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Operations

Case study: Norms Restaurants

How investors turned a sleepy brand into a contender, all without sacrificing its soul
Photograph: Shutterstock

In 2014, after more than 65 years of family ownership, Norman Roybarck’s family decided to sell the iconic Norms restaurant chain. The chain’s CEO had a number of interested buyers, but the family was determined to protect the brand’s legacy. To assist with the decision, the CEO asked each potential buyer, “What are your ambitions for Norms?”

Answers ranged from “Build condos on the valuable Los Angeles real estate where Norms sits” to “Put Norms in every major market area across the country.” The winning answer came from CapitalSpring, which said, “We think it is an iconic brand with a great heritage. We want to protect the culture and integrity of the brand while investing in systems and processes to prepare for growth.” As with many family businesses, the sellers wanted to protect their family legacy in addition to maximizing transaction value.

CapitalSpring, a $1.4 billion investment firm dedicated exclusively to the restaurant industry, partnered with the current management to acquire Norms Restaurants in December 2014. Norms’ brand value was clear: unmatched value proposition, differentiated made-from-scratch recipes, long-tenured employees and a deep-rooted culture. However, despite the strong brand, this 65-year-old business had archaic systems and subpar operating profits. Additionally, prior expansion efforts had proven costly and inefficient. The challenge would be to find ways to capitalize on these opportunities for improvement without eroding the culture or diminishing the guest experience, both hallmarks of the brand since 1949.

“We proceeded very carefully and methodically, always sensitive to operations, GM workloads and guest impact,” said Jim Balis, Norms’ interim CEO and head of CapitalSpring’s Strategic Operations Group. Balis prioritized opportunities across the P&L, worked with a newly hired executive team to formulate an action plan and went to work. Cost of goods was reduced by leveraging CapitalSpring’s national purchasing platform and implementing a theoretical food cost module. Careful attention was paid to maintaining food quality, flavor and plate appearance, and all changes were painstakingly researched and blind taste-tested before being rolled out to the restaurants.

Labor efficiency was dramatically improved through the deployment of technologies, enabling team members to assess performance by day, daypart and position. Revenue improvements were achieved through the successful implementation of a new data-driven and ROI-focused discounting strategy along with a change in Norms’ marketing agency. Controllable expenses from delivery commissions to credit card fees were reduced through access to CapitalSpring’s national pricing. All of the aforementioned initiatives were supported by key leadership positions added across the company, from training to facilities. “Employee morale and retention are always a top priority, and we have learned that investing in training and deliberate communication with employees around the benefits of each initiative is crucial to our collective success,” Balis said.

The results speak for themselves. In about 18 months following the acquisition, Norms grew same-store EBITDA by more than 75% and AUVs to more than double (and in some cases triple) the rate of a comparable family dining chain. The brand has delivered five consecutive years of positive same-store sales and is currently generating more than 65% ROIs on new development. Norms performs three times better than its competitors on social-media ratings while maintaining high employee morale and segment-leading retention.

“We are very proud of having maintained the soul of the brand while achieving significant financial and operational results,” said Mike Colonna, Norms’ current CEO.

Once the fundamentals were in place, Norms pivoted from an operations company to a development company. “Growing unit count requires the right resources and a sound operating platform. Once both were established, we engaged a local architecture and design firm to develop a new prototype and began identifying new sites,” said Colonna. Since then, Norms has grown new locations by nearly 20%, each outperforming plan, and the company has a pipeline to increase store count further by another 25% in 2020.

New units are opened by promoting internal candidates, creating an environment of opportunity that trickles down to every level of the business. In fact, Norms was the winner of TDN2K’s 2018 Culture & Best Practices award, given for exceptional human resources practices.

“It’s about delivering a great guest experience and the people behind it. I couldn’t ask for a better partner in CapitalSpring—they have been patient and supportive and bring expertise and deep resources to the table,” said Colonna. “These are exciting times. We are firing on all cylinders and eager to spread Norms’ success beyond California.”

This post is sponsored by CapitalSpring

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