Archive for October, 2012

Restaurants Feel Impact of Hurricane Sandy

Wednesday, October 31st, 2012

East Coast restaurants are dealing with the impact of Hurricane Sandy, the 1,000-mile-wide pre-Halloween storm that pushed into the densely populated Northeast on Monday with gale-force winds, sea surges, flooding from torrential rains and ensuing power outages.

Operators from Massachusetts to Virginia braced for the worst, with many closing or limiting hours as the so-called “Frankenstorm” spun leftward out of the Atlantic and onto land.

The hurricane was expected “to have a considerable impact on restaurant sales and earnings during calendar fourth quarter,” said Bob Derrington, managing director of Northcoast Research, in an analyst’s note Monday.

“The hurricane has definitely slowed our grand opening,” said Anthony Simmons, manager of a new 9,500-square-foot, 279-seat Gordon Biersch Brewery Restaurant that opened Monday on the waterfront in Baltimore.

Speaking at lunchtime, Simmons said the new restaurant, which is located less than 30 feet from the piers, was serving mostly emergency workers and crews that were sandbagging in the area.

“It’s raining like crazy and getting colder,” Simmons said, adding that the restaurant planned to close before its planned grand-opening-day dinner daypart as potential guests stayed at home due to the storm.

Hurricane Sandy was expected to deal a blow to October sales figures for restaurant chains with significant numbers of units in the region, though the immediate impact is more on casual-dining than fast-food brands, experts said.

Stephen Anderson, senior restaurant analyst with Miller Tabak + Co. LLC, said in a note before the storm that “in terms of the Knapp-Track benchmark index, we think Sandy itself may turn a fractionally positive comp in October into a fractionally negative one but push November comps to the 1-percent level or better.”

Most affected would be Miller Tabak-covered brands like Dunkin Brands, Cheesecake Factory, Chipotle, Darden Restaurants and Panera Bread, Anderson said, adding, “We anticipate the intermediate-term effects of lost sales will be made up at least partially by the following weekend.”

Derrington of Northcoast Research said a hurricane’s “greatest impact” to profit and loss statements typically comes first from loss in same-store sales and then in higher costs, such as food spoilage, repairs and labor. The same-store sales impact is usually difficult to measure in such as situation due to the typical spike in sales for stores able to re-open once power is restored.

“In the case of most bigger hurricanes in Florida, stores away from the storm’s path and along evacuation routes get a boost to same-store sales offset by a negative impact to stores within proximity to the storm’s actual path,” Derrington explained. “However, following the storms initial impact and as recovery repairs begin, restaurant sales tend to rise given the influx of repair personnel and consumers unable/unwilling to cook during the recovery periods.”

Derrington added that casual-dining chains are typically hurt from hurricanes more than quick-service chains due to the considerable number of employees needed to operate them, who often don’t show up for work — especially if public transportation is limited. New York City, for example, shut down the subways and bus service on Sunday, the night before Hurricane Sandy hit.

Quick-service restaurants can stay open with fewer employees, he added, and they benefit from hurried consumers with their drive-thru service.

Derrington said the impact of Hurricane Sandy will be seen mostly in fourth-quarter earnings reports, so the full effect won’t be known until companies report in January and February.

Among restaurant companies covered by Northcoast Research, Derrington said those with significant presence in the Northeast and Mid-Atlantic included Ruby Tuesday with about 44.3 percent of its restaurants in the region, Brinker International with about 32.6 percent, Panera Bread with about 32.6 percent and Cheesecake Factor with 28.2 percent.

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Gordon Ramsay Tries Casual Dining

Thursday, October 11th, 2012

Fresh from opening a Las Vegas steakhouse, Gordon Ramsay last week opened The Fat Cow in Los Angeles, a “neighborhood gathering place” that marks a more casual shift for the television chef known for his high-end restaurants around the world.

