Many restaurateurs expect the difficulties of 2009 to continue in 2010.
The economy isn’t expected to begin an upturn until the second half of the year, unemployment should remain near 10 percent through the year, and consumers may have changed their spending habits for good. Still, the restaurant industry is filled with entrepreneurs and optimistic businessmen and businesswomen looking to survive and then thrive in the beginning of this new decade.
“The high expectations of today’s more frugal, pickier customers will be met and exceeded by a leaner, stronger, more disciplined restaurant industry,” Ron Paul, president of foodservice consultancy Technomic Inc., said in December column outlining his 2010 predictions. “Those that rise to the challenge will prosper even during these tough economic times."
Industry observers say successful operations will have to provide value, a distinctive dining experience and accessibility for consumers at various price points. New and innovative approaches to the business of running a restaurant will be mandatory.
While there are many restaurant executives ready to meet those challenges, here are 10 men and women Nation’s Restaurant News is watching as the year unfolds:
1. Sardar Biglari – The chairman and chief executive of both Steak n Shake Co. and Western Sizzlin’ Corp. has set out to create a holding company and investment concern that just happens to also operate restaurants. He orchestrated a pending merger for his two restaurant companies late last year, and placed a buyout offer – through Steak n Shake – on Fremont Michigan InsuraCorp. Inc., which Fremont rejected.'
Still, while the investor and founder of The Lion Fund, a San Antonio-based hedge fund, focuses on returns, he also has managed to turn around Steak n Shake’s performance. Its fiscal 2009 included positive sales trends and a return to profit from a year-earlier net loss. In the fourth quarter alone, Steak n Shake guest traffic and same-store sales increased 20 percent and 10 percent, respectively, over the same quarter a year ago. Biglari, just 32 years old, no doubt has more on his plate.
2. Brad Blum – As chief executive of Romano’s Macaroni Grill, the 200-unit casual-dining chain that was sold in 2008 by Brinker International Inc., Blum inherited a chain that had suffered from corporate neglect and three years of sales declines. In September, Blum debuted Macaroni Grill’s new menu in his first major move since being picked as CEO picked by the chain’s new owner, Golden Gate Capital.
The menu, which features lower food costs, more healthful items, and new offerings along with 14 reformulated ones, has helped drive sales. In addition, with a reworked research and development timeline, new menu items will come to fruition faster and cheaper, Blum has said. A new set of items debuted in November. The final and completely transformed menu is expected by May 2010, and no doubt many will be watching. By then, every dish on the menu either will have been reworked or will be brand new.
3. Tilman Fertitta – The chairman and chief executive at Landry’s Restaurants Inc. has been trying to take his firm private via a leveraged buyout for more than a year. His latest offering, a deal valued at $1.2 billion, was approved by the company’s board and is expected to close in the first half of this year.
In a wrinkle that could delay the deal, however, and that could provide merger-and-acquisition drama not seen since the deal-making heydays of 2006, activist investor William Ackman has purchased Landry’s stock and promised to oppose the transaction. Ackman, through his Pershing Square Capital Management fund, has been involved in boardroom brawls at McDonald’s Corp. and Wendy’s International Inc. In addition to Ackman’s resistance to the deal, shareholder lawsuits also have begun to crop up, alleging that Fertitta’s deal is unfair.
Landry’s operates about 100 casual-dining restaurants operating under various brands including Rainforest Café, Saltgrass Steakhouse and Landry’s Seafood House, as well as gaming and other entertainment venues.
4. David Kim – One of few restaurant executives who went on a buying spree in the dismal economy of 2009, Kim and his investor group purchased two-unit Canyons Burger Company and Calbi Fusion Tacos and Burritos, a mobile vendor truck concept born in Los Angeles early last year. Kim is set to franchise both brands.
The acquisition of Canyons Burger was the first by Kim’s newly formed company, Growth Concepts, which is described as a “new restaurant incubator” designed to “find and develop today’s hot new restaurant companies into tomorrow’s strategic brands.”
Kim was the principal behind the 2006 purchase of Baja Fresh from Wendy’s International for $31 million, as well as the La Salsa Fresh Mexican Grill chain, acquired from CKE Restaurants Inc. a few months later. He also owns the Anaheim, Calif.-based candy shop company Sweet Factory, as well as a Cinnabon franchise operation called CinnaWorks.
His growing portfolio no doubt deserves watching in 2010.
5. John Chidsey – Burger King found itself at the center of much controversy in 2009, from franchisee discontent over the chain’s $1 double cheeseburger to questionable marketing campaigns using mascot The King. The company even lost its well-known chief marketing officer, Russ Klein.
Chief executive Chidsey also has his work cut out for him on the performance side, as the No. 2 burger brand posted stalled sales trends and reduced profit in its latest quarter, hurt by rising domestic unemployment and, according to some analysts, a lack of sales-driving products.
With the chain’s rollout of its new batch broiler equipment, Burger King has promised larger burgers in its Steakhouse XT, and other items, such as ribs. Burger King could be poised for a more productive 2010, and some securities analysts have picked the company as a rebound stock this year.
