America loves a high-end steakhouse, and the pricey fine-dining chains offering big steaks and generous cocktails are seeing a recovery from the recession like no other segment.
Chains like Ruth’s Chris Steak House, Del Frisco’s and The Capital Grille have been bolstered by the return of business travel and boons in the stock market, and their well-heeled customers are not balking at an average check of $100 or more.
Still, even as the casual-dining segment struggles to build traffic, some steakhouse operators see an opportunity to bring the traditional steakhouse experience to the middle market as well.
The ONE Group Hospitality Inc., parent to the high-end STK steakhouse brand, and Ovation Brands Inc., are targeting the middle market with new variations on their more familiar concepts. But the two companies couldn’t be more different.
New York-based ONE Group, which recently went public, is known for its food and beverage contracts with glamorous hotels around the world.
Ovation Brands, based in Greer, S.C., is formerly Buffets Inc., which emerged from bankruptcy two years ago and is parent to the Old Country Buffet, HomeTown Buffet, Ryan’s and Fire Mountain brands. Ovation, however, is poised for growth with the polished-casual Tahoe Joe’s concept.
Both companies contend that the space between the approachable Outback Steakhouse and high-end Ruth’s Chris is wide open, with little competition.
They both argue that traditional steakhouses all follow the same tired model — big cuts of meat with à la carte sides — and are typically seen by guests as special occasion or business meal events. The opportunity is to build frequency.
Both also point to companies like Southlake, Texas-based Del Frisco’s Restaurant Group Inc., which is successfully growing its more affordable Del Frisco’s Grille concept, with an average check of about $52 per person, alongside its higher-end Del Frisco’s Double Eagle Steakhouse brand, with an average check of about $107.
Take a look at how these two companies are growing steakhouse concepts for a broader audience.
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The ONE Group operates 17 restaurants in five hospitality deals with hotels and casinos around the world. Among those are seven STK steakhouses, the company’s signature brand, which are designed to be sleek and trendy alternatives to the stuffy wood-paneled traditional model.
Jonathan Segal, ONE Group’s chief executive, describes STK as “taking out the business tie and putting in the girl, and taking out the business chatter and putting in the music.”
The stylish mostly-dinner-only restaurants have DJs and a lively social scene. About 43 percent of sales come from the bar.
Typically about 9,000 square feet, STK units average about $9 million in revenue per unit, with an average check of about $113 per person.
This year, ONE Group is launching a new variation of the brand, STK Rebel.
Designed for smaller spaces of roughly 5,000 to 6,000 square feet and second-tier cities, Rebel will offer the same break-the-mold vibe of an STK with a lower price point designed for the middle market, Segal said.
“It’s STK, but the rebel version of it, the naughty little sister,” Segal said. “The difference is that the menu is priced more accessibly for a larger demographic, and the restaurant is open for both lunch and dinner.”
The average check at Rebel is expected to be about $50 to $65 per person, and the company is targeting revenue of about $5 million per unit. The ratio of alcohol sales to food will likely be lower than STK, as Rebel locations will be open for lunch.
“The design is very stylized, like STK, but a little more relaxed, a little more ‘garage rock and roll,’” he said.
Most mid-priced steakhouse concepts are mere imitations of the high-end steakhouses that haven’t really changed in years, Segal said.
“It’s the oldest type of restaurant in America,” he said. “The wood paneling has gotten woodier, the red wine has gotten redder and the portions have gotten bigger. We were happy to redesign that paradigm for the high-end market, but now why not do it for the middle market?”
Segal said he couldn’t reveal where the first Rebel will open, but it will be in a major U.S. city. Once the concept debuts, however, rapid growth is planned.
The STK brand will also continue to grow. The company is projecting 11 locations will be open by 2015, including Miami and Chicago.
The company is also growing its hospitality business. Last month, ONE Group struck a hospitality services agreement with Melia Hotels International that will bring the STK concept, a rooftop bar and other concepts to the ME Milan Il Duca hotel.
For its March 31-ended first quarter, ONE Group said STK’s same-store sales rose 5.2 percent. Segal said being a publicly traded company has paved the way for new growth.
“Awareness of our brand has increased substantially,” he said. “There’s a credibility factor. Being a public company has opened doors.”
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Since emerging from bankruptcy in 2012 and changing its name from Buffets Inc., Ovation Brands has been restaging its concepts.
Among Ovation Brand’s roughly 328 restaurants is the 10-unit Tahoe Joe’s Famous Steakhouse, based in Fresno, Calif., which opened last week a new prototype unit with plans for new growth.
With a Lake Tahoe-inspired Sierra mountain lodge theme, Tahoe Joe’s is the most high-end concept within the Ovation Brands family.
Founded in 1996, the chain is known for its steaks, chops, seafood and ribs grilled over an almond-wood fire. A signature item is Joe’s Steak, slow roasted for 19 hours, then rolled in cracked black pepper and grilled. A 10-ounce cut is $20.99.
With an average check in the high $20 range, Tahoe Joe’s is positioning itself as a more polished alternative to the LongHorn Steakhouse, Lone Star Steakhouse and Outback Steakhouse segment, which tends to average in the low $20s, said David Glennon, divisional vice president of Tahoe Joe’s.
“We see ourselves as the Ruth’s Chris of the every man,” he said.
The new restaurant in Chino, the chain’s first in Southern California, reflects a brand evolution since the recession that has proven fruitful.
While the 6,700-square-foot footprint hasn’t changed, the design is a more modern take on the rustic elements of previous locations.
“I think the décor package will resonate anywhere, in California and all the way to the East,” said Glennon. “From a price perspective, it brings value.”
Glennon said the chain has had 16 consecutive quarters of positive same-store sales, and units average about $4 million.
Other changes over the past few years have contributed.
After only serving dinner for years, the chain added lunch, including about 20 items under $10, to more directly compete with casual-dining competitors. Next came the addition of a Happy Hour with discounted appetizers, giving guests another reason to come in, said Glennon.
About three years ago, Tahoe Joe’s began offering large-party takeout for business meetings and family events, and that business alone has grown to about 3 percent to 7 percent of sales, depending on location, he said.
Glennon said a key differentiator is Tahoe Joe’s practice of “enlightened hospitality,” which includes training staffers to treat every guest as if they were a friend over for dinner.
Glennon said he couldn’t reveal growth plans, but more leases are in the works.
“We are on the cusp of it,” he said. “We are poised for growth.”
This story has been revised to reflect the following correction:
Correction: July 7, 2014 Due to an editing error, an earlier version of this story misstated STK's projected openings. The ONE Group Hospitality Inc. expects to have 11 STK restaurants open by 2015.
Contact Lisa Jennings at email@example.com.
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