Archive for April, 2012

The Cheesecake Factory Explores Overseas Growth

Monday, April 30th, 2012

More global growth may be in The Cheesecake Factory Inc.’s future, but the company is waiting to see how its first international franchise locations perform after opening in the Middle East later this year.

David Overton, the company’s chair and chief executive, spoke to analysts Wednesday about potential growth after reporting the ninth consecutive quarter of same-store sales increases for its casual-dining brands.

Overton was calling in from Asia, where he was exploring opportunities for the company’s brands, said Douglas Benn, The Cheesecake Factory’s chief financial officer.

Though many U.S.-based restaurant chains have aggressively pushed growth internationally in recent years, The Cheesecake Factory announced its first-ever move overseas just last year. The company signed a franchise agreement with Kuwait-based Alshaya, a large franchise group that operates many brands in about 19 countries.

The franchisee plans to open 22 Cheesecake Factory restaurants in five Middle Eastern countries over the next five years and expects to launch three of them by mid-summer, Benn said. He added that Alshaya would like to expand its reach with The Cheesecake Factory in more territories. “But we’re walking before we run with them,” he said.

The company has been meeting with a number of potential partners in places like Hong Kong, Korea and Japan, where franchisees “would like to bring Cheesecake Factory brands to their part of the world,” Benn said. “We are having those discussions.”

In the U.S., the company is planning to open seven to eight new restaurants this year. One will be a Grand Lux Café, the company’s 13-unit secondary brand, which had put growth on hold since the recession hit.

Looking at first quarter results, Overton said the 1.9-percent increase in traffic was higher than the industry average for casual dining, according to data tracked by the company.

Still, The Cheesecake Factory hasn’t yet reached the peak traffic levels of pre-recession years, when restaurants were recording average unit volumes of about $11 million. Today, average unit volumes are just over $10 million, “and that difference is entirely guest-count related,” said Benn.

The company backed off slightly from projections of food cost increases for 2012. Commodity inflation would likely be up between 2 percent to 2.5 percent for the year, down from earlier estimates of about 3 percent.

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BJ’s to Roll Out New Menu, Guest Loyalty Program

Monday, April 30th, 2012

BJ’s Restaurants Inc. posted Thursday a 19.7-percent increase in profit for the first quarter, and executives looked forward to a new menu introduction in May and the debut of a new guest loyalty program in July.

The Huntington Beach, Calif.-based casual-dining operator said income rose to $8.6 million, or 31 cents a share, in the first quarter, which ended April 3, up from $7.2 million, or 26 cents a share, in last year’s quarter. Revenues were up 15.7 percent, to $167.6 million from $144.9 million in the prior-year period.

The company said it will roll out of several sales-building initiatives this year, including a new menu in May and a “state-of-the-art” guest loyalty program in July. The company will also launch its first television advertising in the Sacramento, Calif., market in May.

Jerry Deitchle, BJ’s chairman and chief executive, said in a prepared statement: “Our double-digit increase in total revenues was the result of the continued successful execution of our new restaurant expansion program in a high-quality manner, coupled with our ninth consecutive quarter of growth in comparable restaurant sales.”

BJ’s reported same-store sales increased 3.3 percent in the first quarter, compared to a 7.8-percent increase last year.

Deitchle attributed that same-store sales increase “to the steadily increasing popularity of the BJ’s restaurant concept with consumers, combined with the productive and efficient execution of the concept by our restaurant operators in driving guest traffic during the quarter.”

BJ’s opened two new restaurants during the quarter: One in Clearwater, Fla., and another in Salinas, Calif., bringing the total to 118.

“Our 2012 new restaurant development pipeline remains in excellent shape as of today,” Deitchle said, “and we are now focusing on building a solid pipeline of high-quality locations for potential 2013 and 2014 restaurant openings.” BJ’s plans to open five new restaurants in the second quarter, one of which has already opened in Dublin, Calif. In addition, the company will open as many as six new restaurants in the third quarter, including a relocation of a smaller-format unit, and three in the fourth quarter.

BJ’s Restaurants operates its 118 restaurants under the BJ’s Restaurant & Brewery, BJ’s Restaurant & Brewhouse, BJ’s Pizza & Grill and BJ’s Grill brands. While its home state of California remains its most-penetrated market with 58 units, it also has 24 units in Texas, nine in Florida and half a dozen or fewer units in 10 other states.

