Best of breed: franchisee or franchisor?

Did chain headquarters forget to tell franchisees we’re in a downturn? Maybe franchisors are just too embarrassed to gripe about the times when so many licensees are turning conditions to their advantage. Consider what happened recently within several of the industry’s oldest chains. Franchisees proved once again that they can adapt far more readily than the home office to changes in the marketplace, no matter how trying. Their pockets may not be as deep, but their street smarts often make them better.

S&A Restaurant Corp. went bankrupt in spectacular fashion, turning away employees and patrons in preparation for a fire sale of the 200 Bennigan’s and Steak & Ales it operated. And franchisees? As the Bennigan’s on Pittsfield Road in Lenox, Mass., boasted on a banner this weekend, “Locally operated and still open.” It may not be one of the licensees that are looking to scoop up the franchisor’s shuttered stores, but it appeared to be doing just fine, capitalizing on local events like the area’s fifth annual Zucchini Festival and Sunday morning’s crafts fair/pancake breakfast fundraiser in a local park. All told, Bennigan’s franchisees hope to turn S&A’s inability to stay solvent into a chance to swell their ranks by 40 to 60 properties, presumably at prices that would make Wal-Mart wince.

S&A’s franchisees weren’t the only ones to spot an opportunity amid what many brand parents portray as the third circle of hell. Pizza Hut, another greybeard of the business, saw franchisee NPC Corp. ink a deal to buy 99 of the chain’s units from a fellow licensee for $35 million—or roughly $354,000 per store. Pizza Hut seems to be gaining sales traction after some difficult years, thanks to a new pasta takeout line and the addition of a bolt-on chicken wing concept called Wing Street. But while the home office is getting on its feet, NPC is galloping.

To be sure, not all franchisees are finding the current market to be a time of opportunity. Papa John’s recently acknowledged to investors that it’s “subsidizing” franchisees by eating some of increased costs of items it distributes from its commissaries to the field, instead of directly passing along the heightened expenses. It also noted that it sometimes exercises patience with franchisees whose situations make royalties a tough nut to cover.

But, as executives stressed during a conference call with analysts, nothing keeps a system healthier than able franchisees. “We are very focused on keeping good franchisees healthy during these tough times,” said CEO Nigel Travis.

There are probably a lot of franchisees saying the same thing these days about their franchisor.

Quaking icons

The earthquake in Los Angeles hit 5.4 on the Richter scale, but it was a shiver compared with the aftershock from yesterday’s collapse of a casual-dining icon. The public was reminded in story after story that the flat-liner was the company that built the venerable Bennigan’s and Steak and Ale chains. But the industry knew S&A Restaurant Corp. on a far more emotional level. For many of casual dining’s best and brightest, the company was the finishing school where they learned the business. The bankruptcy filing must’ve been like seeing your first home razed.

If the foodservice industry had the equivalent of a Cooperstown, the list of S&A alumni could serve as the roster of charter nominees: Chris Sullivan, Bob Basham, Tim Gannon (all of Outback fame), Doug Brooks (Brinker International), Dick Frank (Chuck E. Cheese’s), Dick Rivera, Hal Smith, Wally Doolin, Rick Berman, Lane Cardwell.

I used to joke that the MUFSO conference was just an S&A reunion in disguise. If an attendee was in a senior post at a casual-dining chain, chances were extremely high that he started at the operation that Norman Brinker conceived in the ‘60s as the obvious trade-up for baby boomers as they outgrew fast food. And for years it grew with their spending power and desire to dine out, becoming an industry force and prompting more imitation than the first reality-TV series.

But the company became part of a huge corporation and suffered the usual fate of losing its verve and agility. Upstarts roared past it, leaving the one-time innovator in a time warp.

More recent regimes did their best to revive the concepts, but the numbers suggest it was a pitched struggle. Systemwide sales for Bennigan’s, the spryer of the two concepts, slipped by about $13 million last year, and the chain contracted by about 10 stores, according to NRN research.

