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Oh No, Not Another Slump
September 13, 2006
Five years ago this week—after planes crashed into the Twin Towers, the Pentagon and a field in western Pennsylvania—casual-dining sales began taking a turn for the worse. Some diners undoubtedly decided venturing to restaurants was unseemly in the face of such tragedy; others may have feared for their safety given media speculation as to which city might be the next terrorist target.
A few years later, sales returned. And the response from operators surprised more than a few observers: Instead of ramping up expansion, managements improved operations and poured money into remodels. It worked. Existing units made money as same-store sales and guest counts grew. In turn, valuations swelled to the point where even today hedge funds and private-equity players are paying up for restaurant chains.
There’s only one problem. Same-store sales and guest counts are being hampered again—this time by housing prices, rising interest rates and energy costs. Brinker International (down 2.6 percent this August), Bob Evans (down 4.2 percent) and Applebee’s (down 1.2 percent) are merely three examples of the current malaise.
Yet hope springs eternal in this business. Small chains, it seems, are doing just fine. Publicly traded BJ’s Restaurants Inc., for example, is posting admirable gains despite the macroeconomic headwinds. Led by CEO Jerry Dietchle, whose trial by fire as CFO at overleveraged Long John Silver’s in the late ’80s taught him important lessons, the company clearly has benefited from his leadership.
It reminds me of something financial guru and former Brinker CFO Jim Parish told Chain Leader this spring: “More small chains will arise, managed by folks who learned how to be successful from the leaders who have produced many of the finest companies today.”Posted by David Farkas on September 13, 2006 | Comments (0)