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Joe’s Crab Shack still studying no-tip model

Joe’s Crab Shack still studying no-tip model

Company “cautiously optimistic” about 18-unit test

Joe’s Crab Shack has put a no-tipping model it initiated late last summer and fall at 18 Midwest restaurants “on a hold pattern” for now, the chief operating officer of parent Ignite Restaurant Group Inc. said Wednesday.

David Catalano, COO of Houston-based Ignite since April 2015, told investment analysts at the ICR Conference in Orlando, Fla., Wednesday that he was “cautiously optimistic” about the no-tipping test, which was a first for a casual-dining chain.

“I’ll personally tell you that when this started … I kind of wanted to hide it,” Catalano said, adding that he thought it wouldn’t work. The platform launched last summer in Indianapolis, he said, and expanded later in the fall to 18 restaurants in the Midwest.

“I’m cautiously optimistic, but I think we’re going to hold here for a while and see what the long-term implications of it are because of things like hourly turnover, traffic, sales, etc.,” Catalano said. “You need a tail, if you will, to see what impact that has.”

As of Sept. 28, Ignite owned 131 Joe’s restaurants and 23 Brick House Tavern + Tap units in 33 states. Ignited completed the sale of the Romano’s Macaroni Grill brand on April 17.

Robert S. Merritt, the Ignite board member who was named CEO on Nov. 17, told ICR attendees that the company was “still paying the price” for the two years it owned Macaroni Grill and the debt it incurred.

“We’ve curtailed all new-unit expansion for multiple reasons, and we’ve backed off on rebranding the marginal Joe’s restaurants,” he said.

Ignite had been converting underperforming Joe’s units to the newer Brick House concept.

“We’re not sure that’s cost effective,” Merritt said Wednesday, noting that the company could build new Brick House units for $500,000 more than the typical $2 million to $2.5 million that it costs to convert Joe’s locations.

“We’re not going to look at Joe’s as a catalyst to build Bricks,” he said. “We’ll look for opportunities to build Bricks ground up or in line in places where we think it makes more sense rather than just places where Joe’s has failed.”

The company will complete several conversions that were in the pipeline. In the fourth quarter ended Dec. 28, the company closed one Joe’s restaurant, which will be converted to a Brick House unit, and opened one  franchised Joe’s restaurant in Dubai.

For the year, the company opened two Brick House restaurants and closed nine Joe’s locations, three of which will be converted to Brick House units. The three converted Brick House restaurants are expected to open in the first quarter.

In preliminary results released Tuesday for the fourth quarter, Ignite said same-store sales fell 2.9 percent at Joe’s and decreased 2.8 percent at Brick House.

Merritt said both brands suffered from inconsistent branding in recent years.

“Brick has gone from being an upscale Hooters to a sports bar to a gastro-pub to, now in its most recent iteration, an upscale casual-dining restaurant,” he said. “Not only do I think we confused the consumer, I think people in our own offices were confused.”

The company is now focused on a variety of improvements in both remaining brands.

“We have to focus on execution,” Merritt said, including menu simplification, smaller restaurant sizes, and improved unit-level management skill and bench strength in those positions.

Catalano added that speed of service is also important among today’s customers. “You can’t do ‘surprisingly fast’ if you are complicated,” Catalano said.

In the third quarter ended Sept. 28, Ignite reported a wider loss from continuing operations, of $4.3 million, or 17 cents per share, from $2.4 million, or 9 cents a share, in the same period a year ago. Revenue fell 4.2 percent, to $133.4 million, from $139.3 million.

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

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