J. Alexander’s Acquisition Sign of ‘Incredible Year’ for SPB Hospitality

J. Alexander’s recently rounded the corner on a significant turnaround of its own. The chain, public for nearly six years, indicated in summer 2019 it was seeking strategic alternatives to reboot the business. It retained investment banking firm Piper Sandler to facilitate a review of and said anything from a merger, sale, acquisition, share repurchase program, or strategic investment, was on the table.

The question at hand was if J. Alexander’s was truly big enough to be an efficient standalone company on the stock market. Piper Sandler contacted more than 125 potential buyers, and three emerged. One offered “a premium to the then-current market price,” but that changed once the pandemic dropped in. J. Alexander’s reduced its proposed purchase price multiple times and insisted on conditions relating to performance. For a bit, talks shelved in favor of COVID-response tactics.

But at last, sales lifted 5 percent in April versus 2019—the first time J. Alexander’s reported growth since coronavirus. At J. Alexander’s and Redland Grill, average weekly same-store sales per restaurant in Q1 lifted 3.1 percent year-over-year to $106,600, and at Stoney River Steakhouse and Grill, average weekly same-store sales upped 4 percent year-over-year to $75,300.

If we go back to April 2020, comps at J. Alexander’s/Grill restaurants plunged 81 percent. Stoney River’s fell 78.3 percent. In May, the figures were negative 61.5 and 62 percent, respectively.

By Q2 of last year, average weekly sales were $51,600 at J. Alexander’s/Grill and $35,000 at Stoney River.

J. Alexander’s flipped the dial on digital marketing and email campaigns to drive awareness to off-premises. It added curbside service, invested in online ordering with ChowNow, and began offering family-style meals, as well as butcher shop sales of cook-at-home, hand-cut steaks. The company offered bottles of wines to-go, too, and tested delivery in certain markets.

In response, off-premises-only sales during the week ended May 31, 2020 totaled about 29 percent of total take and were up roughly 35 percent over the week ended March 29, 2020, which was the first full stretch of primarily carryout-only sales.

With dine-in returning, the channel held, mixing 16 percent of total net sales in Q1, or $720,000 in average weekly off-premises business. That’s only $10,000 fewer than what J. Alexander’s saw in Q4 2020.

Mazany says talks of acquiring J. Alexander’s with SPB’s advisers began about four or five months ago. It really got on the company’s radar screen, he says, toward the end of 2020 when “we realized there was some really strong forward momentum in the company.”

“From our performance, we were tracking ahead of our turnaround plan here,” he says. “And I think when we saw that opportunity, and we looked at how this year’s taken off for us, and this has been a great first six months of the year for SPB and all the brands—it really started to heat up at the end of the first quarter.”

Personally, Mazany says he’s been a fan of the J. Alexander’s brand for some time. The company was founded in 1971 as Volunteer Capital Corporation by renowned entrepreneur Jack C. Massey, the principal shareholder, and two Nashville businessmen, Earl Beasley, Jr., and John Neff.

Massey is the same restaurant maven who Colonel Harlan Sanders reportedly once offered $100,000 and half of the company’s profits to run KFC. In 1964, Massey and future Kentucky governor John Y. Brown paid $2 million for the chicken giant. They took it public in seven years, expanding the brand from 600 or so units to more than 3,500 globally. Massey made $45 million when the now Yum! Brands-run business was sold in 1971 to Heublein Inc. There are more than 25,000 KFCs today.

The Volunteer Capital story is a long and complex one, but the first J. Alexander’s unit, known for its contemporary American dishes and wood-fired cuisine, arrived May 1991 in Nashville, Tennessee. Lonnie J. Stout II became chairman following Massey’s death in 1990 at the age of 85.

“Where we saw the opportunity that they were looking for alternatives to sell, it was something that I actively wanted to pursue for us because I believe it’s a really good complement to what we do,” Mazany says. “And I think the brand fits in really nicely into our portfolio and we have plans for growth in all of our SPB brands. But specifically, as we look at this acquisition, we also have plans to grow the J. Alexander’s brand into the future.”

To start, Mazany says J. Alexander’s does “a lot of things really well.” So this isn’t an overhaul project out of the gates.

SPB can bring marketing expertise, purchasing power, operational chops, IT, and simply a backbone of being “really good restaurateurs,” he says. And if you look at the past year, SPB proved successful launching virtual brands, devising new sales channels, and igniting revenue drivers across the board, like catering. It installed call centers where people answer the phone for to-go orders. It’s growing third-party delivery in every avenue.

“So we find ourselves as really good brand stewards, understanding the DNA of each one of the brands we have in our group,” Mazany says. “And we support that DNA and give the brands the opportunity to grow under the leadership that we provide. And the financial stability.”

“From a guest point of view, our satisfaction scores have never been higher across the board,” Mazany adds. “True operational excellence has been put into the company and I think our approach of how we think about the business and our guest and restaurateurs, I think, is a big a change from our previous [situation].”

SPB is approaching 10 months of sustained growth. A good roadmap for what might happen at J. Alexander’s would be what’s unfolded at Logan’s, where SPB took its core equities and amplified them. Namely, keeping prices down to separate from category peers. Logan’s average check clocks in at $12–$13 range with steak offerings starting around $10. The average check at Outback, for comparison, was $23 in 2019, with 91 percent of the sales stemming from food and non-alcoholic beverages. Outback just recently unveiled a more value-focused menu, reflecting a shifting landscape. The per-guest average check for Texas Roadhouse that same calendar was $17.57.

In October, Logan’s created an option for guests to customize meals and “Make it a Combo” by adding wood-grilled chicken, hand-cut salmon, shrimp or crispy crab cakes to any entrée. It also added Southern Fried Fish to its dine-in “American Roadhouse Meals” menu, where guests can choose from a variety of hearty entrées served with two sides from 3–6 p.m. for $8.99.

“The from-scratch cooking that we do at Logan’s, the way in which we operated as a roadhouse but with a more limited menu that’s more to the core of what our consumer really likes and wants, we have been rewarded with that as guests return, and our additional layers of sales that we put in place continue to grow,” Mazany says.

More than 20 percent of revenue at Logan’s today hails from off-premises. Mazany believes it will reach 25–30 percent of total sales in time.

Virtual brands have been strong as SPB, too. Twisted Tenders is a virtual concept that launched in December. A month or so ago, Ember Smoked BBQ activated for third-party delivery in 19 states. There’s also Roadies, Logan’s on the Road, and OC (Old Chicago) on the Go. Mazany says the most recent iteration, which focuses on mesquite-wood smoked, grilled and seared entrées or burgers and handheld sandwiches, has been, by far, the “hottest of all the brand that we’ve had.”

“I do think there will be a demand [for virtual brands after COVID] and I think one of the drivers of our success has been value,” he says. “The Logan’s price point and the value that we offer, all through the pandemic we have not been aggressive with price at all. We’ve held the line on our pricing, from pre-pandemic through the pandemic. Modest increases here and there when we faced some commodity pressure. But we really believe the value that we offer, not only in our virtual brands, but within Logan’s itself, is a big driver of our success and we see that from our guest satisfaction scores, our guest intercepts, the feedback coming back of the value for the experience has been very strong for Logan’s.”