Sizzler Cast in a New Light

President and CEO Ken Cole tries to ignite growth at Sizzler USA restaurant chain with a new menu and prototype.

By Maya Norris, Managing Editor -- Chain Leader, 9/1/2006

You can find Ken Cole these days dining at Sizzler at least five times a week. He’s not there just to indulge in the ribs or the bacon cheeseburger—his favorite items—but he also wants to see firsthand whether his turnaround initiatives are working. The president and CEO of the Culver City, Calif.-based company has spent the last five years reimaging the beleaguered family-steakhouse chain with a new menu and prototype in hopes of bringing it back to its former glory.

He’s seen some success. Although Sizzler USA has closed 28 company units over the last few years, it has seen modest gains since rolling the reimaging program in 2003. Systemwide sales have increased to $363.1 million in 2006 from $347.9 million in 2003. Same-store sales are on the rise as well: 0.1 percent in 2003, 3.7 percent in 2004, 2.6 percent in 2005 and 2.1 percent in 2006. And the company is finally expanding again after more than a decade.

Based on three years of guest-based research and focus groups, Cole’s turnaround strategy centers on restoring Sizzler’s quality and value—hallmarks of the chain during its heyday. The concept has returned to its grill roots, emphasizing its steaks, seafood and salad bar, while phasing out the all-you-can-eat buffet. The company has upgraded menu items and ingredients and modernized the stores with a lighter, brighter decor.

“The way consumers today look for a quality product at a value price, we’re really positioned right in the sweet spot to take advantage of the future,” says Cole, who was president and CEO of Blue Chalk Cafe from 1999 to 2001 and Damon’s International from 1988 to 1999 before joining Sizzler in 2001.

The goal: Sizzler wants to hold onto core users, 45- to 65-year-olds with a household income of $50,000 to $75,000. But it also wants to make the brand relevant to lapsed users and the “skip generation,” a term Cole uses to define 25- to 40-year-olds with young children who came to Sizzler with their parents as children but avoided the chain as adults because they perceived it as lacking quality.

Quality Assurance

Vice President of Product Development Dudley McMahon began overhauling the menu in 2002, which rolled out with the reimaging program in 2003, updating or creating 44 of the 47 items on it. For example, in the best-selling Steak Combos category, the company upgraded to a USDA Choice steak from a frozen select product.

The company also revamped the salad bar, the second best-selling category on the menu, replacing canned fruits and vegetables with fresh and preparing salads and dressings in-house.

Although Sizzler is phasing out buffets, it has kept some hot items on the salad bar. Appetizers such as chicken wings remain. Clam chowder is a mainstay, but Sizzler rotates two other soups quarterly. For example, pumpkin and vegetable-beef soups will replace the tomato-basil and chicken-tortilla soups in the fall.

This spring Sizzler rolled out a seasonal fish program complete with blackboard menu because “that’s how people perceive a fresh fish program,” Cole says. Three species are delivered to the restaurants four times a week. Offered as part of the core menu, the Fresh Fish of the Day is priced in the $10.95 range and makes up 3 percent of sales.

With an average check of $11.23, up $1 since 2003, the chain was careful to keep the price points low. “We’re below casual in our pricing and we’re just above family,” Cole explains. “And so we consider that the sweet spot.”

Taking on the Competition

Sizzler stores also got a makeover to better showcase its new dishes and to appeal to a variety of guests. While the old design conjured up images of a traditional steakhouse with dark green walls and dark woods, “The new design is meant to compete with anybody in the casual-dining genre,” says Lou Nonno, president of Bath, Ohio-based Louis & Partners, the firm that designed the Sizzler prototype. The interior includes a golden-yellow palette, an expanded entryway, display kitchen and ledge rock walls. Although the dining room features an open layout, it is divided into several intimate areas to accommodate various customers such as couples and parents with young children.

The prototype, which averages 5,800 square feet with 186 seats, costs approximately $1.3 million to build from the ground up without land, according to Sizzler. So far three prototype restaurants have been built, while 95 percent of the stores have been remodeled. Franchisees chose to completely remodel for about $250,000 or add branding elements for $25,000, or somewhere in between.

Franchisee Junaid Sheikh, president of Las Vegas-based Witman Food LLC, doled out $100,000 each to remodel two stores in 2004 and $1.5 million to open a prototype unit in January in Las Vegas. One remodeled store saw sales jump to $26,000 a week from $14,000 a week, while the other rang up $35,000 weekly, up from $19,000 a week. With the prototype restaurant posting $40,000 in weekly sales, Sheikh expects it to generate $2.5 million in sales a year. He plans to open another unit in October in Las Vegas.

Ron Higgins, chairman and CEO of Foothill Ranch, Calif.-based Forbco Management, has also reaped rewards. A Sizzler franchisee for 34 years, Higgins remodeled five of his 23 units in Southern California over the last two-and-a-half years at a cost of $250,000 each. Those stores average $1.8 million to $2 million, while older restaurants track at $1.4 million to $1.6 million. “I thought it needed to be done,” Higgins says. “It was long overdue.” He plans to have his remaining stores remodeled by mid-2007.

