Compromising position?

Moving to higher ground is a sound strategy if you’re running for president or trying to escape a flood. But what if you’re a broad-market restaurant chain that wants to out-class the sector? Consider what the heads of Ruby Tuesday and Applebee’s have to say on the matter. Then climb a mountain and ponder how such similar assessments could prompt them to move in such opposite directions.

Both have acknowledged to investors that management pushed the concepts beyond the comfort zones of longtime customers when they drove the chains up-market. ““We often overshot the brand in the pursuit of a more upscale customer while frankly failing to deliver on the expectations of our core users,” said Julia Stewart, CEO of DineEquity and the proclaimed chief strategist for Applebee’s, which the IHOP parent acquired in November.

Sandy Beall, founder and CEO of Ruby Tuesday, had similar things to say when he addressed analysts last week in a conference call. The past year was a tough one for the casual-dining chain in part because of the environment—“as difficult as I’ve ever seen it,” remarked Beall, who started the company in 1972. But, he admitted, “We also probably hurt ourselves.”

The company remodeled 650 restaurants in less than a year, which may have distracted the team, Beall explained. And some patrons may have been driven off by the new look—“lower-end guests who maybe felt less comfortable in our reimaged restaurants,” he observed.

Stewart has indicated that Applebee’s will shed its highfalutin ways and refocus on the brand’s traditional strength of offering reasonably priced finger foods and a centerpiece bar. In short, it’ll shift back to the concept’s longstanding position as an everyday dining choice—a true neighborhood option.

Contrast that direction with Beall’s pronouncement on Ruby Tuesday’s upscale push. “We now have a completely integrated high quality brand with consistency among its key elements of food service and the restaurant’s look and feel,” he told investors. “This is very, very important.”

He didn’t reconcile that enthusiasm over the chain’s new positioning with his earlier comment about alienating some customers. But he did add, “The soundness of our strategy is also indicated by the fact that our customer base is changing…For example, it is becoming a little more affluent, which is what we wanted, with 44 percent of our customers having income greater than $75,000 compared with 38 percent three years ago.”

Clearly he wants the brand to be more of an Acura, while Applebee’s is betting that a Honda is really what the market appreciates.

Both, of course, could be correct. Meanwhile, the industry as a whole seems to favor the third option of claiming the middle ground, whether that means sliding up or down the spectrum. Fast-feeders ranging from Burger King (with its Whopper Bar, a high-end diversification featuring cocktails) and Subway (with its Subway Café) are nudging their brands further up the pricing scale. At the other extreme are fine-dining chefs like Bobby Flay and their launch of burger concepts, like his just-opened fast-casual concept, Bobby’s Burger Palace. Like many a presidential candidate, restaurant operators seem prone at the moment to drifting toward the center.

Unless, that is, they’re already there, like the family dining specialists. Denny’s, for instance, is edging into quick-service turf with its scaled-down Express concept and B-FST 2GO program. And IHOP has aired intentions to diversify into the fast-service arena of airports.

It sounds like a mess, but it’s really a much-needed shake-up of the status quo. Brands are reconsidering what they are and what they want to be. Unfortunately, many are likely to discover that those are two extremely different things.

Applebee's to try a chill pill?

Consumers may soon be spying a stockpile of thermometers behind the bar of their nearest Applebee’s. The new parent of the troubled casual-dining brand is looking to put more fizz into alcoholic beverage sales, and one of the means it’s considering is the schtick used by a franchisee in Ohio. The operator touts his beer as the coldest beer in town, and proves it by putting a thermometer into each glass when he serves it.

Julia Stewart, chairman and chief executive of DineEquity Inc., the clunky new moniker of IHOP Corp., told investors last week that Applebee’s new executive team will likely check out the gimmick for possibly wider adoption. “Don’t laugh—there’s probably a notion there that I want to exemplify [sic] and test,” she said at the Goldman Sachs Investor Conference.

During the Q&A session following her presentation, Stewart noted that Applebee’s is already one of the nation’s highest-volume beer sellers, but observed that wine could represent an opportunity.

She also repeated an earlier avowal to avoid the prior administration’s mistake of trying to make Applebee’s menu more sophisticated than patrons would like. She indicated that the brand should stay within its niche with she characterized as finger-food-type items. But she also noted that the bill of fare needed an update. Deep-fried mozzarella sticks were cited in particular as a tired nod to yesteryear.

How IHOP plans to fix Applebee's

After crowing for months that it could revive Applebee’s, IHOP started talking this week about how it’ll do it. In a presentation to financial analysts, CEO Julie Stewart spoke of such nuts and bolts changes as scaling back limited-time offers, installing new kitchen equipment, paring down the menu to a few specialties, and, perhaps most important, remembering what kind of consumer is likely to visit the restaurants. “We often overshot the brand in the pursuit of amore upscale customer while frankly failing to deliver on the expectations of our core users,” Stewart explained.

