’Donnell. All they saw were staples of the menu grouped together.

To make matters worse, O’Donnell added, competitors stepped up their promotions during the same timeframe, dealing Ruth’s “a slight setback” in market share.

During a conference call with investors, officials of the chain disclosed that six units are testing a Bistro menu consisting of items priced from $9 to $19. The limited menu is being offered in the test stores’ bars.

Ugh II

Tim Hortons is an institution in Canada, but the donut and coffee chain has had a tough time cracking the U.S. market. And it doesn’t look as if a deal with Cold Stone Creamery is going to be the inbound ticket investors had envisioned.

Hortons and Cold Stone’s franchisor, Kahala Corp., struck a deal to put their concepts on the same sites in dozens of locations both north and south of the U.S.-Canada border. At present, about 63 Tims, mostly in Canada, have been outfitted with a Cold Stone station featuring the chain’s signature mix-in ice cream. But only two Cold Stones in the U.S. have bolted a Hortons section to their operations.

“We were supposed to have 50 Cold Stones with Tim Hortons in [them] by spring. We are now at two,” Jim Durran, the restaurant analyst for National Bank Financial, remarked to Horton execs during a conference call yesterday. “What's the problem with that side of the equation?”

It’s all a matter of location, location, location, explained Hortons CEO Don Schroeder.

Because Hortons stores typically generate higher sales than a Cold Stone shop, they can be developed in pricier locations with higher visibility and traffic, he said. The addition of ice cream is a ring of a bell.

Cold Stone’s locations are a different matter, he continued. Because concept’s sales per unit are lower, stores are often developed in “’B’ sites” that “are not as supportive of putting a Tim Hortons into that location,” Schroeder added.

In short, the ice cream shops don’t have the traffic to feed a secondary concept, which might even dilute the concept’s weaker per-store sales.

In contrast, Schroeder expressed satisfaction with the additional sales a Cold Stone component can deliver to a Hortons.

Under questioning, he also disclosed that Hortons has the exclusive rights to develop Cold Stone outlets in Canada. That extends to all types of stores, including freestanding branches that aren’t paired with a Tim Hortons, he acknowledged. But the donut chain has no plans to develop ice cream-only units, Schroeder stressed.

A candy dish of info treats

Panera Bread Co. is having a bang-up October, according to CEO Ron Shaich. He told investors yesterday that comp sales for company stores were running 6.9% above last year’s tally for the first 27 days of the month, and franchisees’ sales were tracking at a 6.3% rise.

Meanwhile, the bakery-café chain is busy plotting some significant menu changes. First on the list is the introduction of salmon, both as a sandwich ingredient and a salad component, said Shaich. That will be followed by the revamp of the concept’s panini sandwiches, which are currently pre-made, he said. New presses to be added around the middle of next year will enable units to make the grilled sandwiches to order because of their speed.

Nearer term, units will start merchandising holiday baked goods, from gingerbread men to Panatone to “holly cake,” at their registers.

Three days, three restaurant-chain bankrutpcy filings. Max & Erma’s efforts to secure Ch. 11 protection from creditors has been well-publicized. The bankruptcy of sister operation Damon’s International has been far less so. And largely unnoticed has been the Ch. 11 filing of Ham’s, operator-franchisor of a 20-unit namesake chain in North Carolina and Virginia.

More evidence that the Japanese fast-food market is whack-o: Authorities have reportedly concluded that the manager of a McDonald’s there worked herself to death by logging 20 hours a week of overtime. News reports say she’s one of about 150 people who work to the point of demise in Japan every year.

That news of course follows the introduction of a new Burger King Whopper that features seven beef patties, a tie-in with Microsoft’s new Windows 7 operating system. There are so many reasons for head-shaking over that one that it doesn’t pay to start.

Kerrii Anderson, the CEO of Wendy’s International during the chain’s final meltdown and subsequent sale, is being paid $175,000 a year to serve on the board of P.F. Chang’s. Anderson also serves on the board of Chiquita Brands International, the banana importer, where she’s paid at least $160,000 a year. And she was expected to make about $4.6 million from the company’s 2008 sale to Triarc, the parent of the once-rival Arby’s fast-food chain. In short, if you’re scheduled to have lunch with her in the near future, there’s no question of who’s paying.