Ramsay is known in the U.S. for his television shows, such as “Kitchen Nightmares,” “Hell’s Kitchen” and “Master Chef,” and he splits his time between Los Angeles and London. But most of the 25 restaurants operated by his Gordon Ramsay Holdings are in the United Kingdom.

In 2008, Ramsay opened restaurants in Los Angeles and New York that were later turned over to the hotels in which they were located. Earlier this year, however, Ramsay began another attack on the U.S. restaurant scene with the opening of Gordon Ramsay Steak in the Paris Las Vegas resort and casino.

In addition, by early 2013, Ramsay is scheduled to open Gordon Ramsay Pub & Grill at Caesar’s Palace in Las Vegas.

The Fat Cow is located in Los Angeles’ The Grove lifestyle center, a busy shopping mall adjacent to the city’s historic Farmer’s Market. The 200-seat restaurant is tucked next to a movie theater, where it offers seasonal comfort foods in a rustic, old-timey Route 66-inspired setting.

Coming soon is the addition of Moo Bar at the restaurant’s entrance, serving soft-serve ice cream, ice cream sandwiches, milkshakes, and a grab-and-go selection of baked goods.

The Fat Cow will be helmed by chef Mathew Woolf, former executive chef of the West Restaurant and Lounge in Los Angeles.

Ramsay spoke with Nation’s Restaurant News about the new concept.

Los Angeles is full of restaurants with elevated comfort foods these days. How will The Fat Cow stand out?

We’re really excited to bring this concept to life, a neighborhood gathering spot right in the middle of The Grove. The menu’s a classic-yet-modern approach with delicious, seasonal, home-inspired comfort food using seasonal ingredients and fresh produce from the adjacent Farmer’s Market and other local farmer’s and purveyors.

What are some signature dishes on the menu?

The menu truly is diverse, and there’s something for everyone any night of the week: lobster mac & cheese; the short rib-and-Kobe beef Fat Cow burger; pepper-crusted wood-roasted long ribs; wood-burning-oven pizzas like the vodka, tomato, mozzarella pizza and spicy sausage, burrata, fennel pizza. Also fresh salads: a Tuscan kale “Skinny Cow” chopped salad; the tuna Niçoise salad.

Is Fat Cow being developed as a concept that might be multiplied?

Right now our goal is to make sure we’re getting it right at The Grove.

Why place the Moo Bar at the entrance, with grab-and-go to come, rather than enticing guests into the restaurant?

Our location at The Grove makes the Moo Bar an ideal place for people to literally run in and buy a quick treat on the go while they are shopping if they don’t have time to sit down for a meal.

Will the ice cream be made in house, or are you using a partner brand?

Once the Moo Bar is open, we’ll offer a variety including great housemade ice-cream sandwiches, ever-changing artisanal frozen yogurts, and milkshakes.

You’re known for very high-end restaurants around the world. It seems the focus now is on more casual concepts. Is this a shift in position?

Internationally, I do have casual-dining restaurants as well, but yes, in the U.S. that’s true. It’s something I’ve really wanted to explore in the U.S., and when The Grove opportunity presented itself, I knew it was the right time.

Years ago, there were rumors of soccer star David Beckham investing in a restaurant with you here in Los Angeles. Is he involved with this or others?

David and I are great friends, but no, he is not involved with The Fat Cow or any of my restaurants opening in the U.S.

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Yum reveals growth strategies

Thursday, October 11th, 2012

Officials for Yum! Brands Inc. remained upbeat about the quick-service giant’s near- and long-term prospects for profit and new-unit expansion even as it had to manage through significant headwinds during the Sept. 8-ended third quarter.

Traffic slowed in China and a calendar shift cut into sales in the company’s emerging markets, but new-unit growth will accelerate in China and other regions as Yum remains confident in its business models and track record of profitability, executives said.

Improving margins and buoyant same-store sales in the United States for its Taco Bell, Pizza Hut and KFC brands also had Yum officials optimistic for continued profit growth.