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Chipotle Improves Throughput to Pre-Recession Peak Levels

Monday, April 23rd, 2012

Chipotle Mexican Grill moved customers through its service line faster and more efficiently than ever before during the first quarter, indicating that company efforts to improve throughput are working, officials said Thursday.

After reporting a seventh consecutive quarter of double-digit same-store sales growth, company officials told analysts during a conference call that the chain has surpassed its goal of restoring transaction counts per hour to previous peak levels of 2007, something the company has been focused on since November.

During the quarter ended March 31, same-store sales during peak weekday lunch and dinner hours were growing faster than the rest of the day, said Monty Moran, Chipotle’s co-chief executive. “Our teams are now faster than they have ever been for this time of year,” he said.

Company efforts to improve throughput have included:

• Training employees to prepare “mise en place,” or having everything ready before peak hours begin

• Having “aces in their places,” or all staffers in position to serve guests

• Having an expediter, the person who stands between the last burrito wrapper and the cashier, in place during all peak hours to bag meals and allow the cashier to focus on cashing out

• Having a line backer in place, typically a general manager or service manager, who stands behind the line and makes sure pans are full of food, the line looks clean and workers have the tools they need without having to look away from guests

Moran said the company rolled out a video on throughput that demonstrates how a line should move and what a well-run team looks like. The video, taken at a busy downtown Chicago location, shows that effective throughput does not look frenetic, spastic or disorganized, but there are no wasted movements. If errors are made, they are caught quickly and corrected, and the workers appear calm, competent and have fun, he said.

The aim of these efforts is to get guests through the line efficiently, have team members make eye contact and communicate better with guests, and serve hotter and fresher food, noted Moran.

“Speed is not the first goal of throughput,” he said. “The first goal is to provide the very, very best customer service, with great eye contact, great communication, and a polite and efficient way with customers. All of those things, when done well, tend to lead to very, very fast service.”

While the first quarter is typically the slowest time of year for Chipotle, Moran estimated that improvements to throughput added another five transactions to the peak lunch hour average of about 100 transactions during the quarter. That number may increase in the second quarter, which is traditionally busier for Chipotle, but Moran cautioned that increases in transactions may not directly impact same-store sales—at least, not immediately.

“That’s something that we believe, over time, will improve as a result of great throughput, but it’s not an immediate reaction,” he said. “If people want to come to Chipotle more often, we want to do all we can to reward that decision with an incredible guest experience, and a large part of that incredible guest experience is throughput.”

Steve Ells, Chipotle’s founder and co-chief executive, said the chain made another “significant leap” during the quarter in educating consumers about its commitment to quality ingredients from sustainable sources. The company will continue to expand on its “Cultivate” marketing platform, which will include day-long festivals planned for Denver and Chicago this year and other nontraditional efforts.

Chipotle will continue to focus on ingredients by making a series of food improvements. The company will add more whole wheat to tortillas to improve nutritional content and flavor, Ells said, and by the second quarter will only use sour cream sourced from pasture-raised cows. In addition, the company is trying out in Portland and New York an improved soft corn tortilla with a mix of white and yellow masa flour and is testing a new process for cooking beans to make them more consistent.

The company has two restaurants open in the U.K. and three more scheduled there before the end of the year. The first location in Paris is on track to open this spring, and a location in Toronto opened during the first quarter with two more planned there this year.

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Starbucks to Phase Out Cochineal Extract

Monday, April 23rd, 2012

Bowing to customer pressure, Starbucks Corp. on Thursday announced it will transition away from using cochineal extract, a colorant made from the crushed bodies of dried bugs, in several beverages and food items by the end of June.

The ingredient came under attack in March after the vegan and vegetarian website reported that Starbucks was using cochineal extract, which is sometimes listed among ingredients as “carmine” in its pink-color offerings. Items made with the extract include the strawberries and crème Frappuccino, strawberry smoothie, raspberry swirl cake, birthday cake pops, mini donuts with pink icing and red velvet whoopee pies.

The extract has been used in the food industry for years, and Starbucks initially began using it in an attempt to eliminate artificial ingredients. However, the public backlash forced the Seattle-based coffee company to reformulate, said Cliff Burrows, president of Starbucks’ Americas division, in a blog posting.

