Thursday, December 27, 2007

Peltz vs. Overton

Not since Godzilla squared off with Mothra have we seen a fight card quite like the one that was set by Wednesday’s investment news.

On one side we have the quirkiest company in the restaurant business, with a level of achievement that begs steroid testing. Cheesecake Factory, despite its size and success, still reflects the idiosyncratic thinking of chief executive David Overton, who built the business with an iron discipline seldom seen outside of Olympic training camps. Two years ago, while receiving an award from Nation’s Restaurant News, Overton attributed his leadership—and, by inference, the chain’s success—to a gifted palate. He explained that a few bites can tell him if an item will be a success or not. That highly personalized approach to menu planning, he suggested, is as much an underpinning of the chain as its painstakingly controlled expansion, a design that’s finer than what you’ll often find in fine dining, and a voluminous bill of fare that seems scientifically impossible to execute. It’s an oddball, to be sure, but one that should have its own wing at Fort Knox. Few restaurant companies are more esteemed for the caliber of their operation.

And now the company finds itself in a gladiator pit with a Wall Street bully tapping a truncheon on his palm, like a street tough looking for a rumble. We and every publication use the euphemism “activist investor” to describe Nelson Peltz, but that doesn’t begin to characterize his mode of making money. His mechanism is really the not-so-veiled threat—do what I demand or I’ll use my investment capability to do something drastic. It’s as close as investing can come to a street gang’s offer to leave local shops unharmed if they pay an acceptable fee for the “protection.”

If Peltz wields that modus operandi against Cheesecake—a big “if,” despite indications he’s buying as much as 14 percent of the casual-dining company—it’ll a cage match between him and Overton. And my money will be on Overton.

A Rocky he’s not. We’re talking about a guy who got involved with Cheesecake to help out his parents, who had run the business from their basement. He’s renowned for giving general managers a BMW lease as a perk, and for reflecting his Far Eastern religious beliefs in the design of the stores (look for a sky scene or star motif on the ceilings). We’re talking about Jimmy Stewart standing up to an angry Harvey Keitel.

Yet Overton seems to have the conviction that a business should be cared for and nurtured like a living entity. In contrast, Peltz comes off as a horseback rider who doesn’t care if his stead dies after he arrives at his destination. The whole point was to get him there, horse be damned. That disparity could make Overton fight like a wildcat to protect the business his parents founded. At the very least, he’ll likely call Peltz’s bluff.

So what can Peltz do? The obvious possibilities:

--Solicit allies from among Cheesecake’s other shareholders to form a sympathetic faction controlling more than 50 percent of the company’s stock.

--Mount a hostile takeover attempt on his own.

--Sue Overton or Cheesecake for reneging on their fiduciary responsibility.

--Threaten to dump his shares and thereby depress the stock’s price.

In either case, he’ll likely find Overton to be a reluctant yet effective schoolyard hero, willing to stand up to a bully. That resistance alone might convince Peltz to shift his attention to less feisty prey.

Unfortunately for Cheesecake, Overton owned only 5 percent of the company’s outstanding shares as of an April proxy filing, and he’s trimmed his holdings since then. But, after watching Cheesecake evolve from a single Beverly Hills restaurant some 30 years ago, I can’t believe he’ll cede to Peltz without a battle royale. He may be the reluctant hero who stands up to this new breed of corporate greenmailer.

Of course, this is assuming that Peltz is looking to follow his usual script. With Cheesecake’s shares trading at a yearly low on the morning Peltz’s interest in the company came to light, the terror of Wall Street may just be bargain-hunting along with everyone else this holiday season.

Tuesday, December 18, 2007

Giving when it hurts

You know it as a surefire way of raising money for charity. Experts call it “imbedded giving”—channeling a portion of sales from a particular menu item to a popular cause, and thereby encouraging patrons to buy more of it. Now politicians are redefining it as a practice rife with the potential for abuse and therefore in immediate need of regulation. If they have their way, you’d have to follow certain rules if you want to donate a dollar from the sale of your signature gingerbread-man cookies to some toys-for-underprivileged-kids program.

Sen. Robert Menendez, a Democrat representing New Jersey, has already disclosed plans to introduce legislation this week that would govern the practice. Menendez wants to require any retailer that uses imbedded giving to get prior approval from beneficiary group before its name can be used, and to disclose how much money is actually channeled to the charity.