Hotel unions have voted to strike at a handful of properties in both San Francisco and Chicago. It’s not clear whether its coincidental harrumphing or a concerted effort to prove that the union’s strength isn’t being undercut by the economy, as conventional wisdom holds.

Trends from U.S. chain menus, words from N.Y.

Fast-food, that most American of social constructs, is turning downright jingoistic in its sourcing.

Cock an ear to Wendy’s new ad campaign and you’ll hear the chain boast of using only North American beef in its square burgers. Fuddruckers, the chain that was fast-casual before fast-casual was cool, is more pointed in its nationalism. Units in Texas and New Mexico have switched to a proprietary grind called Fudds Prime, made exclusively with “All-American” prime beef from “select U.S. ranches,” the announcement sniffs. Chew on that gristle, Canada and Australia.

The rah-rah mentions of homefront ingredients are part of a larger struggle by the chain business to accommodate the public’s insistence that it be told the source of what it’s eating. Ideally, that point of origin would be a local one. Indeed, the demand for locally grown produce was forecast by chef-participants in a National Restaurant Association survey to be the Number One consumer trend of 2009.

The menus of many independent restaurants show those respondents were dead-on. The shorter the distance from field to fork, the louder the establishment tends to crow about it in menu descriptors. Not that it’s obnoxious at all. Guests want that sort of horn blowing. Why not brag about the seasonal items you’re putting on the plate?

But it’s hard to serve up that kind of lingo when you’re a sprawling chain with a nationwide supply system. Their economics call for low-cost ingredients hyper-processed to the point of absolute consistency and cooking readiness. Just add heat, forget about seasonal freshness. It was a trend many figured they’d watch independent counterparts enjoy without challenge.

Wrong. It took awhile, but regional chains are clearly finding religion. And even the national ones are buying local ingredients in some spots—or at least spotlighting the instances where that’s been the practice. Outback Steakhouses in the Louisiana area have apparently always used shrimp harvested by the state’s Gulf shrimpers. It briefly changed its mind because imported shrimp was selling at a lower price, then opted in the eleventh hour to stay local. The news prompted Louisiana Gov. Bobby Jindal to hold a press conference where he lauded the casual chain as the video cameras hummed.

Last month, New England-based Papa Gino’s Pizzeria and its sandwich-serving sister, D’Angelo’s, added a bunch of products that feature Cheddar cheese produced in Vermont. The chains were aiming for what one executive called “a distinctive New England flavor,” which you don’t usually associate with pizzas or subs. Yet “Vermont Cheddar” is included in all but one of the new products’ names (the exception, a Bruschetta, incorporates just “Cheddar”).

This summer, the New England outposts of Panera Bread Co. featured a lobster sandwich, a local favorite usually described as a lobster roll. It was priced at $16.99.

Units of the Smashburger fast-casual chain feature reginal riffs on burgers and hot dogs (i.e., Colorado units feature the popular local topping of green chilis), and the Kona Grill casual chain told investors that it'll introduce a menu next month that includes a section for local favorites from any given store's host area.

Then there’s the poster-concept of the localization movement among chains, the Pacific Northwest’s 38-unit Burgerville group. Right now the brand is featuring sweet potato fries made from local sweet potatoes, which are currently in season. It’s also featured Washington State cherries, in a Cherry Chipotle Pulled Pork Sandwich, and is currently touting a hotdog garnished with a slaw made of local apples.

The novelty of finding local ingredients on chains’ menus should start to wear off as several large-scale players start shopping closer to their stores. Chipotle Mexican Grill, for instance, has pledged to purchase 35% of at least one produce item per restaurant from local farmers.

With roughly 900 branches, Chipotle may be the largest chain to pursue seasonal fare. But it’s certainly not the first, nor the model example. Critics have noted that its so-called local fare may be drawn from a 250-mile radius, which certainly stretches the definition.

Contrast that with Eat’n Park, the Pittsburgh-based family dining chain. The company has a director of sourcing and sustainability who goes out to find farmers who can supply the chain. When local items like radishes are used by any of the brand’s 75 stores, notice is often given to customers via the chain’s blog.

Those early adapters are being joined by the likes of Darden Restaurants, best known as the parent of Red Lobster and Olive Garden. Its youngest brand, Seasons 52, features seasonal ingredients blended into entrees with fewer than 475 calories.

