Private investment firm Mill Road Capital LP said Monday that it will buy the owner of Fresh Mexican Grill, Rubio's Restaurants Inc., for about $91 million.
The deal prices Rubio's outstanding stock at $8.70 per share, which is a 14 percent premium to the company's Friday closing stock price of $7.66. Mill Road currently owns about 5 percent of the restaurant operator's shares.
The board unanimously approved the acquisition, which is expected to close in the third quarter.
Rubio's said in October that it was looking into its strategic options, including a potential sale of the company.
Shares of Rubio's Restaurants rose 84 cents, or 11 percent, to $8.50 and reached a 52-week high of $8.60 in earlier trading Monday.
In a segment crowded by competition, these are the 10 people who matter most. By Ellen Koteff
Never before has innovation been as essential to running a successful quick-serve restaurant concept.
During what has turned out to be the most daunting recession in our nation’s history, innovation has been the driving force for the concepts that are beating the odds.
Often, the inspiration for innovation comes from the top, and that certainly holds true for the following leaders, who were selected from a wide-ranging list of successful operators.
These chain executives are making a tremendous difference in the quick-service industry, both inside and outside of their own brands.
They inspire their thousands of employees to improve products, services, or operations, and, as a result, are making a difference in their customers’ lives.
Though many operators have picked up the innovator baton since the recession began back in 2007, these industry stalwarts have made innovation a priority for years. And they wouldn’t have it any other way.
David Novak has been blazing innovative trails for more than 25 years. Now that journey has him taking on the world.
As chairman and CEO of Yum! Brands Inc., parent of such brands as Taco Bell, KFC, and Pizza Hut, Novak says his company’s mission is to be “The Defining Global Company that Feeds the World.”
“I view our 37,000 restaurants—in 100 countries—as laboratories where we can experiment, learn, and share best practices on a global scale,” he says.
“Our scale is an advantage in so many ways. In just three years, our World Hunger Relief effort has generated massive awareness, volunteerism, and funds for the United Nations World Food Programme (WFP) and other hunger relief organizations saving millions of lives.” To date the initiative has raised $60 million for WFP.
That’s a tall order for a marketing major from the University of Missouri.
During his 20-year tenure with the company, including 10 as its chief, Novak has more firsts than even he can count. But much of his success is rooted in his ability to inspire his team members to bring their A-game.
“In our culture, we believe that everyone can make a difference regardless of where they are or what function they work for. Some of our greatest innovations come from our franchisees,” Novak says.
“My constant challenge to everyone is to ask, ‘What can I do now to get breakthrough results in my piece of Yum?’”
Among the hundreds of innovations during Novak’s run is the iCHING internal business network, which allows employees worldwide to collaborate and share best practices; the Achieving Breakthrough Results high-impact leadership training; an aggressive international expansion program; and such popular menu roll outs as the Kentucky Grilled Chicken product line.
“Building knowhow is one of our How We Win Together principles that defines our culture,” he says. “It’s a key to innovation.”
“Breakthroughs come when we get people with knowledge thinking creatively. I also like to practice ‘pattern thinking’: the ability to make connections, pick up on consumer insights or trends, and apply what’s going on in the world to our business.”
And that business has been moving full steam ahead. Last year marked the ninth consecutive year that Yum opened more than 1,000 restaurants outside the U.S.
The company is ranked No. 239 on the Fortune 500 list, with revenues of nearly $11 billion in 2009.
And that’s the kind of innovation every stakeholder likes to see.
Jeff Harvey inhabits a world where innovation is the rule, not the exception. Charged with bringing profitability and long-term growth strategies to Burgerville, the 39-unit gourmet burger chain based in Vancouver, Washington, the affable CEO has brought several innovations to the chain since joining the company in 2004. Though it already had a solid reputation for embracing sustainable values, under Harvey’s leadership it continues to push that envelope by increasing its base of local suppliers and offering more seasonal items.
Since its inception in 1961, the company has always maintained a commitment to fresh, local, and sustainable offerings through partnerships with local businesses, farms, and producers. It is a process the CEO wholeheartedly embraces and continues to grow.
In 2009 he introduced beer and wine, as well as monthly specials inspired by a fresh, seasonal ingredient.
Harvey also opened up the drive thrus to bicycles and introduced a mobile food truck, the Nomad.
“The Nomad food truck came from seeing a lot of well-trained chefs opening up their own food carts,” Harvey says. “I was struck by the vision of opportunity they saw, and it started me thinking about what street food meant to the rest of the world. I saw a huge loyalty among the patrons.”
Harvey also introduced a pilot program that lets customers know the nutritional value of their order when they receive the receipt.
In addition to overseeing the chain’s many food-related innovations, Harvey has been responsible for “greening” Burgerville’s restaurants, making them more energy efficient to operate.
Converting used trans fat–free cooking oil into biodiesel fuel, expanding its leadership development training, implementing recycling and composting programs, creating an affordable employee health care program, and encouraging the company-wide use of wind power are just some of the initiatives that have left competitors scratching their heads.
Harvey, whose background is in electrical engineering, is a self-described “information hound” and a “a lifelong student of transformation.”
“We’ve all had experience with incremental change, but transformational change is something very different. At Burgerville we believe your best strategy is an innovative strategy.”
It’s a safe bet that Harvey already is working on the next chapter in Burgerville’s “transformational change.” And if you’re wondering where his next innovation might come from, wonder no more.
“I am really intrigued these days with packaging, and I have been paying close attention to delivery models, or how you get the food to the guests.”
A true entrepreneur since the age of 17, Fred DeLuca doesn’t shy away from innovation. As cofounder and president of Milford, Connecticut–based Subway, DeLuca isn’t afraid to take risks or listen to the advice of others.
“The owners of our 32,000 stores share a tremendous entrepreneurial spirit, so innovation comes naturally to them,” DeLuca says. “So we’ve built local option capability into the Subway system. That allows many different owners the ability to experiment simultaneously.”
And many of those experiments have hit pay dirt.
“The ideas are constantly flowing, and some of them have had lasting effects for the entire chain,” he says. “For instance, Subway’s ‘$5 Footlong’ campaign was started by a franchisee, and within a year it became a national promotion.”
