Bob Evans Speaks French

Gina LaVecchia

An unlikely pairing of "down on the farm" tradition and French bistro sophistication recently surprised many watchers of the restaurant business, but Bob Evans Farms' 2004 acquisition of the West Coast-based Mimi's Cafe chain might be what pulls this struggling icon out of the doldrums in which it currently finds itself.

This is a time of transition for Bob Evans Farms. With eight of the last nine quarters yielding negative same-store sales figures, the Columbus, OH-based family dining company has been re-evaluating the future of its namesake chain. During the last fiscal year, Bob Evans closed many of its underperforming units and has curtailed its expansion into new markets. That's not to say growth has halted entirely. The company is working to re-image several of its existing units and backfill established markets with new units to provide better efficiencies.

To boost the top line, the 53-year old Bob Evans Farms chose to look outside itself. The recently acquired Mimi's Cafe, a French-themed casual dining chain, is dramatically different than the "down home" Bob Evans concept. But with higher ticket averages, larger unit volumes and the potential for much broader growth, Mimi's is an important part of Bob Evans' future.

Shoring Up Profits
On the heels of several disappointing quarters, Bob Evans Farms has had to take an honest look at itself. Same-store sales in the first quarter of 2006 were down 0.9 percent. In May, the number worsened to 1.2 percent. Margins were dismal as well—in some cases, 10 percent lower than the same period for 2005. To be fair, times have been tough for family dining chains across the board, largely due to rough economic conditions in their core market, the Midwest. Other obstacles include a guest base that is aging and gas prices that have people taking to the road less. But those are just excuses, according to Bob Evans' new CEO, Steven Davis. "Too many of our competitors have been outperforming under these same conditions," he says.

It was just last May that Davis, former president of Long John Silver's, was hired as Bob Evans' new CEO. Hawked by the company as a turnaround expert, he replaced Stewart K. Owens, Bob Evans' chief since 2001. Although personal reasons were cited as the reason for Owens' departure, many believe the board wanted new talent.

The company has since has made difficult decisions that have reduced the losses and, they hope, marked the beginning of a turnaround. Cutting costs has been a major focus. Bob Evans has succeeded in decreasing restaurant cost of sales to 24.9 percent—nearly two points lower than it was a year ago. Lower labor costs accounted for most of these savings, as the company reduced the restaurants' staffs to compensate for the lower volumes the units were generating.

Bob Evans closed 24 underperforming restaurants and also sold off many of its unused and undeveloped properties, which netted a total of $31 million. The company also recently announced that it has decided to open fewer new restaurants in fiscal 2007 than the 15 previously projected.

Of course, moving ahead will take more than just stopping the bleeding, concedes Davis, who is determined to drive up the comp numbers. "You can only make so much money without adding dollars at the top line," he says. "We're going to be relentless," he recently promised analysts, in the company's efforts to drive same-store sales.

The strategy is multi-faceted, says John Curry, Bob Evans' vice president of development. Enhancing the menu, without deviating from the chain's down-home image, has been one component. The company recently invested in roasting equipment and has introduced a line of slow-roasted entrèes and other menu items made with slow-roasted meats.

Other menu innovations were recently introduced to the breakfast menu, including breakfast sandwiches. Slow-roasted items have even made their way into breakfast items, such as the Slow-Roasted Turkey and Spinach Omelet and a Pot Roast Hash.

Midday menu additions, such as a new line of entrèe salads, have also been a big part of the strategy. The company has been pushing lunch throughout the summer with a series of radio spots, says Tammy Roberts Myers, director of investor relations and corporate communications. Myers is careful to point out that no discounting is taking place, just an emphasis on the value message. Bob Evans' average checks are $6.12 at breakfast, $6.85 at lunch and $7.34 at dinner.

A third key to driving traffic and boosting sales is an improved dècor package: New units, as well as many existing restaurants are being "enhanced," says Curry, to improve customer comfort. Their features include more upscale painting and additional woodwork. He's careful to point out that changes at the flagship chain represent not a revolution, but a steady evolution of the brand.

Casting a Broader Net
The key to increased profitability at Bob Evans Farms will most likely be the growth of Mimi's.

The Tustin, CA-based casual theme chain is more upscale than its parent and appeals to a broader, younger demographic than the down-home Bob Evans chain. Moreover, Mimi's has better growth prospects than does the largely saturated Bob Evans brand. Having already prospered in the Western U.S., Mimi's has recently shown that it "travels well to the eastern part of the country," says Don Radkoski, CFO. In contrast, the company believes Bob Evans' appeal is largely limited to the Midwest and South.

