Since the Blum Growth Fund took a 3.5-million-share bite of Così in April, founder Brad Blum’s investment in the sandwich chain has turned stale. The share price was about $1.30 when he purchased the stock, but by November it had plummeted to half of that.
While Blum said he is frustrated by the losses, he hasn’t given up on the chain. He believes Così’s core concept is solid, although lacking management direction. Blum is so convinced the troubled brand has a future, in fact, the former top executive of such brands as Olive Garden, Burger King and Romano’s Macaroni Grill has volunteered to serve as chief executive for an annual salary of $1.
“Well, it would be $1 for the first year,” Blum said.
Così’s board so far has rejected Blum’s proposal. In a letter to employees and franchisees, interim Così chief executive Mark Demilio wrote that Blum “wants our board of directors to hand the company over to him for free — something the board cannot and would not ever do.”
Demilio also added that Blum’s “strategic and operational suggestions represent no new ideas.”
Blum had stated publicly he knows how to set Così on a growth trajectory again.
“A new strategy needs to be laid out,” he said. “There needs to be a simplification of the menu. We need to take quality up and costs down, and make service friendlier and more informed, if it’s ever going to improve.”
And those are the least of the Deerfield, Ill.-based chain’s challenges, according to analyst Howard Penney, managing director of Hedgeye Risk Management.
“Right now, they’ve got $8 million on the balance sheet, and they’re burning $1 million a month, so time is of the essence,” said Penney, who called Così a great brand that’s made some mistakes. “Why they don’t consider his offer is unexplainable. It’s the million-dollar question.”
But even with Così’s existing problems, Blum said fixing it would be simpler than the turnaround he began as president of Olive Garden in 1994. In the quarter before he took the job, the casual Italian chain posted minus-12-percent comparable-store sales. But in Blum’s first quarter, comps tightened to minus 5.9 percent, and minus 0.5 percent the next. From that point forward, profits flowed from Olive Garden as Blum steered it to 33 consecutive quarters of positive comps that boosted average restaurant sales from $2.4 million a year to almost $4 million.
“Our operating profits rose 900 percent in my time there,” Blum said. “One of the first things we insisted on was authenticity, which meant having Olive Garden provide a genuine Italian dining experience.”
Tweaks ranged from micro-fixes — such as putting actual olive oil in Olive Garden kitchens — to macro-changes like updating restaurant facades to the current Tuscan farmhouse look.
“We also had to create a consumer-driven culture … that measured guest satisfaction carefully, … and we had to focus on operational excellence and create pride and passion again.”
Current role: founder and chief executive of Blum Enterprises and Blum Growth Fund
Hometown: Cincinnati
Residence: Winter Park, Fla.
Birth date: Dec. 28, 1953
Education: B.A., economics and urban studies, Denison University; MBA, Kellogg School of Management, Northwestern University
Personal: single
Favorite saying: “My mission is to provide good food for the planet.”
Hobbies: endurance sportscar racing (Porsche 997 GT3 Cup), hiking, skiing, architecture and landscape architecture
High achiever, always a leader
Rob Blum said younger sibling Brad always was highly motivated and high achieving — a good athlete who understood sports was more about teamwork than winning. That mindset has helped him immensely in his career.
“Since he realizes he doesn’t have all the answers, he’s very good at building a very strong team around him and motivating them,” Rob Blum said. “He also had adopted a lot of our parents’ philosophies about life in general: that good enough isn’t, and if you’re going to do something, do it right.”
Before joining the restaurant industry, Blum was a marketing executive at General Mills working on multiple U.S. cereal brands. He relocated to Switzerland, where he helped start Cereal Partners Worldwide, a concern that became a $2.5 billion company. After 11 years with General Mills, he was offered the post of president of its ailing Olive Garden brand. He was uncertain about the career switch and relocation, but the offer intrigued him.
“He loved Switzerland and the European lifestyle, so he was uneasy about giving that up,” Rob Blum said. “When he accepted the Olive Garden job, I was initially surprised, but he took to restaurants like a duck to water.”
Kate Richardson was an advertising executive for an outside firm when Blum was at General Mills. Watching the young executive make calls that changed some of its brands forever led her to work with him later on marketing at Burger King.