Since 1965, Subway has had a healthier menu than many other quick-serve operations. Through the years DeLuca further established that healthy halo with marketing efforts such as the Jared Fogle commercials, which touted Fogle’s 245-pound weight loss from eating a six-inch Subway sandwich at every meal.
This year’s tie-in with the Biggest Loser television show further solidifies the sandwich chain’s marriage with a healthful image. The chain is paying $1,000 for every pound contestant Shay Sorrells loses.
Now with more than 32,400 stores in 91 countries, Subway continues to roll out new initiatives to keep up with a demanding marketplace.
A Buffalo Chicken submarine sandwich, with only seven grams of fat, was introduced last year, as well as the company’s new mobile site, which has a restaurant locator with a map function.
The brand also joined Energy Star, which is a joint program of the U.S. Environmental Protection Agency and U.S. Department of Energy, encouraging businesses and homes to conserve energy. To that end, Subway relocated several distribution centers next to vendor manufacturers, switched to energy-saving light bulbs, and made its napkins from 100 percent recycled materials.
The innovations keep coming from inside the franchisee community, and DeLuca couldn’t be more proud.
“A franchisee developed one of our newest and most unique stores, which is now about 100 feet in the air in the Freedom Tower construction site at the World Trade Center,” DeLuca says. “That store moves 15 feet higher every few weeks as the steelwork is put in place. That innovation keeps the food close to the construction workers as the building is built, saving time and money.
“Another store was built in a church in Buffalo, where the pastor uses the store to provide job training for local youngsters.”
In Sue Morelli’s world, extensive customer research is the catalyst for all innovation. Morelli, president and CEO of Boston-based Au Bon Pain since 2005, has systematically put her stamp on the bakery café by paying close attention to others.
“We do a lot of guest research and, in fact, just finished with a pretty major focus group of more than 50 hours with our heavy users,” Morelli says.
During her presidency, Au Bon Pain introduced a new product line called Portions, which features a selection of 14 dishes made fresh daily, packaged individually. Each one is 200 calories or less. The Portions line focuses on vegetables and proteins as the main ingredients, retailing for $2.99 (without meat) or $3.49 (with meat).
“Innovation is a great word, and it’s complex,” Morelli says. “It has a lot of components: consumer trends, culinary savvy, and talent. And at the end of the day it has to be grounded by product profitability, the economics have to make sense.”
According to Morelli, another area heavily impacted by research is speed of service. Au Bon Pain recently underwent a major remodeling program, introducing a design that allows customers to serve themselves.
As a result of the recession, Morelli says consumers are doing more with less. In an effort to capitalize on the new reality, she is pushing the chain to offer “better basic foods that are affordable, fresh, and nutritious and served with speed and warmth.”
The 240-unit Au Bon Pain, which means place of good bread, is poised to grow both domestically and internationally.
“We keep a close watch on all the competitors, from fine dining to quick service,” she says. “Our executive chef, Tommy John, has the power to drive the concept. He has an extraordinary pulse on the consumer palate.”
The company, which was founded in 1976, rolled out a new café called the Bistro in 2006 and has a wide range of real estate applications to offer. In addition, the chain was recognized for its use of touchscreen terminals that offer nutritional information to the guests.
“In our business it is just so easy to put stuff out there and test it,” Morelli says. “Patrons are looking for higher quality at the same speed they used to get quick service, and they have a real good sense of what is real quality.”
Few would deny that Howard Schultz is singularly responsible for what is best described as a coffee revolution. As chairman and CEO of Starbucks, Schultz has taken his desire to create a company with soul and ridden the innovative waves through many highs and lows.
Schultz, who had ceased overseeing the company as CEO for eight years, was called back into service in 2008.
In Starbucks’ latest wave of innovation, he and his creative team have taken an old favorite, instant coffee, and repackaged it. And it has arrived with significant fanfare.
“We have worked for nearly 20 years to develop an instant coffee that offers customers the quality and taste they expect from fresh-brewed Starbucks coffee, and a unique and convenient way for them to enjoy it,” Schultz says. “This is a big move for us—the opportunity to reinvent a category, create new rituals, and grow our customer base is substantial.”
Since joining Starbucks in 1982 and buying it in 1987, Schultz has overseen and inspired numerous innovations, not the least of which was creating a warm atmosphere that customers want to visit time and again.
Serving the first latte in 1984 introduced many Americans to espresso beverages. In 1987, FlavorLock technology allowed Starbucks to ship freshly roasted coffee to customers far away, opening up international markets.
Then, in 1996, Starbucks moved popular beverages to grocery shelves around the world. Along the way music infused the Starbucks experience, and several noncoffee items were offered for sale.
It also can be argued that the chain created a whole new vocabulary for ordering coffee and gave customers an entire language by mastering the Starbucks menu. Tall nonfat latte, no foam, anyone?
In the foodservice industry, Starbucks distinguished itself by being one of the first companies to offer employees working at least 20 hours per week comprehensive health coverage and an employee stock-option plan.
Those moves contributed to one of the lowest turnover rates in the industry and also improved employee morale.
Through it all Starbucks continues to prosper. In the first quarter of fiscal 2010, ended December 27, 2009, Starbucks reported $2.7 billion in revenue, a 4 percent increase over the same quarter a year earlier. Store unit count now numbers more than 11,000.
Despite these many successes, Schultz continues to push his team of more than 142,000 partners forward.
“Starbucks is known around the world for not only serving great coffee, but for continually innovating and listening to our customers along the way,” says Dub Hay, Starbucks’ senior vice president of coffee and tea. “Pushing the limits of what others think will work is nothing new for Starbucks.
“We believe the market is ripe for this innovation—we will continue our journey of listening to consumer’s needs, and providing them with great-tasting solutions.”
Stan Sheetz may straddle the fence between convenience stores and foodservice, but when it comes to innovation, he is strictly out in front. The CEO and president of the privately held Sheetz Inc. makes it his business to stay one step ahead of his one million customers each day.