“We’ve learned that we fell short of your expectations by using natural cochineal extract as a colorant in four food and two beverage offerings in the United States,” Burrows wrote. “Our commitment to you, our customers, is to serve the highest quality products available. As our customers, you expect and deserve better—and we promise to do better.”

Burrows said the strawberry Frappuccino and smoothie will be reformulated to use lycopene, a natural tomato-based extract. He added that the company will transition away from the use of cochineal extract in the four additional food items.

“This transition will occur over time as we finalize revisions and manage production,” Burrows wrote. “Our intention is to be fully transitioned from existing product inventories to revised food and beverage offerings near the end of June across the U.S.”

A spokeswoman for the company clarified that the chain has not yet decided the replacement strategy for the four food items. The company may switch to using white icing on the donuts, for example, or phase out the red velvet whoopee pie flavor altogether, she said. Regardless, cochineal extract will no longer be used.

Comments responding to the blog post Thursday were largely positive. Many said they are allergic to products with cochineal extract and looked forward to trying the drinks. Others, however, said they were allergic to tomato products. And many questioned why the menu items could not be colored with actual strawberries or an extract from the fruit.

Starbucks Corp. at the end of its first quarter had 17,244 locations worldwide, including 12,494 in the Americas region that includes the U.S., Canada and Latin America.

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McD to Franchise in Russia for First Time

Tuesday, April 10th, 2012

McDonald’s Corp., which entered Russia in 1990, will begin franchising in that market for the first time under a new deal with Rosinter, the country’s largest restaurant holding company, according to a report in Reuters.

McDonald’s Russia reportedly still plans to open 40 to 45 company-owned restaurants per year in the country, but the deal with Rosinter would allow the quick-service chain to start expanding in nontraditional locations like airports and railway stations. Rosinter operates T.G.I. Friday’s franchises and is a joint-venture partner in Russia with British company Whitbread to develop the Costa Coffee brand.

There are currently more than 300 McDonald’s restaurants in Russia.

The country is the fastest-growing market in McDonald’s European division, officials have said in previous earnings calls. The original McDonald’s in Russia, in Moscow’s Pushkin Square, has more than 20 cash registers and is one of the chain’s busiest restaurants in the world. Khamzat Khasbulatov, president of McDonald’s Russia, started his career with the company as a manager at the Pushkin Square location.

Many of McDonald’s competitors plan to expand rapidly in Russia. Subway has said it plans to have 1,000 restaurants in that market by 2015, while Burger King entered Russia for the first time in 2010.

In June 2011, Wendy’s partnered with Wenrus Restaurant Group to open its first franchised unit in Moscow’s Arbat District, the first of 180 Wendy’s locations planned to open by 2021. Last week, Wendy’s also said it would open 25 restaurants over the next 10 years in neighboring countries Georgia and Azerbaijan with a separate franchisee, The Wissol Group.

Russia also is a significant growth market for KFC. Earlier this year, David Novak, chief executive of parent company Yum! Brands Inc., said KFC has not completely reached its operating potential in the country but still is doing “fantastically well.”

“We have 150 units in Russia with great margins, and we haven’t even begun to do this brand right,” he said.

Yum entered Russia several years ago by co-branding its KFC chain with Rostik’s, a chicken chain native to Russia, achieving the scale in three years that Novak said would have taken a decade with the typical approach to building out a foreign market. Yum now is converting all co-branded locations into standalone KFCs and building some new KFC units. Some of the first full KFC restaurants in Siberia have average unit volumes of $1.4 million.

In February, Moe’s Southwest Grill, a division of Atlanta-based Focus Brands, signed a development deal with Glaventer Investments Ltd. to open 50 locations in Russia over the next 10 years. The first Moe’s unit is scheduled to open this year in Moscow.

McDonald’s had not returned calls for comment by press time.

Oak Brook, Ill.-based McDonald’s operates or franchises more than 33,000 restaurants in 119 countries.

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San Francisco Restaurant Legislation Could Cut Though Endless Red Tape

Tuesday, April 3rd, 2012

SAN FRANCISCO — Last May, San Francisco’s Planning Department did something profoundly weird.

The agency tasked with enforcing regulations on San Francisco’s restaurants released a YouTube video lambasting those very laws as a needlessly convoluted, headache-inducing morass of red tape that could lead to the department sending inspectors into various restaurants around the city to confiscate toasters and ice cream cones.

