Lane Cardwell

Ruby Slippers

The Wizard of Oz (1939). "Close your eyes and tap your heels together three times. And think to yourself, 'There's no place like home'." The Good Witch, telling Dorothy how to return to her home in Kansas.

If repositioning a major casual dining chain for future relevance was this easy, I am sure that Ruby Tuesday would not be alone in their arduous journey. For several years, one of the most agreed upon views of the Grill & Bar segment of casual dining is that there is too much sameness. This segment is home to some of the largest concepts in casual dining: Applebee's (1,864 U.S. units), Chili's (1,305 U.S. units), Ruby Tuesday (891 U.S. units), TGI Friday's (595 U.S. units), Red Robin (366 U.S. units), and Bennigan's (255 U.S. units...well, strike this one).

A brand repositioning involves changing customer perceptions of what the brand has been in the past, in an effort to make it stronger for the future. For the past several years the Grill & Bar segment has resembled a child's soccer game. Instead of each brand playing their position (their unique point of difference), they are all gathered around the ball kicking wildly.

With sameness among brands comes a perception that the product has less value. If all brands offer most of the same foods, with similar service, in common atmospheres, the perception of all brands is diminished in the eyes of the customer. I know if you are running one of these brands, you can point to dozens of differences between yours and the others. The customer does not seem to share your pride.

Two years ago Ruby Tuesday began one of the most comprehensive repositioning programs that I am aware of. This 36 year old concept decided that there was not enough quality being offered in the segment to hold current customers, and attract new customers over the next decade. Not just product quality, but service and atmosphere as well. Their conclusion was that they needed to "go north". Going north is an upscaling and upgrading strategy. It involves improvement, not just change. They mapped out an aggressive program to reposition their 891 units in less than two years. The implementation of this program is now three months complete.

                                             

Ruby Tuesday outlines the path that they have followed in their 2008 Annual Report. Their fiscal year ended June 3, so this is still a very relevant report on their plans and strategies. Sandy Beall, CEO and founder, says in his shareholder letter:        

"We are focused on four key strategies: fresher, better food; gracious hospitality; compelling value; and a fresh new look for our restaurants. We believe that brands have to evolve to meet or exceed the demands of a changing consumer or they become less relevant each year to the point of extinction. We believe our four-pronged strategy addresses the key issues to build a high-quality casual dining brand that can create significant value for many decades."

The first year was devoted to improving the food, the service and the value proposition. Burgers returned to the fresh, never frozen product that the segment was built on during the '70s. Chicken breasts and steaks also are now fresh. The service system was changed to a system found in high-end steakhouses and other upscale restaurants. The servers are now assisted by food runners, giving the servers more time in the dining room with customers. The second year focused on the buildings and the interiors. The goal was to get out of the '70s and '80s and into the future. Sandy describes the changes as follows:

"In less than 12 months, we have completely transformed more than 650 company-owned Ruby Tuesdays to a more contemporary, fresh, and inviting appearance. Tiffany-style lamps, antiques and artifacts, and darker finishes and colors were replaced with sleek and colorful lamps, specially commissioned artwork, and brighter, warmer, more inviting new colors. 

                    

Our chairs are padded and upholstered, our tables have new wooden-finished tops and layered tablecloths, and our napkins, glasses, plateware, and even our knives and forks have been upgraded. It all adds up to a look and feel that is more in touch with today’s guests, clearly differentiates Ruby Tuesday from other bar-and-grill restaurants, and takes our brand to a place more aligned with other high-quality casual dining restaurants."

In a perfect world this kind of effort would be rewarded with strong sales and profit increases. However, as you recall, the downturn for casual dining began at about the time that Ruby Tuesday began making these changes two years ago. They have endured sharp comp sales declines of 10% during the past fiscal year. Some of the current customers did not feel comfortable with the new look, and there has not yet been time for the changes to attract new customers appreciative of the new direction. Following the 1st quarter 2009 earnings release and investor call on Wednesday, the stock fell 26% to $3.40. Within the past 52 weeks it has traded as high as $19.

I admire the changes that Sandy and his team have made within a relatively short time period, given the size of the chain. They have not been blind to the economic pressures on their business as they have implemented their strategy. They have commented on the difficult environment each quarter as they have pushed change through their system.  Like Dorothy's traveling companions in Oz (the scarecrow, tin man, and lion), the leadership team at Ruby Tuesday have shown that they have brains, heart, and courage. Now they just need a little economic relief around the country to benefit from the significant improvements that they have made to their concept.

Posted by Lane Cardwell on October 9, 2008 | Comments (3)