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Red Robin outlines strategy amid casual-dining tumult

Nation's Restaurant News - Wed, 2017-05-24 20:43

Red Robin Gourmet Burgers Inc. is overhauling its operations, redefining service, adding off-premise alternatives and reconsidering mall locations as it faces a challenging casual-dining market, executives said Tuesday.

At the Greenwood Village, Colo.-based company’s first investor day in more than three years, Red Robin executives said many of its restaurants share the traffic declines in big-box retail and entertainment, as more consumers shop online and get entertainment streamed into their homes.

“I'm here to tell you casual dining peaked, and it's not coming back,” Denny Marie Post, Red Robin’s CEO, told analysts. “It is not going to be the reigning concept ever again to the extent that it was. It had its moment.

“It had its moment when we were all discovering big-box stores and going out to movie theaters and doing lots of stuff, of which casual dining was part of that occasion,” Post said. “We were never a destination, or a very few were. We were part of something else.”

Red Robin executives said they are reconsidering where they locate restaurants and are also testing off-premise channels like catering and delivery.

Alexander Slagle, an analyst with Jefferies LLC, said Red Robin is showing “early signs of improvement.”

In a note to investors, Slagle said the company’s “efforts to improve ops in the restaurants, build awareness in high-penetration markets using incremental local media and drive frequency via renewed focus on everyday value seem to be moving the needle.”

Slagle also noted that the company was keeping it unit growth modest, with emphasis on markets it had already penetrated, “allowing it to better leverage its scale and awareness in those regions.”

Les Lehner, Red Robin’s chief development and procurement officer, said the brand halted mall development in 2015. He said about 17 percent of Red Robins locations are in malls, and they tend to lag other units in revenue.

“Everybody is aware that malls are struggling right now and face a very difficult path,” he said.

Post pointed out, however, that some mall locations do especially well, including Red Robin’s highest volume restaurant, with $6 million annually, at the Northgate Mall in Seattle. 

“We're either seeking an exit strategy, because we don't believe that the redevelopment plans and programs that the landlords had in place are going to work, or we're trying to find some creative ways to create incremental revenue streams out of these models,” Lehner said.

Jonathan Muhtar, the head of Red Robin’s marketing and off-premise programs, said the company hopes to tap its 6.6 million loyalty program members with more focused messaging and to look at delivery and carryout, which survey indicate would increase frequency among half the brand’s guests.

The company is looking at various delivery possibilities, as well as introducing this summer a new “Burger Bar” packaging for large orders.

“This has really developed with an eye toward catering as well, where we have the ability to provide many different toppings and ingredients, keep those fresh and display [them] in a way that's appealing to our guests, while also protecting the hot product,” he said. 

Post said Red Robin is also looking at other service models. While only about 8 percent of sales are in alcoholic beverages, she said the brand would look at possibilities such as self-service “beer walls.”

“There's a point at which we might turn that into an experience where the guest can help themselves, and not make it a takeaway but in fact that guest will probably step back and appreciated the chance of sample variety and if you seen those kind of beer walls that really very, very effective,” she said.

Carin Stutz, Red Robin’s chief operating officer, said the brand is testing six new service models in various locations, adding that two seemed to provide the “frictionless and hassle-free service” that would work in the future.

For the first quarter, Red Robin said its income declined 18.7 percent, to $11.6 million, or 89 cents per share, from $14.2 million, or $1.03 per share, the previous year. Revenue increased 4.1 percent, to $418.6 million, from $402.1 million the previous year. 

Red Robin said same-store sales fell 1.2 percent in the first quarter ended April 16. That reflected a 1.7-percent decline in traffic and a 0.5-percent increase in average check, the company said.

As of April 16, Red Robin had 556 restaurants, including 469 company-owned locations and 87 franchised units.

Contact Ron Ruggless at Ronald.Ruggless@penton.com

Follow him on Twitter: @RonRuggless

Taco Bueno names new executives

Nation's Restaurant News - Wed, 2017-05-24 20:40

Taco Bueno Restaurants L.P. has named new executives to head operations and marketing for the Tex-Mex fast-casual chain, the company said Wednesday.