“When he was marketing director at Wheaties, he put the first female athlete in the history of the brand, Mary Lou Retton, on the box, followed by the first African-American athlete, Walter Payton,” Richardson said. “That doesn’t sound like much today because we take it for granted, but it was a big deal to do that then, and it drove incredible sales. That’s Brad. He drives innovation in ways that bring results.”
In 2002, eight years after guiding Olive Garden’s turnaround, Blum was named vice chairman of Darden Restaurants, a role that included responsibilities within sister brands Red Lobster and Smokey Bones Bar & Fire Grill. That same year, Burger King asked him to run the struggling hamburger chain, presenting a challenge Blum couldn’t refuse.
Under his guidance, profits doubled by 2003, as comp sales jumped from minus 7 percent to plus 4 percent. Despite the ongoing burger war with McDonald’s and Wendy’s, Blum ended Burger King’s 99-cent Whopper offer to focus on improving the quality of the signature burger. He also oversaw the launch of its Tendercrisp Chicken Sandwich.
Believing that continued innovation was the best way to move Burger King forward, Blum pushed its private-equity partners Texas Pacific Group, Bain Capital and Goldman Sachs to invest more in the brand. However, Blum said, the trio, eyeing a future public offering and eager to take some money off the table, disagreed, leading him to resign in 2004.
“To get money out of a company is what investors expect, and I understand that,” Blum said. “But for the long term, we had serious strategic differences.”
Blum said his departure was a blessing in disguise, as it enabled him to pursue his deep passion for “creating good food for the planet.”
In 2008 he was named chief executive of Romano’s Macaroni Grill, where he was once again tasked with reversing the once high-flying chain’s declining fortunes. Following his better-food vision, his team delivered a massive menu makeover that reduced overall calories by 49 percent, fat by 59 percent and sodium by 46 percent.
In 2008, David Zinczenko, editor-in-chief of Men’s Health Magazine, harshly criticized Macaroni Grill’s menu as one of the industry’s least healthful in his nutritional tell-all tome, “Eat This, Not That!” A year later, Blum and members of his culinary team took Zinczenko to lunch in New York and shared their plan to improve the chain’s food.
“He’s telling me he’s a big believer in great taste and nutritional responsibility, and that you could have both on restaurant menus,” Zinczenko recalled. When Blum’s team delivered on his goals a year later, Zinczenko was flabbergasted. “When I looked at the new menu, I was blown away. After castigating the chain in the book, a year later, I’m on the ‘Today’ show praising Macaroni Grill, saying, ‘Here’s proof that it can be done.’”
Yet, despite delivering such dramatic menu changes and a 14-percent improvement in comparable-store sales, Blum locked horns with Macaroni Grill’s owner, Golden Gate Capital, and exited the brand in 2010.
“The private-equity group needed to get money out for its investors, but I didn’t want to do that before the company was on completely stable footing,” Blum said. “Ultimately, it was a difference of strategy, which is understandable when you base it on what investors’ needs are.”
Bob Mock, who worked with Blum as executive vice president of operations at Olive Garden and later as chief operating officer for Macaroni Grill, agreed the chain was headed in the right direction under Blum.
“My experience is, when you’re turning anything around like that, it’s at least a 24-month period before things are right,” said Mock, now a consultant. “When I worked with Brad at Olive Garden, when the choice was the right way or the fast way, he always chose the right way. He knew that would give us a better payback in the longer term.”
Blum wants the same things for Così and guarantees he can deliver them: funds from investors who will leave their money with the company for the long haul, and a plan for a stable, profitable future.
And though officials of the 138-unit chain have responded negatively to his offer, Blum hasn’t given up. Blum Growth Fund placed an ad in the Wall Street Journal detailing Così’s problems, and conducted a shareholder survey that he said shows overwhelming support for his offer to lead the chain.
“When NASDAQ delisted the stock and shares dropped down to 56 cents, as a shareholder, I said, ‘Enough is enough,’” Blum said. “We don’t deserve what’s happening. I didn’t want to stand on the sidelines anymore, hoping this was going to change. I think this could be a billion-dollar brand in the industry, and I think I can help it.”
