Slowed overall growth spurs casual chains to test new initiatives

The 35 casual-dining chains in the 2008 Second 100 saw their aggregate annual systemwide-sales growth rate virtually cut in half in their latest full fiscal years, to 2.81 percent from 5.59 percent, but many are already nostalgic for such results in the face of same-store performance that is slowing further.

Even the latest-year statistical standouts of the Second 100’s casual-dining group, including BJ’s Restaurants Inc. of Huntington Beach, Calif., are being challenged.

For its first quarter, ended in April, 74-unit BJ’s said its comparable-store sales were “approximately flat,” thereby ending 45 consecutive quarters of same-store improvements. That compares to a more than 6-percent boost in full-year same-store sales for all of 2007. BJ’s management said a 5.5-percent increase in menu prices in the first quarter was “essentially offset” by reduced guest traffic at comparable stores.

CASUAL-DINING CHAINS RANKED BY U.S. SYSTEMWIDE SALES

BJ’s is not alone in its current quest to stabilize guest traffic counts and maintain or build average annual sales per restaurant, but it actually may be better off than many of its rivals in the Second 100, who saw business go south during their last full fiscal years. The average rate of growth for estimated sales per unit among the 35 casual-dining chains in the Second 100 fell by 0.22 percent in the latest year, compared with the preceding year’s average growth rate of 1.82 percent.

The experience of the Beverly Hills, Calif.-based Houston’s chain underscores the challenge faced by the Second 100’s casual-dining specialists. Houston’s is considered by many to be one of the gold standards by which full-service chain operations might be judged. Yet for the its fiscal year ended in December, owner Hillstone Restaurant Group, for the first time in onlookers’ recent memory, posted a drop in Houston’s U.S. systemwide sales. They fell 2.89 percent to $264.0 million, versus year-earlier results. Houston’s closed one branch last year and converted another to a different Hillstone concept, giving the flagship brand 30 locations at the end of 2007.

CASUAL-DINING CHAINS RANKED BY NUMBER OF U.S. UNITS

Closures or conversions are not unprecedented within the Houston’s organization, but the chain’s inability last year to leverage its smaller unit base with improved store-level performance is what stands out. It’s not as if Houston’s didn’t try: Its already impressive estimated average annual sales per unit rose 0.24 percent to $8.52 million.

Many chains have little time to fret about the recent past. Several foodservice stock analysts, researchers and pundits in recent months have gauged year-over-year monthly declines in casual-dining guest traffic—at some chains for a second consecutive year.

Shrewd operators are not waiting around for guests to appear.

“While no one can accurately predict how the consumer will continue to react in this volatile and slowing economy, we do not believe that the current difficult operating environment is likely to abate in the near future,” BJ’s Restaurants’ chief financial officer, Greg Levin, said earlier this year. “We are accelerating our planned schedule of 2008 sales-building initiatives,” including “online ordering and curbside cashiering services, call-ahead seating service, expanded delivery service, new lunch specials, and additional print media support for our new menu entrées and other services.”

“We’re absolutely feeling the effects of the economy, but holding our own,” said Rachel Phillips-Luther, director of national marketing for the 61-unit Champps Americana sports bar chain, based in Littleton, Colo.

Champps last fall was acquired from publicly traded Champps Entertainment Inc. by F&H Acquisition Corp., which also owns the Fox & Hound Restaurant Group of Wichita, Kan.

Phillips-Luther said the new owners are getting to know the Champps concept as well as its business situation, and as a result the chain is “doing small tests, nothing too crazy” of possible new menu, service or marketing programs to be “ready for 2009.”

Champps recently opened two franchised units in converted buildings, a first for the organization, and is preparing to open a “baby Champps,” or much-smaller unit in the Detroit airport to complement a popular but significantly larger unit in the Dallas-Fort Worth airport’s international terminal.

“It comes down to economics and what makes sense” and “whether we can deliver the Champps experience,” Phillips-Luther said of how management is weighing options such as conversions, nontraditional locations and smaller footprints in today’s business climate.

Several of the Second 100’s 35 casual-dining chains are sharpening the focus on their guest loyalty programs or overall value pitch.

Dave & Buster’s has heavily promoted its dining-pool hall-game arcade operations in recent months through an “Eat and Play Combo” deal offering discounted game credits when guests buy certain entrées. The Dallas-based chain also is offering $10 in free arcade game play to anyone who registers for the Dave & Buster’s Rewards program, through which members receive exclusive e-mail discount offers and the ability to reach “gold” status through significant game play that results in ongoing gaming discounts.

Like some competitors, Second 100 newcomer Elephant Bar Restaurant of La Mirada, Calif., uses food to promote the value of its chain’s full-service experience to diners who are shell-shocked by exploding energy costs and grocery store bills. The 48-unit chain promotes “20 entrées under $10,” including Fresh MisoYaki Fire-Grilled Salmon, Blackened Catfish with Langostinos and Shrimp Jambalaya, and Wok-Fried Coconut Chicken Curry; multicourse kids’ meals for $2.95; and, at times, discounted happy-hour food specials.

Second 100 chains see slowed sales growth for second consecutive year