Executive Q&A: Hamburger Chain Seeks Paradise
Cheeseburger in Paradise President Steve Overholt explains how new ownership, a decent royalty deal and a part-time management team are keys to growth for the once-troubled restaurant concept.
By David Farkas, Senior Editor -- Chain Leader, 10/1/2009 12:00:00 AM
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Cheeseburger in Paradise President Steve Overholt: "We are trying to get people to spend more time with us." |
"It's a scary time to go out on your own right now," says Cheeseburger in Paradise President Steve Overholt. But out he goes nonetheless, as the owner of the 34-unit restaurant chain, after leading an investor group that paid Tampa, Fla.-based OSI Restaurant Partners $2 million in September.
President of Cheeseburger in Paradise before the sale, Overholt acknowledges the concept has had its share of ups and downs, particularly concerning an aggressive licensing agreement with Jimmy Buffett's Margaritaville Holdings, which owns the "Cheeseburger in Paradise" trademark. Today, with a kinder royalty deal in place, Overholt believes the "new company" is primed for profitable growth. In this exclusive interview, he describes how he intends to achieve it.
What's different today about the royalty agreement with Margaritaville Holdings?
We believe there's a better working relationship right now between the two parties. We have a more favorable royalty and development agreement.
Can you share the numbers?
I probably can't. [The royalty] has been reduced significantly from what it was, and now we have a different go-forward arrangement that allows for future growth.
Explain the new ownership structure.
It's interesting. Under OSI's managing-partner system, general managers owned up to 10 percent of cash flow, and regional partners also owned part of the restaurants. We gave GMs and regionals the option of remaining on the old contract or investing in the new company in several ways. One option was straight equity in their restaurant of 1 to 5 percent. Or they could participate in a phantom equity pool or buy in at the capitalized rate of the entire company. All the regional people and restaurant partners bought into [the new company] except one.
Who's on the senior team, and what's their ownership?
I have the largest holding. I brought in Mark Wibel, who will come on board as a vice president to handle real estate, franchise development and leasing. We sold some of the company to outside investment as well.
And your CFO?
It's Janette McDugald, an experienced veteran. She was with Outback in the accounting area and then was CFO for Rally's. Now she has her own consulting company. She's also an owner. What we are trying to do with the senior team, because we need experienced people at this point and because we are challenged with what we have to work with, it's almost a fractional type of C-level position.
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Fractional?
We don't have the capital to pay high salaries so what we are doing is offering equity stakes and sweat equity. The only requirement for the senior team is to devote as much time as necessary to our business. At some point down the road, we will bring them into more full-time positions, or they can keep doing what they are doing.
How does that differ from using sub-contractors?
These are people I have worked with before and know personally. It is not a sub-contract in that they are tied to actual equity in the company. The better the company performs the better they do, from myself on down to a general manager in a restaurant.
Did OSI, one of your lenders, put incentives in place for your team to pay down debt faster?
The OSI deal is incentivized. If we pay off [the loan] at certain benchmarks, the back-end deal gets much better for us.
What's the time-frame?
We are looking at a five-year program. We are well-incentivized if we can do something sooner, say in two-and-a-half years. OSI believes in the brand so they were very helpful in putting a deal together that works and we are all agreeable to. We don't have an enormous front-end structure; we are not struggling to meet a note right off the bat.
Will you have to close restaurants nonetheless?
We've closed restaurants over the years. We once had 44. Today we have 34. We are hoping not to close more. We are at a comfortable spot right now. We might make some changes in a market where we think we can make an existing restaurant more versatile.
Such as?
We are trying to get people to spend more time with us. So we will get into more TV packages to make Cheeseburger in Paradise the type of place where if you want to watch a football game at 4 o'clock on Sunday you can get that done. Or if you want to eat with your family, we can do that as well. We want to wear more hats for more people.
| Snapshot Concept Cheeseburger in Paradise Headquarters Tampa, Fla. 2009 Systemwide Sales $80 million (company estimate) Average Unit Volume $3 million Units 34 (all company) Check Average $13.40 Expansion Plans 1 in 2010, in Mid-Atlantic region |
How different is that from now?
The concept was designed more for the young singles crowd, people in their 30s and 40s, with a late-night atmosphere, live music, heavy bar foods and a wide menu. As we grew, our name itself steered people into that segment of the business. Our biggest core user now is the family.
How has the menu changed as a result?
We were sort of ahead of the game when it came to prices and right-size portions. We started peeling back prices three or four years ago. We once had a per-person average of $16, $17 and now we are at $13.40 [with beverage]. A lot of menu engineering went behind that. We identified two things: What's selling and what's the next big thing? So we got more into salads and wraps, lighter foods.
One definite trend of late is the premium burger.
It seems like 2009 has been the year everyone wants to be in the burger business. If everyone wants to get into this segment, how do we differentiate ourselves? That's why in the last four or five months we've gotten into gourmet burgers. One of the best sellers now is our bacon-avocado burger served on ciabatta bread. It broke the $9 barrier, but it became our third-best-selling burger.
Has it crossed your mind to create an express or fast-casual Cheeseburger in Paradise?
A guy I am bringing on board is in charge of doing just that.
It can't be too difficult.
Our name is right, the image is right, and we just have to tweak it. We believe there is a strong call for that. Instead of taking a prototype across the country, we will have a variety of sizes and formats, and we'll be able to pick the markets we want to go into.
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