“I think innovation should be driven by the customer and what they need,” Sheetz says. “Secondly, it should be driven by what we as a company need to efficiently serve the customer. That’s where the genesis of our technology has come from.”
Based in Altoona, Pennsylvania, Sheetz operates 368 stores in six states and maintains annual revenues north of $4.4 billion.
In 1994, Sheetz wondered if his technology vendor could develop touchscreen software that would allow the customer to select made-to-order menu items that were illustrated with pictures.
“Within a month we had a working prototype, and after we installed the first touchscreen our volume went up 12 percent immediately,” he says. Some of this bump in sales Sheetz attributes to customers who couldn’t read or write.
Sheetz also was one of the first retailers to offer pay-at-the-pump gas, an innovation that has been widely imitated. More recently, Sheetz launched a state-of-the-art, $46 million, 140,000-square-foot Sheetz Bros. Kitchen that delivers fresh, ready-to-eat products to all of the company’s stores.
“This really lets us control waste, and every store gets a delivery every single day of the year, including Christmas,” Sheetz says.
“From the standpoint of efficiency, this system allows us to automatically reorder those food products.” Consequently, Sheetz says, the company’s instock percentage is 99.97.
Another recent change is the introduction of frequent-buyer cards, which supply the company with the buying habits of their customers.
“These cards allow us to monitor what our customers are buying, and how frequently they purchase it. This then lets us send them coupons for the things we think they will be interested in,” Sheetz says.
“It allows for individual customer direct marketing.”
Also on the drawing boards for Sheetz is an app for the iPhone, which would tell a customer where the nearest Sheetz location is, as well as continuing tests on drive thrus.
It appears the search for new technologies to improve the customer experience at Sheetz is here to stay, and in all likelihood, so is innovation.
It takes a lot more than hard work and intelligence to wrestle innovation from a company that is more than 50 years old and the size of McDonald’s, but Jim Skinner has done that and more during his six-year tenure as CEO.
Skinner’s winning strategy, christened Plan to Win, focused all team members’ attention on improving service, food, and ambience and not necessarily on opening new stores.
“Every function that we have is best in class,” Skinner says. “That’s what it means to be an industry leader. I’ve only had two jobs, a lieutenant in the United States Navy and McDonald’s, both extraordinary organizations, both best in class.”
Since taking over the burger giant, which now has 32,000 restaurants worldwide, Skinner has restructured the company, redesigned the restaurants, and revolutionized the menu. Aside from the addition of premium coffee offerings, McDonald’s menu also features healthier choices such as Fruit & Walnut Salads and Chicken Wraps. Skinner also earns high marks for offering better value and improved marketing.
Aside from reducing energy output and working with suppliers to establish healthier environmental operations, Skinner puts a lot of muscle behind talent management and leadership development. High-potential employees are put through a leadership institute, and diversity is an important value at the company.
“There always was a true indication that McDonald’s takes care of its people,” Skinner says. “I knew that Fred [Turner], Mike [Quinlan], and the other guys who were running the company, when they got up in the morning, they were concerned about me. We don’t take that lightly, so all of our people practice it.”
Last year, Skinner received the CEO of the Year award from Chief Executive magazine. “He has been respectful of McDonald’s legacy while engineering an inspirational strategic leadership that reinvented the industry,” says J.P. Donlon, editor in chief of the magazine.
The chain, which operates in more than 100 countries, is about 80 percent owned and operated by franchisees and recently was anointed the “best run major international company in the world” by Mad Money’s Jim Cramer.
Since Skinner took over the helm of the company in 2004, the company’s stock price has more than doubled.
“I take it personally when someone says, ‘Well, they’re the industry leaders now, but will it last?’ We don’t hear that too much anymore,” Skinner says.
Pizza Patrón emerged on the restaurant scene in 1986 with an innovative bent in its first year of operation, and a big one at that. Founder and CEO Antonio Swad decided from the get go that Pizza Patrón would become the pizza restaurant for the Hispanic community. So much so that all store employees are required to speak both Spanish and English.
“What we have done at Patrón is very different than what other restaurant companies have done,” Swad says. “It is not often that restaurants define their own business models by ethnicity. Companies define their customer base by income or unique flavor concepts. We basically took a product that was widely consumed and brought it to the Hispanic markets.”
Since then Swad has overseen myriad innovations at Pizza Patrón, and along the way founded and sold another highly successful restaurant concept, Wingstop.
“I think he’s a genius,” says Le Madeleine’s COO, Phil Costner. “Before any of us caught wind of the huge impact of the Hispanic consumer, Antonio was forever solidifying his place.”
In 2009, while much of the industry was enduring plummeting sales, Pizza Patrón enjoyed four quarters of comp store sales gains, with the largest being an 11 percent bump.
Some of the other innovations that Swad has overseen include the premiere of the Quick Service Pizza outlet, which was the concept’s first standalone location and features three distinct points of service for customers: a drive thru with a pick-up window, a walk-up order window, and a colorful lobby.
A new interior design approach for the pizza chain was also rolled out last year after more than a year of research and market testing. The complete top-to-bottom revamp of the store finish-out was designed to transform the atmosphere into a warmer, more inviting food showcase. In addition, an online marketing platform was launched, a completely redesigned Web site, a new Latin-themed concessions design, a record-breaking “recession relief” campaign, and several new product roll outs.
The brand also replaced its original tagline with “Latin Life, Enjoy” this year.
Moving ahead, Swad is not satisfied to rest on his laurels. He’s working on new innovations to move the company forward. “We are developing a line of frozen specialty pizzas that can be sold at grocery stores in the Hispanic communities,” Swad says. “The bigger the brand, the more successful we will be.”
In less than three years as president of Popeyes Louisiana Kitchen, Cheryl Bachelder
In 2009, Popeyes outperformed both the chicken quick-serve category and the quick-service segment as a whole with a sales increase. In contrast, the quick-service category was down 1.1 percent, while chicken chains were down 5.4 percent.
GA_googleFillSlot("QSRMidpage234x60"); GA_googleCreateDomIframe('google_ads_div_QSRMidpage234x60' ,'QSRMidpage234x60'); In her first months on the job, Bachelder and her veteran executive team took a long, hard look at the brand and faced what she likes to call “the brutal reality.”
