Restaurateurs can be excused for putting a little more oomph this year into their renditions of “Auld Lang Syne.” For many, the sooner they get the 2019 calendar off the wall, the quicker they can forget a year that won’t go down as one of the industry’s best. Traffic slipped, sales were sluggish, labor costs soared and yetis were easier to snag than new recruits.
But before the memory goes completely dark, here are a few of the developments that merit one last recall because of their importance.
Steve Easterbrook is fired
Franchisees showed their dislike by calling him Stock Price Steve, as if he was Wall Street’s teacup Yorkie. Reformers pointed to his compensation—just shy of $22 million in 2017—as damning proof of greed run amok. Unions spat at the mention of his name while computing how few minutes the British expat needed to work to eclipse the pay of a McDonald’s crew member. Even without the human factors, business conditions made every day a swim through the gator pond for Steve Easterbrook, the man who was pulling off a turnaround that many would have bet against when the onetime accountant took the CEO’s job at McDonald’s in March 2015.
And what did him in? A violation of the corporation’s employee handbook.
Easterbrook admitted to having a consensual dalliance with a female employee who has yet to be identified. There were no allegations of harassment or unwanted advances, but McDonald’s apparently has policies against romantic relations between an executive and a subordinate. In a very public exit, Easterbrook was fired from what may be the loftiest job in the industry, acknowledging on his way out that he was guilty as charged of “bad judgment.”
Quietly, McDonald’s head of human resources also exited, just weeks after communications chief Robert Gibbs, onetime spokesman for the Obama White House, tendered his resignation.
Insiders say there’s more to the story, but details have yet to emerge. What’s left is one more cautionary tale of a corporate strongman losing it all by following his heart.
The Cheesecake Factory’s stunner of an acquisition
The 202-unit polished-casual chain tends to do things in a big way. Its restaurants are huge. Ditto for its portions. And the menu could be printed in several volumes.
So when Cheesecake made its first significant acquisition at age 49, the move was fittingly a head-turner. The brand’s $353 million purchase of Fox Restaurant Concepts wasn’t the biggest deal foodservice has seen, or even the biggest of 2019 (41-unit Cooper’s Hawk Winery & Restaurants fetched twice as much from a private-equity buyer). But it presented the industry with a new sort of expansion model.
The strategy calls for Fox, a serial concept creator, to hatch and nurse new restaurant ventures until they’re ready to fly. Then Cheesecake steps in and applies its know-how for building and operating chains of scale.
The casual giant didn’t just acquire 45 restaurants, the nose count of establishments within Fox’s fold. It bought a concept lab.
Rise of the ghost kitchen
The restaurant industry still can’t agree on what to call the facilities, but it’s been quick to recognize their disruptive potential. The multikitchen commissaries were initially embraced as a way to capitalize on the third-party delivery boom without overtaxing a back-of-house production system built to feed the other end of butts in seats. Now they’ve morphed into a relatively painless way for an operation to gain a market foothold. Newcomers and big-brand concepts alike are using the kitchens to produce and sell meals without incurring the high cost of building an actual restaurant.
Whole chains of “virtual” restaurants—places that have a name, recipes and a menu, but no physical presence save the ghost kitchen—are springing up at a considerable pace. Meanwhile, brick-and-mortar brands of all shapes and sizes are using the commissary-like kitchens to push into new market territory without construction. They’re often aided by third-party delivery services armed with massive data about the demand and consumer behavior a turf newcomer can expect.
Chains such as Wendy’s, Chick-fil-A, Famous Dave’s and Nando’s say the facilities will figure into their near-term development plans, regardless of whether they’re known as ghost kitchens, dark kitchens or cloud kitchens.
(Insert the chain of your choice) is closing restaurants
Nonstop reports of large-scale closings may have triggered flashbacks to the Great Recession. The numbers have yet to be crunched, but this retrenchment might have been more severe. Pizza Hut said it needed to pull the plug on as many as 400 sit-down units. Subway acknowledged that it’d dropped by 1,000 locations since 2017. Steak ’n Shake flicked off the lights in more than 100 stores, though it insists the closures are temporary.
