Manning the Grill at Damon's

Shannon Foust is launching a new menu, price structure and prototype to protect and build volumes at Damon’s Grill.

By David Farkas, Senior Editor -- Chain Leader, 12/1/2004

A 20-year veteran of Damon’s Grill, CEO Shannon Foust is overhauling the aging chain with lower-priced, up-to-date menu items and a new look.

On a recent Saturday night at Damon’s Grill, the kitchen was adding steamed broccoli and white rice to all salmon, chicken and steak entrees—the priciest items on the menu. Not that there is anything wrong with serving the vegetable and starch, apart from the fact that both might have shown up on plates when the chain was founded in 1979.

Eating trends have changed dramatically since then, and company officials are trying to keep up. “The challenge for us going forward is to start working on those things that are more innovative, that will give our concept a sharper edge of distinction,” declares CEO Shannon Foust, who has worked for the company since 1984.

By June, customers may discover grilled yellow-fin tuna with sauteed vegetables on the menu. They’re part of Foust’s ambitious overhaul of the menu, pricing, portion size, uniforms, service and training—upgrades that he claims Damon’s needs to “make us distinctive and unique.”

The Columbus, Ohio-based chain has attempted to differentiate itself in recent years, de-emphasizing ribs while promoting its grilling expertise and broadening the menu. The concept shifted from a sports-bar theme to a lively dining-room environment. The company’s 34 prototypes now include the Clubhouse, a high-energy area featuring multilevel seating, four big-screen TVs and local sports memorabilia. For customers seeking less excitement, the new buildings incorporate a quiet dining area with a fireplace and booths. Taken together, the company contends, the changes have pushed the prototype’s volumes to an average $2.8 million annually.

Foust now considers de-emphasizing St. Louis-style pork ribs, the concept’s signature product, a mistake. Today, the company is using its rib heritage as a platform to launch other more up-to-date grilled foods. A year-and-a-half ago, under the direction of Marketing Vice President Roy Getz, the chain introduced a new menu featuring a colorful insert specifically to draw attention to ribs and other grilled items. He also devised a new tagline that suggests everyone can be satisfied: “It all comes together at Damon’s Grill.”

Foust and Getz believe that ribs—about 25 percent of the sales mix—not only are very profitable but show off the concept’s grilling talent. That, in turn, has allowed it to push lower-cost proteins like shrimp and chicken. This summer a commercial celebrating the company’s 25th anniversary promoted two entrees and an appetizer for $25. Flame-licked shrimp and chicken, along with ribs, featured prominently in the 30-second spot.

At What Cost?
Protein costs are a major issue for the company. “Purchasing is a big focus for us right now. Steak and rib prices have been high,” says Foust, adding that a new beef contract will hike food costs 20 basis points. The company is also negotiating a new pork contract.

Cost pressures are also coming from building materials, particularly cement. And land costs and labor continue to hamper company margins. EBITDA has been flat for the past two years, though Foust predicts it will grow this fiscal year. “You don’t want to be negative, but, hey, this is a tough, ball-buster of a business,” he gripes.

The acre-and-a-half required for Damon’s 6,300-square-foot unit runs $700,000 to $1 million.

Same-store sales have also flagged at company and franchise restaurants in recent months, but the company expects to gain between 1 percent and 2 percent in fiscal ’05, ending June 30. Systemwide sales for fiscal ’04 dropped from $298.8 million to $293.6 million as Foust shuttered several company restaurants. Damon’s controls 2 percent of the $14.6 billion “varied menu” market, reports Chicago-based consultancy Technomic Inc.

Foust, naturally, is eager to see profits increase. His stake in Damon’s is between 5 percent and 10 percent. Five others, including two majority stakeholders who operate a real-estate company in New York, control the rest.

Pinched for cash, Damon’s will open just one or two company units in fiscal ’05. Foust estimates the prototype costs $2.3 million without land. The acre-and-a-half required for the 6,300-square-foot building runs $700,000 to $1 million, he adds.

While land is most expensive on the East Coast, both company and franchise units have posted higher-than-average sales in the area. Says Paul Rose, a suburban Baltimore franchisee with five Damon’s: “Our projection was to do $3 million. We have built three stores now. One is doing $4.3 million.” He purchased two units in Delaware from a former franchisee and plans to open four more in fast-growing towns like Frederick, Md. Foust maintains that the company’s East Coast restaurants in Harrisburg and Mechanicsburg, Pa., and Chantilly, Va., rake in about $3.4 million or more annually.