The times ultimately proved too daunting for the brands’ owner, prompting it to file for bankruptcy of the Chapter 7 variety. But franchisees believe they can make a go of it. The scuttlebutt is that they’ll try to provide the unification and support that once came from S&A. The model seems to be Ground Round, whose franchisees similarly found themselves orphaned when their franchisor suddenly threw in the napkin.

Now, of course, everyone is wondering what restaurant chain might be next. In media ranging from overseas newspapers to National Public Radio, the bankruptcy was cited as a weathervane for the economy, a milestone on the road to ruin. The surprise development is being portrayed as a leading indicator.

A fair-sized group of casual dining veterans probably knows better. They’re likely aware that many of S&A’s problems were a function of age and decisions made—or not made—decades ago.

For them, it was likely a seismic shift of another sort, and far more saddening than worrisome.

Who wants a CEO's job? Not some CEOs

This has been a day of eerie coincidences. Bombshell developments required us to change the top story on our website three times in roughly eight hours. In each instance, a big-name restaurant chief was leaving a sizable multi-chain company, to the gape-mouthed surprise of everyone else in the business. Russ Bendel from Cheesecake Factory, Ken Keymer from the parent company of Village Inn and Bakers Square, Clay Dover from Bennigan’s operator Metromedia Restaurant Group—each seemed firmly entrenched in the job, if for no other reason than the ink on his business cards had barely dried. The longest-serving among them (Keymer) had logged a mere 13 months in the job; the most recent to stake out the corner office (Dover) had been there just six months. (Bendel, for the record, had only nine months’ of wear on his office chair).

All persevered for far less than the three to four years that studies have pegged as the average time of service for a corporate top executive. It’d be easy to attribute the simultaneous changeovers at three radically different companies to sunspots, global warming or the behind-the-scenes meddling of mutant Steinbrenner offspring, were it not for another trend emerging in restaurant-executive employment.

Last week, we reported that Phil Hickey, the former CEO of LongHorn and Capital Grille parent Rare Hospitality, had bought the four-unit Jocks and Jills sports bar chain. Phil has the sort of resume that would make every headhunter in the country want to have him on speed-dial, regardless of the industry they served. And when Rare was sold to Darden last year, securities filings indicated that Hickey recieved enough of a payout to make work an option, not a requirement. Yet what does he do? He opts for something entrepreneurial.

Similarly, David Goronkin resigned last December as CEO of the Famous Dave’s barbecue chain to take the top day-to-day management job at Redstone American Grill, a start-up from the same concept creator who hatched Champps.

Perhaps not coincidentally, Bendel told Nation’s Restaurant News that he resigned as president and COO of Cheesecake’s restaurant division to pursue “an entrepreneurial opportunity.” He wouldn’t say what it was, but noted that he’ll be switching to the new undertaking in a matter of weeks.

Against that backdrop, it’s easy to understand why executives might stay in a top restaurant job for a shorter stretch than they did in the past. Metromedia’s Dover, for instance, readily acknowledged that he opted to leave because of disagreements with the company’s owners. The times are grueling, investor patience seems to have shortened, stakeholders insist on an active management role, and we’ve reached the age of the plug-in executive, where a chief may be brought in for a very specific task. Vicorp stressed that it chose Harem Ouf to succeed Keymer because of the newcomer’s experience in bringing companies out of Chapter 11 bankruptcy protection, where it slid during Keymer’s watch. (Keymer, for the record, said he would retire at the end of the week).

Restaurant executives can be ground up and spat out in no time in an environment like the present one. The job is so grueling that it's hard not to be dissatisfied--with the individual who's trying to fulfill it, or with the situation itself. No wonder so many seasoned pros are assessing the task of running a big public restaurant company and deciding it’s not for them. They’ve decided to forego the pressure, lessen the hassles, and get back to doing what they enjoyed. Why waste your fruitful years dodging bullets?

Regardless of which party opts for a CEO or president’s exit, there’s little doubt that the foodservice revolving door is going to spin a little faster in the months to come. We were actually investigating reports today that a top executive had left a fourth well-known restaurant company, but couldn’t get a confirmation from the concern itself. But stay tuned. He's likely to be one in a parade of executives who find themselves arising from a hot seat in the near future. By their employer's choice, or theirs.