The list of decommissions goes on and on. Ruby Tuesday: 51 restaurants. Luby’s: 30 stores across its three brands. Friendly’s shut 23 stores on one weekend. Boston Market lowered the shades on 45. The Don Pablo’s and Farrell’s chains disappeared altogether.
It’s not a coincidence that many of the pruners were full-service brands, or that news of the wholesale closings was warmly received by survivors in the casual- and family-dining segments. Pundits pressed their theory in 2019 that the full-service sector is overbuilt and needs a correction. At least the start of it was clearly evident.
Popeyes’ chicken sandwich
Cruising down fast-food row, a consumer couldn’t fling an onion ring this summer without hitting a chain outlet hawking chicken sandwiches. Popeyes Louisiana Kitchen’s version proved singular in its drawing power. The chain ran out of supplies and had to forgo selling the item for two months as it stocked up on ingredients. Its return to the menu triggered a traffic surge reminiscent of a bank run circa 1929. Customers grappled with one another to get a sandwich because of fears it would sell out again. One man was fatally stabbed over a line-cutting incident.
If the industry hoped 2019 would bring an end to chains’ efforts to concoct a breakthrough product, be it the next Pumpkin Spice Latte or another novelty from Taco Bell, it was likely disappointed by public reaction to the Popeyes’ sandwich.
Restaurant buyers go on a tear
Black Friday was a church service compared with the shopping frenzy that had restaurant brands changing hands in 2019 at a torrid pace. Every week seemed to bring a report of another deal, be it a strategic move (Cracker Barrel’s investment in Punch Bowl Social and purchase of Maple Street Biscuit Co., Huddle House’s acquisition of Perkins) or a pure investment (an estate office’s acquisition of Whataburger, the Graham family’s absorption of Clyde’s Restaurant Group).
Tilman Fertitta might as well have been at a swap meet, working on his baseball card collection. His Landry’s group added at least 10 new concepts to its empire of full-service brands, raising the tally to 73. The additions included Houlihan’s and Del Frisco’s two steak concepts, Del Frisco’s Double Eagle and Del Frisco’s Grille.
His modus operandi was to place a low-ball offer, often in the form of a so-called stalking-horse bid. But not all of the year’s deals were the result of low valuations. Ares Management paid between $700 million and $800 million for Cooper’s Hawk, or at least 23 times the polished-casual concept’s EBITDA.
The purchase of Whataburger triggered an outcry in Texas. Although the Dobson family had indicated earlier that it intended to sell a controlling stake, residents of the Lone Star State weren’t thrilled to see their hometown favorite become part of a Chicago money manager.
Bankruptcies abound
Filing for bankruptcy protection seemed as commonplace for restaurants in 2019 as coming up with a new Valentine’s Day promotion. A number of venerable concepts, from Houlihan’s to Marie Callender’s, opted to shed their debt and unload bad sites through bankruptcy proceedings. But youth was no protection against costs exceeding revenues. The pack of court-supervised concepts included such shiny new brands as iPic, a restaurant-theater hybrid, and Pork & Mindy’s, a small Chicago operation that showed more cleverness in devising a name than it did in making a profit.
National Restaurant Association loses its leader
The restaurant industry’s most powerful advocacy group is markedly different today from the organization that entrusted its leadership in 2007 to a newcomer from AARP. The National Restaurant Association didn’t know exactly what it’d be getting in Dawn Sweeney. It’d find out in short order that her proper demeanor belied an ardent determination to professionalize the Association and expand its scope far beyond lobbying and traditional advocacy. Under Sweeney’s tutelage, the organization would add a host of new support services and programs while exponentially expanding membership. A mom-and-pop operator in Peoria, Ill., may never have met Sweeney or seen her in action, but chances are the place felt her influence rippling all the way from Washington, D.C.
In May, just two days before the industry’s annual convention in Chicago, the Association announced that the 2019 event would be the last one marshalled by Sweeney. After 12 years of leading the association, she was retiring.
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