The Here And Now

Restaurant companies are focusing on existing-unit sales as a foundation for long-term health and wealth

By Allison Perlik, Senior Editor -- Restaurants & Institutions, 7/1/2003

After McDonald’s Corp. posted its first quarterly loss in its 48-year history, newly installed Chairman and Chief Executive Officer Jim Cantalupo quickly hatched a revitalization plan.

“Growth comes from being better, not just expanding to have more restaurants. The new McDonald’s is focused on building sales at existing restaurants rather than on adding new restaurants,” Cantalupo announced in April.

Oak Brook, Ill.-based McDonald’s plan reflects a strategy shift also seen at other companies. New units are essential to most growth plans, but there is renewed emphasis on that key indicator of success—same-store sales.

“The only way to be able to add new stores is to make current franchisees progressively more successful,” says Rob Beall, CEO of Ledo Pizza, a 65-unit family-dining chain based in Annapolis, Md.

Chris Tripoli, president of Houston-based A’la Carte Foodservice Consulting Group, concurs. “Our clients know that although they would like to grow in number of units, they need to make their current operations work in order to maintain the confidence of lenders, partners and investors,” he says.

Chains seeking to follow this path have two strategies: increase efficiencies and try to do what they’ve been doing more profitably, or make operational changes that increase revenues over costs. Either choice can strengthen the company’s future health and wealth.

KEEP EYES ON THE PRIZE
At Ledo Pizza, Beall focuses equally on new units and sales at existing stores. To build same-store sales, franchisees must always know where they stand, and to that end, the chain in 2002 began issuing quarterly “report cards.”

The reports list an operator’s sales change over the year-earlier quarter; where he or she stands relative to others in the system; and Ledo’s top 10 performers. Management also compares numbers from the company as a whole to previous quarters and to competitors’ performances.

“Perspective is important,” Beall says. “It’s not enough just to say, ‘I’m growing.’ You want to say, ‘I’m growing at least at the pace everyone else is or strive to get above that.’”

Attention to unit-level sales also helped Cincinnati-based Frisch’s Restaurants’ Big Boy concept, according to President and CEO Craig Maier. “We used to be driven by bottom-line results,” he says, stressing that paring expenses while keeping sales stagnant cannot yield long-term success. “We caused sales to contract not just once but on a regular basis.”

Today, sales numbers from each of the company’s 120 Big Boy units are on Maier’s desk each morning. If a store shows weakness, he contacts the unit manager and, if problems persist, the area supervisor.

With the exception of the recent quarter affected by weather, the company has seen 21 consecutive quarters of same-store sales growth. “You don’t get that by saying today I’ll work on sales and tomorrow on something else,” he says. “Profit will flow if you have sales.”

GROW BEYOND TABLE SERVICE
The to-go trend in casual dining continues to gain steam. As a strategy, it is viewed positively by restaurant analyst Matt DiFrisco of Gerard Klauer Mattison & Co. in New York City. “It’s cheaper to do, you don’t need more labor and customers aren’t sitting at a table,” DiFrisco says. “As long as you’re not detracting from the core business, which is table dining, why not maximize your kitchen?”

Eden Prairie, Minn.-based Famous Dave’s has created a sub-brand around takeout dubbed Bar-B-Q Ribs To Go, complete with logo and merchandising packages. Most restaurants also have added the convenience of separate to-go entrances.

Lane Schmiesing, vice president of marketing for the chain, says cannibalization of table-service sales is not a concern since consumers typically decide to order takeout food and then select the venue.

Meanwhile, Overland Park, Kan.-based Applebee’s Neighborhood Grill & Bar is evolving its to-go efforts with curbside delivery, which the company plans to have in place at all restaurants in 2004. The chain has noticed an incremental lift in sales beyond regular to-go at its approximately 200 curbside locations, a trend Executive Vice President of Operations Dave Goebel attributes to the format’s added hospitality and convenience.

Another factor in Applebee’s recent success is a new kitchen display system (KDS) that has helped increase food preparation and service efficiencies. Tied to a restaurant’s point-of-sales system, KDS software coordinates cook times for each table’s orders. For example, Goebel says, if a table orders a medium-well steak and a chicken salad, the steak order is immediatelysent to the kitchen. The salad order, though, does not appear until the steak has been cooking for 10 to 12 minutes. Such calibrated timing allows orders to come up at the same time.

Already in most company stores, KDS will be in all units in 2004. Goebel says the program results in hotter and fresher food while also decreasing ticket times. This helps improve customer satisfaction, he says, and also allows tables to turn more quickly during busy shifts.

TIGHTEN MARKET FOCUS
The old adage that a company can’t be everything to everyone rings true for Antonio Swad, founder of Dallas-based carryout chain Pizza Patrón. Since 1986, Swad has developed the four-unit concept exclusively in Hispanic communities. The company recently rededicated itself to tighter focus on its core audience, with more stores planned for the near future.

“This gives an opportunity to almost own a market,” says Swad, pointing out that companies can get off track by trying to broaden their appeal too much. “Anything you do at the unit level that makes the operation more difficult to manage and creates a greater opportunity for mediocre food ... is a detriment to your brand.”

At Pizza Patrón, menu boards are in English but handout menus are printed in Spanish. Neon signage reads “Pizza Ahora” (Pizza Now), and contemporary Latin music plays inside. To best serve his core customers, Swad’s employees speak English and Spanish and store managers must reside in their trade areas.

While casual dining saw three booming years of same-store sales increases from 1999 to 2001, more recently the economy and tough year-over-year comparisons have made such growth difficult, says Dennis Forst, restaurant analyst with McDonald Investments in Los Angeles. As a result, he says, some restaurant companies are spending more on advertising and marketing.

Madison, Ga.-based Avado Brands Inc., parent of Don Pablo’s and Hops, is shoring up its marketing as part of a recently announced shift in focus from debt reduction to aggressively driving same-store sales. To make sure the strategy hits its mark, the company spent two years crafting a brand position statement that “describes exactly what we aspire to be,” says Chairman and CEO Tom DuPree.

All of Avado’s recent decisions, including an upgrade of its proteins, a change of preparation methods and switching some vendors, are vetted against this statement. “It gives us a discipline in our execution,” says DuPree, adding that results so far have been “striking.” “We’ve seen about 30% improvement in guest counts over the past several weeks.”