Tony Darden, formerly of Panera Bread, has been named to the new position of chief operating officer. Sarah Beddoe, formerly of Sonic Drive-In, was named in January as chief marketing officer, succeeding Jeff Carl, who left to purse other opportunities, a company spokeswoman said. 

“These key additions are solidifying our intent to keep firmly rooted in the traditions that have supported our brand for the past 50 years while taking innovation seriously in an extremely competitive market,” said Mike Roper, Taco Bueno president and CEO, in a statement. “We are committed to strengthening our industry presence to attract and keep new customers.”

Darden most recently was with Panera Bread, where he served as vice president of operations.

Beddoe most recently served as vice president of national marketing at Sonic. Prior to Sonic, she was director of digital experience and social engagement for Pizza Hut Corp.

Taco Bueno, founded in 1967, operates 183 restaurants in Arkansas, Colorado, Kansas, Louisiana, Missouri, Oklahoma and Texas. The company is privately held by TPG Growth.

Contact Ron Ruggless at Ronald.Ruggless@Penton.com

Follow him on Twitter: @RonRuggless

Prices for restaurant chains near their peak

Nation's Restaurant News - Wed, 2017-05-24 20:34

This post is part of the On the Margin blog.

Prices for restaurant companies keep increasing. Popeyes Louisiana Kitchen and Panera Bread, among other brands, were acquired for multiples once thought to be unheard of in the big chain world.

But the multiple expansion of recent years could be coming to an end, at least in the views of one firm.

“We’re almost at peak,” said Bahige El-Rayes, principal in the consumer and retail practice at the consulting firm A.T. Kearney.

Multiples for restaurant companies are crazy. Multiples for large restaurant companies in 2016 averaged 15.5 times earnings before interest, taxes, depreciation and amortization, or EBITDA.  

Smaller deals are getting a more modest, 13.3 times EBITDA on average, meaning that buyers are paying heavily for the safety of a large company.

Both numbers, however, are down from where they were in 2015, when both large and smaller deals averaged 15.7 multiples. Still, the size of large-scale deals so far in 2017 — Panera and Popeyes both went for enormous prices — suggests the pricing levels remain elevated.

Pricing levels for restaurant acquisitions are important because they fuel much of the activity in the industry. A multiple of 15, for instance, means a buyer would require 15 years to pay off the acquisition at existing earnings levels.

Those kind of prices put pressure on buyers to expand, even if they plan on keeping their acquisitions for many years — which is certainly the case in both the Panera and Popeyes deals, where buyers JAB Holding Co. and Restaurant Brands International Inc. have no plans on flipping them in five years like traditional private equity buyers.

It also pushes buyers to look for other deals. And as we reported earlier this month, private-equity groups that are reticent to pay multiples of 15 for companies have been looking “down market” at smaller concepts they can grow.

Not surprisingly, there were more down market deals for upstart restaurant chains than during any year since the recession — and probably ever.

There are two huge reasons multiples for restaurants have expanded even amid concerns over sales.

First, the Internet has hammered consumer companies, particularly retailers, as companies like Amazon.com draw business. So there’s a sense of safety in the restaurant world. People always have to eat, after all.

Second, there’s a major sense among investors that the restaurant industry is evolving, paving the way for newer types of concepts. But companies can also find expansion opportunities overseas, which provides opportunities for growth, even though the U.S. market is filled with restaurants.

One other factor, at least at the chain level, has been the presence of strategic buyers, which tend to pay higher prices than are private equity and other financial buyers.

Indeed, financial buyers are “having a hard time, especially with megadeals,” El-Rayes said. “They’re getting priced out.”

But, he said, expect private-equity groups to make a comeback. These firms should get more financing and more interest in making deals. And that could keep the deal flow moving in the coming years. 

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at jonathan.maze@penton.com

Follow him on Twitter: @jonathanmaze

BJ’s aims to set standard with new slow-roasted meats menu

Nation's Restaurant News - Wed, 2017-05-24 20:04

BJ’s Restaurants Inc. pushed protein to the center of the plate earlier this month, a move that is both uncharted and familiar to the casual-dining chain.

