Monday, October 29, 2007

Are things bad all over?

If the restaurant industry has slogged through a worse reporting period than the last few weeks, a guy named Hoover was probably president—if not somebody named Voldemort. In a 19-day stretch, Domino’s posted a 55-percent freefall in net income, Ruby Tuesday posted a 48-percent plummet, Brinker notched a 21-percent decline, Wendy’s disclosed a 56-percent dive, P.F. Chang’s earnings sank 20 percent and IHOP finished $11.6 million in the red. For all but a few industry standouts (notably McDonald’s and Tim Hortons), the recent past has been the stuff of blues songs.

The industry has certainly shrieked through its share of rollercoaster drops before. As Ruth’s Chris CEO Craig Miller noted during MUFSO, the current ills of sky-high fuel prices and surging food costs are minor compared to what he saw in the 1970s, when President Nixon froze prices to check inflation and consumers couldn’t buy gas at any price because of an OPEC embargo. This is nothing compared to then, he suggested.

But what makes Quagmire 2007 unique, at least out of all the restaurant downturns I’ve witnessed, is its lack of discrimination. In past sales chills, business usually shifted, with the big brands wresting traffic away from the scrawnier players in a display that would have had Darwin smugly nodding. But this time, the dynamic seems to be more of a lowering tide. Many of the companies that reported their earnings with a decided wince were the very ones that filed their SEC documents with a swagger just a short while ago. This is truly a macro-effect, not a bad story with plenty of footnotes. The list of the unaffected is shorter than a mash note to George Steinbrenner.

Which, of course, underscores the question, What’s the industry to do? Miller offered his recollections of worse times to illustrate that better conditions will return eventually. But how can a chain hurry it along?

BJ’s Restaurants, one of the companies to clearly prosper during a period that most competitors characterize as a kick in the groin, has a very definite idea. “In this difficult operating environment, where consumer spending for casual dining occasions and the prime costs of doing business will likely continue to be under significant pressure on an absolute basis for the foreseeable future, we believe the more successful casual dining concepts will be those that protect their overall consumer 'approachability' for all dining occasions and that offer even greater quality, differentiation and overall value to the consumer," CEO Jerry Deitchle was quoted as saying in the company’s announcement of a 31 percent rise in net income on a 30 percent rise in revenues for the third quarter.

I’m not crystal-clear on what he means by “overall consumer ‘approachability,’” but I assume he’s trying to say that the objective is boosting customer frequency, a laudable goal. Certainly that’s more ambitious than the usual approach of trying to buy customers by giving them a deal, a reflex that can haunt a chain for years to come.

Avoiding that knee jerk to focus on “approachability” and differentiation—an objective that should trump the others, in my estimation—would be as much of a departure from the norm as this downturn itself seems to be.

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Thursday, October 25, 2007

Foul pitch

I wish I’d been at Fenway Park last night, an admission that’s not easy for a Yankee fan to spit out. But at least I could’ve watched the game without having to retch through the worst baseball sell-out since the Black Sox Scandal of 1919. If you caught Taco Bell’s painfully strained promotion during Fox’s broadcast of the game, you’ll sympathize completely. Normally I’d rather tongue-kiss David Ortiz than set foot in a gloating Red Sox Nation during a World Series. But I’ll take Schilling over that sort of shilling any day of the baseball calendar.

Here’s what happened: With the Red Sox ahead by just one run, the heart of the Rockies’ lineup was coming up to bat. At that very moment, Fox commentator Joe Buck alerted us that we were going to hear an earlier-recorded snippet of conversation from a mic’d-up Royce Clayton, a second-string shortstop for the BoSox. For the benefit of the non-baseball fans among you: That’d be like “60 Minutes” interrupting an interview with Osama Bin Laden to cover a cat stuck in a tree.

“Hey, you like Taco Bell?,” Clayton asked Red Sox rookie Jacoby Ellsbury, who looked about as engaged as a 4-year-old in church. Clayton proceeded to explain that Taco Bell would give free tacos “to every person in the country” if a player on either team stole a base that night. “America’s depending on you,” he informed his young teammate.

