Restaurant industry's SOS cases
Think you have business problems? Consider the handful of critical-list nominees that have struggled so far in vain to engineer a turnaround, even as the morticians circle. Despite closing stores, changing leadership, revamping the menu or hammering a "for sale" sign outside headquarters, the restaurant operations are still on life support—and not looking rosy.
Here are five of the ICU cases and how they’re hoping to bounce back after posting dismal financial results in the last two weeks.
1. Appebee’s aims to reground
The largest chain in casual dining would presumably be feeling the segment’s downturn in a pronounced way, and pain definitely abounds for the 1,800-unit brand. But new management characterizes its charge’s woes as largely self-inflicted.
The problem, says new president John Cywinski, was the alienation of Applebee’s core clientele: middle Americans with middle incomes and middlin’ tastes. His immediate predecessors were seduced by the “somewhat aspirational” notion of repositioning the brand as a place where the dressed-in-black crowd might hang.
In the process, they pushed the concept away from its heritage as an option inexpensive enough to hit several times a week.
The upshot: A 7.9% drop in same-store sales for the first quarter of 2017, following a 5% decline for the previous three months.
The damage will require some systemwide triage, with 40 to 60 units likely to be closed, says Cywinski. It’s part of a campaign to shore up Applebee’s small franchise community (a mere 33 operators) and help them stay afloat. Some are going to require loans and other forms of financial assistance, he says.
Meanwhile, the chain is starting on a comeback regimen drafted for the chain by Bain & Co. Cywinski has yet to reveal the particulars. But he admitted to investment analysts, “our testing discipline, culinary pipeline, value orientation, bar business, to-go platform and then our marketing and media advertising plans all require significant evolution.”
Parent company DineEquity spent $3 million in the first quarter alone on Applebee’s turnaround, plus another $9 million on severance and other cash payments to the company’s former CEO, Julia Stewart.
2. Ignite Restaurant Group considers 911 call
The parent company of Joe’s Crab Shack and Brick House Tavern and Tap has been struggling to regain its financial footing since acquiring Romano’s Macaroni Grill in 2013 for $55 million—only to sell it two years later at a $47 million loss.
CEO and founder Ray Blanchette cleaned out his desk, but the parent company’s problems didn’t leave with him. Same-store sales for 2016 declined 7.3% within Joe’s and 7.7% at Brick House, and 17 restaurants were closed. Ignite lost a net $44.4 million for the year. All signs suggest conditions have only worsened this year.
CEO Bob Merritt, a figure who’d earned considerable respect as CFO of Outback Steakhouse, stepped down in March, just 16 months after taking the helm. The company has been trying to sell one or both of its brands, but a buyer hasn’t materialized. Now it’s considering a bankruptcy filing—still unconfirmed, but widely expected and reported.
Quietly, the company hired Debra Eybers as COO this month, hoping the chain veteran can crack the code. It’s also negotiating with lenders to see if it can stay afloat.
The nuts and bolts of a turnaround program were not divulged.
3. Pollo Tropical’s cluster cluck
“It's the chicken, the chicken, the chicken, the chicken,” says Richard Stockinger, CEO of the Latin chain’s parent, Fiesta Restaurant Group. And, indeed, the struggling brand has already revamped its menu signature, replacing thigh meat with all-white breast meat because customers said they preferred it.
But that’s hardly the only change in store for the chain, which posted a 6.7% decline in same-store sales on an 8.9% drop in traffic for the first quarter. Pollo Tropical, along with sister brand Taco Cabana, will get a complete makeover, including a recipe update. “We are in the process of revising product specifications and recipes to include more natural, fresh, and higher-quality ingredients than recently used,” Stockinger told financial analysts.
Employees are being retrained to upgrade food quality, kitchen operations and service levels, he added.
And the redo doesn’t stop there. “Other restaurant-level programs are being refined, including dress attire, music, health and sanitation, pest control, line checks, and receiving procedures,” Stockinger said.
He said the recovery plan parallels the comeback strategy he implemented at Benihana. It was drafted after Fiesta failed to find a buyer for either of its brands.
4. Back to the future for Ruby Tuesday
The venerable casual chain similarly went too far upstream in menu, ambience and pricing to hold onto its traditional customers. Then followed four years of recalibration that had many watchers scratching their heads. Would the addition of chicken fingers really be a silver bullet, even if they were hand-breaded and attractively priced?
Sales failed to rebound, and the chain closed 106 units before JJ Buettgen exited as CEO.
Now the chain has a new chief, former Church's Chicken CEO Jim Hyatt, and a comprehensive strategic plan. The salad bar, a signature of Ruby since its earliest days, is the focus once again, though in a supersized format (58 ingredients are featured, versus 36 under the prior format, and the array includes such contemporary options as hummus). Executives call it the chain’s biggest brand differentiator.
The menu was cut by almost a third to increase throughput, order accuracy and overall quality, and a number of the retained items are intended to address lapsed customers' price sensitivity.
A facelift of the surviving restaurants was also begun.
The results have yet to be seen. For the company’s most recently completed quarter, same-store sales at company-run restaurants slipped 4%, on top of a 3.1% drop for the year-ago quarter.
Meanwhile, the company continues to explore strategic options, corporate-speak for a sale, refinancing or some other major reset.
5. Pie Five’s adolescent angst
The 6-year-old fast-casual venture from Pizza Inn owner Rave Restaurant Group started off strong, but slipped recently into a steep decline: a 15.8% drop in same-store sales for the first three months of 2017, following a 17.4% free fall during the last quarter of last year.
The downturn prompted Rave to shut 18 of the chain’s then-99 restaurants—nine of them franchised—while green lighting the addition of five new franchised stores.
The grand plan? CEO Scott Crane, who came aboard in January, has yet to reveal a major shift in strategy. Pie Five is experimenting with delivery while also trying online ordering and an app, and “we are starting to see progress,” Crane told investment analysts.