“This is very much in keeping with what we’ve been doing for a number of years,” BJ’s president and CEO Greg Trojan told Nation’s Restaurant News. 

The new Brewhouse Slow-Roasted Menu lineup features a hearty selection of protein entrees, including prime rib, pork ribs, pork shoulder and a double bone-in pork chop. Meats are roasted for up to eight hours before being carved to order.

Prime rib is only available on peak weekend evening hours and all day on Sundays. The pork chop is served exclusively after 4 p.m., every day.

“I don’t view this as a change in strategy at all,” Trojan said of the menu.

“[BJ’s is] not a bar-and-grill,” he added of the Huntington Beach, Calif.-based chain.

Last year, Applebee’s, which is a bar-and-grill chain, sought to energize its menu with new items centered around hand-cut steaks cooked in wood-fired grills at each restaurant.

But the new platform could not save Applebee’s from stumbling. After launching the new menu in May, Applebee’s same-store sales fell 4.2 percent by the close of the second quarter ended June 30. As a result, Julia Stewart, then chairman and CEO of parent company DineEquity Inc., eventually resigned. 

When asked if BJ’s new menu could face a similar fate, Trojan did not express concern with Applebee’s results.

“These are the products that people have shown that they want,” he said. 

There were no qualms about the price points of the new items, Trojan said, and BJ’s goal to “deliver a surprising level of quality at an amazing value” has not shifted. 

BJ’s has successfully executed center-of-the-plate protein entrees before, he noted, saying that customers complained after the chain removed a previous incarnation of the pork chop dish in the past. 

The new menu items range from $11.75 to $26.95, and require new ovens to be installed in BJ’s 192 restaurants across 24 states.

In addition to the new meat-centric menu, BJ’s is not shying away from its bar program. 

BJ’s has been brewing its own beer for over 20 years. On the menu, beers are paired with mainstream brands that are similar to the in-house selection, so customers can make more informed choices before trying a new pint. 

The restaurant’s bar areas and sports-friendly atmosphere tend to draw a Millennial crowd looking to watch games in a social environment, Trojan said. 

BJ’s same-store sales in the first quarter ended April 4 fell 1.3 percent. The company reported net income of $9.3 million, or 42 cents per share, compared with $11.6 million, or 47 cents per share the previous year. Revenue rose 5.9 percent, to $257.8 million. 

Jefferies said it continues “to model flattish same-store sales for the year, as we believe BJ’s will need at least some modest improvement in the overall full-service operating environment to see same-store sales turn more meaningfully positive.”

Trojan admitted that the casual-dining segment faces challenges. He cited oversaturation of competition and the declining state of retail as two obstacles.

With retail stores failing, there are less opportunities for customers to stop in while out and about on shopping trips. And developers and property owners turn to restaurants to fill vacant storefronts when retail options can no longer pay the rent.

Despite the roadblocks, Trojan was bullish about the new menu. 

“What we love about [the new menu] is the chance to do this segment of product in a way that sets a standard in our segment,” he said.

Contact Dan Orlando at dan.orlando@penton.com

Follow him on Twitter: @danamx

Soupman CFO indicted on tax fraud charges

Nation's Restaurant News - Wed, 2017-05-24 17:20

The chief financial officer of Soupman Inc. was indicted Tuesday on tax fraud charges after he allegedly failed to pay taxes for the company’s employees over a four-year period.

The company suggested this week that the indictment could cause serious problems in its ability to stay afloat. 

Robert N. Bertrand was charged in a New York federal court over failing to pay $594,000 in Medicare, Social Security and federal income taxes for employees at Soupman from 2010 through 2014.

Soupman, based in Staten Island, N.Y., immediately suspended Bertrand.

“The company is deeply shocked and saddened by these events,” Jamieson Karson, Soupman’s CEO, said in a statement.

Bertrand allegedly paid employees in cash on the side, along with “large unreported stock awards,” according to the U.S. Attorney’s Office in the Eastern District of New York.

From 2010 through 2014, Bertrand allegedly paid $2.9 million in cash and stock to employees.

Soupman will immediately launch an internal investigation to determine whether its public filings need to be amended during the period in question, Karson said. And he indicated that the indictment would hurt the company, which is struggling with financial losses. 