“Too often consumers have no way to know if their dollars are actually going to the intended causes, and some charities are not aware that their names are being used by retailers,” Menendez said in a statement. “We need to ensure that charity is not being used solely as a sales pitch.”

Menendez aired his plan after The New York Times reported that some of the charities it contacted for an article on imbedded giving were unaware they were the beneficiaries of the promotions. Yet their names were prominently used in the sales pitch. Some expressed outright horror that their cause was being associated with businesses with which they would rather not have any connection.

No restaurants were mentioned in the article or in Menendez’s announcement on Friday. But the industry has frequently used the technique, most notably for Dine Out America, a fundraising effort undertaken in the wake of Hurricane Katrina. Restaurants nationwide were encouraged to channel proceeds from a particular night to victims of the catastrophe, and were lauded for their effort.

You have to wonder if such a thing could be undertaken again if it also involved the rigmarole of proving the money was actually donated.

Sunday, December 16, 2007

Wolves in Kermit’s clothing

Does an organic menu qualify a restaurant as green? How about a pledge to feature only sustainable seafood? Or meat exclusively from humanely farmed animals? And what about all the places that now recycle their fryer oil into bio-diesel? Skeptics say a vehicle running on that fuel still emits more pollutants than a hybrid gas-burner might, so the environmental benefit may be more limited than the public realizes.

You can’t blame the average citizen for being confused. What, exactly, does “earth-friendly” mean, and how does that differ from “eco-safe,” or even green? And how about descriptors like “recyclable?” Does that mean the item in question is actually being kept out of the landfills for re-use, or merely that it could be?

And don’t forget technical terms like RoHS—“restriction of hazardous substances,” for those of you who don’t have a degree in electrical engineering. It’s the standard that was adopted by the European Union to designate electrical equipment produced without the use of certain environmental toxins. It’s already creeping into use within the United States as a desirable designation for restaurants and other businesses that want to be green, and California has already prohibited the sale of electronics that fail to meet RoHS criteria. Other states are considering a similar ban.

Those are some of the issues we’re facing as we strive to expand our coverage of the green movement, a mega-trend to be sure, but one that has more charlatans and pretenders than a gathering of hair-restorer pitchmen. Indeed, there’s a term for it—“greenwashing,” or purposely giving something a green connotation regardless of the true environmental impact. If we’re having trouble sorting out fact from assertion, and this is a focus of ours, how can anyone expect a restaurateur to find the time for some deciphering work?

Yet, fortunately for all of us, there are some operators who are determined to do the right thing, including the necessary debunking. Truth be told, some of us scoff that they’re only doing it to appease customers or employees who want a greener operation. They’re doing it for marketing considerations, not to save the spotted owls, according to that line of criticism.

But so what? If those restaurateurs are investing the time and effort to do the right thing, , their efforts should nonetheless be celebrated regardless of their motivation.

And that’s exactly what we plan to do. Stayed tuned for new online features that spotlight what restaurateurs are doing to operate in a more ecologically responsible manner, and what kind of return they’re seeing on a true investment. We’ll try to stay clear of the semantics and focus on the effects, business-wise and environmentally.

Wednesday, December 12, 2007

Secret holiday diary of Nelson Peltz

Nelson popped over with a bottle of Captain Morgan last night to catch “Dancing with the Stars” and left without his backpack. I know you shouldn’t peek at a person’s diary, but it was right there under his copy of “Eat, Pray, Love.” I couldn’t resist.

Played Monopoly with relatives at the holiday party; was shocked to learn the money wasn’t real. Just as well, I guess; they thwarted my attempts to take over undervalued assets—the hotels on Baltic and Oriental—and refused to discuss how the railroads could be managed more profitability. After a few well-placed investments, they’ll rue that stubbornness.

Watched the umpteenth airing of “It’s a Wonderful Life,” one of the greatest tragedies of all time. A good man, that Potter. To watch him be destroyed by wussy George Bailey still brings tears to my eyes.

Went to see “The Grinch Who Stole Christmas” but was asked to leave. The Grinch said he couldn’t stand the competition. The screams of fright from the children were intolerable in any case, so I headed over to Fifth for some shopping. But Saks said it wasn’t for sale.

Sent “21” into conniptions by giving Billy Ackman a surprise atomic wedgie. The lad thinks he knows a thing or two about forcing companies to heed his wishes. But he’s merely the Popeye to my Blutto.