6. David Novak – As the leader of one of the largest restaurant companies in the world, Novak is no doubt used to industry watchers always eyeballing Yum! Brands Inc. In the year ahead, however, scrutiny could be more intense, as its domestic operations may finally provide that turnaround from years of stalled sales and little growth.
KFC will enjoy its first full year of the chain’s much-celebrated Kentucky Grilled Chicken, Taco Bell has debuted a Drive Thru Diet campaign highlighting its Fresco menu items, and Pizza Hut started 2010 by offering $10 pizzas – all moves orchestrated to drive sales in this recessionary environment.
While the company has said that 2010 will no doubt be another challenging year, especially when it comes to increasing sales, Yum Brands is still set on picking up market share for its three main brands. Its focus on value, as well as long-term product innovation, like a new breakfast platform at Taco Bell, is expected to help the company meet its goals in the United States, while its international operations, especially in China, continue to prosper.
7. Howard Schultz – Synonymous with the Starbucks brand itself, Schultz is expected to further revitalize his coffeehouse chain in 2010 after a challenging two years that saw declining sales, the closing of hundreds of locations and a reworked food and beverage menu, including a much-hyped instant coffee product, called Via.
As chief executive and chairman, roles he returned to in 2008 to help revitalize the brand, Schultz has orchestrated job cuts while also building a new management team. He also introduced the chain’s first meal deal, priced at $3, and a national advertising campaign. Starbucks also has been busy revitalizing and streamlining its loyalty programs.
The largest coffeehouse chain has seen some traffic improvement, and in its June 2009-ended quarter, it posted financial results that analysts said were its best since 2007, when results started to plummet as the chain reported its first dip in domestic same-store transaction counts.
Many expect more to come from Schultz and Starbucks.
8. Liz Smith – As the newly charged chief executive at OSI Restaurant Partners LLC, Smith has her work cut out for her as she attempts to turn around this casual-dining bellwether. Owner of Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and others, OSI Restaurant Partners has suffered the fate of nearly all casual-dining companies, including negative sales, reduced profit and stalled growth. OSI, however, also has a large debt load on its back from its $3.2 billion buyout by Bain Capital Partners LLC, Catterton Management Co. LLC, and some of the company’s founders and senior management.
The going-private deal back in 2007 was supposed to help OSI regroup and shield its performance from the scrutiny of Wall Street. Plans had included the sale of non-core restaurant brands, reduced unit growth, and reworked menu and marketing efforts.
While a turnaround has yet to happen for the Tampa-based company, new CEO Smith has said she is ready for the challenge. “My career has been devoted to rejuvenating and energizing consumer brand businesses and driving operating excellence,” she said in a statement in November.
Smith, 46, most recently was president at cosmetics company Avon Products Inc., where she has worked for five years. Prior to Avon, Smith worked 14 years at Kraft Foods Inc., leaving as group vice president and president of the U.S. beverages and grocery division.
9. Roland Smith – Another CEO with an expected turnaround on his hands is Smith, head of Wendy’s/Arby’s Group Inc., which operates and franchises the struggling Wendy’s and Arby’s chains.
Wendy’s had trouble gaining traction ever since founder Dave Thomas died in 2002, many observers had said, and was ripe for the picking as an acquisition candidate years later as results weakened. Billionaire investor Nelson Peltz took Wendy’s over in a merger with Arby’s in 2008 for about $2.3 billion. Smith was the named CEO and has worked to right both the ships of Wendy’s and Arby’s, which have continued to post negative sales trends and little turnaround traction.
Wendy’s, which has been experimenting with the lucrative breakfast business for years, promises to relaunch its new breakfast items in 2011, and already has tested made-to-order sandwiches including an artisan bread fried egg sandwich with Asiago cheese, applewood-smoked bacon and hollandaise sauce, at least according to a taste tester in New Jersey who asked to remain anonymous.
It also began last month a Deluxe Value Meal offer that pitches to wallet-weary consumers a price point between the premium items and the 99-cent fare.
At Arby’s, the chain is battling its sales slump with continued price-point offerings, from $5.01 meals to 4 for $4, as well as new roast beef sandwiches, like the Roastburger.
10. Julia Stewart – Operating two of the largest restaurant chains, Applebee’s Neighborhood Grill & Bar and IHOP, makes Stewart’s DineEquity Inc. one of the largest full-service restaurant companies in the world. While IHOP has worked on a turnaround for years and has grown into the largest family-dining chain with consistent positive sales trends and profitable results, Applebee’s has struggled, like many in the casual-dining sector.
IHOP purchased Applebee’s for $2 billion in 2007, and now DineEquity must focus on its debt load and refranchising efforts, as well as a sales turnaround at the nation’s largest casual-dining chain.
As credit markets remain tight, DineEquity may continue to have trouble selling corporate Applebee’s locations to franchisees at the right price and in the right timeframe, which was a key element in its buyout of the brand and plan to repay its debt. In addition, its marketing, menu and operational initiatives have yet to gain traction, mainly because of outside economic forces.
As the economy begins to rebound, even if in late 2010, Stewart has said that Applebee’s will begin to see a rebound as well.
Contact Sarah Lockyer at [email protected].