Restaurants and Institutions

Chris Muller

Which is the better strategy—adding restaurant brands to your portfolio or removing them? Industry news has been dominated by this question over the past few weeks, so clearly someone must have the answer.

Is it better to be Ruth’s Chris Steak House and purchase the Mitchell’s Fish Market chain from Cameron Mitchell Restaurants, or to be Outback parent OSI Restaurant Partners and spin off the Lee Roy Selmon’s chain? Is the best move to follow what Darden Restaurants has done and acquire Rare Hospitality’s two concepts (Longhorn Steakhouse and The Capital Grille) while placing Smokey Bones Barbeque & Grill on the block? And what should we make of reports that Brinker International is looking to sell its homegrown Romano’s Macaroni Grill or that IHOP now owns Applebee’s Neighborhood Grill & Bar?

The art of assembling a portfolio of restaurant brands was perfected more than 40 years ago when the legendary Joe Baum was leading Restaurant Associates. He created highly themed individual restaurant concepts (Forum of the Twelve Caesars, Mama Leone’s, The Four Seasons, etc.) that shared a corporate backbone.

You can follow a strategy like Cameron Mitchell Restaurants’ (which before this week’s sale ranked No. 11 among R&I ’s Top 75 Multiconcept Operators) and have a small portfolio of proprietary brands, or one like Darden’s and have segment leaders matched with other small but growing brands. McDonald’s tried its hand at portfolio building (Chipotle, Boston Market, Prêt a Manger) with limited success; so did Wendy’s (Baja Fresh Mexican Grill, Tim Hortons) with almost none.

So, which strategy is best? The answer (as it is for every other question in the restaurant industry) is “It depends.”

Many people play fantasy football at this time of year. Suppose you could play “Fantasy Restaurants” and build your team of players from the hundreds of available brands. How would you answer the following questions?

• What restaurant brands would you include in your fantasy portfolio?
• How many different brands could you manage before you had too many?
• Will you treat all of your brands equally, or will one be your favorite child?
• What competitive advantages does your portfolio represent?
• For that matter, just what are the key success factors to winning the restaurant portfolio game?

Come up with the answers to the last question and you might have a promising future as a management consultant.

Industries: Commercial, Operations