Famous Dave’s has a problem: its restaurants.
It’s a takeout-and-delivery company in a casual-dining suit. Its large, casual-dining restaurants don’t fit with its menu of barbecue and the way consumers want to order from that menu.
“Our boxes are just too large to be a great barbecue joint,” CEO Jeffery Crivello says. “We’re a great barbecue joint, and also a casual-dining restaurant.”
The challenge for Dave’s and its latest executive team is to figure out a way to simultaneously support those massive restaurants while evolving to fit the way consumers prefer to use the concept.
Over time, the chain believes it can evolve into a takeout-and-delivery chain that fits more with its barbecue roots as well as with the way consumers want to eat out today. But first it must support those 6,000-square-foot restaurants.
So the chain is testing items that drive frequency, but are not associated with barbecue.
That includes items such as cheese curds, popular in Dave’s Midwestern home but not quite common in the barbecue shacks the chain sought to mimic when it was founded in Hayward, Wis., in 1994.
It also includes items like a Thanksgiving dinner, complete with sliced turkey, gravy, stuffing, cranberry sauce and a sweet potato souffle. Then there’s a pastrami sandwich, bacon-wrapped Brussels sprouts, and Hillbilly Hubcaps, an appetizer featuring fried jalapeno slices. Overall, the chain is testing 23, 10 of which could end up on its national menu.
“There’s a frequency issue” with barbecue, Crivello says. “If you were to go to a restaurant for ribs on Monday, it’s unlikely you’ll want ribs or brisket again on Tuesday. The goal was to add items that allow a guest to come more often.”
To be sure, the chain doesn’t want to forget about its barbecue, and especially its ribs, which Chief Operating Officer Geovannie Concepcion calls “literally the backbone of the company.”
But by driving frequency, the company hopes to improve sales and, therefore, profits for its franchisees, who operate 136 of the chain’s 152 locations.
“Years ago, most restaurants would generate 15% margins,” Crivello says. “The last few years, they’ve lost 2 to 3 points on labor, 2 to 3 points on occupancy, 2 to 3 points on food. All of a sudden you lose 9 points and you’re left with 6. The business proposition doesn’t make sense. We have to regain 2 to 3 of those points in those categories. The brand has to evolve. It has to reinvent itself.”
At the same time, Dave’s is working on shrinking its concept. The company plans to open a delivery-only location by the end of the year.
That makes sense. Delivery sales at many casual-dining chains have surged, even as total sales among casual-dining restaurants have declined. And the chain has had some success with third-party delivery since it started offering the service in August. Casual-dining sales increased just 0.4% in 2017, according to Technomic data.
At one of the chain’s locations, in Minneapolis’ Uptown neighborhood, it’s common to see a parade of third-party delivery drivers going in and out of the restaurant.
“It does a ton of third-party delivery,” Concepcion says. “If we shut down the dining room there it would still do well.”
Finding the right balance is an important goal for Dave’s, which has struggled to emerge out of a long slump marked by significant same-store sales declines until recently, especially at company-owned locations.
U.S. system sales declined 6.8% last year to $400 million, according to Technomic's Top 500 Chain Restaurant Report. The chain has closed 13 underperforming company-owned restaurants over the past year.
“We’re just ripping the Band-Aid off,” Concepcion says. “You can’t fight bad real estate, especially in a barbecue concept where we have frequency challenges.”
One way the company could at least give itself a fighting chance would be to keep the same management team in place for a while. Concepcion says Crivello is the third CEO he’s worked with in just more than two years with the company.
Crivello’s the fifth CEO since Christopher O’Donnell was demoted in 2012 after spending four years in the position. Nobody has lasted longer than 18 months.
Both Concepcion and Crivello have financial backgrounds, having come to the chain from two of its largest shareholders—Concepcion from Wexford Capital, the largest shareholder with 21% of Dave’s stock, and Crivello from PW Partners Capital Management.
Crivello says his plan is to give the chain’s corporate employees more of a small, startup mentality, empowering them to make decisions. Failure is OK as long as the company “fails fast.”
“Everyone is human, everyone makes mistakes,” Crivello says. “Hopefully, 80% to 90% of the decisions they make are the right ones. But if they fail, fail fast and keep moving.
“In the past, management was structured in a way that was much too corporate for this size of company. It was just stuck in the mud.”