Cut back to Buck, narrating a clip of Ellsbury stealing a base earlier in the game. Buck, one of the most respected commentators in sports, then informed the audience that the free tacos would be available next Tuesday between 2 and 5.

Say it ain’t so, Joe.

And tell us you’re not going to play along any further than that.

But he does. Matt Holliday, the Rockies’ best hitter, rips a single to set up a possible rally for the Rocks. Now Buck segues us to in-the-stands commentator Chris Myers, who’s sitting with Taco Bell chief operating officer Rob Savage. Myers articulates THE question on the minds of baseball fans at that moment: How can Taco Bell afford to give everyone in America a taco, when that has to cost millions?

“It’s all for our customers,” for whom every taco will be “made fresh for you,” Savage somberly replies.

Myers then presents Savage with a takeout container of (presumably New England) chowder inside a Taco Bell bag, and scars young baseball fans forever by closing with, “We’re thinking outside the bun.”

Buck, having found his conscience again, offers an obviously sarcastic, “Chris, great work.” At which point booth mate Tim McCarver burst out laughing. “From Schilling to shilling,” he quips, and both broadcasters resume calling a game then being pitched by Red Sox legend Curt Schilling.

It’s essential that restaurant marketers find new ways of reaching an audience that’s drifting away from traditional media. But the goal is to engage that hipper, more irreverent crowd, not to alienate it with a heavy-handed plug of that sort. Even co-conspirators like Buck and Myers seemed embarrassed to be associated with something that clunky. Used-car salesmen were probably cringing.

On Thursday afternoon, Applebee’s announced that it had chosen an apple as its new pitchwoman. A few hours later, Taco Bell and Fox reached for a lemon.

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Monday, October 22, 2007

Would Wendy's take a check?

I’m thinking of bidding $4 billion for Wendy’s, but why make Nelson Peltz any richer? The worth of his stake in the company may already be bobbing higher because of speculation he’ll offer $3.2 billion—speculation some say he’s conjured with all the high-profile yelping about his treatment as a potential buyer.

After all, several of the other identified suitors have insisted the company’s not worth that much. Through his various companies, Peltz controls about 9 million Wendy’s shares. If he can bluff another bidder into raising its offer by even a few dollars per share, he’ll be in Frosties for life. And if he scares them away with his posturing, he could swoop in with a low-ball deal and bag the company with the M&A equivalent of an order off the Super Value menu. This is why I’m slaving away at a keyboard and he could pay the King to cut his lawn, with Mayor McCheese handling the edger.

So why not have my 15 minutes of fame and talk up a plan to bid $4 billion? As more and more observers are suggesting, my contemplated offer may be just as real as Peltz’s.

I’d call and check that with him but—well, you know. I’d have an easier time dragging the Pope out for some foosball.

Thursday, October 18, 2007

Maybe Bobby Bacala would do

Wendy’s best hope may not be Nelson Peltz, Bill Foley or a nameless twentsomething in a pigtailed wig. If the company wants to avoid a pitched two-front war with investors and franchisees, the person it really needs is Paulie Walnuts.

As any Sopranos fan knows, Paulie has his issues, like occasionally beating people into hamburger. But he was also the go-between when warring parties wanted a sit-down. Too bad the folks at Wendy’s apparently weren’t HBO subscribers, because they’ve been focused on sending messages instead of sharing some grappa in the backroom of the Badda Bing. Franchisees are clearly squaring off with the home office, if they’re not looking to buy the company and impose their own strategy. And how’s Wendy’s coping? By sending letters, like the feel-good click here it dispatched to licensees and employees yesterday.

In fairness, it should be noted that headquarters has instituted monthly webcasts with franchisees and employees to keep the whole system apprised of chain activities. CEO Kerrii Anderson also indicated in her letter that enhancements have been made to WeNet, presumably the chain’s intranet.

