Veteran casual-dining chains are overhauling everything from the way their restaurants look and feel to the food and drinks they serve and, in some cases, the leadership directing the changes, in an effort to snap the dismal sales trends that have plagued the segment for more than two years.
Chains such as T.G.I. Friday’s, Applebee’s International, Bennigan’s Grill & Tavern, Ruby Tuesday, Damon’s Grill, Max & Erma’s, Lone Star Steakhouse & Saloon and Houlihan’s are employing dramatic reimaging strategies to win back customers from newer competitors as well as those forced away by rising fuel costs and interest rates. Others are trying on new incarnations. Sizzler, a grill chain, is entering the full-service dining arena, and Uno Chicago Grill recently debuted an upgraded prototype and is preparing to introduce a more downscale fast-casual operation called Uno Due Go early next year.
Many of these chains, which burst onto the emerging casual-dining scene in the 1960s and 1970s, have seen better days. Several even saw systemwide sales drop considerably in their last full fiscal year, according to the Nation’s Restaurant News 2007 Top 200 Chain and Company Rankings. For instance, systemwide sales at Damon’s Grill fell 13.64 percent, Lone Star Steakhouse saw an 11.86-percent decline, and systemwide sales at Max & Erma’s decreased 2.94 percent, according to the report. Bennigan’s saw a slight uptick of 0.05 percent, and T.G.I. Friday’s posted a 1.74-percent increase.
Ruby Tuesday fared better with an 8.85-percent increase, and Applebee’s scored an 8.37-percent uptick, according to the Top 200 survey. Nonetheless, same-store sales have been negative for both chains, with Ruby Tuesday predicting a drop ranging from 3 percent to 5 percent for the year, and Applebee’s reporting a drop of 0.9 percent for its second quarter ended July 1.
“The whole market has shifted,” says Mike Archer, president and chief operating officer of 896-unit T.G.I. Friday’s, a forerunner of the casual-dining genre when founder Alan Stillman unveiled the original restaurant in Manhattan in 1965. Archer cited newer competitors, including The Cheesecake Factory, P.F. Chang’s, Yard House and BJ’s Restaurants, along with fast-casual players, as doing a better job of “meeting the guest where they are today.”
Sales at the 70 percent of Friday’s restaurants that have been remodeled recently have risen an average of 5 percent, say officials at the chain, part of Carrollton, Texas-based Carlson Restaurants Worldwide Inc. Consumer reaction also has been positive to recent menu changes that include an appetizer trio of mini burgers, the Grilled Portobello Pasta and Asian Garlic Chicken entrées, and a “better for you” menu section of five entrées containing approximately 10 fat grams and 500 calories, officials say.
While most chains remodel at least every decade and routinely change menu items, the rebranding efforts now occurring across the segment are more radical—but necessary—observers say.
“Brands need to update, or they will continue to get weaker and weaker,” says Dennis Lombardi, industry analyst with Columbus, Ohio-based WD Partners. “A new design can increase revenue by 10 percent.”
For most casual-dining chains, the goal of rebranding is to differentiate themselves from the pack.
“We saw a morphing of casual dining a few years ago of sameness,” says Rob Lindeman, president of Columbus, Ohio-based Max & Erma’s, founded in 1972. “Chili’s, Applebee’s, Houlihan’s, Friday’s, Bennigan’s—all were doing the same thing.”
Beginning with design and decor, these chains have shared similar elements, such as walls cluttered with eclectic collectibles, brass railings, Tiffany-inspired ceiling fixtures and exteriors outfitted with striped awnings. Menus have not differed too much, either.
“Our facilities were worn and tired,” Lindeman admits. “We have a lot of work to do. It’s not easy, but we are not using that as an excuse. It’s an exciting time of transition.”
To help lead that transition and to rekindle franchising, Max & Erma’s recently brought in as chief operating officer industry veteran Michael Nahkunst, who previously accomplished similar goals at The Cheesecake Factory, Chili’s and BJ’s Restaurants.
