Forecast 2011: Set A Course And Stick With It

True, we may have just come through the worst recession since the Great Depression. And true, the economy may be slow to climb out of the ditch. But some of our industry’s top spec/buyers say even in this climate companies can succeed and even grow.

Surprisingly, what we heard from our interviewees this year wasn’t the doom and gloom that bombards us daily in the media, but optimism and enthusiasm. If there’s one universal tenet in our industry, it’s a love of foodservice, and the operators here thrive on challenges and love their jobs.

In the four sections that follow, a glimpse of what’s driving enthusiasm and the opportunities operators see ahead:

Buffalo Wings & Rings: Plan For The Future

Nader Masadeh, Executive V.P.

Buffalo Wings & Rings, Cincinnati

Units: 59 (3 international)

2011 Plans: Eight to 12 new units

“Customer loyalty sustained us through the rough patch in the economy,” says Nader Masadeh, executive v.p. at Buffalo Wings & Rings, Cincinnati. And so sustained, the management team used its time during the economic slowdown to review the company’s priorities.

“We have to take care of our existing customer base, our existing franchisees, and create a design for the future that will help us appeal to new customers,” Masadeh says. “More than a year ago we started to invest in new tools. We realized that things like menu development or a new web design are a six- to eight-month process, others even longer, so it’s a year-and-a-half commitment.”

The chain is enhancing the menu this year, offering better burgers and desserts, more salads and is expanding into entreés. “We’re elevating the level of our offerings from traditional bar food to a menu that’s unique to Buffalo Wings & Rings,” Masadeh says.

To accommodate the new and improved menu items, the chain has made a few changes in the equipment package, adding a salamander, a bigger toaster and a larger salad-prep station. Otherwise, the current, recently updated design is flexible enough that it won’t require changes.

“One of the biggest investments in the past year has been our new building design,” Masadeh says, which became a careful balance of new and old elements. “We had to look in the rearview mirror to make sure any changes didn’t corrupt our franchisees’ needs.”

Areas of primary concern during the redesign were production flow, unit economics, labor, and quality and consistency of food. “Conserving energy remains a concern for Buffalo Wings & Rings,” Masadeh says, “but it’s not as much of a cost factor now that energy prices have stabilized and most manufacturers are building efficiency into their equipment. But labor is the next big component we have to address. The slow economy has had a reverse effect on wages and the increase in joblessness means greater competition for the jobs we have. In addition to rising minimum wages, we also have rising health care costs.”

As the company moves forward, it will begin executing the plan it developed in the past year. “The big challenge is how consumers will react to new menu offerings and our new brand identity. We test a lot of initiatives in our corporate stores, so we get an idea, but we don’t know for sure until we launch,” he adds.

One of BW&R’s goals this year is controlled growth, Masadeh says, opening stores only in markets where it already has a foothold and only with franchisees who have the financial know-how and resources to take the business forward.

“This is an attractive business right now, offering investors a better return than they can get in the stock market or banking,” Masadeh says. “But labor costs and the availability of capital this year are big concerns.”

CCA: Maintain The Status Quo

John Gimesh, Senior Director of Foodservice

Corrections Corp. of America, Nashville, Tenn.

Units: 60

2011 Plans: Two kitchens under construction (to open in 2012)

As we’re reminded almost daily, the recession has left virtually no segment of the economy untouched.

“Believe it or not, because we’re private, the economy has an effect,” says John Gimesh, senior director of foodservice for private corrections management firm Corrections Corp. of America, Nashville, Tenn. “Our <i>per diems<i/> can get cut when state budgets are tight.”

With less to spend on food, margins can get squeezed pretty tight. But when it comes to equipment purchases, CCA finds it tough to skimp. “We can’t operate a year without purchasing new equipment,” Gimesh says. “In this economy capital expenses are looked at more carefully, but if something wears out it has to be replaced.”

Even before the economy soured, the company focused on efficiency in all the corrections facilities it operates. “Water, lights, heating, anywhere we can save, we’re looking there,” says Gimesh.

The company has found a number of ways to save energy ranging from no-cost solutions to major capital expenditures with a good ROI. CCA started with simple fixes like turning off equipment when it’s not in use and training inmates and kitchen staff to report water leaks. It moved to relatively low-cost energy-savers like removing garbage disposals where they were unneeded and switching out lights.

Over time CCA has slowly been adding blast chillers to its units both to save energy and food cost. As capital budgets permit, CCA also has been installing variable-speed hoods and in some cases moving to low-temp conveyor dish machines. Even figuring in the cost of chemical sanitizers the low-temp machines require, the company estimates it will save $800,000 in hot water costs annually across the system.

And as other kitchen equipment is replaced, energy efficiency becomes almost automatic. “You don’t have a choice anymore when it comes to efficiency,” Gimesh says. “It’s almost like you have to buy it, especially since most manufacturers are building it in.”

To get more out of the existing equipment, Gimesh’s department has been focusing more on preventive maintenance. “But,” he says, “regardless of the budget, if we need replacement equipment, we need it.”

The company is trying new things on the food side too. Recipes are being revamped this year to improve food quality, and starting in the second quarter CCA will offer “flex choice” menus, giving wardens the opportunity to change their menu cycles.

