As sales start to fall, so go restaurant CEOsAs sales start to fall, so go restaurant CEOs

Jonathan Maze

This post is part of the On the Margin blog.

It’s not easy being the CEO of a publicly traded company, especially a restaurant operator, at least if you don’t consider the seven-plus figure paychecks many of them receive.

Their tenures are remarkably short. Median tenure at the top of S&P 500 companies is just six years, according to Equilar, even after a substantial increase over the past decade. Four of the biggest restaurant companies in the world — McDonald’s Corp., Darden Restaurants Inc., Yum! Brands Inc. and The Wendy’s Co. — have replaced their CEOs in the past two years.

The average tenure in the restaurant space has taken a bit of a hit recently, after the CEOs of five publicly traded restaurant companies either retired or were fired: Noodles & Company, Rave Restaurant Group, Così Inc., Red Robin Gourmet Burgers and Fiesta Restaurant Group.

As we said, short tenures tend to lead to lots of executive replacements, but it hardly seems coincidental that all of these moves have come during an ugly summer in which the industry’s sales have fallen off a cliff. Same-store sales fell 0.6 percent in July, according to MillerPulse. According to Black Box, same-store sales fell 1.4 percent that month.

At the same time, industry closures appear to be on the upswing. Four restaurant chains have filed for bankruptcy this year. Activists, meanwhile, have taken a keen interest in companies like Bob Evans Farms Inc. and Buffalo Wild Wings Inc.

Four of the five companies replacing their CEOs were strong performers very recently, with one of them — Noodles — one of the most highly anticipated restaurant IPOs in history just three years ago.

The fifth, Così, is a perpetually struggling bakery/café chain that nevertheless was generating some positive sales just last year.

Yet all five have struggled recently. The companies operate seven restaurant chains in all, and all seven reported same-store sales declines in their most recent quarter, with an average decline of about 2.9 percent. By comparison, the public restaurant universe’s average same-store sales during that period were basically flat.

Not surprisingly, all five have been on investors’ bad side, either recently (Fiesta, Rave and Red Robin were all down more than 20 percent in the first half of the year) or for years (Noodles’ stock price has steadily fallen from its post-IPO highs; Così routinely faces Nasdaq delisting).

One of the five, Così’s R.J. Dourney, was terminated. The other four either stepped down (Noodles’ Kevin Reddy; Rave’s Randy Gier) or announced retirements (Red Robin’s Steve Carley; Fiesta’s Tim Taft, who will retire at the end of the year).

In some of the cases, however, the CEO changes also came along with indications from the companies’ boards of a change in philosophy. In Noodles & Company’s case, for instance, the company said it would cut costs, slow growth and streamline the menu.

When Fiesta announced Taft’s retirement, it also said the company is rethinking its previous plan to spin off its Taco Cabana chain and focus on Pollo Tropical.

These five might not be the last. As sales continue to struggle, investors could continue to press companies to make big changes at restaurant companies, or the executives leading them might simply decide it’s time for a change. Either way, we’d bet the door at the top might revolve a little faster in the next few weeks.

Contact Jonathan Maze at [email protected]
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