Restaurant Chains Spend Less But Give More to the Guest

Careful cost control behind the scenes enables Golden Corral and BJ's Restaurants to offer better variety and service in new stores.

By David Farkas, Senior Editor -- Chain Leader, 12/30/2008 9:30:00 AM

Psst! Someone just passed Chain Leader what appears to be privileged information about Golden Corral Corp. Specifically, how the 480-unit restaurant chain is holding down food costs amid a difficult operating environment.

The guy who told us mentioned "variety" and "quality" are the "secret to success." He happens to be Bob McDevitt, senior vice president of franchising at the Raleigh, N.C.-based buffet concept.

"This may seem counterintuitive, but every piece of research we have ever done says so," he claims.

However, McDevitt quickly adds Golden Corral isn't exactly lowering food costs. "What we have succeeded in doing is stopping the rise," he says. "Part of this is prevention."

McDivitt won't reveal the degree to which the economy has already mauled sales and traffic. But it's clear the segment's core customer--lower-middle-income and blue-collar--has so far borne the brunt of the recession.

It's forcing mass feeders like Golden Corral to come up with new ways to make customers think they're getting even more for their money. "We do that with new products and dramatically increased variety," McDivitt, once the chain's marketing vice president, explains.

The Other White Meat

Here's the trick: Create items customers like (preferably involving a protein) that cost less than other popular items. For example, in early December Golden Corral added pork pot roast, which is "significantly cheaper than beef pot roast," McDevitt says. Management reasons that the new offering causes people who like pork to perceive quality and people who like beef to believe there's more variety on the food bar.

The chain even snuck low-cost pork into a current promotion called "Beef Lover's Lunch" in the form of a pulled pork sandwich. Other items include patty melts, Philly Cheesesteak and mini-burgers. McDevitt says the per-ounce cost of pork is less than the mini-burgers.

"If you look at how we do the math, our food cost can be managed based on variety," he says. It's no surprise, then, that Golden Corral increased by 10 percent the number of "wells" on the hot and cold bars in its new prototype, scheduled to debut in San Antonio, Texas, in January.

Customer Service Enhancements

Like Golden Corral,  Huntington Beach, Calif.-based BJ's Restaurants has also been boosting perceived value in an attempt to maintain operating margins. The chain, for example, recently launched call-ahead seating and curbside cashiers. It also introduced new pizzas, lunch specials and sandwiches.

The company heightened customer awareness of these efforts by swelling its marketing spend by 1 percent. "We believe we've achieved a net positive margin benefit from this incremental investment," says Chairman and CEO Jerry Deitchle.

Yet investments didn't end there. "We've actually increased our average investment in the restaurant facility over the last three years," he declares.

Repositioning as a Plus

Of course, there is a step or two in between investment and return. Deitchle's strategy involved first repositioning the chain. "We wanted to more clearly position BJ's as a 'casual-dining plus' concept," he explains.

To Deitchle, that means somewhere above the Applebee's of the world but below The Cheesecake Factorys. To make sure the new prototype got done right, he created an in-house design team to build one that allowed for several footprints.

"We now have a more solid relationship with the leading national developers," boasts Deitchle, dropping names like CBL & Associates Properties, Macerich and Westfield.

So far, developers have forked over roughly $1 million in tenant improvement contributions for each new restaurant. Sums up Deitchle: "Everything else being equal, we believe the ROI on our net cash invested in a new restaurant can be enhanced with this approach."

MORE: Methods chain operators are using--from marketing to menu development to waste management--to maintain profit margins.