Archive for April, 2011

Taco Bell Wants an Apology

Monday, April 25th, 2011

Not content with just the dismissal of a lawsuit challenging its seasoned beef, Taco Bell debuted a new ad campaign on Wednesday, set to “reinforce the truth” about its products and marketing.

The quick-service chain wants to emphasize to consumers once again that claims questioning the ingredients in its signature taco meat and the allegations of false advertising were unwarranted. The new campaign states that no settlement was made, no changes to food products were undertaken and no money exchanged hands.

“Plain and simple, their attorneys got it wrong and took it back,” Taco Bell chief executive Greg Creed said in a video message posted on YouTube.

The chain also ran full page ads in national publications such as The New York Times, USA Today and the Los Angeles Times, in which the chain asks: “Would it kill you to say you’re sorry?” (See the full ad)

Plaintiff Amanda Obney filed the widely publicized lawsuit in January charging that Taco Bell’s seasoned beef contained fillers and extenders and was falsely advertised as beef. On Monday, the law firm representing Obney announced that the lawsuit would be dropped.

Attorney W. Daniel “Dee” Miles III of Montgomery, Ala.-based Beasley Allen Crow Methvin Portis & Miles P.C., said in a statement that the lawsuit would be dismissed after meeting with Taco Bell officials and seeing the company’s responsive action.

Miles said in a statement that the lawsuit resulted in “changes in marketing and product disclosures.”

In its sassy new ad campaign, Taco Bell countered that statement, saying the chain had made no changes to products or ingredients, and no changes to advertising. In addition, there was no settlement and no money was exchanged, the chain said.

“Like we’ve been saying all along, we stand behind the quality of every single one of our ingredients, including our seasoned beef,” the ads say. “We didn’t change our marketing or product disclosures because we’ve always been completely transparent. Their lawyers may claim otherwise, but make no mistake, that’s just them trying to save a little face.”

Speaking directly to the lawyers representing the plaintiff, the ads continue: “You got it wrong, and you’re probably feeling pretty bad right about now. But you know what always helps? Saying to everyone, ‘I’m sorry.’”

A spokeswoman for law firm Beasley Allen said attorneys had no comment.

The Irvine, Calif.-based Taco Bell chain includes about 5,600 locations operated and franchised by Louisville, Ky.-based Yum! Brands Inc.

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1Q Preview: Trends Positive for Restaurants

Monday, April 25th, 2011

First-quarter earnings are set to flood the market starting this week, with reports from such heavy hitters as McDonald’s, Yum! Brands, Chipotle, The Cheesecake Factory and BJ’s Restaurants, and early signs point to a positive quarter for most brands, despite increased commodity costs and fears about rising gas prices.

Wednesday evening, casual-dining chains BJ’s and The Cheesecake Factory posted positive same-store sales, lending credence to securities analyst Mark Kalinowski’s report that March, the final month of the first quarter, was the best month for casual-dining in terms of sector-wide same-store sales in about five years.

Yum continued to rely on its overseas strength to boost corporate profit and sales, while its U.S. operation struggled. Same-store sales in the United States fell 1 percent, encompassing an increase of 1 percent at KFC, flat sales at Taco Bell and a decline of 3 percent at Pizza Hut.

Chipotle continued to dominate, with double-digit gains in net income, total revenue and same-store sales.

“We continue to believe economic indicators on balance are positive for restaurant companies,” securities analyst Brad Ludington at KeyBanc Capital Markets said in a report, “with our observations of stable job growth, increasing consumer income and spending and rising near-term consumer confidence outweighing our concerns toward housing and rising gas prices in the near term.”

Ludington noted that food commodity concerns should be tempered, as increases won’t be as severe as the fourth quarter. He noted that cost increases had slowed in March and the beginning of April, with significant pullbacks in produce leading the way.

Rising gas prices, however, may be a continuing concern as companies head into the second quarter.

“We continue to believe that if gas prices reach and maintain the $4.25 to $4.50 range for an extended period, this could represent a psychological breaking point for consumers at multiple income levels, which could further slow the broader economic recovery,” Ludington said in his report.