“We needed to bring in someone from outside to lend extra perspective,” Lindeman said.
Max & Erma’s and other chains are not reimaging merely to become more attractive to customers, especially younger adults, but also to appeal to existing and prospective franchisees. Max & Erma’s, for instance, which currently franchises just 24 of its 101 units, wants to shift the balance of franchised stores to about 65 percent.
To help finance company store remodeling, Lindeman says he has a “secret capitalization strategy” in the works that he could not reveal.
A private-equity investment of more than $600 million into Lone Star Steakhouse of Wichita, Kan., and the hiring of Marc Buehler, formerly of Tony Roma’s, as chief executive are spearheading big changes at the 182-unit Western-theme dinnerhouse chain.
Lone Star will implement the changes before embarking on a regrowth plan, Buehler says. The company has closed or sold some 40 percent of its units in the last nine years and may cut a few more.
“We will sell closed locations to help fund remodeling and expansion,” Buehler says.
He has embarked on refreshing the menu with the help of outside consultants and creating a new prototype and designs for remodeling existing units.
Buehler estimates it will take up to six months to get through the concept evolution planning.
“We will roll it out in stages,” he says. “We are evaluating everything. A lot has not changed for 15 years.”
New owners and leaders are retooling Columbus, Ohio-based Damon’s Grill. Alliance Development Holdings, a Charlotte, N.C.-based real estate firm, which acquired the sports-theme chain last year, has since closed about 20 units, reducing the number in operation to 75, and developed four variations of a new prototype, all of which concentrate the sports theme and technology in the bar instead of throughout the restaurant, as before.
“Our older restaurants were dark and not female- [or] family-friendly,” said Damon’s chief executive Carl Howard. “Plus the technology was not as unique as it was in 1987.”
Many new sports-theme competitors have since come on the scene, as technology became easier to install, he says.
The new prototype designs will cost about $100,000 less to build, Howard says, and lose only about eight seats, although they are smaller. Average seating is 212.
While Damon’s still has a sports theme, it’s more subtle than in the past. Half of the items on the redeveloped menu are new, including domestic Angus-Kobe beef burgers; more entrée salads, including a signature char-grilled Caesar; and some lighter entrées, such as Maui Salmon with Pineapple Salsa and Grilled Mediterranean Shrimp Skewers.
Check averages are up 2.7 percent since the latest menu revamp, for an all-day average of $17.80, Howard says. He is calling the upgrade of the menu, the building and other details a move up to “polished casual.”
The 92-unit Houlihan’s chain, which debuted back in 1972 on Country Club Plaza in Kansas City, Mo., under Gilbert-Robinson, has drastically changed the look of its new restaurants and is upgrading all elements of its image.
The lighter, brighter restaurant continues to have a bar focus, with 22 percent of sales attributed to alcoholic beverages, but many of those drinks have been updated to appeal to a younger crowd later at night, says chief executive Bob Harnett. Likewise, new Houlihan’s units have a customized music strategy in which select songs are highlighted monthly on the so-called “H-List,” which is inserted in menus and promoted on the chain’s website. The program is intended to appeal to those customers who download music on iTunes.
Helping to finance Houlihan’s new restaurants are transactions finalized last May for $60 million in a senior credit facility and $28 million in private equity. Houlihan’s 2007 sales for the fiscal year ended last Sept. 30 were $262 million, compared with $248 million last year.
Bennigan’s, the 307-unit pub and grill chain based in Plano, Texas, dating from 1976, also is working to update its image. The chain is getting rid of the old—including wall-mounted artifacts, brass beer taps, old-style televisions and plastic burger baskets. The changes follow in-depth consumer research, says Clay Dover, chief concept officer for the brand, which is owned by Metromedia Restaurant Group.
Framed pictures of Irish landscapes and breweries, in keeping with Bennigan’s Irish-pub theme, and a customized mural replace such wall kitsch as canoes, plastic plants and odd photographs, a change Dover calls the most significant. Guests can program the music of their choice into an electronic jukebox.