Capitalizing on China

Despite traffic falling 1 percent in China in the third quarter, Yum still managed to grow same-store sales in that 4,000-unit market by 6 percent. Chief executive David Novak noted the division faced difficult comparisons from a year earlier of 19-percent same-store sales growth and 27-percent traffic growth.

While the Chinese economy is growing slower than the torrential pace of the past decade, Yum’s long-term outlook is not changing “one iota,” he said.

“The big news is old news, frankly: We’re able to capitalize on China more than any company in the world,” Novak said. “We’ll have our ups and downs, but I’ll always be glad to wake up every day and know we have the position we have in China.”

In fact, Yum said it is on pace to open more than 750 restaurants in China this year, marking the company’s second acceleration from its earlier guidance of 600 openings for 2012. At least 150 of those new restaurants would be Pizza Hut Casual Dining, which is about to make its first significant push into China’s interior.

“Given our new-unit development, we’ll be less reliant on same-store sales growth [in future years] to achieve our targets of 15-percent profit growth,” chief financial officer Pat Grismer said.

But Novak said Yum would not grow faster than its profitability or personnel would allow, citing the conservative tack Pizza Hut Casual Dining took in China several years ago as an example. Profitability had slowed at Pizza Hut, so rather than forge ahead into Tier-3 through Tier-5 cities, the brand halted expansion and turned toward menu development, adding new products and a value menu.

“The transactions and profits went through the roof, and then we expanded,” he said. “We’re confident we’re growing the business the right way. We went into this year with a projection of 600 openings. Why? Because you don’t grow faster than you need to. We’re not trying to be heroes; we’re trying to build a heroic business.”

Building momentum in the U.S.

Yum would look to continue the supply chain efficiencies and same-store sales leverage that led to a 4.6-percent improvement in restaurant-level margins in the third quarter, officials said. Third-quarter same-store sales rose 7 percent at Taco Bell, 6 percent at Pizza Hut and 4 percent at KFC, the company reported.

Yum president Rick Carucci called Taco Bell the catalyst of Yum’s resurgent performance in the United States this year, based in large part on the strength of its two big product introductions, Doritos Locos Tacos and Cantina Bell. Those products were 7 percent and 5 percent, respectively, of Taco Bell’s sales mix in the quarter.

Anecdotally, Carucci said, the new Cantina Bell menu at Taco Bell has been driving incremental business at lunchtime and has attracted more female customers, while boosting the average check of those customers’ orders.

“We think the fast-casual guys taught us a lesson: People want higher-quality food that they’re willing to spend more money for, if they get speed and convenience,” he said. “The good news is that these initiatives drove strong sales this year and should continue into 2013 with flavor extensions to complement the current menu.”

A new flavor of Doritos Locos Tacos at Taco Bell, Cool Ranch, has been pushed back into early next year, Carucci said.

He added that net unit growth at Pizza Hut — which, after 10 years of store count declines, added a net 53 locations in 2011 and a projected 130 net units this year — would continue to boost U.S. performance. Pizza Hut’s Big Dinner Box and $10 Dinner Box have driven much of the brand’s sales the past few quarters, and that would continue going forward.

KFC still has “heavy sledding ahead,” Carucci said, but the brand will continue investments in new technology and equipment, while the most recent introductions of Original Recipe Bites and Chicken Littles, as well as a larger advertising presence, are expected to keep same-store sales positive.

YRI to bounce back in Q4

Same-store sales growth in Yum Restaurants International, or YRI, slowed to 2 percent for the third quarter, compared with 4 percent in the second quarter and 3 percent from a year earlier, but Carucci expects that result to “bounce back” in the fourth quarter. A calendar shift moving the Muslim holiday of Ramadan into the third quarter negatively impacted YRI’s result by 1 percent overall, but had an outsize effect of negative 2 percent in its emerging markets, including negative 7 percent in the Middle East.