Even though the video, entitled “Hello City Planner,” gave voice to the frustrations many San Francisco restaurateurs have long had as they attempt to navigate the city’s labyrinthine planning code, it seemed targeted less at the general public than the city’s Board of Supervisors–the eleven San Francisco residents with the most power to actually do something about the problem.

“While the Department is tasked with enforcing the city’s planning law, we also want to make sure that the rules make sense, that they are not overly burdensome to business owners and that they are actually addressing the real impacts that restaurants have on our neighborhoods,” Planning Department officials said in a statement.

Less than a year later, a handful of supervisors, led by Castro representative Scott Wiener, have taken up the cause of planning code simplification by introducing a bill aimed at making opening a restaurant in San Francisco considerably less complicated.

The city currently requires a restaurant to fit under one of a baker’s dozen of different definitions, each coming with its own rigid set of rules. For example, something listed as a “retail coffee shop” is allowed to serve bagels, as long as house bagels aren’t toasted. If the owner of a “small self-service restaurant” wanted to go green and package food in reusable containers instead of disposable wrappers, he or she would be unable to do so or without risking sanctions.

It’s a system that Rob Black of the Golden Gate Restaurant Association called “almost Kafkaesque.”

Wiener’s bill, originally introduced by former supervisor (now suspended sheriff) Ross Mirkarimi and slated to go before the Board of Supervisors Land Use & Economic Development Committee on Monday, shrinks the number definitions down to three: the relatively self-explanatory restaurant and bar categories as well as a third type, limited-restaurants, which aren’t allowed to sell alcohol.

“Over the years, we’ve created this monstrosity by doing so much micro-level legislation to solve individual problems that flare up,” Wiener told The Huffington Post.

The present system was largely established in the late 1980s in response to concerns about chain restaurants pushing out local eateries and fears that the city’s burgeoning slate of restaurants–both of the home-grown and chain varieties–would gobble up a huge portion of San Francisco’s real estate and leave precious little for other types of business.

“As long as I’ve lived in San Francisco, the process has gradually gotten more complicated as people try legislate their own agendas into the planning code,” said Ted Lowenberg of the Haight Ashbury Improvement Association. “You have people trying to create the perfect system, but making it worse in the process due to constant micro-management.”

Lowenberg said Wiener’s bill marks the first time he’s seen the city’s planning code move from complexity towards simplicity. “If city departments have ever attempted to make the process [of opening a restaurant] more rational, they’ve certainly done it on the QT,” he said.

Piggybacking off the present definitions, many neighborhoods have created their own set of restrictions as to what restaurants are allowed to move in. For example, the Haight-Ashbury has a hard cap severely limiting the total number of restaurants. New bars and liquor stores are also prohibited from opening in a wide swath of the Mission.

While there was some initial concern about these neighborhood-centric regulations being wiped out, Wiener’s measure keeps them largely in place.

“This common sense legislation recognizes that we can protect our neighborhoods while also promoting food-based businesses and allowing these businesses to be flexible and creative,” said Wiener in a statement.

Nate Pollak, owner of the popular SoMa eatery The American Grilled Cheese Kitchen (and HuffPost blogger), applauds officials for addressing some of these permitting problems but thinks the new law misses the bigger picture.

“I think its great they’re simplifying the planning codes, but we actually had the most trouble with the Building Department,” said Pollak. “In opening our restaurant, all of the plans were…approved by the Planning Department and then at lot of them were later rejected by an inspector. This happened over and over again. There’s no consistency in how the code is applied across the departments.”

Pollak told a story of how inconsistent enforcement of the fire code law led to his restaurant being forced pay a professional inspector $80 an hour for three days to literally watch paint dry. The whole ordeal pushed back the opening by two months. “The only reason we were able to have it handled so quickly was that we asked the city’s Small Business Commission for help and they got involved,” said Pollak. “Every single experienced SF restaurateur I talked to about opening a restaurant told me this would happen, that there would be a hassle with the inspectors.”

Despite the complexities of the current system, these are boom times for San Francisco restaurants. The San Francisco Chronicle forecast that restaurants in 2012 are expected to boast both sales and employment levels higher than then before the beginning of the recession:

“Restaurateurs here are reporting that the last quarter of 2011 was their best in years,” said Rob Black, executive director of San Francisco’s Golden Gate Restaurant Association trade group. “We may actually be better off than the rest of the nation. We’re ahead of the trend as far as economic activity. Office vacancy rates are below pre-recession numbers. And there’s a high occupancy rate in hotels and conventions. All this bodes well for our restaurants.”