“When you put all these pieces together, you get a newer look and feel,” Dover says. “When a new restaurant goes up next to you, we have to adapt and be proactive.”
Dover says reaction to the changes was positive when Bennigan’s introduced the program to both franchisees and corporate general managers a few months ago. The company is offering some remodeling incentives, but Dover would not give specific details.
“We are trying to keep the pace with technology and everything else,” Dover says. “Consumer expectations continue to climb. Now it’s a challenge for heritage brands to step up. We’re involving ourselves more in the lifestyles of our consumers.”
Applebee’s is known to be in the testing stages with two new designs. Features include limiting memorabilia collections to one area of its restaurants and to highlighting community-specific artifacts, a new logo, a frozen beer tap behind a sheet of ice and other touches. Officials at the 1,905-unit chain, whose sale for $2.1 billion to Glendale, Calif.-based IHOP Corp. is pending, could not be reached for elaboration.
Ruby Tuesday, the 933-unit brand from Maryville, Tenn., hopes to realize positive returns soon from its investment in upgrading its image. Although same-store sales in the first quarter ended Sept. 4 fell 4.8 percent at company-owned restaurants and 2.9 percent at franchised ones, chief executive Sandy Beall says upgrades are continuing in anticipation of future traffic improvement. Traffic has increased at remodeled units by about 2.5 percent, he says.
Remodeling costs are less than $20,000 per unit, Beall estimates, involving primarily replacing Tiffany lamps with new red lights in circle lamps and replacing old artifacts with contemporary ones.
“It is different than the dated, ‘80s fern bar look that we’ve had for 35 years,” he says.
In case some franchisees are wondering how they will pay for the upgrades, Beall says the company will help them figure out ways to make remodeling affordable.
A franchisee of Sizzler in Las Vegas has under construction the first full-service variation of the 233-unit brand’s grill concept, featuring table service and a full bar.
“It offers the potential opportunity to sell appetizers, desserts, full bar choices and increase guest check averages,” says Todd Peterson, vice president of real estate and design for the Culver City, Calif.-based chain, which was founded in 1958.
The higher check average, which Peterson estimates would be $3 to $4 higher than the chain’s $11.15 average at company stores, would offset additional labor costs, Peterson says, adding that the concept still would have a soup and salad bar.
Design of the new unit is much more contemporary than in the past and should cost between $1.3 million and $1.6 million to build, excluding cost of land, which Peterson says is comparable to the cost to build a traditional fast-casual unit. He does not yet know the estimated cost to remodel in the new look.
West Roxbury, Mass.-based Uno Chicago Grill recently unveiled in Swampscott, Mass., a new prototype featuring more upscale elements than traditional units, such as wine, lighter colors and finishes, flat-screen televisions, and a display kitchen. The prototype also boasts an updated version of Uno’s menu with such new items as chicken Milanese, a spicy shrimp quesadilla, a rosemary chicken entrée and a steak quesadilla made with Angus beef.
Frank Guidara, chief executive and president of the 200-unit chain, estimates that the prototype, which seats 185, will generate sales 20 percent to 40 percent higher than the chain’s average unit volume of $2.3 million. A second such unit is scheduled to open in Winter Garden, Fla., in December, and the company plans to retrofit existing units with elements of the new design.
Uno also is preparing to debut two units of the new fast-casual concept, Uno Due Go, in the Dallas-Fort Worth airport in late March or April. The fast-casual concept, which gives Uno a vehicle to expand in on-site locations and food courts, will feature pizza, sandwiches and soups. The average per-person check is projected to be $6 to $8, Guidara said.
But while so many casual-dining chains are enthusiastically surging forward with their rebranding initiatives, they should guard against going overboard in their zeal to change, cautions WD Partners’ Lombardi.
“They need to keep iconic elements to connect the old with the new without doing a complete redo,” he says.