First-quarter earnings reports:

Yum! Brands Inc.: First-quarter net income rose to $264 million, or 54 cents per share, compared with earnings of $241 million, or 50 cents per share, in the same quarter a year earlier. Latest-quarter revenue increased 3 percent to $2.43 billion.

The company reported that operating profit rose 22 percent in China and 12 percent in its International division, but declined 13 percent in the United States. Yum noted that Taco Bell’s recent trouble with a lawsuit affected sales and hurt profits.

Strong international development continued with 223 new restaurants opened, including 92 new units in China. Yum cited food inflation as a string headwind for its U.S.-based locations, and expects 6 percent commodity inflation for the full year.

Full earnings statement

Chipotle Mexican Grill Inc.: First-quarter net income totaled $46.4 million, or $1.46 per share, up 22.6 percent from earnings of $37.8 million, or $1.19 per share, in the same quarter a year earlier. Revenue rose 24.3 percent to $509.4 million. Same-store sales increased 12.4 percent.

During the quarter Chipotle opened 12 new restaurants, including one relocation, bringing the total restaurant count to 1,095.

Full earnings statement

BJ’s Restaurants Inc.: First-quarter net income increased 65 percent to $7.2 million, or 25 cents per share, from earnings of $4.4 million, or 16 cents per share, in the first quarter of 2010. Latest-quarter revenue rose 19 percent to $144.9 million. Same-store sales increased 7.8 percent.

BJ’s Restaurants owns and operates 104 casual-dining restaurants under the BJ’s Restaurant & Brewery, BJ’s Restaurant & Brewhouse or BJ’s Pizza & Grill brand names.

Full earnings statement

The Cheesecake Factory Inc.: First-quarter earnings rose about 1 percent to $20.5 million, or 34 cents per share, versus $18.7 million, or 31 cents per share, in the same quarter a year earlier. Latest-quarter revenue rose 3.3 percent to $418.8 million.

Same-store sales increased 1.6 percent at The Cheesecake Factory and Grand Lux Cafe. By concept, same-store sales increased 2.1 percent at The Cheesecake Factory and fell 3.8 percent at Grand Lux.

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Calif. Food Handler Card Deadline Nears

Monday, April 25th, 2011

With the July 1 deadline for California’s food handler card requirement nearing, a state association of county restaurant inspectors has called for a six-month “slow roll out” of enforcement.

New guidelines posted this week by the California Conference of Directors of Environmental Health, or CCDEH, recommend that from July 1 through January 1, 2012, enforcement of the law be limited to “education and notification of requirements for compliance.” The group says the time will help it seek a tweak to the legislation to clarify what specific training programs are approved for obtaining food handler cards.

Last year, California lawmakers adopted legislation that requires all restaurant and retail workers involved in food preparation, service or storage to pass a food-safety test to earn a food handlers card. The card is a requirement for hiring and maintaining employment. Under the law, food handlers hired before June 1 must pass an approved food-safety certification exam to earn their card by July 1. Those hired after June 1 will have 30 days from their hiring date to obtain the card.

The CCDEH guidelines are not binding, however, and restaurant operators are encouraged to check with their county health officials to see whether the July 1 deadline will be strictly enforced.

The food handler card legislation impacts millions of workers in California’s estimated 90,000 foodservice establishments, and a delay in enforcement would give employers more time to ensure that the required cards are on file. Once obtained, the cards are valid for three years.

Currently, the approved training providers include the National Restaurant Association’s ServSafe California Food Handler program; the National Registry of Food Safety Professionals; and Prometric.

However, Justin Malan, CCDEH executive director, said the law when written did not specify the type of accreditation necessary to determine which programs would be approved.

“Clean up legislation” has been proposed to change the law to specifically require that approved training programs be limited to those accredited by the American National Standards Institute to meet the specific requirements of the law, said Malan.

The three organizations currently approved meet that standard, he added.

Because of the proposed changes, Malan said, “We felt it was unfair to hold people accountable while the requirements for enforcement were unclear.”