YRI’s biggest near-term opportunities remain Russia, France, Germany and the African continent, Carucci said. He cited the “business rental” model in place in France — in which Yum holds the lease on a new restaurant and charges the franchisee a percentage of sales — as the likely way to get the growth and returns Yum seeks for continental Europe. Yum has some of its highest average unit volumes in those markets, where McDonald’s systems dwarf theirs.

YRI has fewer than 400 restaurants and generates about $30 million in profit from France, Germany and Russia, Carucci said, compared with McDonald’s 2,900 units and $1 billion profits in those countries, suggesting a “tremendous runway” for growth.

“The amazing thing for us is how little business we have there already, yet we now have the unit economics that we think are scalable,” Novak said. “What we try to do is learn from each other and from our competition. McDonald’s has shown us that the business rental model is the way to expand over the long term in continental Europe. The good news for us is that we’re on the ground floor on this, and we think it can become very significant.”

For the quarter, Yum’s overall net income rose 23 percent to $471 million, or $1 per share, compared with $383 million, or 80 cents per share, a year earlier.

Revenue climbed 9 percent to $3.6 billion, reflecting nearly 400 international openings and same-store sales increases of 6 percent in China, 2 percent in YRI, 6 percent in the United States and 5 percent in India.

Louisville, Ky.-based Yum operates or franchises more than 38,000 locations of KFC, Pizza Hut and Taco Bell in more than 120 countries.

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Arby’s Shifts Marketing Strategy

Tuesday, October 2nd, 2012

When Arby’s introduced its new Turkey Roasters sandwich nationally on Sept. 3, the chain was embarking on a new era — one with a clearer branding strategy and increased menu innovation.

“This brand has had an identity crisis for the past few decades,” said Russ Klein, Arby’s chief marketing officer. “We’ve made the decision that we want to be a modern sandwich shop.”

On Sept. 30, the company introduced a “Slicing Up Freshness” advertising campaign, which highlights the chain’s freshly sliced sandwich meat. Other quick-service restaurants, like Subway, slice it before the meat reaches stores. Freshly sliced meats, Klein said, is and always has been a clear competitive differentiator for the Arby’s brand.

The chain’s “Good Mood Food” campaign, which launched in early 2011, was discontinued in spring 2012, he added.

Turkey Roasters are one facet of the new menu innovations taking place, Klein said. The sandwiches are served hot like the traditional Arby’s Roast Beef sandwich. They come in three varieties: Grand Turkey Club, Turkey ‘n Cheddar and Turkey Classic at recommended prices of $4.29. $3.49 and $2.79, respectively.

On Sept. 6, Arby’s offered free Turkey Roasters at all of its locations from 11 a.m. to 1 p.m. in an effort to find more customers and brand advocates. During that time, the company gave out more than one million sandwiches, Klein said.

The roasters and rebranding are the result of a Boston Consulting Group study completed during fall 2011, Klein said. The study, conducted specifically for Arby’s, showed that the chain’s customers were “modern traditionalists,” he said.

“They’re not defined by age, ethnicity or gender,” he said. “They’re bound together by their value systems and their beliefs. They tend to skew a little bit older, and they tend to skew a little bit male … knowing who our consumer was a critical component of developing new product ideas.”

Turkey Roasters were a direct attempt to appeal to more female consumers, he said.

“Turkey had a number of positive attributes,” he said. “It’s a nice complement to roast beef. It also skews toward high-income households.”

Commodity costs, including the rising price of beef, didn’t play into Arby’s decision to introduce the hot turkey sandwiches. “We don’t really use the cost of good fluctuations to decide the types of products that will go on our calendar,” he said.

“The number one reason companies stall is that they fail to innovate,” Klein said. “We don’t want to be caught short-handed when it come to meeting our objectives.”

The company plans to introduce 12 new menu items during 2013, he said.

Atlanta-based Arby’s Restaurant Group Inc. is holding its biannual company convention for employees and shareholders in Las Vegas Oct. 7-10.

Arby’s has 3,437 units, according to Nation’s Restaurant News’ most recent Top 100 census.

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