Another investor’s curbside treasure?

The restaurant industry is having quite a garage sale. Chain brands that once drew smiles of delight from their owners are now being unceremoniously wheeled to the driveway like so many dust-covered crockpots and exercise bikes, their newness and shine long since gone. For Sale stickers have been slapped on some of the coolest places of decades past: T.G.I. Friday’s, Ruby Tuesday, Red Lobster, Chuck E. Cheese’s, Dave & Buster’s.

Sbarro says it’s merely looking to restructure, but hiring an advisor for that purpose often signals openness to a sale, and the mall chain has been showing the same sags and wrinkles as the true silver-hairs on the sales block. Maturity has sapped their relevance to diners of a more tender age or adventurous spirit. As a friend in the business says, No one wants to eat where their parents did.

It’s a bit of déjà vu. In the mid-1980s, I was assigned ongoing coverage of Howard Johnson’s, the one-time industry leader that still finished high at the time on the ranking of restaurant chains by unit count (I think it had 540 stores.) But it had all the verve and agility by then of a retired plow horse with its one good eye warily cast at the dog-food plant. Specialties like bottomless platters of deep-fried clam strips just didn’t turn the heads of a generation wowed by nachos, fajitas and spinach dip, the exotic menu standouts of a new restaurant breed called the fern bar.

HoJo’s, which had successfully transitioned from an ice cream parlor to a low-end casual dining place, was experimenting with all kinds of replacement concepts. One was an up-market play called The Red Coach Grill, which my folks would mention with a reverence usually seen only in Britain subjects addressing the queen. There was also Pickle Lily’s, which of course was just a zany joint. Ditto for Bumbershoots.  None of them were getting traction because they looked and felt too much like a place that might boast 32 ice cream flavors.

Simultaneously, HoJo’s was playing the nostalgia card. It resurrected the concept’s old logo, and dabbled with neon signage.

Today’s turnaround experts might have advised the chain to move more aggressively in that direction. They contend that the first step in re-invigorating a venerable brand is pinpointing what made it special to consumers in the first place. The knack is restoring that magic, that point of distinction, but in a form that resonates with present-day tastes. Then build out the customer base with attractions that complement the foundational attributes.

It’s certainly not impossible. Look at Denny’s, which seems to be getting traction with its claim of serving as America’s diner.  It’s not muting the appeal of old-line items like Grand Slams, skillets, and gut-filling platters. Yet this week it introduced more health-oriented items, including items made with fresh spinach and complemented with turkey bacon or chicken sausages. 

(The chain noted that the menu changes fit a new approach to limited time offers, reinforcing our prediction that LTOs will be more tightly bridled in 2014.)

Still, stores are being renovated with a look the chain calls its heritage design.  The sort of people who live on Facebook and Twitter might call the strategy a mash-up of tradition and accommodation to the times.

Perhaps new owners of the mature brands on the sales block will find the right potion for rejuvenation.  It won’t be easy. Try as it did, Howard Johnson’s couldn’t nail the formula. The brand was sold to Marriott, which intended to convert company-run restaurants to a mid-priced buffet concept called Allie’s. Tests of the changeover convinced Marriott to write-off its experiment, and HoJo’s faded away.

Some of the brands exploring financial alternatives—Wall Street code for a change in ownership—might not make it, or at least not in their current form or size. Ruby Tuesday had armed itself with a slew of possible replacement concepts, but smartly pared them back to refocus on the uniqueness of the casual dining granddaddy. As CEO J.J. Buettgen has said, the brand might have pushed too far above its traditional pricing and style of fare, and needs to regroup. Meanwhile, the chain is paring 30 under-performing stores from the system.

The odds of once again becoming a growth brand certainly aren’t in the concepts’ favor.  Examples hardly abound, and, curiously, most of them seem to be in Denny’s segment (think IHOP, Steak ‘n Shake, Friendly’s, and a California concept, Du-par’s, which is growing in part through conversion of old Bakers Square units.)

But familiar brands with considerable current sales can be had for what may well be a bargain. Stay tuned to see who might see a treasure in another investor’s curbside deals.


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