“We expect that this news will not make it easier for us to raise the capital we need to remain in business,” Karson said. 

Soupman Inc. licenses the recipes of Al Yeganeh, the “Soup Nazi” character from the television program “Seinfeld.” As of Aug. 31, 2016, Soupman had nine franchised locations. But in recent years, the company has focused more intently on selling its Original Soupman brand soup to grocers, convenience stores and other restaurant chains. 

The company’s most recent financial report said it no longer has revenue or costs associated with its franchise operations. About 6 percent of revenue last year came from franchising operations.

Soupman reported a net loss of $1.7 million in the six months ended Feb. 28, on revenue of $1.9 million. The company had a working capital deficit of $9.4 million.

“These factors raise substantial doubt about the Company’s ability to continue as a going concern,” Soupman said in its most recent earnings report. 

Contact Jonathan Maze at jonathan.maze@penton.com

Follow him on Twitter: @jonathanmaze

Turnover: The root of all restaurant problems

Nation's Restaurant News - Wed, 2017-05-24 15:41

Jim Sullivan is a popular keynote speaker at leadership, franchisee and GM conferences worldwide. This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News.

“Ideas are easy. Execution is hard.”—Jeff Bezos, founder, chairman and CEO, Amazon.com

The only thing more challenging than the expansive pile of problems that restaurant operators and managers deal with daily is the fact that those problems are frustratingly familiar.

It’s hard to shake the nagging notion that we may be systematically treating symptoms and not root causes, resulting in constant reoccurrence and escalation of the same issues over and over again.

Let’s examine the root cause of why 90 percent of restaurant systems and processes fail. Here are four snapshots from four different restaurants to frame the discussion:

1. A District Manager visits a restaurant for the third time in 30 days, and for the third straight time, cleanliness is an issue. Not so much on the counters or floors, where it’s obvious, but where you don’t see it: behind the grills, under the fryers, on the walk-in shelves. You recall the words of Ray Kroc, who said, “Clean the corners and the middle will take care of itself.” But the corners are being overlooked. Frustrated, the DM looks for the team member they showed how to clean the grills and fryers during their last visit. But he quit nine days ago. The cook he showed how to clean and organize walk-in shelves? Took a different job yesterday. The DM resolves to get a district-wide memo out detailing how and what to deep clean.

2. A GM at another restaurant a thousand miles away is tasked to reduce labor costs 5 percent in the next quarter. She discusses options and strategies with her assistant managers at this week’s meeting. One of the other numbers that comes to light during the discussion is the hourly turnover rate of 90 percent. What parts of the recruiting, hiring and onboarding budget would she recommend scaling back on in order to hit the 5-percent labor reduction goal? One of the managers volunteers to cover an hourly shift three times a week to help hit the labor goal this period, since hitting the labor cost goal is a prime factor for her to hit her bonus, too.

3. Equipment and facility repair and maintenance costs have risen 24 percent in the last six months at another restaurant 850 miles northeast of the previous one. So the restaurant’s owners and managers invest 30 additional hours researching equipment suppliers, interviewing new repairmen and trying to renegotiate leases with their landlords in an effort to get a grip on the escalating costs.

4. Five hundred miles to the southwest, at a different restaurant chain’s headquarters, a CFO is reviewing spreadsheets and notes that Unit #118’s Thursday night sales were down 18 percent from a week earlier, and down 22 percent from the same day a year ago. But he also notes that that market was hit with a big thunderstorm that night and concludes the weather is to blame.

Four different surface challenges: cleanliness, labor costs, repair and maintenance issues, and an unexpected sales dip. These challenges send supervisors scurrying in four separate directions to source a solution. But the one thing they probably would overlook is the real underlying cause for each situation: employee turnover.

If a DM instructs hourly workers on how to deep clean fryers, grills and walk-ins, but those employees leave and take that knowledge with them, all the cleaning memos in the world won’t improve the restaurant’s cleanliness as much as employee retention will.