The $182 million purchase of Mimi's came at a time both companies were looking to make a deal. "We were pursuing another growth vehicle. We wanted something that would allow us to stay in the breakfast, lunch and dinner categories, but with a higher ticket average," explains Curry. With an average check of $10.29, "Mimi's takes us up a notch in the consumer mind," he says, as it appeals to a broader audience and skews more toward women. "Mimi's was in the market for a change, too, so it was a good match," Curry adds.

Mimi's Cafe was founded in Anaheim, CA, in 1978, where it spent the next quarter-decade expanding throughout the West. Bought by Bob Evans in 2004, today Mimi's has 102 units in 17 states. While its parent company's restaurants have struggled to maintain positive gains in same-store sales, Mimi's performance is better, with comps that were up 1.1 percent last quarter. Its 2005 system-wide sales were $318 million and the chain will continue to add units at a rate of 15 percent annually.

Locations will focus on areas near malls and in "lifestyle" centers, as opposed to Bob Evans' highwayadjacent sites. Bob Evans Farms liked the way Mimi's was run and decided to leave Mimi's management, led by president Russell W. Bendel, untouched.

That's not to say that the chains haven't benefited from the partnership. Both have enjoyed better purchasing and the new ideas that come from teaming up. Mimi's, like Bob Evans, focuses on comfort foods, although in a trendier way. The purchase of Mimi's also allows Bob Evans to capitalize on another one of its core competencies—breakfast. Like its parent company, and unlike most casual dining restaurants, Mimi's is open for breakfast every day. One of the greatest challenges in entering new markets, concedes the company, is ramping up this daypart that is unexpected to guests unfamiliar with the chain. However, experience has shown that once guests are aware, breakfast business follows.

Strange Bedfellows
When it comes to the restaurants themselves, Bob Evans and Mimi's are more different than they are alike. The highly conceptualized Mimi's has two themes: France and the French Quarter. Each unit features a casual-elegant Bistro Room that is Parisian in its atmosphere with wide booths and crystal chandeliers. The more casual, thematic space is called the Garden Room, and pays homage to New Orleans' French Quarter. Connecting the two main dining rooms is the Winery with a bar, a dozen or so bar-height tables, as well as comfortable arm chairs.

Known for its comfort foods, Mimi's best-seller is the chicken pot pie. The chain is also utilizing the same slow-roasters purchased for Bob Evans units, and has begun to market a host of permanent and seasonal slow-roasted menu items, such as a Slow-Roasted Turkey Breast and Mimi's Pot Roast. The menu also features homemade soups, several seafood items, a fresh fish offering, signature salads and sandwiches, indulgent desserts and a broad menu of coffee drinks.

To increase frequency, the company recently launched a seasonal-menu, which will change four to six times per year. Summer featured items include Tender Lamb Shank and a Citrus-Broiled Shrimp with Fresh Asparagus.

This year, Mimi's will open restaurants in Ohio, Florida, Texas, California and possibly other Midwestern and Southern states. In all, Mimi's expects to add 15 units. Besides expanding the number of locations, Bob Evans and Mimi's are also focused on the numbers each unit is turning out.

In a June conference call with stock analysts, Bob Evans executives said that while openings are strong and unit volumes are more than $3.5 million a year, development costs to open new Mimi's have increased (to about $2.5 million), and Mimi's margins—due mostly to larger portions—are lower than those of Bob Evans. However, it is hoped that filling in existing markets will help to improve profitability. The challenge, says Bob Evans execs, will be to balance sales with profitability. "When you have the sales trends that Mimi's has, you don't want to do something that's going to erode the overall value proposition," says Radkoski.

The company is also hoping a new curbside carryout program will help drive Mimi's profits. A similar program at Bob Evans, the Carry Home Kitchen, has been successful. Mimi's takeout program is currently being tested in five California units. Currently, just 3.4% of Mimi's sales come from carryout, whereas the successful Bob Evans takeout program is responsible for 6.4% of that chain's sales.

Ultimately, one question remains: Will this odd coupling be the answer for a listless Bob Evans Farms? To be sure, the company's management should get points for being proactive; for taking steps to save its core business, even as it identifies new opportunities for growth. Bob Evans has shown that it can improve on its past, even as it innovates a brand-new future.