Though the CCDEH recommends a “soft roll out,” Malan said, enforcement of the law is up to local county health departments.

“These are guidelines to be followed, we hope, by all,” he said, “But if individual counties decide to do something else, there’s nothing we can do about it.”

Daniel Conway, a spokesman for the California Restaurant Association, said members are being encouraged to contact their local health departments to find out what the expectations are for compliance with the law.

“We think the first six months should be an education period,” he said. “But we’re also telling our members to play it safe and contact their county health departments.”

For more information about compliance with the food handler requirements, go to the CRA website.

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Industry experts pick winners for ‘America’s Next Great Restaurant’

Monday, April 18th, 2011

The blood, sweat and tears involved in creating and launching a new restaurant concept is the bane and addiction of many in the industry.

But who knew it would make such great television?

The NBC show “America’s Next Great Restaurant,” in which aspiring entrepreneurs compete to turn their restaurant idea into a fast-casual chain, has become a guilty pleasure for many in the restaurant world. Partly because it’s fun to watch the contestants get thrown into impossible situations — like running a Chipotle during a busy lunch hour without any training — but also because there are nuggets of good advice from the panel of judges, who are all restaurateurs.

The show stars chef Bobby Flay, owner of the Bobby’s Burger Palace chain and other concepts; Steve Ells, founder and co-chief executive of Chipotle Mexican Grill; Lorena Garcia, a restaurateur and chef in Miami; and Curtis Stone, the former chef of Quo Vadis in London who is now known for his television appearances (“The Biggest Loser”) and cookbooks.

As the show concludes in May, the winning concept will open three units simultaneously in Los Angeles, New York and Minneapolis, with backing from the four investor judges.

Nation’s Restaurant News asked three industry experts to watch the show and talk about the aspects that might, or might not, result in a winning fast-casual chain.

Our panel included consultant Bob Sandelman, chief executive of Sandelman & Associates in San Clemente, Calif.; Dennis Lombardi, executive vice president of foodservice strategies at WD Partners in Columbus, Ohio; and Darren Tristano, executive vice president of industry research firm Technomic Inc. in Chicago.

The experts, who each said they have no inside knowledge of who actually wins the competition, evaluated each of the remaining candidates for America’s Next Great Restaurant.

BROOKLYN MEATBALL CO.: Originally named “Saucy Balls,” the concept of charismatic New Yorker Joseph Galluzzi, who previously worked in financial services, is designed to pay homage to his grandmother’s famous meatballs.

Bob SandelmanSandelman, left, said if Galluzzi moves to a simple ordering system in which customers select the number of balls, meat, sauce and side, this concept could score highly on accuracy, an important attribute for consumers.

A positive is that Galluzzi’s menu is highly focused, Sandelman said. However, he noted, “Italian is a very crowded and competitive marketplace, especially as major pizza chains have added non-pizza items.”

Lombardi agreed, saying it could be significant that there currently is no national fast-casual Italian brand. “It could be a limiter in terms of veto vote for those who would like a lighter meal,” he said.

GRILL’BILLIES: The Los Angeles duo of bartender Gregory Westcott and Krystal Seymour first pitched their concept as “Hicks,” offering small-bites barbecue and comfort food.

The “new American grill” concept’s food has been highly rated, but Sandelman sees the menu as unfocused, saying they should focus on “comfort foods,” or even Southern food or barbecue specifically, rather than the grill-centered operating system.

Lombardi agreed, adding, “They will have to come up with signature craveable dishes that will cause people to put them in their mental phonebook.”

Sandelman also saw Grill’Billies as very close to competitor Soul Daddy. “Maybe these two concepts should be merged?”

HARVEST SOL: Chicago attorney Stephenie Park’s ambition is to teach Americans about portion control with her fixed-calorie healthy Mediterranean concept, which was initially dubbed Compleat.

Darren TristanoTristano, left, said Harvest Sol has the greatest opportunity as a growth chain, arguing that there are few Mediterranean fast-casual chains and no major players yet. The cuisine is flexible and regional and offers a wide range of ingredients, he said.