Saving labor costs by not filling open positions and having managers work the shifts instead so they hit bonus is not a strategy for success; it is a broken bonus system guaranteed to hollow out and exhaust supervisors who will soon join the ranks of fleeing hourly workers themselves. The real culprit? Endless employee churn.

Escalating repair and maintenance costs could be the result of a vast conspiracy of landlords leasing decrepit facilities, equipment manufacturers selling faulty designs and repair people buying new summer homes. Or maybe it’s the result of that 100-percent turnover you’re experiencing, which interconnects an endless stream of new untrained employees with breakable ovens, grills, slicers, dishwashers, plumbing and POS systems.  

And as far as last Thursday’s sales dip goes, yep, maybe the storm kept people home. Or maybe the restaurant was busy traffic-wise, but you had a brand-new cashier who didn’t upsell and was overwhelmed because she’s not familiar enough with the POS system’s order-inputting, and Jason the manager was so busy filling in for a cook who didn’t show up that he couldn’t help her. Sure, it may have been the weather, but it’s just as likely that it was a perfect storm of employee turnover and training forfeiture.

The employee turnover crisis in foodservice began nearly two decades ago. Like a casual game of ping-pong, the ball slowly tapped back and forth over the net between employee and employer. It was an issue in motion, but controllable. Then 10 years ago, then five years ago, then five months ago, the turnover game suddenly accelerated into faster and faster volleys, slices, lobs and serves. Retail competitors, joint-employer regulations, anemic unemployment rates and government agencies joined in. Now there are more than two players and more than one ball, and it’s flying so quickly from all directions and from all the players that the end game is unclear. No one can follow it anymore; no one knows how to win; but everyone knows this much: it can’t go on like this much longer.

The facts are that our industry averages 100-percent annual turnover among hourly teams, we are also inching toward a $15 per hour wage but not getting $15 per hour skill competencies or equivalencies in return. In order to maintain consistent levels of profitability in the face of rising wages, and lower skills, you have to increase sales, reduce costs or boost customer traffic. There’s only one strategic process that will achieve all three: Training. And the solution to lowering employee turnover? Increasing employee retention. That results from training combined with fair pay, reciprocal caring and sustaining a culture of kindness.

Either way, you’d better address the issue now, with all hands on deck. Employee turnover is the root of all evil, or at the very least, the cause of most problems in your business. Retention is a pay-me-now or pay-me-later proposition.

Jim Sullivan is a popular keynote speaker at leadership, franchisee and GM conferences worldwide. His book “Fundamentals” has sold over 175,000 copies. Get it at Amazon or Sullivision.com. You can follow Jim on LinkedIn, YouTube and Twitter @Sullivision.

From wobbly table fixes to herbal refrigerators, innovation was on display at NRA (Part 1)

FastCasual.com - Wed, 2017-05-24 12:17
More than 45,000 buyers in the restaurant industry hit Chicago this week to check out the thousands of products and services on display at the National Restaurant Association show.

Creating Value Through Strategic Capital Planning

Hotel Interactive - Wed, 2017-05-24 10:58
Asset Managers Urge Owners To Take Long-Term Approach On Properties

Best Western Hotels & Resorts Acquires Sweden Hotels

Hotel Interactive - Wed, 2017-05-24 10:44
PHOENIX-–Best Western Hotels & Resorts today announced the exciting addition of Sweden Hotels – one of Scandinavia’s largest hotel groups – ...

Kokua Hospitality Expands Executive Team With Two Female Hospitality Powerhouses

Hotel Interactive - Wed, 2017-05-24 09:05
SAN FRANCISCO–Kokua Hospitality, LLC, an independent hotel management company based in San Francisco, announces the addition of two dynamic hospitality veterans ...

Benchmark Names Jim Koutsky Director Of Finance For Stonewall Resort

Hotel Interactive - Wed, 2017-05-24 08:37
THE WOODLANDS (HOUSTON), TX--BENCHMARK®, a global hospitality company, has named Jim Koutsky director of finance for Stonewall Resort, a Benchmark Resorts ...

CONNECT Summit to tackle mobile technology's impact on restaurants, retail

FastCasual.com - Wed, 2017-05-24 06:00
Jayson Tipp, Nikki Baird among the keynote speakers for the fourth annual executive event.

