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.

Wringing out 2007

Let the swallows flock to Capistrano. We ink-stained wretches have our own compulsion to indulge. The minute they roll Dick Clark out of the home and start the chondroitin drip, every journalist feels the irresistible drive to recap the outgoing year’s memorable moments. Who am I to fight Mother Nature? Here’s my rundown of developments the restaurant industry should remember about 2007.

Most worrisome trend to emerge: Menu labeling The industry’s arch concern, a monster it’s beaten back time and again, arrived with a cancelled one-way ticket last year. New York City and King County, Wash., have already decided that local chain restaurants will have to post calorie information on menus and menu boards. California’s Silicon Valley and the Washington, D.C., suburb of Montgomery County will likely follow with similar labeling requirements. And from there, the dominos will fall. It’s only a matter of time until a state mandates nutritional displays. Then we’ll watch a repeat of smoking bans’ spread.

Runner up: Paid sick leave, already mandated in San Francisco, with Washington, D.C. expected to vote on a measure next week.

Biggest yawn of a trend: Trans-fat bans. Sure, availability of alternative oils is still a problem. Witness the decision by Carl’s Jr. and Hardee’s to delay their switch because of supply issues. But New York’s changeover, the nation’s first, went relatively smoothly. Regulators say the biggest problem to date has involved the use of margarine, a potential motherlode of trans fats, without a heads-up to patrons.

The bigger challenge, restaurateurs say, will be the requirement that trans fats be eliminated from baking, a process that benefits greatly from that type of shortening. It may prove to be more of a painful changeover for the true baked-good artists.

Biggest trend that failed to materialize: The mainstreaming of organics. The supply just isn’t there, and the consumer appeal seems secondary to matters like source labeling--saying where each element in a menu item came from, a mega-trend even evident within the mass-market chains.

Unforeseen trend fallout of the year: Smoking bans’ literal way of chilling sales in northern states. Lighting up outside may not have been a problem during spring and summer. But this is the first winter of outside-smoking-only for Anchorage, Alaska, and Illinois, among other areas with frigid weather. Operators in some of those regions are attempting to hold onto patrons by erecting smoking huts, complete with heat. But many of the new rules also prohibit smoking 15 feet from a door, window or other potential vent into a restaurant, meaning you may not have the space in a downtown setting. The industry may want to consider subsidizing sales of The Patch.

Menu trend of the year: Miniaturization. You can now buy a mini-sized burger from an abundance of restaurants, chain or independent, thanks to the Lilliputian Effect. Restaurateurs are smartly betting that consumers will pay a premium for variety (with sampler packs) or the chance to have a few bites of something their doctors tell them they should eat more rarely. A few even savvier players have taken the same approach with desserts, and you can even find some mini-cocktails out there, too.

Menu-item comeback of the year: Burgers. Back in vogue for the umpteenth time, thanks to interest from high-end chefs along the coasts and higher quality offerings from the maintstream chains.


Best product trend from a consumer standpoint: Premium coffee and coffee-based blended drinks. Even office coffee-break stations are being revamped to feature better grades.

Best product trend from a business standpoint: See above. How can you beat the margins on products consisting mainly of water?

Most intriguing new concepts: The wave of all-natural grab-and-go places, like Fresh & Easy, the U.S. beachhead of European retailing giant Tesco, or the Michael Milken-backed Eaturna, which is growing in partnership with concessionaire HMSHost. The places are actually riding three trends that clearly gained strength in '07: Stepped up demand for meals that could be eaten off-premise, increased interest in natural foods, and heightened desire for quality food that can be purchased in a snap, a la grab-and-go formats.

The places are part of a larger trend that has yet to fully flower: With Whole Foods and Trader Joe's proving it can be done, food retailers are finally offering the caliber of ready-to-eat foods that could steal business from restaurants. Supermarkets have always posed a threat to restaurants because consumers are inside them several times a week, but the quality was never there. That's changing. The missing piece is marketing that effectively lets the public know they have a new, viable dining option.

Most encouraging development for foodservice: A clamor for greater collaboration in promoting food safety, both within an organization (i.e., food safety working with marketing as well as ops to guarantee that new menu items are safe) and between groups, including competing chains. The theme was stressed both at Nation’s Restaurant News’ Food Safety Symposium and Cooperating for Food Safety, a conference held in Washington specifically to bring traditional adversaries together for the promotion of safe practices.

Most discouraging development for foodservice: The charlatanism evident in the green movement, with opportunists suddenly declaring themselves eco-friendly as a result of marketing considerations, not true environmental merit. There’s an old southern expression: “Puttin’ a hat on a mule don’t make it the Pope.” Ditto for slapping a green-sounding slogan on a product or service.

In my next installment, I'll complete the annual rite of journalism and offer my predictions for '08.