“Preparation styles and ingredients tend to be more healthful without losing flavor, and the cuisine has broad appeal toward all demographics, especially women and children,” he said.

Sandelman, however, said consumers are more interested in taste, quality and accuracy than they are in health and nutrition.

Fast-casual chains that have focused solely on health have not been that successful, he added.

“Perhaps it would be better to focus on fresh ingredients, rather than health/nutrition, as Chipotle does,” he said.

Lombardi contended that Harvest Sol should simply market itself as having tasty food, rather than pushing the calorie limit.

“If she’s controlling calories and portion size, she might find people who are wondering what else is for lunch,” he said.

SOUL DADDY: Detroit caterer Jamawn Woods started the show with a wings-and-waffles concept called W3’s, but the menu has become broader and the name reworked.

Soul Daddy’s food has been rated highly by judges. Lombardi liked that the menu offers dishes like jambalaya and barbecue, saying the food of the Southeast is attractive but under-appreciated. “Food from the Southwest has a following, why not food from the Southeast?” he said.

Sandelman said Woods still needs to clarify his positioning, and that he should emphasize comfort food or Southern flavors, rather than “soul” food.

SPICE COAST: It began the show as “The Tiffin Box,” but this concept by Sudhir Kandula, a software sales director and restaurant co-owner in New York, aims to be an “Indian Chipotle.” So far the judges have convinced Kandula to change the name, add meat to the menu as well as more portable, hand-held dishes.

Dennis LombardiLombardi, left, said there is growing interest in the flavors of Indian food.

The cuisine has a high flavor profile, he said. It’s craveable, can be low in calories and is colorful. And because Spice Coast is not protein heavy, operators could gain more flexibility with commodity costs, he said.

Sandelman said one of the most important attributes of any restaurant is great food, executed well. Spice Coast appears to be a leader in that regard, earning praise from the judges. The concept’s menu is also unique and focused, he said.

The ethnic flavors would do well in Los Angeles or New York, and would appeal to 18- to 25-year-olds, who tend to be heavy users and willing to experiment, said Sandelman. It may not do so well in Minneapolis, however.

While Spice Coast is a favorite to win the show, Tristano argued that it has a tough road ahead as a potential chain. Though Indian cuisine may be an emerging trend for Americans, it remains far from mainstream, he said.

Indian food tends to be best suited for full-service formats, not fast casual, he said, and many casual-dining independent Indian restaurants have reasonable price points that would challenge even an $8 to $11 range.

“The spice and flavor profiles have lower appeal to American consumers, are not child friendly and lack the familiarity that is essential to launch a sustainable chain restaurant concept,” he said.


Tristano: Spice Coast will win the TV competition, but has the least likely chance of succeeding as a restaurant chain. Best chance for success: Harvest Sol.

Sandelman: Spice Coast and Soul Daddy have the best chance for success. Grill’Billies and Brooklyn Meatball Co. could work if they continue to tweak their concepts. Least likely to succeed: Harvest Sol.

Lombardi: Spice Coast has the best chance for success followed by Soul Daddy. Least likely to succeed: Harvest Sol, though chances would improve if the brand shifts its focus to “fresh” rather than “health.”


NRN’s panel of industry experts also weighed in on the reality show itself, which they noted has yet to delve into crucial aspects of running a business, from the financial plan to costs, labor, equipment, sourcing or even basics like food safety.

“The common thread about reality shows is that they’re not very realistic,” Lombardi said.

In a real-world scenario, Tristano argued, “we would see a fast-casual burger, Mexican grill or bakery-café concept in the running,” which are the categories currently finding the most success in the fast-casual segment.

Tristano added that the three “celebrity chefs” on the panel may not be the best judge of what mainstream American wants to eat.

“And is it a surprise that a Mexican grill and Asian concept are not in the running at this point, considering Chipotle is developing a new Asian fast-casual concept and dominates the fast-casual Mexican space?” he said.