Extended Stay America, Inc. And ESH Hospitality, Inc. Announce Election Of New Board Members

Hotel Interactive - Wed, 2017-05-24 05:25
CHARLOTTE, NC--Extended Stay America, Inc. and ESH Hospitality, Inc., (NYSE:STAY) (together, the “Company”), today announced that at the companies’ respective annual ...

Spicing up seafood

Nation's Restaurant News - Wed, 2017-05-24 04:00

Sponsored by Cholula Foodservice

Grilled fish platters and sandwiches, Baja fish tacos, ceviche and sushi burritos are hot — literally and figuratively — on restaurant menus today. Credit that to seafood’s flavorful and healthful reputation, and affinity for spicy condiments and global recipes. The tingle of heat on the palate pushes many a fish creation to a higher echelon of enjoyment.

However, before executing a spicy seafood creation, it is wise to consider the species, advises Sandy Ingber, executive chef of the Grand Central Oyster Bar and Restaurant in New York.

“How well fish goes with spiciness really depends on the type,” says Ingber, culinary helmsman of the iconic eatery, which opened in 1913. “Mild-flavored fish like flatfish, lemon sole and halibut are not that good with spicy stuff. Medium-flavored or stronger-flavored fish like grouper, mahi mahi, tuna and swordfish go much better with a spicy profile.”

Making it easy for customers to customize their food has made the Oyster Bar one of the largest users of Cholula Original Hot Sauce in New York, Ingber says. The 500-seat restaurant positions a bottle of Cholula on every table, going through five to 10 cases per week in that manner. A few years ago, Ingber switched from a competing brand of hot sauce to Cholula after running a taste test of the two sauces with his customers. “Hands down, my customers chose Cholula,” he says.

At the table, a few splashes of Cholula enhance many of the Oyster Bar’s seafood creations. It also enlivens fresh oysters without overwhelming their natural flavor, Ingber says. 

Customers also have it their way at Padaro Beach Grill in Carpinteria, Calif. A self-serve pump dispenser of Cholula Original Hot Sauce on the counter invites them to add zest to Baja fish tacos, shrimp tacos, grilled ahi tuna sandwiches and many other items. 

“Some people put it on the side, others pump it right on a fish taco,” says Will Ransone, owner of the oceanfront restaurant. “It gives an extra pop of flavor.” 

Along with the seafood items, Padaro Beach patrons also like to dress up French fries, nachos or burgers with Cholula, Ransone says. He estimates that 40 percent of them customize their meals in that manner.

In addition, Ransone has explored dipping sauces for special items made with other flavors of Cholula. The line also includes Chipotle, Green Pepper, Chile Lime, and Chile Garlic varieties. The customer reaction has been enthusiastic. “People’s palates are more adventurous today and many are interested in trying new things,” Ransone says.

 A glance at menus around the country reveals many more examples of spiced-up seafood. At Wildflower Bread Company, a Scottsdale, Ariz.-based chain of 14 fast-casual restaurants, a salmon sandwich with a lively flavor profile is in development. It features a fillet of grilled wild Alaskan salmon on a brioche roll with sweet shishito pepper aioli sparked by Cholula Original. It is topped with basil leaves, tomatoes and a sunny egg.

Poke, a marinated, raw fish salad of Hawaiian origin, often has a spicy component. It is one of a handful of items touted as “heating up” in the National Restaurant Association’s What’s Hot 2017 Culinary Forecast. Aloha Poke Co. in Chicago offers sashimi-grade ahi tuna or salmon over a bowl of rice or mixed greens punched up with add-ons like Spicy Aioli, Volcano Sauce (chile and ponzu mayo), wasabi and jalapeños.

In San Francisco, Sushirrito features Asian-Latin sushi burritos like the Sumo Crunch, a medley of shrimp tempura, surimi crab, shaved cabbage, cucumber, ginger guacamole and red tempura flakes with sriracha aioli. Sushi Burrito in Chicago raises the heat level with the Ganzo, a burrito with spicy salmon, spicy tuna, spicy crab salad, cream cheese, cucumber, avocado, spinach, sweet potato, jalapeño, hot sauce and unagi sauce. 

