Dividend Restaurant Group—the owner of Macaroni Grill and Sullivan’s Steakhouse—could add another brand to its ranks before the end of 2020’s first quarter. If the deal comes to pass, the new acquisition would become the largest brand in the group’s portfolio.
“This is a meaningful brand, it will be the largest part of our portfolio if we get it done, and a lot of its characteristics are exactly in line with Sullivan’s and Macaroni Grill,” Dividend’s CEO and president Nishant Machado says.
In 2017, Machado was brought on board to bring Macaroni Grill back from the edge of bankruptcy (the brand filed Chapter 11 in October of that year). One year later, in the last quarter of 2018, the group purchased Sullivan’s Steakhouse from Del Frisco’s for $32 million. The past year was spent carving the steakhouse brand out of financial peril, and, now, Dividend is looking around again for new acquisitions.
Machado says seeking brands to add onto Dividend’s platform is the primary focus for 2020, starting, but not ending, with Q1’s planned deal. Full-service concepts with positive brand equity, an established position in their respective markets, and strong brand culture are potential targets.
“People go to restaurants either for a logical reason—quick ticket times, low prices, etc.—or for an emotional reason. When it’s a logical connection, it’s a rat race; it’s not focused as much on the experience as the transaction. So our focus is adding brands to our portfolio that emotionally connect with customers,” Machado says.
He says the concept in acquisition talks right now fits those criteria for new concepts, combining elements of both existing brands—Macaroni Grill’s emphasis on traditional, storied ingredients (i.e. pasta, sauce, and olive oil sourced from families in Italy) and Sullivan’s combined offering of quality and value—to be a perfect contender for a place in Dividend’s holdings.
Macaroni Grill is the muscle
While Dividend is making new acquisitions the priority in 2020, there’s some growth on tap for the group’s now-stable golden goose, too.
Macaroni Grill’s turnaround was pulled off by an initial shuttering of 37 units in 2017, the assembly of a new executive team capable of putting together a carveout strategy, and some fresh revenue streams—catering, special events, and off-premises orders, in particular. These efforts helped dig the Italian chain out of its hole. Machado says the brand outperformed industry average same-store sales by more than 300 basis points in both 2018 and 2019.
“We don’t focus on trying to change who we are, just doing what we do better and trying to add to it. And it’s worked. We’ve seen continuous growth from new revenue streams like catering and third-party delivery,” he says.
This year, asset-light growth is top-of-mind for Macaroni Grill, mainly through licensing for grocery items and international franchising. The chain’s 30-plus year history has rendered its name recognizable internationally as well as domestically, and the team plans to leverage this reputation to gain more franchisees across the globe in 2020.
The chain’s new focus on delivery and catering over the last two years has led to a series of tech updates as well. Machado reports that 11 different tech systems—from third-party partners to online ordering platforms to scheduling systems—were implemented over the last 24 months. The brand will continue to hone these new systems in the months ahead.
“Too many people shy away from tech in this industry. Our whole goal with tech is to use systems that give us line of sight into the restaurants across our system, because, if you don’t have that line of sight, you can’t manage effectively,” Machado says.
Macaroni Grill recently invested in two of these “line-of-sight” systems with the particular objective of easing the labor challenge. The concept began using HotSchedules for activity-based forecasting and employee scheduling, and ProHabits, a leadership development and training program designed to inspire personal and professional growth through two-minute “microactions.”
While ProHabits is often used at the C-Suite level, Macaroni Grill rolled the platform out into restaurants, allowing team members in various stores to communicate all the way up the chain of command.
“We are trying to be creative and thoughtful with how we address labor,” Machado says.
“In 2019, our turnover dropped 50 percent versus 2018, which is something I don’t think a lot of operators can say. We invested in ProHabits because it reinforces culture, and people are loving it because it gives them a platform to talk.”
In October 2017, Romano’s Macaroni Grill declared bankruptcy and went into chapter 11. But fueled by the $13.5 million that restructuring and turnaround-owner Mac Acquisitions raised to fund the revival, it extricated itself from chapter 11 just four months later. Philip Romano launched Romano’s Macaroni Grill in 1988 in Leon Springs, Texas, leading to Brinker International acquiring its franchise rights in 1989. It expanded to 230 outlets before being dealt to Golden Gate Capital in 2008.
Sullivan’s is growing slowly after emerging from a turnaround
In 2020, Sullivan’s Steakhouse, founded in 1996, will continue on the road to brand health, coupled with some careful growth.
After experiencing multiple years of same-store sales declines, Machado says that, in the first year after Dividend bought the steakhouse concept, sales went up 4–5 percent. He also reports margin growth across every line item—from labor and ingredient costs to operational expenses—since the acquisition.
In the fourth quarter of fiscal 2017, Sullivan’s same-store sales plummeted 10.8 percent year-over-year, driven down mainly by a 15.5 percent decrease in customer counts. In the period before the deal—Q2 of 2018—Sullivan’s reported comps declines of 6 percent with an 11.1 drop in customer counts.
Those positive numbers were achieved by adding in catering and off-premises programs, and by leaning into Sullivan’s neighborhood steakhouse brand identity. Specialized menus were added in that tailored signature items for catering and delivery, and a lunch menu was put into place as well.
Personalized wine lockers and table name plaques were added to locations, allowing loyal customers to come in and easily locate their favorite wine or seating option. “We focused on amplifying the core attributes of the brand—the neighborhood steakhouse,” Machado says.
As for growth, 2020 could bring a couple of new steakhouses in the U.S. The chain has historically built in less-saturated markets instead of top areas like New York or Chicago, and this will more than likely stay the same in the near future.
Del Frisco’s shuttered two Sullivan’s in Q4 of fiscal 2017, including units in Seattle and Houston. An Austin, Texas, location closed that Q1 as well, with another shut down in fiscal 2018 before the acquisition was made.
Machado says he sees significant whitespace for the chain in “A locations in B markets;” for example, he says, if Sullivan’s was looking to build in Dallas, the restaurant wouldn’t be built in downtown Dallas, but in a suburb of the city that has a space for a steakhouse with a local, homey feel.
And, much like Macaroni Grill, moving forward, Sullivan’s will also focus on growth through international franchising. The brand signed its first non-domestic franchisee in the Philippines last year, and Machado says this first franchise partner is an entry point for Sullivan’s to build out in Asia.
Of course, this individual brand growth is all second to the mystery deal that Dividend could finalize by this March.
“When I came on board two years ago, the focus was to stabilize Macaroni Grill and get it on the path to growth, and the second was to build a platform that we could use to bolt on additional brands. Now, we’ve positioned ourselves for that significant growth through acquisitions—we have the right capital structure, we have the right team, we have two globally iconic brands that are performing really well, so we’re ready to take on the next opportunity,” Machado says.