In its two facilities currently under construction, CCA also is trying out a new concept in the dishroom, designing a wet tray line between two side-by-side dining halls for greater efficiency.

In today’s market, even companies with a captive audience have to watch their budgets.

The Greene Turtle: Focus On Value

Mike Sanford, President

The Greene Turtle Sports Bar & Grille, Edgewater, Md.

2010 Units: 26

2011 Plans: Six to 10 units

The Greene Turtle Sports Bar & Grille, Edgewater, Md., has weathered the downturn fairly well, according to Pres. Mike Sanford.

“We spent 2009 putting internal controls in place and making sure we had our house in order in terms of labor, cost of goods and so forth,” he says. “In ’10 our same-store comps stabilized, and overall we were up a couple of points over ’09. As a sports bar, we fit a good price point and appeal to the whole family, so we’re still a viable option for consumers.”

To increase sales, improve the chain’s top line and start growing again, Sanford says the company has to offer value, both to consumers and franchisees.

“We’re always tweaking the menu, for example,” he says. “The biggest thing for us from a strategic standpoint is consumer cost-consciousness. Last May we offered a number of mix-and-match options on the menu. In April, we’ll change the menu again, adding about 20 to 25 new items out of 80, to provide value to customers. They’re not smaller portions, but rather value offerings.”

The value the chain offers to franchisees comes in the form of minimal changes to the operation even with the menu changes. “We haven’t changed our equipment package,” Sanford says. “It’s pretty straightforward. We’re always looking for a better mousetrap—greater efficiency in HVAC design and equipment, for example—but capital is too hard to get to remodel kitchens. The last two years were tough enough without asking the franchising community to spend $150,000 to $200,000 to remodel kitchens.”

Sanford says the chain is on pace with where it wants to be from a growth standpoint, but management knows it won’t be easy. “Our two biggest concerns are financing and real estate. We fit in a lot of different footprints—end cap, straight line or out of the ground—but we’re 6,500 sq. ft. to 8,000 sq. ft., and that’s not easy to find. There aren’t a lot of 7,500-sq.-ft. locations out there, and we’re competing with similar chains for those spots.”

Deals in the past two years often have been developer driven, but those are going away, Sanford says, which means prospective franchisees have to be even more financially healthy. “Banks are strict with their lending requirements,” he says. “Prospective franchisees need to have the resources to make a store successful.”

As the economy improves, however, The Greene Turtle is in a good position to grow, Sanford says. “From a product standpoint, I think we offer value to customers and that will keep them coming back and contributing to our top line.”

Beautiful Brands: Build Your Brand(s)

David Rutkauskas, Founder, President & CEO

Beautiful Brands Int’l., Tulsa, Okla.

2010 Units: 100+

2011 Plans: 35 to 50 new units

“I’m not worried about the price of cheese going up,” says David Rutkauskas, founder, president and CEO of Beautiful Brand Int’l. in Tulsa, Okla. “We can adapt to that. If you can survive in the restaurant business for 25 years, you know you can be successful.”

Adapting and taking care of details is just part of the day-to-day business, one that Rutkauskas clearly relishes. “Every day there’s something exciting in my in-box,” he says. “We’re building six restaurants in Kuwait; I live in Oklahoma. To me, that’s exciting.”

The recession hasn’t had much of a negative impact on his company for many reasons. “We’re very fortunate,” he says, “that the brands in our category that are less than $300,000 to get into are still very appealing to investors. And the fast-casual segment is almost recession-proof as long as you’re delivering a high-quality product in a clean environment with great service.”

The year, in fact, was the best ever for the company. “We hear a lot of doom and gloom, but we see a lot of positives in this market,” he says. “We just look at ways to lower expenses, raise sales and be successful.”

The company got a jump on lowering expenses three or four years ago, before the downturn. “Costs were going up so much,” Rutkauskas says, “we went in and looked at how to lower them to make it easier for franchisees to get into the business.”

The company is designing smaller kitchens, focusing on efficiency and speed, which has the added benefit of increasing retail space in the same footprint. In its new concept Top That! Pizza, for example, the company sourced an oven that can cook made-to-order pizzas in about two-and-a-half minutes. The first store was designed in a converted sandwich chain unit.

Rutkauskas also plans to build sales both by adding to the number of brands in the company’s stable and by co-branding stores with new brands and the brands it already has. In addition to its flagship Camille’s Sidewalk Café, the company has 14 concepts ranging from high-end sushi, Texas barbecue and a burger chain to frozen yogurt. The company expects to franchise at least two or three new brands this year.

“We see a lot of co-branding ahead,” he says. “Adding a cupcake concept or our FreshBerry frozen yogurt concept to Camille’s, for example, gives us a chance to sell more with shared ventilation and equipment.”

That kind of innovation and nimbleness have enabled the company to ink franchising deals for more than 1,000 units worldwide in the past few years. The future is so bright, he says, that the 35 to 50 units the company expects to see opening in 2011 could easily double.

So what does concern him? “Fluctuations in consumer taste or costs we can deal with,” he says. “It’s the things out of our control that we worry about. My biggest concern is the state of world peace, not the economy or food costs.”


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