Sandelman, however, argued that the show is great press for the fast-casual segment, not to mention the props it gives Chipotle as the model concept.

“Fast casual” was previously an industry term with “minimal consumer awareness,” Sandelman said. Now viewers will be very familiar with the notion of fast-casual dining, though the term is never really explained.

“Still, it’ll be a while before people say, ‘Hey, let’s go to a fast-casual restaurant tonight,’” he said.

Lombardi also questioned the “grand prize” being the chance to open three units in such geographically distant markets.

“The last thing I would recommend to a client is to open simultaneously, even in just one market,” he said. “So the good news is you won. The bad news is we’re setting you up for failure.”

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Sources: Baja Fresh for Sale

Monday, April 18th, 2011

Baja Fresh, the 255-unit, fast-casual chain owned by investor and entrepreneur David Kim, may be for sale, according to people familiar with pending deals in the restaurant market.

Nation’s Restaurant News spoke with five sources either involved with the Cypress, Calif.-based chain or in the know on restaurant deal making. Each confirmed that Baja Fresh is being actively shopped by chief executive David Kim, but they asked to speak without attribution because of their business relationships.

Kim acquired Baja Fresh from Wendy’s International in 2006 for $31 million, just four years after Wendy’s itself acquired the chain for $275 million.

Jerry DeLucia, a spokesman for Baja Fresh, said Kim was traveling Friday and unavailable. The company had no comment on the sale rumors, he said.

Under Kim, Baja Fresh has declined to disclose sales data. According to Nation’s Restaurant News Top 200 census, the chain was estimated to have systemwide sales of $304 million in 2009, the last year analyzed, which was a decline of nearly 10 percent from 2008.

Baja Fresh ended 2009 with 255 units, including 135 company and 120 franchised locations, according to NRN research. Unit counts also reflected a nearly 10 percent decline year to year. Estimated sales per unit in 2009 totaled $1.13 million, a decline of nearly 3.5 percent from the prior year, NRN research showed.

Craig Weichmann of Weichmann & Associates, a boutique merger-and-acquisitions firm, described Kim as an “opportunistic buyer” who picked up Baja Fresh at a great price and now has the challenge of demonstrating improvement to potential buyers.

“Your goal is to stabilize — and I think that has occurred — and perhaps even show some forward movement. That’s what investors want to see,” Weichmann said.

A Cinnabon franchisee and owner of The Sweet Factory candy-store chain, Kim in 2007 also acquired the La Salsa Mexican Grill chain from CKE Restaurants Inc.

It was unclear Friday whether the La Salsa brand was included in the proposed sale. The two brands, as well as the Atlanta-based Canyons Burger brand, are operated under the company Fresh Enterprises; Purveyor of Fresh Brands.

Kim’s $31 million buying price in 2006 for the then 295-unit Baja Fresh has been described as either the bargain of the century or a fire-sale jettisoning of a troubled holding.

Paul Huffman, managing director of Los Angeles-based investment banking firm Hadley Partners Inc., said the price included numerous underperforming units.

But today, the fast-casual segment is an attractive space and “the market’s probably grown into itself,” Huffman said. “That could mean better times for Baja Fresh.”

Industry observers told Nation’s Restaurant News that it was no surprise the notoriously media-shy Kim appeared earlier this month on the television show “Undercover Boss,” in which he donned a disguise and worked the ranks at several Baja Fresh units. It is a big branding move for a chain that has until now been under the radar, sources who requested anonymity said.

An episode of the show last year featured Hooters of America Inc. chief executive Coby Brooks. At the time, that chain was also for sale, and in January, Hooters was acquired by an investor group led by Chanticleer Holdings Inc.

Founded in 1990 by Linda and Jim Magglos, Baja Fresh was one of the first fast-casual chains to pioneer a menu made with fresh ingredients, no microwaves, no freezers, no can openers, no lard and no MSG.

The founders sold the chain in 1998 to an investor group headed by restaurateur Greg Dollarhyde, who grew Baja Fresh from 45 locations to 249 units before Wendy’s International acquired the chain.