Also in vogue is ceviche, a Latin-inspired dish of citrus-marinated seafood. Leche de tigre — “tiger’s milk” in Spanish — is a piquant Peruvian ceviche marinade that includes hot chiles, lime and garlic. Raymi in New York City offers salmon ceviche with ginger, peanuts, sesame seeds, wontons and habanero chile. GT Fish and Oyster in Chicago menus ceviche with coconut, roasted brown rice and fresno chile.

There is no end in sight to the customer appetite for lively and innovative seafood applications. Chefs and restaurateurs can tap into the trend by leveraging boldly flavored sauces, like those of Cholula’s flavorful options mentioned above, both in recipes and as condiments for customizing dishes at the table.

Retail woes hit Cracker Barrel

Nation's Restaurant News - Tue, 2017-05-23 19:31

Not even the rocking chairs and knickknacks at Cracker Barrel Old Country Store Inc. are immune to the disease spreading through the retail sector.

The Lebanon, Tenn.-based chain of roadside family-dining restaurants, which includes retail areas, said on Tuesday that same-store retail sales fell 4.7 percent in the third quarter ended April 28.

That was considerably worse than Cracker Barrel’s restaurant sales. Same-store restaurant sales fell 0.4 percent in the quarter, with traffic declining 2.1 percent.

Speaking on the company’s earnings call Tuesday morning, Cracker Barrel executives suggested that some of the same problems afflicting casual dining — notably heavy discounting — are far worse in the retail world.

“As much as we believe that discounting in the restaurant business is significant, it’s even more so in the retail industry right now,” Cracker Barrel CEO Sandra Cochran said. “I would characterize the environment as even more highly competitive.”

Cracker Barrel’s retail areas sell everything from doormats to hammocks to the rocking chairs along the restaurants’ porches, where customers sit while they wait for a table. 

The company makes most of its money from its restaurants, but the retail area is a sizable portion of the business. So far this year, 20.3 percent of the company’s revenue has come from its retail business, down from 20.9 percent a year ago. 

Retail is a tough business to be in these days. With heavy competition from Amazon.com and other online companies, retailers have been shutting their doors and marking down prices in a bid to win back customers. Hundreds of retail locations have closed since January. 

Cochran said on Cracker Barrel’s earnings call that customers have grown accustomed to the markdowns they see at mall-based retailers, and Cracker Barrel hasn’t done a good enough job of showing off its lower cost items.

She said the company is working to “highlight value on the merchandise floor.” For instance, she said Cracker Barrel is more clearly marking that all jewelry on a display is the same price.

Cochran said the company is “aggressively looking at inventory levels and, where they could, trimming them.” 

Still, for all the retail woes, Cracker Barrel is still a restaurant chain. The chain’s same-store sales decline reflects similar problems at other family-dining chains, such as IHOP and Denny’s.

The results were “below our internal projections,” Cochran said. However, the company hopes that national marketing and a change to the chain’s 1,600 billboards along highways nationwide, can generate incremental sales and traffic.

Still, the company expects a continued challenging environment and anticipates same-store sales to be flat to up 0.5 percent for the full year.

Cochran said the restaurant environment is “increasingly competitive,” both at quick-service restaurants, with which Cracker Barrel competes at breakfast, and at casual-dining concepts. Many of these companies are pushing value.

Cochran said Cracker Barrel plans to emphasize more of its value offerings to improve sales in relation to competitors.

Executives did have some success with off-premise business, including a Holiday Heat and Serve program, with a family-sized meal for 10 guests available for pickup. Executives said the program generated traffic and favorable sales.

Cochran also cited Cracker Barrel’s online wait list, enabling customers to go online to join the wait list, something numerous other casual dining chains are doing.

She said the online wait list shouldn’t hurt the chain’s retail sales because most customers buy retail items after they visit.

“This allows them to come in and eat, and gives them time at the end to visit and shop at our stores,” Cochran said. “There’s been no negative impact on retail related to online wait lists.” 

Contact Jonathan Maze at jonathan.maze@penton.com

Follow him on Twitter: @jonathanmaze