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Joe’s Crab Shack to retrench from Bronx, Newark

Ignite CEO Robert Merritt says “vacation-type” brand ill-suited for urban areas

Ignite Restaurant Group Inc. plans to retrench from pushing its Joe’s Crab Shack into the dense urban New York areas, the company CEO said last week.

The Houston-based casual company, which also owns the Brick House Tavern + Tap brand, last September closed its Joe’s Crab Shack in Harlem, and CEO Robert Merritt told Piper Jaffray’s 36th Annual Consumer Conference that it would be pulling out of the Bronx and Newark, N.J., as well.

The company still has Joe's locations in the New York communities of Deer Park, Elmhurst, Oceanside, Westbury and West Nyack and the New Jersey municipalities of Clifton, Eatontown and South Plainfield.

“There was a belief in the past that Joe’s had a particular urban appeal, and so they opened in downtown Newark, Harlem and in the Bronx,” Merritt said. “I tell you, none of those will be around in a few months. It just didn’t work.”

Merritt said rents were too high and consumer appeal was low for Joe’s in urban markets.

“It is principally a vacation-type brand,” he said. “This is a special occasion place, and we are trying to position it that way.”

Merritt, who was named Ignite CEO in November, said the company is working on improving Joe’s Crab Shack appeal to the moderate-income casual-dining consumer, who he said is “hunkering down” in this economy.

“It’s all about execution, and execution starts with people,” Merritt said. “In the final analysis, execution is the only thing that you have that protects you from a competitive stand point. Anybody can copy your menu, your food items, your décor, your locations, your uniforms, all the cute stuff you put on the wall that we all think differentiates us. In reality, the only thing that differentiates us is execution.”

Merritt said the company has begun replacing or retraining many general managers and kitchen managers at Joe’s. “We’re probably halfway there,” he said.

Nicole Miller Regan, the senior research analyst with Piper Jaffray, said in a post-conference note that hiring and training of new managers were positive investments.

“We applaud investments in human capital aimed at elevating culinary and operational excellence and understand that making a successful change in culture does take time,” she wrote.

Merritt said Ignite is also working on building sales at Joe’s.

“Joe’s was a brand that was focused on cost control,” Merritt conceded. “It’s a culture of cost control and not a culture of building sales. I’ve never seen any restaurant company save its way to success. I’ve only seen success by building more sales.”

A $29 all-you-can-eat crab special on Wednesdays has helped the brand increase sales as much as 45 percent and pushed same-store sales into positive territory in January and February, Merritt said. However, he added that Friday and Saturdays were showing a softness in the dinner daypart. Same-store sales in the first quarter ended March 28 were down 1.3 percent at Joe’s Crab Shack and 4.5 percent at Brick House, the company said.

Merritt said the company was avoiding discounting, even though he was seeing many casual-dining brands employ that tactic.

“I am philosophically opposed to discounting,” he added. “I think the bulk of the casual-dining industry today is making a huge mistake because they are discounting heavily. What they are doing is announcing to the consumer that the price they charge every day is too high.”

Merritt said Joe’s, with a per person average check range of $25 to $28, has historically not had what he called a “price approachable” section on its menu. “That’s one of things that what keeps our frequency down,” he said.

In future Joe’s locations, he added, the company also plans to reduce the size of units and perhaps modify space in existing larger locations.

“We are redesigning the box for future locations so that it is smaller and more manageable,” Merritt said. “We are looking at subdividing some of the extra space we have into family dining rooms and offering family-style meals — trays, platters, things like that — to try to use up some of that excess space in an effective way.”

Joe’s is also simplifying its food offerings, Merritt said.

With a new menu introduction May, Joe’s has cut the number of entrees by 40 percent to simplify execution and increase speed of service, he said.

“At peak times, we were running 40- to 45-minute ticket times,” Merritt said. “Consumers aren’t going to wait 40 to 45 minutes for their entrée very often. We’ve cut that in half already. I think we can cut that another 40 percent. That’s our target.”

Merritt said the company’s Brick House brand, with about 42 percent of its sales mix in alcoholic beverage sales, in July will expand on its entrée offerings to help drive traffic beyond the “bar food” base.

“We’re starting next month with a Thursday night ‘steak night,’ and we will have 16-ounce rib eye and an 8-ounce filet along with sides,” he said. “What we’re trying to do there is create the image that we are much more than bar food. We’re really a serious place with serious dinner entrees.

Merritt said he believes the tipping model in full-service restaurants will have to change, but “it’s just that the American consumer is not ready for it yet.”

Joe’s earlier this year pulled back its no-tipping test from 18 to four Joe’s Crab Shack units.

“It just didn’t work,” Merritt said. “Fifty-nine — almost 60 — percent of our customers told us they hated it. And a lot of them voted with their feet. And they hated it for two reasons. The first: They felt like they were out of control of the experience. If somebody did a good job, they wanted to give a big tip; if they did a bad job, they wanted to give a small tip. It’s the American way, right?

“Second,” he continued, “they did not believe that the amount we raised prices by that we actually gave that to our employees.”

For the first quarter, Ignite reported a net loss of $1.6 million, or 6 cents a share, from a loss of $22.2 million, or 87 cents a share, in the same period last year. Revenue in the quarter fell 3.5 percent, to $117.9 million, compared to $122.2 million in the prior-year period.

Ignite Restaurant Group owns and operates 156 casual-dining restaurants, including 130 Joe’s Crab Shack units and 26 Brick House Tavern + Taps.

Contact Ron Ruggless at [email protected]
Follow him on Twitter: @RonRuggless

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