Wendy’s continued to grow the chain to more than 300 units, though poor-performing locations, particularly in the East, later closed as the fresh Mexican category became increasingly crowded with rivals Chipotle Mexican Grill and Qdoba Mexican Grill.

During the four years of Wendy’s ownership, average unit volumes for corporate stores fell steadily from $1.5 million in 2002 to $1.2 million in 2005, according to securities documents.

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Casual-Dining Chains alter beverage policies

Monday, April 18th, 2011

Three major casual-dining chains are stepping up employee training and changing their drink policies after two toddlers who were served alcohol in restaurants made headlines this week.

The two separate incidents — one involving a 15-month-old boy receiving alcohol instead of apple juice last week at a Detroit-area Applebee’s and another involving a 2-year-old getting tropical sangria instead of orange juice in March at an Olive Garden in Florida — have prompted changes at those chains as well as at rival dinnerhouse brand Ruby Tuesday.

Mike Archer, president of Lenexa, Kan.-based Applebee’s Neighborhood Grill & Bar, said Monday the more than 2,000-unit chain is investigating the incident, which police blamed on a mislabeled container at the bar. In the meantime, he said Applebee’s servers will now pour apple juice at the table from single-serve containers.

Archer also said servers would be retrained on the chain’s beverage pouring policy, “emphasizing that non-alcoholic and alcoholic beverages must be stored in completely separate and identified containers.”

Darden Restaurants Inc., which owns the 730-unit Olive Garden, apologized for the incident at the restaurant in Lakeland, Fla., calling it “an unfortunate case of human error.”

“The trust our guests place in us is paramount, which is why we have implemented a change in our procedures to prevent this situation from happening again,” said Darden, which also owns the Red Lobster, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 brands.

Rich Jeffers, director of media relations for Orlando, Fla.-based Darden, said in interview Friday that the chain is now requiring that all alcoholic drinks, including sangria, be made to order and not pre-mixed in batches.

In addition, he said all servers and bartenders will receive reinforced training.

The accidents at Applebee’s and Olive Garden also have pushed Ruby Tuesday to beef up beverage training for its servers. Meridith Hammond, communications manager at Maryville, Tenn.-based Ruby Tuesday, said in an e-mail that all servers, bartenders and manager will now be required to watch a video about the 900-unit chain’s beverage procedures and order accuracy before their shifts start.

“We have always provided thorough training of our servers and bartenders to make sure guests get what they order,” Hammond said.

Independent restaurants also are watching what the big chains are doing in response to the toddler incidents. Andrew Bonnemort, owner of Café Dufrain in Tampa, Fla., said pre-mixed cocktails, like the sangria at the Olive Garden, can be risky.

“We don’t have drinks that are pre-mixed,” he said.

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OpenTable Reveals Hot New Restaurants

Monday, April 11th, 2011

What are the newest hot seats in dining?

OpenTable Inc., the online reservations system, has released its Diners’ Choice awards, which includes the 10 hottest restaurants to open in the past year, as indicated by its surveys.

The San Francisco-based company’s list of 50 “2011 Hot Spot Winners” was derived from 7 million reviews submitted by users of the service, and 15 of those were restaurants opened since January 2010.

Full list of 50 Hot Spot Winners here:

Caroline Potter, OpenTable’s chief dining officer, said in releasing the list, “They demonstrate that new restaurants can immediately make a splash with diners.”

The 10 Hottest New Restaurants, based on highest user scores collected from OpenTable diners between March 2010 and February 2011, ranked as:

1. Beauty & Essex, New York
2. Searsucker, San Diego
3. Lavo-NYC, New York
4. Girl & the Goat, Chicago
5. Cleo-SBE, Los Angeles
6. Kenmare, New York
7. Towne Stove and Spirit, Boston
8. Zuma Japanese Restaurant, Miami
9. Gilt Bar, Chicago
10. The Hurricane Club, New York

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Fertitta: McCormick & Schmick’s Needs a Turnaround

Tuesday, April 5th, 2011

Tilman J. Fertitta, who made a $137.3 million buyout offer Monday for the 96-unit McCormick & Schmick’s Seafood Restaurants Inc., said the upscale restaurant company was ripe for a turnaround.