Damon’s has a few franchised outposts in far western states, sold when Foust was vice president of franchise sales in the mid-1990s. Although the Phoenix franchisee plans to extend his development agreement, the Oregon market has shrunk. Foust accepts blame, admitting he was often too eager: “Quite frankly, when I was selling franchises, I always tried to make it work rather than trying to find reasons why it wouldn’t.”

Several company restaurants are not working, and Foust says he has little choice but to close them. “We got one on the east side of Columbus [in a mall]. They lost their Kmart and rented the space out to a Goodwill store. I said, ‘Hey, guys, this is not where I want to be,’” he says, adding that he may shutter as many as eight units.

“So how am I growing EBITDA? By not having restaurants I’m feeding and instead having restaurants that are producing to the bottom line,” he says.

Digging Deep
Foust is also counting on a handful of senior managers, some hired over the past two years, to refine the brand and improve operations. “If I look at the obstacles facing us in this industry, I’d be scared to death. But when you’re looking over your shoulder and you see who’s shoveling with you, it makes you feel good,” he says.

Getz is one of them. A former marketing executive with Bob Evans and Denny’s, he has been repositioning the menu and enhancing the restaurants’ overall experience. “I am a big believer that to be known for more than ribs, I want to embrace our rib heritage, getting the strength of that product. Then we move that benefit on to other things,” he says. “It’s no different than the Whopper strategy: Go back to your roots, promote what you’re known for, and use that as a platform to get credit for some other terrific items.”

Ribs still account for 25 percent of Damon’s sales mix.

Industry observers like that strategy. “Roy is probably correct, but it all depends on how much you talk about the other items,” explains former Romacorp President Frank Steed, now a Dallas-based restaurant consultant. “The struggle for everyone in ribs is to diversify the menu and not to be pigeonholed. Damon’s has done that more successfully than we were able to at Tony Roma’s.”

Technomic Executive Vice President Dennis Lombardi says if Getz can convince customers that Damon’s has more to offer than just ribs, “it will provide more license for more cravings and not position the brand as a single-protein specialist.”

According to Damon’s Chief Operating Officer Carl Howard, “The [chains] that are winning the day are the ones providing a $20 experience for $15.” Damon’s check average is $16.20, slightly higher than desired. Howard, who joined the company for the second time in March, is upgrading seafood items. “We have yellow-fin tuna and grouper in test,” he says. “They address the eating habits of some people.”

The “quiet” dining room provides customers refuge from Damon’s high-energy area called the Clubhouse.

Those items and others are scheduled for rollout in June, when the company introduces a menu with a new pricing structure. “Currently we are referring to it as ‘mid-tier,’” says Howard. “We are building in a lot of $9.99, $10.99 and $12.99 items. Our menu today is either upper class or low class.” In fact, only three of 18 entrees on Damon’s current menu cost less than $11.

Smaller Meals
Lower prices will also mean tinier portions, a precarious tactic if customers perceive less value for the money.

Yet Getz says a supplier recently showed him a proprietary study revealing a trend of consuming less food in restaurants. “The takeaway was that consumers are going to eat in moderation. We may not see them eliminating visits, but they will stop consuming the way they used to with an appetizer, entree and dessert,” he explains.

Although officials are talking about trimming portions, current dishes like the Porterhouse Pork Chop and Barbecued Steak Salad remain large.

Howard reasons that most Damon’s customers don’t show up to party. “A large majority of our guest base is not there to unwind. A lot of them are double-income families with no time to cook or desire to cook,” he explains.

To that end, he has been trimming the number of fried entrees. “On the new menu, 27 of the 32 entree items are on the broil side. Only five are fried,” he says. Today, 40 percent are fried.

Foust realizes Damon’s is defying conventional wisdom by shrinking portions. “Price and quantity,” he muses. “Those are the two things that are easiest to do. We’ll just lower the price or put 2 more ounces on the plate, and, by golly, customers will be happy.”

Meanwhile he is hoping a new beverage program, backed with sophisticated video training, will boost sales. The company may introduce tea-based cocktails, a trend whose time has come, he says.

Asked whether the company’s current situation demands he protect store volumes or build them, Foust stares briefly into a tall glass of raspberry iced tea (sans alcohol). “If I have to be in one mode or the other,” the CEO sighs, “then I’d first be in the mode of protecting, because, first, I have to hang onto what I’ve got. After that’s secured, I’ve got to build.” Either way, steamed broccoli has got to go.