P.F. Chang’s, a strong competitor to Darden, has invested in a start-up concept called True Food Kitchen. Like Seasons 52, it features seasonal fare, but goes a step further to use local and organic foodstuffs.

Where chains can’t tout the use of local ingredients, they’re doing the next best thing of highlighting the source. Seasons 52, for instance, is currently featuring Colorado Buffalo Chili, Canadian Black Mussels Marinara and a Gulf Shrimp Cocktail.

Is there any doubt that the source-naming trend, and the local variant in particular, is going to continue?

Indeed, there’s one form in particular that we’re likely to see. It’s not widely known by the public, but outlets of the giant burger chains buy their buns from a network of regional or local bakeries set up by the home office. Those suppliers aren’t exactly mom-and-pop shops. But they do offer an opportunity for the behemoths of the business to tout a little localization. I bet we see that start to happen, sooner versus later.

Chipotle to try a new design, development strategy

Chipotle’s menu tweaks drew Balloon Boy-scale coverage when the burrito chain previewed them last spring. But changes in the concept’s design and development strategy are slipping past almost without notice. And that’s surprising, given how the concept is really tinkering with its DNA this time.

Officials disclosed plans yesterday to revamp the layout of stores to reduce energy consumption, crewmember motion, and construction costs. New stores will also have less stainless steel and more tiling in their kitchens, a switch that will ease cleaning operations, the execs said.

At the same time, the chain will broaden its development criteria to include what co-CEO Monty Moran characterized as “Tier 2 trade areas,” or locations with lower but acceptable traffic and enticingly low development costs. Because the so-called Model A restaurants will be less expensive to build, they can provide a better return than conventional sites, even with a lower sales volume, he explained.

He indicated that as many as 30 of those second-tier sites could be developed during 2010, or roughly one-fourth of all the locations that come on-line. CFO Jack Hartung said that mix would lower the average cost of new sites to $850,000 each, from the current $900,000.

Part of that rollback, Hartung indicated, will be generated by changes in the standard format and design of stores.

Founder and co-CEO Steve Ells explained that Chipotle wants to get back to what it was when he launched the concept.

“Our earliest restaurants were generally smaller, simpler and very efficient,” he told financial analysts during a conference call. “As we grew, our restaurants became larger, more architecturally complex, and in some instances less efficient than before.” Now, he said, it’s back to the future.

The layout of units will be revamped “to suggest a flow in the restaurants rather than physical barriers,” he said.

Ells didn’t explain how that would be achieved, but did offer that workstations would both be expanded and set up to eliminated wasted action on the part of employees. He did not say if those adjustments would reduce labor costs.

Definite savings would come from changes in lighting, equipment, and construction materials, he noted. For instance, the chain is switching to a “European-style plancha, which is a flat-top grill,” instead of using a griddle, Ells explained. The device is also smaller than the equipment it replaced, which in turn enables a smaller vent and HVAC system to be used, the CIA grad suggested.

“Over the years, we went through a 10-year period of double-digit comps, and as we saw our volumes go up, we needed to react to those volumes,” he told the portfolio managers participating in the call. “So as we built new restaurants, we built them bigger. We were cooking a lot more chicken and steak on the grill, so we got a bigger grill. In order to accommodate that bigger grill, you have to have a bigger hood. In order to have a bigger hood, you have to have more make-up air and have a larger air conditioning unit on top. In order to do that, you have to have more power coming to the building.”

He also noted the changeover to white tiles in the kitchens. When the new facings were first tested, some bloggers said the surface switch would make stores more eco-friendly, since tiles are easier to recover and reuse than stainless steel. But Chipotle execs didn’t mention any green advantages, other than the cash that would be saved overall with the new design.

Analysts on the call pressed Ells about the change, perhaps out of shock. Design has been hailed by Chipotle as an integral part of the concept. Indeed, any die-hard Chipotle follower knows that a design specialist was one of Ells’ first hires when he was building a team, and the look of stores is often cited as a key part of the chain’s character.

The stockpickers also voiced some concern about the new siting strategy. As Moran acknowledged, Chipotle has traditionally sought out locations that provide high visibility to a heavy stream of passers-by. Those developments were expensive, but the units would open to instant success, with “superior returns” from sales topping $1.3 million a year, he said.

Are you worried that these second-tier stores might siphon sales away from units in primo locations?, one analyst asked.

If anything, this approach will allow the chain to expand into more unfamiliar markets, lessening the chances of cannibalization, Moran said.

