In September 2010, Steve Carley walked into a corporate storm — the swirling funnel-cloud-type of storm that ultimately brings a company to its knees.
When Carley assumed the CEO spot at Denver-based Red Robin, he quickly noted a restaurant company pelted with challenges.
Red Robin had endured several years of startling weak numbers. Competition overran collaboration, and the dysfunction rivaled that of a reality show. The brand’s casual-dining rivals, meanwhile, had reframed and left Red Robin behind.
“The company languished and there was little vision for the brand,” Carley acknowledges.
Action and, more importantly, results were needed.
Now.
Decisively and swiftly, Carley, a no-nonsense executive who led a turnaround at quick-service player El Pollo Loco before entering Red Robin’s ranks, moved. He spearheaded menu modernization initiatives, launched a loyalty-card program, and harvested cost-saving ideas throughout the organization. He approved new marketing campaigns, refocused the concept’s bar and alcohol efforts, and authorized a stock repurchase program.
Whatever it took, Carley stood determined to revive Red Robin and its more than 450 U.S. units.
The painstaking efforts produced results. In 2011’s first quarter, Red Robin’s profits skyrocketed 76 percent.
Today, Red Robin’s positive tale continues amid a five-quarter run of same-store sales increases. The chain has removed itself from life support, re-energizing its future in the process.
“We’re getting there,” Carley says.
In the full-service space, restaurant revival stories remain rare, specifically as operators rally against greater expenses, myriad moving parts, intense competition, and consumers’ changing lifestyles.
Yet tales of rejuvenated full-service restaurant companies exist, and a few common traits generally share responsibility for transforming a struggling restaurant concept into a surging one.
Next: Recognize change is needed
[pagebreak]
Recognize change is needed
For many restaurants in trouble, the first necessary step is often the most difficult: recognizing the need for change.
Though the reasons for a tailspin vary, from pricing and high administrative or operational costs to lost revenue, restaurant turnaround consultant Danny Bendas often cites complacency as the frequent culprit, one magnified as the economy nose-dived in recent years.
“For so many restaurants, they’re rolling along, doing fine, and feel they don’t need to do anything to maintain momentum. That complacency allows the competition to roll over them,” says Bendas, a managing partner with Costa Mesa, California-based Synergy Restaurant Consultants.
Fred LeFranc, founding partner of Results thru Strategy, a restaurant consultancy firm based in Charlotte, North Carolina, concurs. LeFranc sees many struggling restaurant companies continuing down wayward paths and inflicting their own wounds, largely out of ignorance.
“A lot of brands in trouble continue to do things that don’t help them, but do so because they don’t know any better,” LeFranc says.
“But change is hard,” he says, “so few want to do it – necessary though it might be.”
Too often, Bendas witnesses many struggling restaurants “die in 1,000 gashes.” They see problems, but do not dedicate themselves to change.
“They save pennies on going with different cheese, napkins, or bread, hoping or thinking that the guests won’t notice,” he says. “Quite frequently, the guests do notice and they move on.”
Indeed, change, once identified as necessary, needs to be robust, sustainable, and considerate.
Once a casual-dining powerhouse, Sizzler fell on hard times, shutting restaurants and enduring years of falling revenue. The turmoil continued until Kerry Kramp occupied the CEO’s chair in 2008. Kramp immediately identified the Culver City, California-based company’s warts, made a case for change, and pushed for aggressive action.
For instance, Kramp noticed numerous franchisees ignoring brand standards as well as royalty and operating fund payments, hardly the markings of a successful restaurant company. He took the bold steps of closing more than 30 restaurants and ceasing franchise development, moves that set the business on a new path of strategy and purpose.
“This was a concept that needed to be revived, and there was a real concerted effort to see this iconic brand find a new path,” Kramp says.
To combat Red Robin’s woes, Carley inserted a new chief financial officer and chief marketing officer and installed a sense of “hair-on-fire” urgency.
“I wanted to turn the focus to accountability, innovation, and a drive for results,” Carley says. “Any company that’s gotten lost and confused needs to admit it and then commit to making things happen.”
Next: Assess relevance with consumers and the competition
[pagebreak]
Assess relevance with consumers and the competition
Upon his arrival at Red Robin, Carley did a number of financial metric comparisons to both peers and Red Robin’s track record. The company also spent money on consumer insights and research.
“The competition didn’t stand still because we had problems. We had to get an understanding of where we stood,” Carley says, adding that the data allowed him to set internal goals around cost savings and margin enhancement.
Amid sluggish times, restaurant consultant Jim Balis, president of The Restaurant Management Group advisory firm, says operators are wise to investigate both internal and external factors contributing to their struggles. Where are sales being lost? Where is the restaurant struggling to meet diners’ expectations? Where is the competition surpassing the restaurant?
“With answers in hand, you can then begin to develop strategies to combat the problems,” says Balis, whose New York City-headquartered agency has worked with restaurant companies such as Applebee’s, Hooters, Denny’s, and TGI Friday’s.
Furthermore, Balis adds that restaurants need to understand their point of differentiation and how they play against the competition. Identifying a competitive edge, he says, gives a restaurant something to market and the ability to grow from a distinct foundation.
Realizing that Sizzler needed to be more connected to its consumers, Kramp spent time in restaurants talking to guests. Frequently, he’d converse with them as they perused the menu, and he would ask for feedback. Kramp fielded many complaints of an overwhelming menu absent seasonal, fresh, and homemade dishes.
