Thursday, July 24, 2008

Why wait 'til March for madness?

My friends are a little worried because I like to kick off restaurant chains' earnings season with a tailgate party. And why not? We’re talking quarterly updates from the biggies, people. And then come the conference calls, where you can ease back with a hot dog and a beer while investors do some serious grilling of public-company execs. Who needs Six Flags or Vegas? Especially during a financial-reporting stretch like the current one, when the action’s been wilder at times than a Sweeps Week on Fox. Consider, for instance, the mysterious disappearances that have recently come to light.

Where, for example, was Chipotle’s copy of the memo that every other public restaurant company must’ve gotten? It’s the one about cutting expenses because of spiking food costs.

It was certainly right there in Chuck E. Cheese’s “In” box. The pizza and games chain countered high cheese and dough expenses by trimming the size of its large and medium pizzas by a half-inch.

P.F. Chang’s, another apparent recipient, is focusing its efficiency efforts in part on labor. The company told investors that it’s revising the responsibilities and recruitment processes for the unit-level managers at its Pei Wei Asian Diner concept in part to eliminate one supervisory position. It’s also simplifying and shrinking the fast-casual chain’s menu to cut prep space and kitchen labor, while also deleting some high-cost selections that don’t sell well.

Somehow, the mandate to take similar action never reached Chipotle. “It would be plausible to try to squeeze costs out of the food line or labor line or to aggressively raise prices,” said president Monty Moran. “We’re not going to do that.”

Instead, executives said, the chain is directing more units to use additive-free chicken, which costs 20 to 50 percent more than the standard version, and is buying more locally grown produce. So much for economizing on kitchen supplies.

Chipotle might also see some pressure on labor expenses because of the ongoing salmonella outbreak. Since the federal government now believes fresh jalapeno peppers could be the source of the contamination, the Mexican chain is grilling all of the peppers that it formerly served raw.

The same vanishing act must’ve been pulled with Chipotle’s copy of the Official Restaurant-Chain Handbook, or at least the page that deals with international expansion. Charging beyond the boundaries of the United States is as important to the success of many restaurant brands these days as selling soft drinks. But not, it seems, for the 778-unit burrito specialist. Founder and CEO Steve Ells revealed that the chain’s international strategy consists of opening a lone unit in Toronto. “I want to remind you that international expansion is not a key driver of our current growth strategy,” he observed after noting that Chipotle has never needed a passport before. Hopefully he spoke loud enough to override the gasps of investors who’ve grown accustomed to hearing chains project hundreds of overseas openings.

The disappearances involving Chipotle were parlor-room stunts compared with the Houdini feat that The Cheesecake Factory pulled off. One day, as he had for the prior eight years, Michael Dixon was serving as an executive of the casual-dining company. The next, he was gone. His resignation and departure as CFO came the same day.

Cheesecake founder and CEO David Overton said it was just a coincidence that Dixon vamoosed hours before the company disclosed that its profits dropped 19 percent during the second quarter. He also declined to put forward any other explanation.

Maybe he should’ve just uttered, “Abracadabra,” and been done with it.

Okay, time to throw another hot dog on the grill and see who else is reporting today.

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