New heat-beaters--and a Happy New Year

I’ve put my finger precisely on The Cheesecake Factory’s recent traffic problems: Calendar confusion. Yesterday, Sept. 2, the mega-volume chain announced that it was rolling out its new summer menu. “Take a break from the summer heat and visit The Cheesecake Factory,” gushed the announcement.

Labor Day is popularly recognized as the end of summer, but maybe Cheesecake prefers the official closing date. That would give the chain easily three more weeks to promote its new hot-weather selections. By then, maybe it’ll be ready with a new Halloween lemonade, or maybe a Christmas fresh-fruit salad.

A news sampler

My cubicle usually makes FEMA's newsletter two or three times a year. Mentions like, "Congratulations to Joe Smith in Dispatch for scaling Mount Everest this summer. What’s next, Joe, cleaning Romeo’s desk???” And there was that discovery of a condor colony during a routine bulldozing of the guest-chair area in ’06.

It’s not that I prefer the post-cyclone look of my workspace, despite its likelihood of being the next “Survivor” setting. I just can’t bring myself to bury news tidbits in files that defy easy labeling. I prefer to maintain a desktop Miscellaneous mound, so I can savor informational details that would otherwise be lost. Consider, for instance, these gold flakes in the recent stream of news.

Wal-Mart wants your pizza business. During primetime Olympics coverage, the retailing bully aired a commercial that should’ve had pizza chains sweating like Chinese gymnasts being asked for proof of age. The spot explains that ordering a pizza from a restaurant usually costs about $14, while bringing home a take-and-bake pie from Wal-Mart will set a family back just $8. “If your family eats pizza once a week, you could save $312 a year,” the voice-over explains. Better push those pastas, Pizza Hut.

Little burgers are now Chili’s biggest. Big Mouth Bites, Chili’s version of the mini-sandwiches that competitors of all stripes seem to be sporting these days, are now the chain’s best selling burgers, according to officials of parent Brinker International.

McCormick & Schmick take a different group-business tack. Everyone targets local businesses for catering and party business. M&S is trying the different path of pursuing companies on a national basis. The high-end seafood chain is reaching out to corporate accounts that are planning road shows to hawk their wares or services. The restaurant company offers those road warriors the ease of setting up the feeding operations of the whole tour with just one call to a centralized sales and support center.

Cheesecake Factory isn’t alone in trying delivery. BJ’s Restaurants, the high-volume chain headed by Cheesecake alumnus Jerry Deitchle, is already offering the service at 71 of its 75 casual-dining restaurants, according to executives. If it’s indeed blazing a path for Cheesecake, the latter may soon be seen walking the aisles at BestBuy. BJ’s is also upgrading its TVs to flat-screen models.

Outback’s parent sells its plane to familiar parties. As it was losing $176 million during the second quarter, OSI Restaurant Partners decided it was time to thin out its fleet of aircraft. It sold one on July 1 for $8.1 million to a company called Billabong Air II Inc., which happened to be owned by two of the company’s founders, co-owners and executives, according to securities documents. That’s not to say other residents of the executive floor will always have to fly commercial. As part of the deal, Billabong agreed to let OSI lease the plane for up to 200 hours a year, at a cost of $2,500 per hour. Blankets and pillows were apparently not part of the deal.

There are probably far more tidbits I could share with you, but there's movement under the pile of papers near my keyboard, and it could be something alive. Unfortunately, that’s also where I left the number of Animal Control.

Why wait 'til March for madness?

My friends are a little worried because I like to kick off restaurant chains' earnings season with a tailgate party. And why not? We’re talking quarterly updates from the biggies, people. And then come the conference calls, where you can ease back with a hot dog and a beer while investors do some serious grilling of public-company execs. Who needs Six Flags or Vegas? Especially during a financial-reporting stretch like the current one, when the action’s been wilder at times than a Sweeps Week on Fox. Consider, for instance, the mysterious disappearances that have recently come to light.

Where, for example, was Chipotle’s copy of the memo that every other public restaurant company must’ve gotten? It’s the one about cutting expenses because of spiking food costs.

It was certainly right there in Chuck E. Cheese’s “In” box. The pizza and games chain countered high cheese and dough expenses by trimming the size of its large and medium pizzas by a half-inch.

P.F. Chang’s, another apparent recipient, is focusing its efficiency efforts in part on labor. The company told investors that it’s revising the responsibilities and recruitment processes for the unit-level managers at its Pei Wei Asian Diner concept in part to eliminate one supervisory position. It’s also simplifying and shrinking the fast-casual chain’s menu to cut prep space and kitchen labor, while also deleting some high-cost selections that don’t sell well.

Somehow, the mandate to take similar action never reached Chipotle. “It would be plausible to try to squeeze costs out of the food line or labor line or to aggressively raise prices,” said president Monty Moran. “We’re not going to do that.”

Instead, executives said, the chain is directing more units to use additive-free chicken, which costs 20 to 50 percent more than the standard version, and is buying more locally grown produce. So much for economizing on kitchen supplies.