But neither of those media is face-to-face. Indeed, they tend to be used for one-sided disseminations than a true give-and-take.

What seems to be needed is a war council, where the parties can sit down and work out their differences in the spirit of Dave Thomas. Instead, franchisees and the home office have been using postmen as their proxies, sending letters back and forth. A dozen licensees sent a scathing one to Wendy’s home camp a few months ago, blasting management for lowering the value of their business. The executives denied it, and followed up with yesterday’s assertion that the turnaround is going well.

Does this sound like a system that’s talking?

In her letter, Anderson also noted that meetings were held in August with franchisees specifically to discuss plans for 2008. Why, then, was yesterday’s communication even necessary? Might it have been more of a defense than an explanation of what the home office has chosen to do?

Interestingly, in ticking off Wendy’s achievements during the last year, Anderson cites “enhanced communications” as an accomplishment on par with improving operations or bolstering sales and profits. Clearly the management team felt the need for an upgrade. You have to wonder if executives and franchisees still do, and if both sides are doing their part to ease tensions through conversation.

“We’ve made significant progress in the last 12 months,” Anderson told franchisees and employees. But “we have so much more to accomplish.”

Perhaps maintaining peace with franchisees through a true disarmament sit-down should be item No. 11 on her to-do list. With that problem allayed, the whole system could address the larger issue of bolstering finances, which might even make Nelson Peltz smile.

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Tuesday, October 16, 2007

A second opinion on doctors' meals

It’s the industry’s equivalent of a tooth fairy with nothing smaller than a ten, an upgrade to first class on a trans-Atlantic flight, maybe even a snow day. If ever there was a sweet treat for the restaurant business, it had to be the free spending of pharmaceutical companies that believe the way to a doctor’s ears is through the stomach. Drug sales reps know their ticket into a physician’s office is a free breakfast or lunch personally delivered to the staff. That’s why some restaurant chains have organized sales squads specifically to sell their catering or function services to pharma field teams. Is there any doubt they’ll be sobbing louder than most when regulators try to take that boon away?

They’ve already succeeded in Minnesota. Lawmakers there have prohibited drug salespeople from giving a doctor more than $50 worth of food per year. That translates into a catered lunch from Panera Bread about every August.

Worst of all for the restaurant industry, the two-year-old curb has demonstrated that doctors are far more reluctant to open the door for an empty-handed pharma rep. Research suggests that the turn-away rate for pitchmen in Minnesota is double the decline in visits for counterparts in the other 49 states. And that’s exactly what proponents of the restrictions want to see. They believe the wooing prompts doctors to prescribe medicine that isn’t necessary or costs more than suitable alternatives. They want the reps to stop courting doctors in any fashion. And free food seems to be the equivalent of roses and jewelry.

No wonder a push for restrictions is arising in other states, according to a recent article in The New York Times. New Jersey formed a task force last month specifically to consider a measure similar to Minnesota’s, according to the article. It suggested that other states may be interested as well, but did not name them.

If the restrictions were to spread, chains ranging from Outback Steakhouse to Au Bon Pain could feel the pain. It’s a shame that such a lucrative source of business could be closed off at a time when the mainstream market is clearly in need of some strong medicine.

Thursday, October 11, 2007

The Big Cheese?

A new title was bestowed on the grand metropolis of New York last week, in part because of its sizeable restaurant industry: City Most Likely to be Infested with Rats (Fall Season). And, no, the news didn’t come from the Big Apple Chamber of Commerce.

The distinction was pinned to the broad chest of America’s cultural and commercial titan by two figures who are acclaimed for their knowledge of rodents, Dale Kaukeinen and Bruce Colvin. The pair studied data from the 2000 U.S. Census to determine what makes a city attractive to rats. Among the factors they identified was the resurgence of cities as residential areas and a resulting gentrification, which in turn have bolstered urban areas’ service and entertainment offerings. “This trend is proving to be an ideal environment for rodents due to the density of people and the abundance of food waste from residents, businesses and local eateries,” according to a statement on Kaukeinen and Colvin’s research, which was sponsored by a “rodenticide” supplier.