In response, Kramp reduced Sizzler’s menu 25 percent and incorporated in-house cutting of salmon and steak as well as fresh-ground hamburger. The company also reconnected with affordability, another customer-cited issue, by promoting a $15.99 steak and lobster special as well as the company’s well-known salad bar.
“We had this epiphany that we had to connect with our customers’ wants and needs … and that’s been the biggest piece of our improvement,” Kramp says.
Next: Have a vision, create a plan
[pagebreak]
Have a vision, create a plan
In 1997, within two weeks of Fred LeFranc taking the reins of Louise’s Trattoria, a chain of 15 Italian-themed neighborhood eateries spread around the Los Angeles area, the government seized the company’s funds seeking $225,000 in overdue sales tax. Unable to write checks to its suppliers, Louise’s filed for Chapter 11 bankruptcy protection.
“It was a like a bomb went off,” LeFranc says.
To restore order, LeFranc assembled what remained of Louise’s corporate staff and created a strategic plan, a process that allowed the company to identify its specific troubles and generate a road map toward productivity.
“In spite of all the distractions and noise, we at least had a clearer idea of what we were doing moving forward,” LeFranc says.
Louise’s plan included restoring credit terms with suppliers, reining in expenses from food to staffing, ramping up sales with innovative new menu items and take-out business, and shifting the company culture toward empowerment, particularly at the store level.
The efforts generated positive momentum. Upon LeFranc’s 2001 departure from Louise’s, sales and cash flow were trending positive, a remarkable turn from the uncertainty LeFranc encountered just four years before.
Though many toss aside a strategic plan as a mind-numbing practice, LeFranc considers it essential. By reviewing internal and external factors, strengths and weakness as well as opportunities, LeFranc says, a restaurant company can land on the “three or four top things it must do to right the ship.”
“It’s about setting a plan helps you go from feeling sorry for yourself to a sense of, ‘Let’s move,’” LeFranc says.
Generate involvement throughout the organization
LeFranc says an energized, engaged workforce can produce transformative results. He’s among many industry insiders who believe the path to redemption starts with employing and investing in the right people, particularly those with enthusiasm and passion.
In his visits to Sizzler units, Kramp devoted time to connecting with frontline staff, managers, and franchisees. He soon noted dispassionate kitchen staff and food quality issues, both of which sparked him to create “real kitchens” in which employees crafted fresh food. Almost immediately, Kramp says, employees’ pride increased, something that positively translated to guests.
“The evolution of players throughout our system has made the business stronger,” Kramp says.
In looking to revive Red Robin, Carley, too, connected with in-store team members, frequently soliciting their input on solutions.
“I’d ask them point blank, ‘If you were in charge, how would you fix the business?” Carley says. “The answers are there if you ask questions and listen.”
Carley later integrated many of the staff’s solutions into the company’s “Project RED” plan, an initiative aimed at revenue growth, expense management, and capital deployment.
“When people saw their ideas teed up, that helped with the buy-in,” he says. “You need to get the whole organization agreeing on the current state and where the business needs to be, so that everybody involved can understand the difference between the two points and move in unison toward a better future.”
Next: Execute and deliver results
[pagebreak]
Execute and deliver results
Unfortunately, all the strategic planning, operational changes, and well-intentioned efforts don’t mean a lick if the numbers don’t move in a positive direction.
“If you don’t get results, then you don’t have a lot of freedom of action,” Carley says.
For chains, LeFranc suggests testing changes in a pilot market to prove the thesis and better assess the quality of the proposed initiatives.
LeFranc’s Results thru Strategy team is currently working with Chevys Fresh Mex, a national brand with about 80 locations in 14 states that has endured its share of ups and downs in recent years. Though “fresh” has long been Chevy’s brand purpose, LeFranc says the concept was struggling to communicate that promise to guests.
Utilizing its Sacramento eateries as a test market, Chevys is now working to reclaim “fresh.” Mini-kitchens in the restaurants make tortillas and toss salads in direct view of customers, while staff members also mix guacamole in front of the customers.
“Those changes have made Chevys dynamic again and brought the concept back to fresh,” LeFranc says. “In any rebound, you have to execute not in words, but in behaviors and processes.”
With results in hand from a pilot run, restaurants can assess the data, pivot as necessary, and then roll out changes with coordinated PR and marketing efforts.
“And oftentimes,” LeFranc says, “it takes off like a rocket ship.”
After years of stalling development to stabilize the business, Sizzler is now returning to growth mode.
Be patient
These days, both Sizzler and Red Robin are enjoying more fruitful times, even if they are guarded and grounded.
“We’re still in the early innings of this … and have a long way to go across all elements,” Carley says, noting that reviving a sluggish restaurant company takes time, patience, and understanding.
For Red Robin, 2012 – Carley’s third full year in the CEO’s seat – will be another foundation-building year as the brand looks to further stabilize its business, gain market share, and delight guests. With infrastructure, marketing, and branding plans complete, Carley says 2013 will then bring Red Robin’s opportunity to accelerate growth.
“We’re feeling better and a lot more confident, but we understand there’s a long way to go and that we’re going to have hiccups – that’s just the nature of this beast,” Carley says.
Meanwhile, Sizzler is on its third consecutive year of same-store sales increases, while also experiencing year-over-year guest count increases. The concept has recently returned to growth mode with over 15 restaurants in development and plans to return to markets such as Chicago, St. Louis, and Denver.
Like Carley, Kramp stresses patience.
“If you believe you’re doing the right things, you’ll need to absorb some of the ups and downs of a business effort like this,” Kramp says. “Certainly you want to see the needles moving in a positive direction, but there has to be an understanding across the company that the right thing takes time.”