“At the outset of 2008, Popeyes was faced with some very bleak statistics that were impossible to ignore, the worst of which was seven consecutive years of guest traffic declines,” Bachelder says. “In addition, our speed of service was ranked at the bottom of a major quick-service study.”
In an effort to speed up service, headsets and timers were installed in every restaurant, and to improve location choices the chain instituted new, state-of-the art real estate site modeling tools. Popeyes also made the bold move to consolidate seven regional advertising agencies and found a lot of cost savings when it signed with a single company.
In addition, the Atlanta-based chain, which has more than 1,900 units in 44 states and 27 countries, also introduced Annie, a fictional Popeyes chef who serves as the brand’s ambassador.
On the culinary front there have been several innovative moves, including the roll out of three menu platforms—Popeyes Big Easys, the Louisiana Travelers, and Popeyes Big Deals. Bachelder also engineered the launch of the Bonafide brand, which showcases its bone-in chicken, which is freshly prepared and marinated for 12 hours in Louisiana seasonings, then hand-battered.
And as Bachelder is proud to point out, one of the innovations that is moving the needle significantly is the Guest Experience Monitor, which allows guests to use their phones and participate
in an interactive survey while the experience is fresh.
“By listening to our guests and making the needed improvements, we raised our ‘delighted’ ratings from consumers by 17 percentage points in 2009,” Bachelder says.
Blessed with the spirit of an entrepreneur, the passion of an artist, and the attention to detail that can only come from a place of real confidence, Chipotle Mexican Grill’s founder, CEO, and chairman, Steve Ells, can innovate with the best of them.
Since launching the fast-casual concept in 1983, Ells has gone from one 850-square-foot Denver unit to changing the way America eats, one burrito at a time.
As a Culinary Institute of America graduate, Ells knows food and all its complexities, but that doesn’t stop him from keeping the menu simple, and the food as natural as possible. Chipotle’s Food With Integrity mission guides every purchase.
“We have visited farms with the leadership teams, restaurant managers, and area managers,” Ells says in a 2005 interview with QSR. “It’s a matter of getting out there and sharing the stories about Food With Integrity, and why it’s important, not only for the Chipotle brand, but also for animal husbandry, the environment, and ultimately, for great-tasting food.”
Over the years, Ells has been consistently recognized as a restaurant operator who doesn’t necessarily do things as they have been done before. Now boasting revenues approaching $1.5 billion, more than 900 units, and 24,000 employees, Chipotle continues to innovate and surprise.
In 2009 the chain began testing a low-roller menu, which offers smaller portions and prices, as well as a children’s menu. Likewise, Chipotle introduced the vegan Garden Blend burrito, containing a marinated meat alternative that is plant-based.
Paying close attention to the environment is also a mission at Chipotle and on display at the green restaurant in Gurnee, Illinois. The simply designed restaurant features an onsite wind turbine, among other energy-saving features.
“The atmosphere says something about the brand beyond just decoration. It’s architectural in nature. In our case, it uses very simple materials like plywood, concrete, and steel. Through architecture and good design you elevate these materials to something extraordinary,” Ells says.
Ells’ creative bent contributes heavily to the myriad innovations at Chipotle, but his attention to detail is equally a factor.
“Perhaps it’s because we’ve stayed focused on this simple operations system that we’ve been able to continually refine and improve details along the way,” Ells says.
“Our dedication to making the small details better, and some of the not-so-small details like where food comes from, have contributed to Chipotle’s success.” has introduced innovations in virtually every aspect of the chain’s operations, and she’s only just begun. “Our first step was to freshen our face to the customer with a spanking new name for ourselves: Popeyes Louisiana Kitchen," Bachelder says. “The name captures the essence of who we are.” New brand graphics featuring “dancing letters” also were introduced when the name was adopted.
NEW YORK--Yum Brands Inc.'s KFC brand is plotting a deeper move into France, hoping that the Colonel's recipe will strike the taste of a broader swath of French consumers.
This week, KFC launched its first round of national television advertisements in France as it gets set to open its 100th store there, giving it the scale needed for a broad marketing push. KFC plans to have 300 stores in France by 2015, and sees a possible tenfold increase over time.
"One day I'd like to have over 1,000 stores here, though we're going to take it 100 by 100" at a time, Ivan Schofield, general manager of KFC France, said in an interview.
Yum, the world's largest restaurant operator with more than 37,000 locations, is one of the largest retail developers in the world, a key strategy underpinning its growth. With the U.S. fast-food market mature, China has become by far Yum's most crucial growth market, and the company is also starting a major expansion in India to open 1,000 stores.
Even though these two fast-growing markets dwarf France in terms of population, Yum executives see KFC's France business as an anchor for what could be a broader expansion in continental Europe. KFC's European footprint is under 800 restaurants, lagging behind burger chain McDonald's Corp., with about 5,600.
"It's their most important market in Europe," Stifel Nicolaus restaurant analyst Steve West said. "Obviously, China's the most important market, but there's a lot of growth opportunity for Yum in France."
Fast-food competition remains less intense in France, where McDonald's and local operator Quick dominate the market.
McDonald's, which was seen as an American invasion when the first store opened in 1979, worked hard to woo French diners by tailoring its menu to local tastes. The company sells beer as well as soft drinks, and it recently introduced a version of the macaroon, a national culinary institution. Last year, it opened a restaurant in the food court of the Carrousel du Louvre, the shopping center under the famous Parisian museum, raising some eyebrows. The chain has grown to about 1,100 stores in France.
Other American companies have had less success or moved more cautiously. Burger KingStarbucks Inc., the U.S. coffee chain, opened its first outlet in France in 2004 and today has about 50 locations—a number dwarfed by its 650 in the U.K.
In addition to relatively tame competition, France has another major appeal: It is one of the largest dining-out markets in Europe. Many French consumers still frequent locally owned, corner restaurants, but fast food has made headway as diners cut their lunchtime down to 30 minutes or so, Mr. Schofield said. France's fast-food customers also tend to prefer full meals with desserts, rather than just sandwiches, which bring the average sale to between €6 and €8 (about $8 to $10.50) at KFC.