Fertitta and LSRI Holdings Inc., a subsidiary of Houston-based Landry’s Restaurants Inc., offered $9.25 a share for McCormick & Schmick’s, which represented a 30-percent premium of the company’s closing price of $7.21 on Friday. McCormick & Schmick’s stock price jumped more than 29 percent Monday after Fertitta’s offer, closing at $9.22 per share.

McCormick & Schmick’s released a statement Tuesday that said it “did not solicit such an offer and has had no discussions with Mr. Fertitta concerning it. If the offer is formally made, the McCormick & Schmick’s board of directors will respond appropriately in accordance with its fiduciary duties. The board has made no decision at this point whether to initiate or enter into discussions with Mr. Fertitta or any other party or to consider any sale or other strategic transaction concerning the company.”

Fertitta, the founder and chief executive of Landry’s, which he took private in a $1.4 billion deal last year, has been on a buying spree. Last year, Landry’s bought the 12-unit Oceanaire Seafood Room and 45-unit Claim Jumper concepts in bankruptcy court deals and purchased the 32-unit Bubba Gump Shrimp Co.

On Monday afternoon, he spoke with Nation’s Restaurant News about his latest buyout offer.

“What I’m finding attractive about [McCormick & Schmick’s] right now is that it’s a turnaround,” Fertitta said. “They’ve hit the wall as all higher-end [dining] companies do. … They are upscale seafood. They’re no different than a Morton’s or Ruth’s Chris.

“When you get past about 50 or 60 units, there aren’t enough urban locations to do large business,” he added.

Fertitta owns 10.1 percent of all common shares of McCormick & Schmick’s, which operates 96 restaurants including its namesake upscale seafood chain and The Boathouse brand in Canada.

Landry’s has such upscale seafood concepts as Chart House, Landry’s Seafood and Oceanaire in its portfolio, Fertitta explained, which would allow for rolling in another.

Fertitta likened the McCormick & Schmick’s bid to his Oceanaire bankruptcy-court acquisition last year. Oceanaire had shrunk from 18 restaurants to 12 locations when Landry’s purchased it, and Fertitta said McCormick & Schmick’s is also due to be downsized.

“We’d have to get rid of all the bad stores, which there are quite a few of,” he said. “And then we open up one at the right location when you can find it. You can’t be under the gun as a public company being a McCormick & Schmick’s and say I’m going to go open up 10 percent units a year.”

Fertitta added that the upscale restaurant company had a “huge need of a lot of adjustments: menu, facilities that have huge deferred maintenance.”

“They are a total fix-em-up,” he said.

For the fourth quarter ended Dec. 29, McCormick & Schmick’s posted a loss of $25.1 million, or $1.69 per share, compared with a net loss of $16.6 million, or $1.12 per share, in the same quarter a year ago. Same-store sales dropped 1.0 percent for the quarter on revenues that increased 3.4 percent to $91.6 million.

In a conference call in March, executives at McCormick & Schmick’s outlined improvements in store for the company, including a multiyear remodeling program, management changes, training improvements and an upgraded back-of-the-house system.

Bart Glenn, vice president and senior research analyst with D.A. Davidson & Co. of Lake Oswego, Ore., said in a research note that McCormick & Schmick’s “has struggled to participate in the upscale-dining recovery.”

“Landry’s portfolio of seafood brands would provide a unique opportunity to potentially rebrand some of [McCormick & Schmick’s] units that no longer have sufficient brand equity,” Glenn said.

Fertitta declined to predict a timetable for a possible deal with McCormick & Schmick’s.

“What we would hope is that they sit down and negotiate a price with us,” he said. “In that price, their bankers will have a ‘go-shop’ and if somebody feels like they can make the deal better for them, we want what’s best for the McCormick & Schmick’s shareholders.”