The casual chain’s new owner has already yanked Applebee’s much-ballyhooed “Talking Apple” ad campaign, which featured the sassy comedienne Wanda Sykes as the voice of the apple that’s now part of Applebee’s logo. Both the new logo and the edgy campaign, carefully slanted toward a hipper crowd, were concocted by the chain’s prior regime, which Stewart ousted in short order. The new campaign, “It’s a Whole New Neighborhood,” harkens back to the chain’s earlier positioning lie, “Eating Good in the Neighborhood,” which Steward helped to develop while she was president of Applebee’s domestic operations.

The new spots spotlight food, without any pretenses about attitude or cheeky sophistication. Or, as Stewart put it, “Our message is clearly focused on classic grill and bar food that you can only get at Applebee’s.”

That process of stripping down the concept to its core strengths, then updating those traditional draws, appears to be the basis of Stewart’s revival plan. As she told the analysts, a crowd usually more concerned with ROI than Riblets, “Signature grill and bar items, such as appetizers, burgers, salads, steaks, as well as beer, wine and other specialty drinks, are the key to differentiating Applebee’s from the competitive set while remaining true to our brand position.” Translation: The chain will stop trying to be a Cheesecake Factory or a trendy independent.

Part of the process, she continued, will be paring back the menu and updating kitchens.

In an interview with USA Today, Stewart also spoke about putting more emphasis in Applebee’s marketing on the concept’s bar. Most consumers, she suggested, don’t realize how much the brand offers to patrons who want to unwind with a cocktail.

During the conference call with investors, one of the portfolio managers asked Steward why she was veering from Applebee’s traditional reliance on limited-time offers and frequent menu changes.

“The short answer is that [the] LTO strategy did not work,” she said. “The idea of forcing people to come in for a limited period of time and order that item and somehow come more frequently did not work.” After all, she said, “if your base business and your base menu and your base service platform doesn’t provide enough for the consumer, then the LTO isn’t necessarily going to get you where you want to go, right?”

Stewart said that IHOP has plotted out a new marketing plan for Applebee’s for the remainder of 2008, starting with another flight of ads that debuts Monday. In those spots, consumers will be invited to submit videos they’ve shot inside Applebee’s units.

In addition, Stewart and her team “have developed a road map for all of 2009 that should be finalized in the next couple of months,” she said. In particular, she added, the new operating group will look at takeaway and Applebee’s rights to market Weight Watchers-brand meals.

Stewart also revealed that IHOP plans to “amend” a unit-manager bonus program that squeezed margins at company stores during the first quarter, without commenting how that effort dovetailed with the plan to improve unit-level operations.

Where have you gone, Joe Lee?

Casual dining has never needed Joe Lee as much as it has in the last few weeks.

It’s not as if the former Darden Restaurants CEO has some superhero ability to yank the sector, a market he helped to create, out of its current blues jam. But his 40 years or so in the business gave him a perspective, a wise-man-on-the-mountain sagacity, that most of today’s standout executives have yet to cultivate. They stand in front of shareholders, analysts or employees and spout assurances the company’s recovery plan will work. After all, they somberly assert, we have the best concept, the best people, the best food, the best investors, the best corporate mission statement.

Yet they seem more than a little shaken themselves. You expect some to reach inside their suit-jacket pocket, take a quick nip from a flask, and resume with the platitudes.

Joe, as proper a man as ever worked in the industry, would stand up there and draw his share of arrows from financial analysts who wanted better returns for their institutional customers. Yet even during the most blistering times, he would calmly explain that the sector was in a downturn, that it’s been in downturns before, and that it’ll be in downturns again. He’d seen it two or three times in his career, and each time casual dining snapped back to be stronger than ever.

No one in the room could doubt it because most of them hadn’t lived as long as Joe had run the New York Yankees of casual dining. This was the guy who managed the first Red Lobster, back before there was a T.G.I. Friday’s, a Chili’s, an Applebee’s, an Outback or a Ruby Tuesday. And who could challenge a man who’d left the market only once since then, to work at the top of Red Lobster’s then-parent, a little multinational called General Mills.

The footnotes to his message were clear: There’s no need to cash out to a private equity firm, jump to a new market position, clean out your “C”-level officers, fire the ad agency, or even rewrite the mission statement. Instead, execute well, seize the opportunities that may be afforded by the players who fail to executive well, and ride it out.

No doubt the current freefall in casual dining is going to eliminate some weaker brands. But the sector as a whole?

Tell ‘em, Joe.