The Bernstein Perspective: Fighting Back

I hope Ground Round remembers its history as it grows.

By Charles Bernstein, Editor-at-Large -- Chain Leader, 1/1/2005

A highlight of the Restaurant Finance and Development Conference Nov. 9 in Las Vegas was the inside story of how Ground Round rebounded from what seemed a total loss. A panel of players involved discussed the chain’s unique rise, fall, sale and hoped-for comeback.

History Lesson
Ground Round has had an up-and-down journey. It started in 1969 as a Howard Johnson concept and grew to 200 units in the late 1980s. Tom Russo headed the restaurant division in the late 1970s through the mid-1980s. When the Imperial Group acquired Howard Johnson in 1984, Russo left.

Afterward, Ground Round went through a revolving door of presidents: Bob Zia in 1986-87, Eric Bernard from 1987 to 1990, Mike O’Donnell from 1991 to 1994, and Dan Scoggin from 1995 to 1997. Russo returned as president and CEO when Boston Ventures acquired American Hospitality Concepts, the privately owned parent to Ground Round.

Three years ago, Russo launched Project Genesis to acquire more franchisees while cutting back on company units. He sold some 40 stores to franchisees.

What Went Wrong
Gary Serino, former Ground Round director and controller and now CFO, said Ground Round reported total losses of $14 million by 2003.

“The company had no cash and could not pay any of its sales taxes,” declared Jack Crawford, former Ground Round franchising director and now president and CEO.

Panel moderator and franchise expert Craig Tractenberg of Philadelphia law firm Nixon Peabody, noted that “by early 2004, franchisees could not support the debt service. They were suffering enormous debt.”

On Feb. 13, 2004, Russo ordered all 140 restaurants to close immediately. Crawford told the audience that in less than a three-minute discussion on what could be done, Russo’s group simply hung up the phone, and a stunned Crawford and Serino told each other: “Well, it is all over now.” Russo has been unavailable for comment since Feb. 13.

Franchisees Prevail
“They did not file for bankruptcy right away, and that almost miraculously opened the door for us,” Crawford said. On Feb. 19 Ground Round did file for bankruptcy. American Hospitality Concepts was dissolved, and Ground Round’s franchisees formed the Independent Owners Cooperative to acquire the chain’s assets.

Ultimately 58 franchised Ground Round stores were brought out of bankruptcy while all 70 company units closed for good.

Thirteen franchised units have opened since then, including two Tin Alley Pubs in Massachusetts and one Gold Fork in Manhattan, Kan., under Ground Round auspices.

Mike Ludwig, chairman of Ground Round’s Franchise Advisory Council, declared: “This is a dream come true for all of us to own our own system and have a vested interest and commitment to our future together.”

This is a great story, and I hope it has a happy ending. The new management is determined to grow franchised units at a pace of 20 to 30 annually. But the fact that brands other than Ground Round are in the plans is scary because they helped sink American Hospitality Concepts. I hope Ground Round looks at its own history to avoid the loss of focus.