As a result, KFCs in France make more money than anywhere else in the world. Stores on average reach sales of $4 million a year, about three times that of the average KFC elsewhere in the world.
KFC initially got off to a meek start in France. Its former parent PepsiCo Inc. opened just seven locations 1992 before abandoning the effort to expand elsewhere.
Yum came back to France in 2001, as McDonald's started investing in its stores there. KFC found itself an underdog, and positioned itself as a challenger brand. KFC tailored its menu to local preferences, introducing items like the Boxmaster, chicken and other fillings wrapped in a tortilla, and Brazer, a grilled line of products.
Yum has invested more than $300 million in its France business since 2001, and is now profitable, although Mr. Schofield wouldn't say when it tilted into the black. Though Yum owns and runs most of the stores here, by 2015 it wants to shift more of the development burden to franchisees. By that time, Yum thinks annual profits in France will reach $100 million. Corp., which challenges McDonald's in many global markets, withdrew from France in 1997. It said at the time that its 39 restaurants didn't give it a strong enough presence and that it wasn't sufficiently profitable.
—By PAUL ZIOBRO: Javier Espinoza in London contributed to this article.
Americans are returning to one of life's simple pleasures—dining out.
From Brinker International Inc. to McDonald's Corp. to Starbucks Corp., restaurant chains are serving more customers. That's boosting bottom lines and increasing confidence that the worst is firmly in the rear-view mirror.
"Consumers are more confident today, dramatically more confident today then they were especially one year ago," Chipotle Mexican Grill Inc. co-Chief Executive Montgomery Moran said on a conference call Wednesday. "It looks like the consumer is out spending again."
Chipotle's first-quarter profit rose 49%, with sales up 16% from a year earlier, including new restaurants, and increased customer visits. Former parent McDonald's posted a first-quarter earnings gain of 11% on revenue that rose 10%, with U.S. sales pitching in with a 1.5% gain over a year ago. Starbucks said more customers were coming through its doors for the first time in more than two years, pushing up sales at stores open a year by 7% over last year.
Panera Bread Co. this week said it expects to report first quarter sales at company-owned stores open at least a year rose 10%. It also lifted its forecast for company-owned restaurants this year to between a 6.5% and 7.5% comparable sales gain.r to between a 6.5% and 7.5% comparable-sales gain.
Jeremy Karlin, an attorney in Galesburg, Ill., said he and his wife have been dining out less frequently, and favoring "more economical" restaurants when they do go out. "We can justify ordering what we want because we go out less," he said.
Sales at quick-serve and family-style restaurants open at least a year have been up four of the past six weeks, research firm NPD Group reported, something that hasn't happened in 11 months. Still, the firm expects the industry will remain weak for the next seven months.
Restaurants haven't been able to raise prices. Instead, they have developed new, lower-cost items or reduced costs by substituting lower-priced ingredients in their recipes.
McDonald's Chief Executive Jim Skinner said Wednesday that he doesn't expect to achieve sales gains by raising prices, given weak jobs creation. "I don't believe that the spending levels are going to get back to pre-recession," Mr. Skinner said, "until people have some confidence over the fact that they're going to have a place to go to work and put food on the table at home or away from home."
At Yum Brands Inc., owner of KFC and Pizza Hut, lower prices have become a way of life. First-quarter sales at Pizza Hut were driven by a successful promotion, said CEO David Novak. "We were simply too expensive and now we're working on ways to sustain this value," he told analysts last week.
Chipotle finance chief John Hartung said the restaurant hasn't had any menu price rises "for over a year," and while he expects food and labor costs to creep up this year, "I think we'll be patient before we rush into any price increase," he added.
Consumer food prices were up only 0.2% last month even as producer prices rose 2.4%. That means restaurants aren't passing along their higher costs.
Ben Rhodes, who runs Club 41 in St. Augustine, Ill., said his March and April business rose about 7% compared with last year after "a pretty slow winter." Diners "seem to be a little more budget aware" these days, he said. "Midpriced steaks, like sirloins and flat irons, are pulling customers off of filets and T-bones," Mr. Rhodes said.
Still, higher beef prices are a concern. "I'm nervous about raising prices right now. All that said, I'm optimistic about the year," he added.
On many weeknights last year, in the depths of the recession, Tursi’s Latin King restaurant in Des Moines closed one of its three dining rooms and pared its kitchen to a skeleton crew.
Now, all three rooms are open on most nights, and the kitchen is busy again.
“These last couple of months are a lot better than they were last year,” said Robert James Tursi, whose family owns the restaurant, an upscale establishment that specializes in steaks and Italian food. Food sales were about 10 percent higher in February and March than they were during the same months a year ago, he said.
Restaurants all over the country are beginning to see signs of a potential recovery after a dismal 2009. Sales at some restaurants have risen in the last few months, and the industry has hired thousands of additional workers.
“There’s no question about this,” said Harry Balzer, chief industry analyst at the NPD Group, a market research firm that tracks sales at 47 restaurant chains with a total of 103,000 outlets. “There’s a recovery going on.”
Mr. Balzer said that March sales at restaurants open for at least a year were up 1 percent compared with March of last year. While that might not seem like much, it broke a string of 10 months of negative sales. He cautioned that while the sales trends were uneven across the industry, almost half the chains he tracks — mostly fast-food and family dining restaurants like Denny’s — had begun showing gains.
Still, many restaurant owners and executives said they expected the rebound to be slow and halting.
“Right now, we’re starting to see a few more people come in,” said Larry Reinstein, chief executive of Fresh City, a chain that sells sandwiches, salads, burritos and stir fry dishes at 18 outlets in the Northeast. But he quickly added, “The typical consumer is still cautious of what they’re spending.”
Echoing other industry executives, Mr. Reinstein said that as long as overall unemployment remained high, restaurants would struggle.
John S. Glass, an analyst with Morgan Stanley, said the uptick in restaurant sales paralleled recent gains in retail sales, which also had been hailed as a sign of returning consumer confidence.
