Upstarts: Moneymaker Stonewood Grill

Doug Sullivans skill at making a buck pays off at Stonewood Grill & Tavern.

By David Farkas, Senior Editor -- Chain Leader, 1/1/2006

Not Doug Sullivan again” may have been going through the minds of general managers at Outback’s annual GM convention in the early ’90s.

At least that’s how Sullivan, whose Daytona, Fla., Outback regularly won sales and profitability awards, remembers it. “Everyone got tired of me going up there,” says Sullivan, now president and CEO of Ormond Beach-based Stonewood Holdings, which operates 17 Stonewood Grill & Taverns.

It was one of his customers at Outback, a wealthy entrepreneur, who backed the first three Stonewoods because he was impressed with Sullivan’s ability to run a profitable, high-volume eatery.

Stonewood’s menu varies from creative cuisine such as Herb Encrusted Grouper, $14, to comfort food like Chicken Pot Pie, $12.50. New dishes are featured in the chain’s glossy food magazine called Casual Flavors. It’s published quarterly and sent free to 30,000 customers.

Sales Building
The private company doesn’t disclose sales and profits, but Sullivan claims several restaurants experienced double-digit gains this fall and all are doing well. Average unit volumes are about $3 million, he says.

Florida is Sullivan’s stomping grounds despite ever-increasing development costs—as much as $30 a square foot in the South Florida market. “We are significantly lower than that,” he declares. Fully capitalized, the 5,700-square-foot restaurants cost $1.5 million, including $200,000 in pre-opening expenses. Fifteen of the 17 eateries are in the Sunshine State, and he’ll continue to open restaurants there including three this year. Two restaurants are in Raleigh, N.C.

Sullivan is shooting for a $100 million company by the end of ’08 when, he adds, cash flow and EBITDA will be strong and there will be little debt. That is likely to make the chain a desirable acquisition. “I just want to be in a position to make the best decision for key employees, guests and shareholders,” he coyly insists.

After spending 2003 trimming costs from build-outs, Sullivan enlisted Dallas-based investment adviser Craig Weichmann to seek investors for a preferred stock offering. Recalls Weichmann: “We had charts showing there’d been a noticeable decline in actual costs of units developed in 2004, and interestingly the productivity of ’04 units compared to ’03 units was moving up.” The January ’05 deal raised $5 million.

Well Blended
Scottsdale, Ariz.-based GE Commercial Finance has committed to fund 75 percent of furniture, fixture and equipment costs for future units, Sullivan says. “We’re now able to blend equity capital with internally generated capital and can sustain our growth,” he explains.

Not everything has worked out. When two units opened in Raleigh in 2001, sales nose-dived 25 percent after 9/11 and the dot-com crash and have not yet returned to expected levels. This year, Hurricane Wilma forced the closing of two units in South Florida for several days.

Florida’s economy remains healthy, but Sullivan isn’t relaxing. “We’re focused on improving quality to build customer counts and frequency,” he says. “We’re not looking at cutting.