Fielded a call from George Clooney, who’s already casting “Ocean’s 27.” He’d like me to reprise my roll from “Ocean’s 10,” Nameless Man at Posh Party. But I’m not sure we’re simpatico on the character’s direction. What I’d really like to do is direct. Or take over DreamWorks.

Visited Washington and stumbled on a lovely house that has to be mine. All white, with a decent yard by Washington standards, though that big monument across the street will have to come down. Even comes with a heliport and guard stations. Maybe I’ll just buy the city.

My pursuit of the Cadbury candy company continues. Nevermore will Caramello have to take a second seat to Royal Dark.

Note to self: Check status of Wendy’s takeover attempt. Spending far too much on Doubles to remain just an investor.

Oh, well. Off to raid the retail sector!

Friday, December 07, 2007

A restaurant employee named Robert Hawkins

None of the 13 people who were shot Wednesday at the mall in Omaha were in a restaurant or the food court at the time, yet virtually every news report draws a connection between the tragedy and the restaurant industry.

Invariably, the stories note that the 19-year-old shooter had been dumped by his girlfriend a few weeks ago, and that he’d been fired from his job at McDonald’s just a short while back for allegedly stealing. Without expressly saying it, the presentation leaves the impression that the dismissal may have pushed Robert Hawkins over the edge.

The stories unintentionally underscore two large truths about the restaurant business. First of all, it’s not surprising that the tragedy would involve someone who worked at a McDonald’s. Some of the victims might have also worked for the chain or another fast-feeder at one point or another. Ditto for the police and rescue workers who were summoned. Heck, if someone had a flat in the parking lot, they might’ve been an hourly restaurant employee at some stage in their lives. Given how many people float in or out of the industry for employment, it’s like saying “the victim went to high school,” or “the perpetrator drove a car.” Indeed, the point was included because it highlights how ordinary Hawkins seemed on the surface to casual observers.

But the fact was also stressed because it added more eeriness to the story. This wasn’t a kid who ran with gangs or spent his time torturing animals, or at least not to our knowledge. He certainly had his emotional problems, which are only now working their way into follow-up articles. But noting that Hawkins worked at a McDonald’s said a lot about him, and what it said didn’t seem to match the image of a boy who’d go into a mall at Christmas time and kill eight people before taking his own life. Working at a McDonald’s implies a certain innocence, a certain decency within a young person. And that made the turn of events all the more bizarre. It would have been like noting that Hawkins was an Eagle scout, or that he visited the local old folks’ home every Sundays.

Society may tar restaurant jobs as a dead end, or something that you do as a last resort. But how can anyone dispute that working in restaurants is an experience that’s good for a teen? The news reports on the situation in Omaha seem to be saying the same thing, just in a decidedly left-handed way.

Tuesday, December 04, 2007

Start the 'Rocky' theme

Back when Nation’s Restaurant News was still covering Howard Johnson’s comeback attempts, our pages would be filled with stories about a crop of hip quick-service upstarts, akin to today’s fast-casual ventures. The young hopefuls included such brands as D’lites, a health concept, and G.D. Ritzy’s, an ice cream and hamburger specialist. The pizza segment seemed particularly fertile ground, with such promising up-and-comers as Godfather’s Pizza. And, of course, Rocky Rococo.

Named after a character in a Firesign Theater bit [explanatory note for readers under age 45: Firesign was a demented but highly intelligent comedy troupe in the 1960s and ‘70s, like a whacked out MadTV staff], Rocky had attitude, flavor, even an edge. In a day of white-bread restaurant concepts, it delivered a hint of cayenne. It was also a pioneer of such now-pronounced trends as co-branding, or what was then known as tandem restaurants. If memory serves me correctly, it even joined one of its units with a Wendy’s.

Like plenty of promising concepts before and after it, Rocky Rococo grew like Indiana corn. From a single store in Madison, Wis., it sprouted to 130 units before problems overshot it, and units started closing in the late 1980s. It would shrink to a skeleton of 30 stores.

But now comes word from its native Wisconsin that Rocky is ready to grow again. The chain, currently at 40 stores, added two in the recent past, and will fire up the ovens of a few more in 2009, according to a story in the Milwaukee Business Journal. The growth is coming from both franchising and corporate development.

The company is now headed by Trey Hester, the son of an early executive. According to the Business Journal story, founders Roger Brown and Wayne Mosley are still involved, though now as franchisees.

The story quotes Hester as saying he hopes to rebuild the chain back to 130 stores, moving slowly this time.

And look at that—with only an announcement of more stores to come, it’s already snagging coverage again.