“Going out to eat is an emotional decision, not a considered purchase,” Mr. Glass said. “It’s not like thinking about a new car or an appliance. It’s, ‘I feel better, let’s go out and treat ourselves.’ It’s probably a combination of the end of a long winter and the end of a long recession.”
And for the entire restaurant industry, the recession has been long indeed.
Total industry sales were down 2.9 percent last year in inflation-adjusted terms, according to Hudson Riehle, senior vice president for research at the National Restaurant Association. The year before they fell 1.2 percent. The association predicts a third year of decline this year, although the projected drop is just 0.1 percent. Mr. Riehle said that the industry had never before experienced even two consecutive years of real sales declines, making the current contraction unprecedented.
But now, restaurant owners are clearly feeling optimistic enough to do some hiring. In the first three months of 2010, the restaurant and food service industry added 42,500 jobs, adjusted for typical seasonal hiring patterns, according to the Bureau of Labor Statistics. Even so, Mr. Riehle noted that the industry still had 251,000 fewer jobs than it did in December 2007, when the recession began.
Several major restaurant companies will report first-quarter financial results this month, offering more insight into the health of the industry.
On Wednesday, Yum Brands, the parent company of Pizza Hut, KFC and Taco Bell, reported that sales at Pizza Hut rose 5 percent in the first three months of the year, compared with sales at the same stores a year ago, while same-store sales fell 2 percent at Taco Bell and 4 percent at KFC.
The increase in Pizza Hut sales was partly the result of a heavily marketed promotion offering any pizza for $10, the company said.
“We’re still in a challenging environment,” said Jonathan Blum, a Yum spokesman. But he said the results were an improvement over the last quarter of 2009, when sales fell 12 percent at Pizza Hut, 8 percent at KFC and 5 percent at Taco Bell.
“We’re trending in the right direction,” he said.
Malcolm M. Knapp, an industry analyst, said that even higher-price restaurants like steakhouses recently began showing some improvement.
That would be welcome news to white-tablecloth chains like Ruth’s Chris Steak House. Although Ruth’s Chris has not yet reported its first-quarter financial results, the company reported a sales decline of 19.5 percent last year, on the heels of a 10 percent drop in 2008.
Mr. Knapp said he had also seen an encouraging trend in sales at casual dining restaurants, a category that includes chains like Applebee’s, Chili’s and T.G.I. Friday’s. Monthly sales are still below year-ago levels, he said, but the declines are moderating.
Among fast-food restaurants, Sonic was hit especially hard during the recession. The drive-in burger chain, known for its roller-skating car hops, said sales at its approximately 3,500 stores declined 13 percent from December through February, compared with the same period a year ago. The chain said the drop was partly caused by harsh winter weather, but the ailing economy also played a major role.
Buddy McClain, who owns 71 Sonic stores in the South, said that while sales were not growing, they had finally stopped falling in March at his Mississippi and Alabama outlets.
But in Florida, a state hit hard by the recession and the collapse of the real estate market, year-to-year sales comparisons have been negative for 17 consecutive months. In March, he said, sales at his Florida stores were 15 percent below the already reduced levels of a year ago.
“Everybody’s working harder and making less money, which is not what we call the American way,” said Mr. McClain, who has owned Sonic franchises for 32 years. “We’ve been through four so-called recessions since I’ve been in Sonic, and nothing has been near to this.”
By WILLIAM NEUMAN
Minneapolis' Oceanaire Inc., the high-end seafood restaurant chain that tumbled into insolvency last year, will live on to ply its delicacies of the deep -- but under a new owner, Houston-based Landry's Restaurants Inc.
Oceanaire filed for Chapter 11 bankruptcy reorganization in July, one of scores of restaurant chains felled by a recession that bit deep into consumers' discretionary spending. Oceanaire closed four restaurants, but its other 12 outlets remained open, as is custom in Chapter 11, while the company looked for financial relief.
That relief is expected to come in a $24 million deal with Landry's, a publicly traded company with a stable of over 20 restaurant brands, including Rainforest Cafe, a concept also born in Minnesota. The deal needs federal bankruptcy court approval, which could come as early as next week.
The sale would provide $6.6 million for Oceanaire's creditors, while Landry's would assume about $17 million in Oceanaire debt, said Terry Ryan, Oceanaire's chief executive.
Oceanaire started as a single Minneapolis outlet in 1998. It was part of Parasole Restaurant Holdings -- progenitor of such other well-known Twin Cities restaurant concepts as Manny's Steakhouse and Chino Latino -- until it was spun off in 2001.
Oceanaire's majority owner has been New York-based Clarion Capital Partners, though it's now poised to lose its equity, Ryan said, a common occurrence in a Chapter 11 bankruptcy.
Oceanaire has been one of the Twin Cities' most successful restaurant exports in recent years. The company still operates in nine states, according to its website. The restaurants are built to feel like great seafood supper clubs of the 1930s and 1940s.
"It's a very well-operated business that got caught in some unfortunate leases and some bad economic times," said Tilman Fertitta, Landry's chief executive. "We love the fresh seafood aspect. We feel it fits in with our restaurants."
Landry's operates 174 restaurants nationwide, including 75 in Texas, and many of its holdings feature seafood.
Don't expect Landry's to mess with Oceanaire's basic concept, Fertitta said. "There will not be any changes of any substance at the restaurant level."
He added that Landry's will continue expanding Oceanaire, pointing to its growth track record with Rainforest Cafe, which it bought in 2000. Fertitta said Landry's has opened about one new Rainforest outlet every year since then, and is currently operating about 25 of them, including one in the Mall of America.
In 2006, Landry's bought 80 percent of T-Rex, a dinosaur-themed restaurant concept developed by Steve Schussler, who also created Rainforest Cafe.
By MIKE HUGHLETT, Star Tribune
Wingstop Restaurants Inc., one of the fastest growing chains in the country, has been sold to an affiliate of an East Coast private equity group.
Terms of the deal between Richardson-based Wingstop and Atlanta-based Roark Capital Group weren't disclosed.
Founded in 1994, Wingstop had been 64% owned since 2003 by a Massachusetts private equity firm called Gemini Investors, according to Wingstop's president and CEO, James Flynn.