Chipotle might also see some pressure on labor expenses because of the ongoing salmonella outbreak. Since the federal government now believes fresh jalapeno peppers could be the source of the contamination, the Mexican chain is grilling all of the peppers that it formerly served raw.

The same vanishing act must’ve been pulled with Chipotle’s copy of the Official Restaurant-Chain Handbook, or at least the page that deals with international expansion. Charging beyond the boundaries of the United States is as important to the success of many restaurant brands these days as selling soft drinks. But not, it seems, for the 778-unit burrito specialist. Founder and CEO Steve Ells revealed that the chain’s international strategy consists of opening a lone unit in Toronto. “I want to remind you that international expansion is not a key driver of our current growth strategy,” he observed after noting that Chipotle has never needed a passport before. Hopefully he spoke loud enough to override the gasps of investors who’ve grown accustomed to hearing chains project hundreds of overseas openings.

The disappearances involving Chipotle were parlor-room stunts compared with the Houdini feat that The Cheesecake Factory pulled off. One day, as he had for the prior eight years, Michael Dixon was serving as an executive of the casual-dining company. The next, he was gone. His resignation and departure as CFO came the same day.

Cheesecake founder and CEO David Overton said it was just a coincidence that Dixon vamoosed hours before the company disclosed that its profits dropped 19 percent during the second quarter. He also declined to put forward any other explanation.

Maybe he should’ve just uttered, “Abracadabra,” and been done with it.

Okay, time to throw another hot dog on the grill and see who else is reporting today.

Who wants a CEO's job? Not some CEOs

This has been a day of eerie coincidences. Bombshell developments required us to change the top story on our website three times in roughly eight hours. In each instance, a big-name restaurant chief was leaving a sizable multi-chain company, to the gape-mouthed surprise of everyone else in the business. Russ Bendel from Cheesecake Factory, Ken Keymer from the parent company of Village Inn and Bakers Square, Clay Dover from Bennigan’s operator Metromedia Restaurant Group—each seemed firmly entrenched in the job, if for no other reason than the ink on his business cards had barely dried. The longest-serving among them (Keymer) had logged a mere 13 months in the job; the most recent to stake out the corner office (Dover) had been there just six months. (Bendel, for the record, had only nine months’ of wear on his office chair).

All persevered for far less than the three to four years that studies have pegged as the average time of service for a corporate top executive. It’d be easy to attribute the simultaneous changeovers at three radically different companies to sunspots, global warming or the behind-the-scenes meddling of mutant Steinbrenner offspring, were it not for another trend emerging in restaurant-executive employment.

Last week, we reported that Phil Hickey, the former CEO of LongHorn and Capital Grille parent Rare Hospitality, had bought the four-unit Jocks and Jills sports bar chain. Phil has the sort of resume that would make every headhunter in the country want to have him on speed-dial, regardless of the industry they served. And when Rare was sold to Darden last year, securities filings indicated that Hickey recieved enough of a payout to make work an option, not a requirement. Yet what does he do? He opts for something entrepreneurial.

Similarly, David Goronkin resigned last December as CEO of the Famous Dave’s barbecue chain to take the top day-to-day management job at Redstone American Grill, a start-up from the same concept creator who hatched Champps.

Perhaps not coincidentally, Bendel told Nation’s Restaurant News that he resigned as president and COO of Cheesecake’s restaurant division to pursue “an entrepreneurial opportunity.” He wouldn’t say what it was, but noted that he’ll be switching to the new undertaking in a matter of weeks.

Against that backdrop, it’s easy to understand why executives might stay in a top restaurant job for a shorter stretch than they did in the past. Metromedia’s Dover, for instance, readily acknowledged that he opted to leave because of disagreements with the company’s owners. The times are grueling, investor patience seems to have shortened, stakeholders insist on an active management role, and we’ve reached the age of the plug-in executive, where a chief may be brought in for a very specific task. Vicorp stressed that it chose Harem Ouf to succeed Keymer because of the newcomer’s experience in bringing companies out of Chapter 11 bankruptcy protection, where it slid during Keymer’s watch. (Keymer, for the record, said he would retire at the end of the week).

Restaurant executives can be ground up and spat out in no time in an environment like the present one. The job is so grueling that it's hard not to be dissatisfied--with the individual who's trying to fulfill it, or with the situation itself. No wonder so many seasoned pros are assessing the task of running a big public restaurant company and deciding it’s not for them. They’ve decided to forego the pressure, lessen the hassles, and get back to doing what they enjoyed. Why waste your fruitful years dodging bullets?

Regardless of which party opts for a CEO or president’s exit, there’s little doubt that the foodservice revolving door is going to spin a little faster in the months to come. We were actually investigating reports today that a top executive had left a fourth well-known restaurant company, but couldn’t get a confirmation from the concern itself. But stay tuned. He's likely to be one in a parade of executives who find themselves arising from a hot seat in the near future. By their employer's choice, or theirs.

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.