While Sheikh and Higgins can’t quantify an increase in traffic counts, they say they have seen more younger families and couples. “We’re really family friendly,” Higgins says. “Kids can walk around a little bit more than you can in more destination restaurants.”

Back to the Basics

Sizzler’s initial success comes as no surprise to analyst Kep Sweeney, president of Las Vegas-based Acceleron Group, hailing the chain’s focus on the fundamentals. “Too often people believe the solution for the Sizzler turnaround is in a graph somewhere,” says Sweeney, who provided consulting services to Cole while he was at Damon’s. “And the solution is rolling up your sleeves, listening to your customers, understanding the competitive landscape, and giving really good food and service and good value.”

“ We’ve upgraded all the basics,” says Kevin Perkins, CEO of Collins Foods Group, the Australia-based parent company of Sizzler USA. “The food’s improved a lot. The facilities are in much better shape. [Cole has] upgraded the training. So it’s generally all the basic ingredients. All the things he has done the last couple of years have now started to come together for him.”

However, Sizzler’s early results aren’t enough to impress some observers. “I’ve heard the turnaround at Sizzler going on for 10 years. And when you get in a 10-year turnaround and it hasn’t worked very well, it takes longer to be sure that there is a turnaround in place,” says Steve Pettise, founder and managing principal of Golden Spike Resources Group, a Westwood, Calif.-based restaurant-consulting firm.

“It appears that there is something happening that would indicate a turnaround is in place,” adds Pettise, who owned several thousand shares in Sizzler before it was taken private last year. “For Sizzler to really be turned around, it’s going to take at least five years of consecutive quarters of comp-store-sales increases for me to say that this is a viable brand again.”

Learning from the Past

Founded in 1958, Sizzler had grown to 700 units with $350 million in annual revenue by the 1980s. In the late ’80s, when the casual-dining landscape became more competitive, Sizzler fought back with a hot buffet, generating record sales. But as guests stuffed themselves with the buffet, using it as their meal instead of as an add-on to entrees, the company slashed quality in other areas of the menu, Cole says.

Sizzler ended up filing Chapter 11 in 1996 and closed about 140 of 215 company stores. But the company emerged from bankruptcy in 1997 having paid its creditors in full.

Down but not out, Sizzler was ready to stage a comeback. From 1997 to 2001, management took Sizzler back to its “American Grill” roots. It upgraded steaks and seafood but boosted prices as well—a tactic consumers rejected, according to Cole. “They had improved some of the quality but what got out of whack was the value equation,” he explains. “They still weren’t getting the core consumer of the brand back because they were trying to compete almost head on with an Outback.”

Christopher Thomas, former president and CEO of Sizzler USA from 1997 to 1999, argues that he put a turnaround in place during his tenure. “When I took over Sizzler USA, it was a losing $1 million a month, and it experienced its 21st consecutive quarter of same-store-sales decline,” he says. “Within a quarter we had it at a break-even point. We had positive same-store sales within two or three quarters. And when I left, it was earning $10 million a year.”

Thomas is right. According to company reports from 1998 to 2001, Sizzler USA saw revenues jump to $104.7 million in 2000 from $97.1 million in 1998, while the average check climbed each year. But it didn’t last. As revenues went up, customer counts dipped. By 2001, revenue remained flat at $104.7 million and the company shuttered another 21 units.

Turning Up the Heat

Much has changed since 2001, especially now that Sizzler is growing again. In 2004, the company opened a prototype unit in Antioch, Calif., its first store in 12 years. Franchisees opened three units in Puerto Rico, California and Nevada in 2005. They are slated to open eight to 10 stores in fiscal 2007 and 12 in fiscal 2008.

Sizzler is counting on franchisees to fuel expansion, with the goal of doubling its franchised units over the next five years. Eight franchise groups have already signed on to open 30 stores in five years.

The company’s first priority is to backfill markets west of the Rockies, where the brand already has a strong presence, to take advantage of distribution and media efficiencies. Then it plans to move on to contiguous markets in the Southwest and areas where it has an isolated presence such as the Northeast.

Sizzler will be able to focus on its long-term growth now that it is no longer a public company, according to Cole. It went private in 2005, when Pacific Equity Partners, an Australia-based private-equity firm, bought Sizzler’s parent company, Worldwide Restaurant Concepts, for $210 million. Management from Collins Foods Group and Sizzler USA bought a 48 percent stake in the company.

“You’re not worried about what Wall Street is going to do to your stock, so that’s a huge burden lifted off your mind,” Cole says.

No longer beholden to shareholders, Cole plans to further enhance the brand. Concerned that the average check is too high, he is considering adding items with lower price points like sandwiches and offering lunch portions of some dinner items. The company also plans to launch an “Express” offshoot with a limited menu, likely in 2007, in nontraditional venues such as airports and office complexes.

Balancing value with quality will drive all future decisions, Cole says. “If you look at the way we’re positioned today and the way consumers tend to use concepts today,” he says, “we really believe that Sizzler’s best years are ahead of us, not behind us.”