Among the other contributors they identified are “wacky weather,” defined as unseasonably warm and wet, and an end to the $12 million to $15 million in subsidies the federal government once passed along annually to communities for the fight against rodents.

Wielding the criteria they’d developed, the duo then ranked cities by their expected hospitability to rats this fall. New York topped the listing, followed by Houston, Boston, Louisville and Philadelphia. Among the surprises on the roster were El Paso, Texas, at No. 9 and San Jose, Calif., at No. 19.

Kaukeinen and Colvin suggested that fall is typically the height of the rodent tourism season for many U.S. cities. “As the weather cools,” the statement explains, “rats and mice move inside in search of food and shelter.” It’s when infestations are most likely to occur and “rodents reach their annual abundance,” it noted.

Our beloved Yankees may have been eliminated from the playoffs this fall. But let Cleveland try to touch us in the rat rankings. No wonder pitcher-attacking bugs seem to be its signature pest.

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Monday, October 8, 2007

It could have been you

Last Thursday afternoon, just after the lunch rush, a former staffer of a Moe’s Southwest Grill in Dilworth, N.C. decided to surprise his one-time colleagues. He walked into the burrito restaurant, pulled a gun, and shot operating partner Vinny Ferens and assistant manager Jeff Mahar. The police grabbed the 28-year-old gunman and learned he came to shoot up the unit, not to rob it. He’d been canned a few weeks earlier and had come back to exact revenge.

He succeeded in his quest; Ferens, 36, and Mahar, 34, both died from their injuries. The elder of the two left behind three children, ranging in age from eight years to six months. Mahar’s familial situation was not disclosed. He’d joined the crew just two months ago.

That account of the tragedy was provided to the media by Moe’s franchisor, Atlanta-based Focus Brands. Those of us with ink in our veins usually have to wheedle, cajole or feign a last request to get information from an organization that’s suffering through a nightmare of that magnitude. If the moon and stars are aligned, you might get the sparest of details. Focus is publicizing everything about the incident except the name of the employee-turned-accused-shooter (local news and police reports identified him as Derrick Lamont Gregory).

The reason for the company’s forthrightness is clear and commendable. It wants the industry to know what happened to two of its own because the pair’s successors may need help. Left unsaid is the trade’s willingness to aid the families within its ranks, regardless of whether they’re strangers or even affiliated with competitors. It’s something unique about the business that people in other fields probably can’t fathom. If you doubt it, ask someone in the grocery business if they’d ever help a counterpart limping through a crisis. They’ll probably take a swing at you.

Focus wants the business to know that it’s set up a fund to help the families of Ferens and Mahar with burial fees and other expenses. Contributions can be sent to the Moe’s Victims Memorial Fund, Wachovia Bank, 171 17 St., Mail Code GA4517, Atlanta, Ga. 30363.

Already, Moe’s management said in a statement, “the outpouring of sympathy and support that our customers have shown for these victims has been incredible.”

Hopefully Feren and Mahar’s professional peers will be even more generous.

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Sunday, October 7, 2007

Speaking of immigration

One of the highlights of last week’s Multi-Unit Foodservice Operators conference was a panel discussion of the nation’s immigration problem and what should be done about it. Discussion, debate, argument—why get hung up on semantics?

And yet semantics, as the panelists noted, is often what keeps tempers burning when the topic arises in any public forum. As National Restaurant Association chairman Dick Rivera observed, a hardliner on the panel referred to “legal immigrants” but “illegal aliens.” Clearly “aliens” is a more pejorative and loaded word, applied more often to mutant invaders from space than foreign students who over-stay their visas.