Earlier this year, Gemini said in a filing in the Federal Register that one of its funds, Gemini Investors IV LP, planned to "provide equity and debt financing to finance the acquistion" of Wingstop.
In an interview Monday, Flynn referred questions about that filing to Gemini. "I have no idea about that," he said.
Gemini's president, James Goodman, was not immediately available for comment Monday afternoon.
With more than 440 restaurants operating in the United States and Mexico, Wingstop clocked around $305 million in revenue last year. Flynn said he expects 2010 sales to be closer to $360 million. The company said in a news release Monday that it plans to open more than 60 restaurants this year.
Read more: Wingstop Restaurants Inc. sold to Roark Capital Group - Dallas Business Journal:
Dallas Business Journal - by Jeff Bounds Senior staff writer
Read more: Wingstop Restaurants Inc. sold to Roark Capital Group - Dallas Business Journal:
Golden Gate Capital has reached an agreement with Brinker International for the On the Border Mexican Grill & Cantina chain.
A Golden Gate affiliate called OTB Acquisitions LLC will take control of On the Border 's 160 restaurants in the U.S. and internationally. Brinker will continue to provide support services to On the Border through the end of fiscal 2011.
Brinker said that On the Border saw same store sales drop 4.7 percent in the second quarter, which ended Dec. 23, 2009. The deal is expected to close by the end of the fiscal year.
Brinker, based in Dallas, is the parent company to Chili's Bar & Grill.
Neither company disclosed the purchase price.
San Francisco-based Golden Gate Capital purchased Romano's Macaroni Grill from Brinker in December 2008. Other prominent brands in Golden Gate's portfolio include J. Jill, Eddie Bauer and Express.
Swati Kapoor, 25, was about to order a double chocolate cake doughnut when she noticed something new on the rack at Dunkin' Donuts. A tag said 290 calories. In an instant, she switched to a chocolate frosted doughnut (230 calories).
"To prevent obesity," the skinny medical student explained, munching away at a table in 30th Street Station.
Philadelphia begins phasing in enforcement of its strictest-in-the-nation menu-labeling law tomorrow. This first part, requiring chain restaurants to list calories on food tags and menu boards, is a relatively simple proposition that research shows can influence ordering habits.
A similar law will take effect in New Jersey next year, and dozens of such bills are pending around the country, including in Harrisburg.
What's different in Philadelphia will become apparent on April 1, when restaurants with individual menus must list saturated fats, trans fats, carbohydrates, and sodium, in addition to calories, with every item.
No one really knows what will come of this broader experiment in attempted behavioral change.
"The majority of people, I believe, will see this as cumbersome and an overreaction and not necessary," said George McKerrow Jr., president and chief executive officer of Ted's Montana Grill, who anticipates having to expand the menu at his South Broad Street location from two pages to six.
Still, just two months after Ted's added calories alone to its menu here, responding to a New York City requirement, McKerrow has noticed a small but measurable change in Philadelphia: "Some people have chosen to eat the healthier items more often."
Restaurants initially fought all efforts to mandate labels on menus. As the movement spread, with dozens of variations proposed across the country, the industry switched its goal to uniformity: calories, yes; sodium, no.
It has won that fight everywhere except Philadelphia. City Council approved the measure in 2008, after viewing data that showed the impact of chronic diseases related to diet - diabetes is diagnosed in 13 percent of residents, high blood pressure in 36 percent - broken down by district.
Diabetics must manage their intake of carbohydrates (including sugar); too much sodium can raise blood pressure. Both are listed on the familiar nutrition-facts label on all prepackaged goods.
"But it is really hard for people, if they eat out, to know about the sodium content," city Health Commissioner Donald Schwarz said.
At Olive Garden, for example, nothing on the dinner menu hints at a difference between linguine alla marinara (900 milligrams of sodium, according to its Web site) and pork Milanese (3,100 mg) - or notes that the Food and Drug Administration recommends less than 2,300 mg a day total, a line that must be added by April 1.
"It would make a difference," said Nashikai Ianscoli, 57, of Center City, who has had to go on a diet to control her blood pressure. She grew up on a farm in the South where her mother got fresh vegetables by the bushel.
Much has changed since she was a child.
"Back in the 1970s, eating out was a special occasion. What people ate didn't matter as much," said Margo G. Wootan, nutrition-policy director at the Center for Science in the Public Interest.
Americans now get an estimated one-third of their calories from meals outside the home. And though FDA serving sizes haven't changed, restaurant portions, especially fast food, have doubled or tripled. Skyrocketing obesity rates - one-third of Americans are obese, about the same as in Philadelphia - defied every big fix attempted.
In 2003, an influential study examined long-term trends and calculated that a difference of 100 calories a day, either ingested or spent, could tip the balance from national weight gain to weight loss. This, the researchers concluded in the journal Science, could be accomplished through small changes that the public would be more likely to embrace.
Wootan's Washington center, meanwhile, had been pondering how to get people to eat better. At a conference, she recalled, dietitians were presented with hamburgers, onion rings, and other fare from sit-down restaurants and asked to estimate caloric content. Even with nutrition degrees, they were off by hundreds of calories, always on the low side.
Wootan developed a model menu-labeling law and started calling dozens of policymakers around the country: Maine (the first to introduce a bill), New York City (the first to pass it), Philadelphia (the fourth to implement it).
City Councilwoman Blondell Reynolds Brown had been thinking along similar lines, and she was not buying the industry argument that consumers would look up carbs and fats online or ask the restaurant manager.
"I wanted it at the point of sale, because when we look at information when we order, we make different choices," Brown said. Research increasingly supports that view.
When 99 parents of children ages 3 to 6 in Seattle were randomly shown one of two hypothetical McDonald's menus - with calories listed or without - those given the additional details ordered meals for their children that contained 102 fewer calories, a 20 percent reduction, researchers reported online last week in the journal Pediatrics. There was no difference in meals the parents ordered for themselves.
Another study, from the Stanford Graduate School of Business, analyzed every transaction at every New York Starbucks in the three months before the city's menu-labeling law took effect in 2008 and in the 11 months afterward, and compared them with every transaction in Boston and Philadelphia in the same period.