The analysts seemed more comfortable with Chipotle’s plans to expand abroad, another departure of sorts for the brand. Its one market outside of the United States at present is Toronto. But Ells said a restaurant will be opened in London during the second quarter of 2010.

A transcript of the conference call was made available by the SeekingAlpha financial information service.

Chili's to run tacos through the shrink ray

The menu miniaturization craze will get a mainstream boost when the Chili’s casual-dining chain adds a line of tiny tacos in, well, a short time.

Executives say the array will include pulled pork, pecan-smoked chicken, spicy beef and shrimp versions. But they were mum about the price and how the minis will be packaged into a selection (all of one, a sampler, pick two, etc.).

The addition is part of the menu and prep re-do that Chili’s announced a few weeks ago. That effort that is already revamping the way two signature items, baby back ribs and burgers, are cooked. The former will now be smoked longer, over pecan wood, while the latter will be hand-formed from fresh ground chuck rather than pre-portioned into patties.

Changes have also been made in Chili’s kitchens to ensure that French fry orders are always fresh and hot, according to executives of the chain’s parent company, Brinker International. But, in a conference call with financial analysts yesterday, they didn’t divulge how the preparation was upgraded.

The mini tacos are being added to the menu despite an overall trim in Chili’s bill of fare. The Brinker officials declined to say how big of a cut the menu will get. They characterized the likely deletions as item that fail to differentiate Chili’s from its competitors.

The execs would also not divulge how much the menu and prep overhauls would cost. But they noted that at least some of the profits from the recent improvement in Chili’s margins would be used to pay for kitchen tweaks and additional training.

“Wee are talking about small costs there,” Brinker CFO Chuck Sonetsby told participants in the conference call. “We are not talking about anything that is that expensive. We have had some things that cost $175 apiece.”

All told, he said, the investment should trim earnings by a penny or two per share.

The addition of mini tacos would be the latest in an ongoing shift by the industry to more Lilliputian fare. Uno Chicago Grill, for instance, debuted a pulled pork slider just last week.

It's now possible to have a complete meal out of Munchkin Land. You can get in your Mini Cooper, dash a short distance to the smaller restaurants chains are now building, have a slider for your meal, wash it down with sampler-sized cocktails or beers, and follow it with the shot-glass desserts that are now ubiquitous. It's the check that may not be so tiny.

My thanks to Seeking Alpha for making available a transcript of Brinker's quarterly conference call.

India's Rx for food safety: Poisoning courts

Because death is even less popular than taxes, you’d think more politicians would rail against the perils of food contamination and make it their headline-snagging cause.

Then again, look at how that tactic’s working for Kirsten Gillibrand, the junior senator from my state. The upstate Democrat held a press conference on Sunday to awaken the populace to the dire threats lurking in supermarkets and restaurants. More than 900 food products have been yanked off the market since 2005 because they posed a danger, the result of disturbing safety violations, she stressed.

You probably didn’t know she’s calling for all ground beef to be tested for E.coli contamination, a major step toward neutralizing a safety scourge. But who can bother with matters like that when Balloon Boy’s father is being questioned by the police?

You have to feel sorry for the proponents of food-safety reform. The reaction they’re drawing just seems out of sync with the cause. Today, for instance, 16 people personally touched by a food-poisoning catastrophe visited the White House to push for more stringent safeguards. They were foisted off on the assistant White House chef, Sam Kass, who was described in statements as one of President Obama’s advisors on food policy. “I’d recommend the sweet potato fries today because they’re in season, Mr. President.”

Okay, the entourage also snagged ear time from David Lazarus, a senior-level official at the U.S. Department of Agriculture, and Mariano-Florentino Cuellar, the lead White House staffer on Obama’s Food Safety Working Group. But the Beer Summit was treated as more important.

Maybe the notion of regulatory or legislative reform just isn’t sexy enough. Perhaps we should consider using the judicial branch of government as a powerful agent of change.

That’s what India is considering. A proposal has reportedly been aired there to create a secondary court system exclusively for cases involving alleged instances of food contamination. The new ministry would be a place of recourse when food-safety authorities find a processor that isn’t adhering to standards.

Not that infractions are difficult to detect, apparently. The news coverage notes that 1 million cases of alleged safety infringements are currently waiting to be heard by conventional courts.