Wiener’s bill is expected to go before the full Board of Supervisors before the end of the month.

Restaurant Industry Looks for Change in Health Care Law

Monday, April 2nd, 2012

As the Supreme Court moves into its third day of hearings on the constitutionality of the landmark health care law, many in the restaurant industry are nursing hopes that the 2-year-old law either will be overturned or at least altered to become more business-friendly.

Industry associations and restaurateurs have argued for the past several years that The Patient Protection and Affordable Health Care Act of 2010 could cut deeply into earnings, force operators to raise prices, eliminate jobs and slow growth in an already economically challenged environment.

While the court considers four key questions pertaining to the constitutionality of some elements of the act, at the heart of the debate is the law’s central requirement that most Americans purchase health insurance or be subject to a fine — referred to as the individual mandate. However, in the event the individual mandate is indeed struck down as being unconstitutional, the court also agreed to hear another argument addressing whether the law can survive in its abridged form — known as the severability issue.

The National Restaurant Association filed an amicus brief in January throwing its support behind the argument that the entire act should be struck down if the court rules that the individual mandate should be removed. The NRA argued that a health-care law shorn of the individual mandate would drive up employer’s costs for insurance.

Michelle Neblett, the NRA’s director of labor and workforce policy, said the association felt it was necessary for the court to consider that the restaurant workforce demographics “and the characteristics of most restaurant employers means the industry would be subject to a particularly negative impact if the individual mandate is severed from the rest of the act.”

The brief maintains that the foodservice industry is made up chiefly of small employers, and “Congress’s goal of helping small employers provide health coverage would be impeded by the large increase in the cost of health care coverage, which would result if the rest of the Act stands without the individual mandate requirement.

“If the act is implemented without the individual mandate, however, it would affirmatively place small employers, and their employees, in a worse position than they were before passage of the act,” the brief argues.

If the law does not compel healthy, younger employees — who comprise a large portion of the industry workforce — to buy insurance, many will choose not to be covered, Neblett said. “And taking healthy people out of the insurance pool drives up the rates for everyone.”

While the court continues to hear arguments, other associations are weighing in on the health care issue. Rob Green, executive director of the National Council of Chain Restaurants, said: “On the one-year anniversary of the enactment of the new healthcare law, we rang the bell about the damaging impact the law’s employer mandate and related penalties will have on chain restaurant operators and their small business franchisees.

“Two years in, the industry still doesn’t have relief from the most pressing challenges created by the law. First and foremost, we continue to ask how chain restaurant employers — who operate on exceedingly thin profit margins — will be able to afford to comply with the law while still trying to create jobs and contribute to economic growth,” he said.

One element that the associations have been addressing at the regulatory level is the government’s definition of a full-time employee, and how long the “look-back period” should be to determine who is fulltime and who is part-time. “People are still trying to bring attention to specific issues in health care they find problematic,” said Scott DeFife, executive vice president of policy and government affairs for the NRA.

At the same time, some continue to look for ways to overturn the law’s employer mandate.

“The Health care law’s employer mandate provision is casting a dark shadow with potentially grave consequences over many franchise business owners, creating additional uncertainty about expanding their operations or hiring new workers,” said Steve Caldeira, chief executive of the International Franchise Association. “The mandate puts 3.2 million jobs at tens of thousands of franchise businesses at risk, according to an IFA/Hudson Institute study.”

Caldeira said the study, which is expected to be presented to the House Ways & Means committee Thursday, shows how the law will impact job creation. “The study shows how the mandate will force franchise small business owners to choose between reducing the number of full-time employees or down-sizing their businesses or both — none of which is a prescription for economic recovery,” he said.

In the meantime, restaurateurs are starting to look ahead to 2014 when employers must start offering health-care insurance to their full-time employees, Neblett said.

“There are a lot of conversations going on now,” she said. “About one-third of the industry has looked at their costs and planned ahead and made changes to plans. Another third is waiting to see how the [Supreme Court] case and the elections all play out. And one-third are just worried about running their business and haven’t thought about it much yet.”

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