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FDA Issues Menu-Labeling Guidance

Tuesday, April 5th, 2011

The U.S. Food and Drug Administration published Friday its much-anticipated proposed menu-labeling regulations for chain restaurants.

The FDA had missed an initial deadline of March 23 — one year after President Obama signed the provision into law as part of the Patient Protection and Affordable Care Act of 2010. The agency attributed the delay to the complexity of the issue.

The industry and general public will have 60 days to comment. The FDA is expected to publish its final regulations by the end of this year, and enforcement could begin as early as summer of 2012.

The proposed regulations can be found as a 183-page document at

“These proposals will ensure that consumers have more information when they make their own food choices,” said Kathleen Sebelius, secretary of the U.S Department of Health and Human Services. “Giving consumers clear nutritional information makes it easier for them to choose healthier options that can help fight obesity and make us all healthier.”

Among the key regulations addressed in an overview issued by the FDA are the following:

Establishments covered: Restaurants or similar retail food establishments with 20 or more locations, conducting business under the same name and offering for sale basically the same menu selections are covered under the rules.

Businesses whose main purpose is not to sell food — such as movie theaters, airplanes and bowling alleys — wouldn’t be subject to these rules, the FDA said.

A “restaurant or similar food establishment” is defined as an operation whose main business is selling restaurant food or restaurant-type food to consumers. An establishment’s primary business activity would be the sale of food to consumers if it presents itself as a restaurant, or if more than 50 percent of its total floor space is used for the sale of food, according to the FDA.

Display of calorie counts: Calories would be posted on all menus and menu boards, including those at drive-thru locations. The term “Calories” or “Cal” must be posted clearly and prominently on menus and menu boards adjacent to the number of calories. Calories for variable menu items, such as combo meals consisting of a choice of sandwich, side dish and beverage — would be displayed in ranges.

For foods on display, calories would be listed per item or per serving on a sign adjacent to the food.

For self-service foods, such as a salad bar, calories also would be listed per serving or per item on a sign next to the food.

Dawn Sweeney, president and chief executive of the National Restaurant Association, called the proposed regulations issued Friday “the next step forward in providing the industry with consistent, national requirements on how to implement the new uniform nutrition information standard.”

“The National Restaurant Association anticipates there will be many questions and after full review of the proposal, will provide detailed comments to the FDA to ensure that restaurants are provided adequate time and are able to comply with the regulations effectively, as well as provide information to consumers in the most usable way,” she said.

While industry association officials had earlier voiced concerns that a “one size fits all” approach to regulations would be unworkable for the highly fragmented restaurant industry, they said they welcomed the opportunity to continue to work with the FDA to help shape the final rules.

“We look forward to reviewing the FDA’s proposal in detail over the coming days,” said Scott Vinson, vice president of the National Council of Chain Restaurants. “The industry has been and remains fully supportive of menu labeling, and wants to ensure it is done in the most effective way possible for our customers as well as for our companies and small business franchisees.

“We’ve been sharing with the FDA over the last several months the chain industry’s perspective on the best way to create a flexible, workable framework for menu labeling,” he added. “We hope our review shows that the proposed regulations reflect this work.”

Stephen Caldeira, president and chief executive of the International Franchise Association, said his group “appreciates the FDA’s willingness to work directly with the franchised restaurant industry, and we hope the final rules will result in a workable and affordable regulation for small restaurant owners, particularly in a still-challenging economic environment.”

The regulations, which require that calorie counts be posted on menus and menu boards, will apply to chain operators with 20 or more outlets across the nation.

Although restaurateurs generally support federal menu labeling regulations that would pre-empt a patchwork of state and local laws, many remain doubtful that listing calorie counts will significantly affect ordering behavior.

In a recent study, however, The NPD Group found that certain consumers might avoid items like French fries, larger hamburgers and shakes when confronted with calorie content.

In the study, The NPD Group asked adults to order from two versions of a typical quick-service menu, one with calories listed and one without. While participants’ orders from the two menus contained roughly the same number of calories, consumers ordered fewer high-calorie items from the menu with nutrition data listed than they did from the unlabeled menu.

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