Could we pull up some forlorn harmonica music on Spotify, please? The sort you’d reckon to hear ‘round the campfire during a trail drive, or at least in Hollywood’s version of those days?
The sadder the better, since this is the tale of the cowpoke restaurant brand that didn’t make it, even though it once rivaled the likes of Texas Roadhouse, LongHorn Steakhouse and Logan’s. It’s proof that anyone can fall off their horse if they don’t watch their path.
In case you missed their most recent financial reports, Roadhouse and LongHorn are generating same-store sales increases that could be mistaken for their food costs. For the quarter ended Dec. 28, Roadhouse posted a 21.2% gain for company-run units. LongHorn’s comps for its most recent quarter topped the year-ago figure by 31.2%.
Logan’s is privately owned, but competitors attest that the brand has rebounded strongly after a rough stretch of trail that led right into the pandemic.
That posse once included a fourth power, regarded by many as the most promising of the bunch because of its heritage. Lone Star Steakhouse & Saloon was the brainchild of Dennis Thompson, a Godfather’s Pizza franchisee who would go on to found the Fox & Hound and Bailey’s casual-dining chains. Thompson had developed a small group of cowboy-themed full-service restaurants with ample Texas flair, even though they were all located in the Carolinas. He called them Lone Star Steakhouses.
One of his investors, Lester Rudd, called on an acquaintance with deep restaurant experience to take a look at the upstart operation. Jamie Coulter had run full-service Pizza Huts before that brand pivoted into a to-go operation, starting in the days when the Kansas-based pizza chain was still run by founder Frank Carney. At one point, Coulter had almost 180 red-roofed units, and he diversified into the chicken business by becoming a major franchisee of sister concept KFC. (Many of the Pizza Huts would eventually be sold to NPC International, which sold the stores to mega-franchisee Greg Flynn last year.)
Coulter liked Thompson’s tip of a cowboy hat to Texas culture and cuisine, and agreed to develop four Lone Star Steakhouses in the middle of the country. The stores were big, at around 6,000 square feet, with volumes of about $2.5 million in 1990s dollars.
They specialized in steaks grilled over mesquite, which many chain and independent operators were trying at the time. Chili’s parent Brinker International, for instance, experimented with Wildfire, a wood-fired concept created by Rich Melman’s Lettuce Entertain You.
Because the dense wood generates a high heat, a steak can be readily charred on the outside to seal in its juices. Operators liked grilling with it because the meat cooked so quickly, though the heat could be brutal on the kitchen staff.
Coulter decided that Lone Star would be his new growth vehicle, and he bought the concept from Thompson’s firm to form a new company. With only eight stores open, Coulter took his venture public in 1992, raising $91 million before the concept turned 4 years old. Eight months later, Lone Star would generate another $41 million through a secondary offering.
With all that capital available, the brand grew at a rate of about two stores per month. Wall Street also liked the tight grip Coulter kept on costs, and his presentation to financial analysts sometimes sounded like a business book on new management approaches.
For instance, he espoused what analysts called the accordion theory. Changes in costs and sales were less important than how they related to each other. If expenses rose sharply, that was a non-issue as long as revenue rose at a steeper rate. A drop in sales wasn’t a cause for alarm if costs were falling more precipitously.
Coulter opted for a flat organizational structure before that management philosophy caught hold in the restaurant business. Lone Star did not build the usual field-level chain of command. GMs reported more or less directly to headquarters instead of going through layers of regional supervisors. The communication downward was just as immediate.
Lone Star took off, growing to 267 units as the whole casual stake segment boomed. In addition to LongHorn and Logan’s, that sector included Outback Steakhouse, Saltgrass and a bunch of small upstarts. Brinker, for instance, experimented with a Hawaiian-influenced entrant called Kona Steakhouse after passing on the purchase of Outback.
Embedded in that hot market, Coulter decided to increase his ROI by diversifying into higher-ticket steak operations. He collaborated with Mike Archer, who’d climbed from the lowest levels at the original Morton’s steakhouse in Chicago to become president of the chain. They cooked up Sullivan’s, a swanky steakhouse with a Sinatra groove and prices comparable to high-end brands like Ruth’s Chris and Smith & Wollensky.
Almost simultaneously, he bought the rights to develop clones of Del Frisco’s Double Eagle Steak House, the Texas landmark that boasted a richer wine program and higher ticket than Sullivan’s.
But cracks started appearing. Part of the problem was a change on the supply side of the situation: Suddenly, consumers couldn’t lob a Bloomin’ Onion without hitting a shiny new casual-dining option. Outback Steakhouse, The Cheesecake Factory, Logan’s, Famous Dave’s, and a host of other newcomers were awash with development capital from public offerings. Logan’s and Rio Bravo were acquired by Cracker Barrel and Applebee’s, respectively, specifically as new growth vehicles. A segment that barely existed 10 years earlier was now the hot place to be. For the first but far from the last time, many wondered if casual dining was overbuilt.
Meanwhile, the nation was still shaking off the impact of the recession of 1992-93. One of the upshots as the downturn eased was a sharp climb in food and labor costs. Sound familiar?
Operations also seemed to falter, eating into sales as disgruntled customers tried some of the new casual-dining and eatertainment brands that were sprouting everywhere. Lone Star started to tank, as did its stock price.
The brand tried to cope by tempering its Western motif to appear more sophisticated. The gambit didn’t work.
A dissident minority shareholder successfully led a drive to oust Coulter, in part because of his salary, and a deal was negotiated to sell the brand to Bruckmann, Rosser, Sherrill in what would prove to be the start of private equity’s charge into the chain restaurant market. It was scuttled before completion for reasons that remain vague.
Another investment group succeeded in taking the company private in 2006.
Lone Star started to contract. That trend was greatly accelerated by the Great Recession of 2008-09. A change in ownership—a sale to an investment group called Day Star Restaurant Group—failed to reverse the slide.
Lone Star filed for Chapter 7 bankruptcy protection in early 2017. By then, it had shrunk to about 16 locations.
The tally dropped before the pandemic to a single store in Guam. It is unclear if that store is still open.
Coulter, now aged 81, is still investing in restaurant enterprises. About a year ago, he teamed up with Jimmy John’s founder and namesake Jimmy John Liautaud to buy control of a then-nine-store drive-thru concept called Seven Brew. To make the purchase, they formed an investment firm called Drink House Holdings, leaving open the possibility of future deals.
“We believe the combination of Drink House Holdings’ industry resources and expertise, as well as our global brand-building experience, will help us grow Seven Brew into a category leader, while remaining true to the original mission of the brand,” Coulter said in a statement at the time.
Sullivan's was sold to Romano's Macaroni Grill in 2018. Tilman Fertitta's Landry's group now owns Del Frisco's.