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Long-term investments paying off for brands beating same-store slides

Long-term investments paying off for brands beating same-store slides

Amid all the negative economic news—and there is a lot of it—some restaurant brands have been able to beat the odds, weathering the dramatic drop in consumer spending that has led to a slew of negative or barely positive same-store sales reports industrywide.

Among the companies bucking the downward trend in same-store sales are burger behemoth Burger King, casual dining’s BJ’s Restaurants, fast-casual Chipotle Mexican Grill, Papa John’s Pizza and the IHOP chain, all of which point to the importance of long-term commitments to quality and value in buoying their fortunes.

To exemplify just how difficult it is to lure customers through the door, each industry segment except for quick service and fast casual swung from positive same-store sales results at the end of 2006 to negative results at the end of last year, according to Nation’s Restaurant News research. Even the positive results posted by quick service and fast casual reflected steep drops in momentum.

(To view the charts featured in this week's print issue, click here)

Those operators who have outperformed their peers say there are no quick fixes given the current climate, as slashing prices to lure hard-pressed consumers isn’t a profitable option in the face of increased commodities, labor and occupancy expenses. Instead, they point to an ongoing commitment to people, marketing and menu development.

“We firmly believe that in these tougher economic times…high-quality guest touch points continue to help differentiate the BJ’s dining experience,” president and chief executive, Jerry Deitchle, said when reporting latest-quarter results, “and therefore give us a competitive advantage over many of the commoditized ‘mass-casual’ players that are looking to save their way to success.”

BJ’s Restaurants Inc., the Huntington Beach, Calif.-based operator of 69 restaurants, reported a same-store sales jump of 4.9 percent in its latest full quarter, the three months ended Jan. 1. In comparison, looking at an average of all domestic, quarterly reports for the period that ended closest to Dec. 31, casual-dining chains posted an average same-store sales decline of 1.3 percent. For the same period in 2006, the segment posted an average same-store sales gain of 4 percent.

BJ’s success dates back to investments and improvements started three years ago, executives said. At that time, the brand began shifting from what it calls “mass-market” casual dining to “premium casual” or “casual plus,” all while maintaining an average check near the $12 mark. The company implemented a new kitchen display system to improve ordering and serving times, automated its table management system, invested in online ordering and call-ahead seating, and upgraded uniforms, china, silverware and linens. It also worked to improve and differentiate menu items.

The moves have given BJ’s “an advantage during these tough times,” Deitchle said. Competitors, he said, either due to maturation or a failure to invest, “are really unable to keep consumers interested in their primary offerings unless they…discount the prices.”

“We are in a wonderful position, where we don’t really have to get into that game,” he said.

Burger King’s story is similar. About four years ago, the No. 2 burger brand initiated a turnaround by focusing on quality and value, and targeting the chain’s core customer, its so-called “superfan.” For its latest period, ended Dec. 31, same-store sales were the quick-service segment’s best at 4.2 percent, on top of a 4.4-percent jump the year earlier. The quick-service segment averaged a same-store sales uptick of 1.1 percent for the quarter ended in December, compared with a 2.8-percent gain the year earlier. Momentum was slowed at McDonald’s, Wendy’s and Yum’s chains.

“All of our new-product development and menu development is built around delivering what consumers want: great taste and great value in a convenient format,” said Jonathan Muhtar, senior director of product marketing and innovation at Burger King Holdings Inc. in Miami. “Beyond that, we focus on what makes us unique, knowing who our core customer is.… We got clarity on that a few years back, and it allowed us to focus.”

Burger King also attributes its performance to a focus on its Value Meal, and particularly the breakfast value menu it initiated last year—the quick-service sector’s first.

IHOP Corp., the Glendale, Calif.-based franchisor of 1,344 namesake restaurants, says its years-long strategy of improving operations, menu and marketing finally paid off in the past year. Executives expect the strategy to continue paying dividends this year as well.

“It’s all working for us,” said Julia Stewart, chair and chief executive of IHOP. “We said back in 2003 that we were going to put all these strategies together and when we really got them up and running it would be like magic. I really do think that’s what finally happened.

“The [operations] have taken off, the advertising has taken off, the menu, the marketing. It’s all really come together, and I think that’s what gives us this incredible confidence in a tough year.”

For IHOP’s latest complete quarter, the three months ended in December, the chain posted a 3.7-percent same-store sales gain, over a 0.4 percent uptick in the same period of 2006. The brand was far and away the outperformer within its segment. Family-dining chains averaged a latest-quarter dip of 1.6 percent, compared with a year-earlier uptick of 0.8 percent.

Fast-casual operators were the best performers in the industry, posting an average 3.8-percent same-store sales gain in the last quarter of 2007, although the result was down from an average increase of 6 percent in 2006. Pizza players stayed about the same at the tail ends of both years, posting negative fourth-quarter results of 0.1 percent in 2007 and a 0.6-percent uptick the year earlier. The quick-service coffee segment was hurt by the negative results at Starbucks last year, and averaged a fourth-quarter same-store sales decline of 1.3 percent in 2007, versus a 2.3-percent gain at the end of 2006.

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