Rivera was brilliant in arguing for a moderate approach to resolving the issue of illegal immigration. And, perhaps not surprisingly, he suggested the process begin with the adoption of a new glossary. A key point of contention is whether the 12 million illegal aliens estimated to be in the country right now should be forced back to their countries of origin before they can begin to seek legal residence within the United States. To do otherwise, conservatives argue, would be granting amnesty to obvious lawbreakers.

“I prefer the term ‘plea bargain,’” said Rivera. The illegals should have to pay taxes and perhaps fees or fines, rather than get away scot-free, he explained. But they should also be allowed to stay, which he defined as “being on parole.” As long as their behavior remains lawful, why not let them continue to work and live here while they seek legal residence?

It was a dash of reason and level-headedness, elements that sorely seem to be missing from the discussion of immigration, if you can even call that screaming match a discussion.

One other interesting tidbit that emerged during the panel: One expert noted that about 7 million of the nation’s estimated 12 million illegal immigrants are currently working. The restaurant industry has estimated that it alone employs about 1.4 million of that illegal workforce, or 20 percent of the tally.

Clearly the “problem,” to use another loaded word, is a major one for the trade. It’s fortunate that Rivera has suggested a vocabulary that will serve the business well in its attempt to foster an actual discussion on immigration. And, thanks to that presentation at MUFSO, it’s a give-and-take that shouldn’t be alien to the trade.

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Thursday, October 4, 2007

MUFSO outtakes

I’m starting a relief fund for my colleague Lisa Jennings, who could be institutionalized by the assignment of crafting an overview story on Nation’s Restaurant News’ Multi-Unit Foodservice Operators conference. The meeting, held earlier this week in Los Angeles, crammed an MBA course on industry issues and trends into three days, with any downtime devoted to networking and sampling the latest in adult beverages. Lisa has the task of capturing that kaleidoscopic experience in a snapshot. You can only hope the food is decent at wherever she’s committed.

Fortunately for the other residents of Harmony Home, the show provided several moments that will serve Lisa well during Story Night. Here are a few of the lines from MUFSO that probably won’t figure into her article (which, by the way, is scheduled to appear in the Oct. 15 issue of NRN).

“Within an hour, you’ll be depressed.” — Rick Berman, before beginning his one-hour presentation, presumably referring to the content of “Labor Costs: The Rising Cost of Employment.”

“How many of you thought Jack was really the CEO?” – Linda Lang, chairman and CEO of Jack in the Box, as she took the podium to accept her Golden Chain award. Earlier, Lang had revealed that Jack, the orb-headed mascot who’s cast as the chain’s chairman and chief executive in commercials, is always portrayed by the same person rather than a succession of actors. Lang wouldn’t say who that thespian was, explaining, “if I told you, then I’d have to kill you.”

“My new dream is to be Julia Stewart.” – Nick Vojnovic, president of Beef ‘O’ Brady’s, after confessing that his mother’s dream for him and his brother will never be realized. Coming from a restaurant background, she had insisted that her children not go into the business. Nick’s two brothers are also high-level foodservice-company executives. He didn’t explain his infatuation with Stewart, the CEO of IHOP and architect of the company’s pending purchase of Applebee’s.

“I’m up here for being alive today.” – James Maynard, co-founder and chairman of Golden Corral, joking about his choice as the 2007 winner of the Pioneer Award, an honor previously bestowed on the likes of Col. Sanders and Norman Brinker. Later, while actually accepting the award, Maynard quipped through tears that winning the honor wasn’t a bad achievement for a 50-year-old. He founded Golden Corral almost 35 years ago.

“They’ll be out of there faster than Ted Kennedy at an O’Doul’s kegger.” – Jim Sullivan, forecasting how youngsters steeped in present-day multi media will react to a restaurant trainer wielding nothing more high-tech than a flip pad and pointer.

“My father told me, ‘You’ll do well there [in Washington]. You’ve been dodging nuts your whole life.’” – Ex-congressman Leon Panetta, after recounting how his job on the family’s walnut farm was scooping up the nuts after his dad shook the trees to make them drop.