The industry's knee-deep--in fertilizer

For a preview of the renaissance that’ll up-end the restaurant industry in a few years, look to a shuttered dinnerhouse in Spartenburg, S.C.

After 29 years in business, the Steak & Ale there died with the rest of the brand this summer, locking its doors to the 50 or so employees before they mustered for a shift that could’ve been a replay of the prior day’s, and probably the day’s before that. Later this week the place will fire up its grill again, this time as Steak and Spirits, with many of the former employees back in their familiar roles. Yet they’ll hardly be aiming for business as usual now that they’re the ones deciding what’s best for guests and the operation. All those ideas that arise from talking with and serving patrons can actually be implemented, instead of dying in some corporate suggestion box.

“Now that we’re not corporately owned, we have the freedom to do some things,” past and future manager Carol Easler told a local news media for a story.

Easler and her reassembled team will indulge their pent-up entrepreneurship because the new backers apparently appreciate the staff’s intuition for what works, what doesn’t, and, most important, what guests really want. The same dynamic will likely come into play as the economic downturn erodes the corporatism that has homogenized casual dining into the foodservice equivalent of rice cakes—plain, unsalted rice cakes. A death knell for hidebound restaurant companies will undoubtedly put restaurant operations within the grasp of more free thinkers, if not downright radicals. With sites becoming affordable and new ideas trumping big-company resources with a public craving originality, we’re heading into a period of unparalleled creativity for the business.

It’s exactly what happened after the economic shin kick of 1991. If memory serves me correctly, the IPO class of ’92 included Outback, LongHorn and LoneStar, to name a few high-flyers of the next decade. At the time, each brazenly shot a finger at the status quo. Now they’re as subversive as a powder-blue leisure suit.

It’s a shame that the industry has to lapse into shambles for a new generation of innovators to arise. But does anyone doubt that it’s long, long overdue?

Best of breed: franchisee or franchisor?

Did chain headquarters forget to tell franchisees we’re in a downturn? Maybe franchisors are just too embarrassed to gripe about the times when so many licensees are turning conditions to their advantage. Consider what happened recently within several of the industry’s oldest chains. Franchisees proved once again that they can adapt far more readily than the home office to changes in the marketplace, no matter how trying. Their pockets may not be as deep, but their street smarts often make them better.

S&A Restaurant Corp. went bankrupt in spectacular fashion, turning away employees and patrons in preparation for a fire sale of the 200 Bennigan’s and Steak & Ales it operated. And franchisees? As the Bennigan’s on Pittsfield Road in Lenox, Mass., boasted on a banner this weekend, “Locally operated and still open.” It may not be one of the licensees that are looking to scoop up the franchisor’s shuttered stores, but it appeared to be doing just fine, capitalizing on local events like the area’s fifth annual Zucchini Festival and Sunday morning’s crafts fair/pancake breakfast fundraiser in a local park. All told, Bennigan’s franchisees hope to turn S&A’s inability to stay solvent into a chance to swell their ranks by 40 to 60 properties, presumably at prices that would make Wal-Mart wince.

S&A’s franchisees weren’t the only ones to spot an opportunity amid what many brand parents portray as the third circle of hell. Pizza Hut, another greybeard of the business, saw franchisee NPC Corp. ink a deal to buy 99 of the chain’s units from a fellow licensee for $35 million—or roughly $354,000 per store. Pizza Hut seems to be gaining sales traction after some difficult years, thanks to a new pasta takeout line and the addition of a bolt-on chicken wing concept called Wing Street. But while the home office is getting on its feet, NPC is galloping.

To be sure, not all franchisees are finding the current market to be a time of opportunity. Papa John’s recently acknowledged to investors that it’s “subsidizing” franchisees by eating some of increased costs of items it distributes from its commissaries to the field, instead of directly passing along the heightened expenses. It also noted that it sometimes exercises patience with franchisees whose situations make royalties a tough nut to cover.

But, as executives stressed during a conference call with analysts, nothing keeps a system healthier than able franchisees. “We are very focused on keeping good franchisees healthy during these tough times,” said CEO Nigel Travis.

There are probably a lot of franchisees saying the same thing these days about their franchisor.

Quaking icons

The earthquake in Los Angeles hit 5.4 on the Richter scale, but it was a shiver compared with the aftershock from yesterday’s collapse of a casual-dining icon. The public was reminded in story after story that the flat-liner was the company that built the venerable Bennigan’s and Steak and Ale chains. But the industry knew S&A Restaurant Corp. on a far more emotional level. For many of casual dining’s best and brightest, the company was the finishing school where they learned the business. The bankruptcy filing must’ve been like seeing your first home razed.

If the foodservice industry had the equivalent of a Cooperstown, the list of S&A alumni could serve as the roster of charter nominees: Chris Sullivan, Bob Basham, Tim Gannon (all of Outback fame), Doug Brooks (Brinker International), Dick Frank (Chuck E. Cheese’s), Dick Rivera, Hal Smith, Wally Doolin, Rick Berman, Lane Cardwell.

I used to joke that the MUFSO conference was just an S&A reunion in disguise. If an attendee was in a senior post at a casual-dining chain, chances were extremely high that he started at the operation that Norman Brinker conceived in the ‘60s as the obvious trade-up for baby boomers as they outgrew fast food. And for years it grew with their spending power and desire to dine out, becoming an industry force and prompting more imitation than the first reality-TV series.

But the company became part of a huge corporation and suffered the usual fate of losing its verve and agility. Upstarts roared past it, leaving the one-time innovator in a time warp.

More recent regimes did their best to revive the concepts, but the numbers suggest it was a pitched struggle. Systemwide sales for Bennigan’s, the spryer of the two concepts, slipped by about $13 million last year, and the chain contracted by about 10 stores, according to NRN research.

The times ultimately proved too daunting for the brands’ owner, prompting it to file for bankruptcy of the Chapter 7 variety. But franchisees believe they can make a go of it. The scuttlebutt is that they’ll try to provide the unification and support that once came from S&A. The model seems to be Ground Round, whose franchisees similarly found themselves orphaned when their franchisor suddenly threw in the napkin.

Now, of course, everyone is wondering what restaurant chain might be next. In media ranging from overseas newspapers to National Public Radio, the bankruptcy was cited as a weathervane for the economy, a milestone on the road to ruin. The surprise development is being portrayed as a leading indicator.

A fair-sized group of casual dining veterans probably knows better. They’re likely aware that many of S&A’s problems were a function of age and decisions made—or not made—decades ago.

For them, it was likely a seismic shift of another sort, and far more saddening than worrisome.