It found an average reduction of 14 calories, or 6 percent, as a result of the mandate, and 26 percent among those customers who previously had tended to make high-calorie purchases. The paper, which was presented Wednesday at the University of Pennsylvania's Wharton School of Business, found no effect on profits.
Menu-labeling laws everywhere target chains, which are estimated to account for 50 to 75 percent of meals eaten out and presumably face less of a financial burden than mom-and-pop establishments. Philadelphia's ordinance covers chains with at least 15 other locations nationwide, or about 720 of the city's 5,800 restaurants.
With few menus currently listing fats, carbs, and sodium, there is little research about how consumers use the information. But public-health authorities have long sought to reduce consumption of all of them. Research published in the New England Journal of Medicine this month estimated that reducing Americans' salt intake by 3 grams (1,200 mg of sodium) a day could prevent 44,000 to 92,000 deaths a year.
Restaurants have been responding to consumer preferences, adding some reduced-calorie and gluten-free dishes. They say sodium, which acts as both a flavor enhancer and preservative, is a bigger challenge to remove from food.
And on menus, it is a challenge to add. There is just so much real estate available, said Patrick Conway, chief executive officer of the Pennsylvania Restaurant Association, who said he also worried about legal liability if dishes were slightly different from what was listed, as would be expected from different chefs.
In the 14 months since Council approved the bill, the industry has worked with the Center for Science in the Public Interest and other groups on a compromise national version that requires only calories on menus but also covers vending machines. It's in the health bills that passed the House and the Senate and that are now stalled.
Wootan is confident that national menu labeling will be approved, with or without a new health bill. If so, it will supersede all local versions.
Because federal regulations take time, the expansive Philadelphia listings would likely have a run of several years.
"Restaurants might see this as a way to draw in customers," said John Weidman, deputy executive director of the Food Trust, a local nonprofit.
Not likely, said Linda J. Lipsky, a restaurant consultant in Broomall: "Given the option, they will drop it."
Menu Labeling at a Glance Philadelphia basics
Philadelphia's mandate applies to restaurants, delis, bakeries, ice cream shops, and convenience stores with at least 15 other locations nationwide.
Enforcement of the ordinance, originally effective on Jan. 1, was officially delayed until the following dates to give restaurants more time to comply:
Menu boards and food tags must contain the number of calories for each item.
Additional information (everything in the next section) must be made available in writing upon request.
By April 1
Individual menus must list number of calories; grams of saturated fat, trans fat, and carbohydrates; and milligrams of sodium with each item, including alcohol.
The information must be adjacent to each item, in a size and typeface similar to the price and description.
The menu must state federal recommendations for saturated fat (including trans fat) and sodium for a 2,000-calorie-per-day diet.
What else is included?
Drive-through menu boards and buffet food tags.
Takeout and delivery (full nutritional information on a wrapper or box).
What is excluded?
Specials or items offered fewer than 30 days a year.
Sealed packages (such as salad dressing) with the nutrition-facts label required by federal law.
Customer special requests ("hold the cheese") that do not appear on any menu or tag.
Variances may be granted by the city health commissioner so long as the nutritional information is provided at the point of customer decision-making.
Violations, punishable by a $150 fine upon a second citation, will be handled as part of the regular inspection procedure.
New Jersey basics
New Jersey's statute applies to retail food establishments with 20 or more locations.
Calories only must be listed next to each standard food and beverage item on menus and menu boards.
It will take effect next January.
Five restaurant chains owned by private investment firm Sun Capital Partners, Inc. -- Bruegger's Bagels, Fazoli's Restaurants, Friendly's Ice Cream, Smokey Bones Bar & Fire Grill and Timothy's Coffees of the World Inc. -- are joining forces to target nontraditional concession opportunities around the country, including food courts at airports, universities and hospitals.
The joint strategic development initiative will enable the chains to bundle and leverage their brands and key personnel to efficiently expand into these nontraditional locations, which are estimated to attract three to five times the traffic seen in traditional locations such as shopping malls, shopping centers and strip malls.
The program's concept is to create a competitive value proposition by making it possible to offer nontraditional retail operators a diversified choice of restaurant formats from a single point of contact.
Unlike traditional retail -- where the process is essentially one of finding a desirable retail location in a targeted market and negotiating a lease -- nontraditional retail location concessions are typically already designated for a particular type of format, such as deli or fast-casual bakery, and chains compete to win a location when an opportunity opens up, explains Chris Cheek, VP, franchise development at Bruegger's. In the case of airports, which are all government-owned, a governmental bidding process is involved, he notes.
Combined, the five chains currently operate nearly 1,300 restaurants and outlets in 28 states, and each has strong brand recognition within its respective market and a format that does not overlap with the others, Cheek says. (Bruegger's announcement last week that it is acquiring the retail restaurant holdings of Timothy's adds the important coffee format to the mix.)
Cheek says that while it is likely that in most cases a single chain would seek to occupy an available retail location, in part to preserve clear brand identity for the consumer, the companies may in some cases (based on space availability or preference for certain brands) offer a combination of two, three, four or five nameplates.
Having agreed to make nontraditional expansion one of their strategic goals, with the backing of Sun Capital, the chains will now prepare to meet nontraditional retail concession requirements, including the smaller space of these formats (about 700 square feet, on average), selective menus and volume and traffic demands, Cheek says.
In addition, all of the chains will benefit from the learning and business relationship network established through three years of nontraditional retail development efforts for Bruegger's. Nontraditional retail involves "a steep learning curve," both in terms of identifying the right opportunities and maximizing success once in operation, Cheek points out.
Bruegger's successfully expanded into four airports in 2008 (Boston's Logan Airport, Cincinnati/Northern Kentucky International Airport, Raleigh-Durham International Airport and Cleveland Hopkins), and Bruegger's Bakery-Café was recently nominated for five of Airport Revenue News' 2010 Best Airports & Concessionaire Awards.
Sun Capital Partners' portfolio of restaurant affiliates also includes Boston Market, Sweet Tomatoes, Souplantation, Real Mex, Souper Salad and Restaurants Unlimited.
By: Karlene Lukovitz
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