KINGS OF THE HILL

RH Staff

For years we at Restaurant Hospitality have made a career out of identifying up-and-coming chains that we believe will become the talk of the industry someday. There’s something thrilling about spotting a restaurant concept that has a load of potential, and then watching it live up to those expectations. But that’s the stuff of our monthly feature, Concepts of Tomorrow, and the conference that was born from its success (see page 86).

What we’re doing in this feature is taking a look at concepts, many of them relatively new, that have removed all doubt as to whether they’ll make it big. A classic example is Buca di Beppo, which appeared years ago as one of our Concepts of Tomorrow when it had only a handful of units. Today it occupies the No.2 spot on our list and is growing at a mind-boggling 81.5 percent annual rate.

With the help of the folks at Salomon Smith Barney Restaurant Equity Research, we’ve compiled a list of concepts like Buca di Beppo that are, by any standard, hugely successful. But this is a list of concepts that also demonstrates a vast potential for continued growth in sales and units in the years and decades ahead.

So, what’s the point? There would be none if foodservice rarely changed. But we all know better than that. This industry is constantly redefining itself and adjusting its offerings to fit the ever-changing tastes of consumers. This list of vibrant chains is a time capsule of sorts, charting the ebb and flow of an industry that strives to mimic the tastes of the public it serves. In other words, if you want to know what’s hot in foodservice right now, then look to the players we’re highlighting here.

Many of the current restaurant trends are reflected on this list, says Mark Kalinowski, who is paid to observe the national restaurant scene for Manhattan-based Salomon Smith Barney. "There’s a lot going on here. The first thing that popped out at me was the emergence of the fast casual segment, which you can see from Panera and Jamba Juice as they hold the third and fourth spots on the list," he explains. "The fast casual movement has been gaining momentum in recent years, and it’s paying off big for these two players plus Buffalo Wild Wings Grill & Bar" (No. 12 on our list).

Fast casual, which combines the speed of quick service with the menu and decor of casual concepts, gets its steam, to a large extent, from Baby Boomers who grew up on fast food and are looking for something better for themselves and their kids.

"This fast casual segment also reflects an affluent consumer who is willing to pay more money for higher quality food," adds Kalinowski.

And higher quality beverages. Who would have guessed 10 years ago that people would be willing to pay up to $3 for a cup of coffee? Apparently the folks at Starbucks (18th on the list) and Caribou Coffee (39th). "Starbucks is the second biggest chain on this list (nearly 3,000 units), and its growth is continuing quite well," says Kalinowski. "Anyone who thought the coffee craze was going away should think again."

It’s this sort of visionary thinking that leads to success. Again, who would have thought that Caribbean-style food would catch on with the general public? Darden Restaurants, with its Bahama Breeze, rolled the dice and now it sits in the lead position on our list.

Somebody has to be a pioneer, and in this case it’s Darden. They’re in a good niche because there is no real competition in the Caribbean-themed dining segment, says Kalinowski. "They are setting the standard."

The Caribbean-style menu taps into America’s growing interest in third-world flavors and a higher spice profile in general. In Darden’s case it has reduced its risk with Bahama Breeze by anchoring it unfamiliar Caribbean flavors to a recognizable vacation spot many have visited.

"Darden has apparently learned from its past mistakes," says Kalinowski. "It stumbled badly with its China Coast concept by expanding it too quickly. China Coast is gone, but Bahama Breeze is growing at a more studied pace."

So is P.F. Chang’s China Bistro, which may have also learned from Darden’s missteps. While that’s debatable, one thing is not. America’s desire for ethnic food and a higher spice profile is on the rise. In the case of P.F. Chang’s (6th), its cuisine is a familiar one, but gussied up and packaged in a stylish, contemporary setting. Asian concepts surface elsewhere on the list in the case of Benihana (22), and Panda Express (30) and Flaming Wok (44).

America’s love of vibrant flavors is apparent in the rise of Famous Dave’s (5), which is demonstrating that it may have the wide-sweeping appeal needed to be a national barbecue concept. It’s been able to move into disparate regions and gain a foothold, which has traditionally not been easy to do in a country stubborn about its regional barbecue preferences. Its growth potential is enormous.

There appears to be plenty of growth ahead for steakhouse concepts, as well. Though some steakhouse chains, such as Morton’s of Chicago and Outback, are reporting sluggish sales, consumption of beef has risen in recent years and America’s love of red meat does not appear to be waning. Several steakhouse concepts have made our list, including Smith & Wollensky (14), Del Frisco’s (16), Palm Restaurants (24), Morton’s (27), Longhorn Steakhouse (29) and Shula’s Steakhouse (31).

"There’s so much here on this list. You can see America’s growing interest in more healthful eating options (Jamba Juice, Souplantation), as well as it’s desire to splurge and embrace comfort foods (Krispy Kreme)," says Kalinowski. "This list also shows just how wide and varied America’s tastes are, and that’s great news for the foodservice industry."

Buzz Factor
If you build it, they will come. But will they come back?

In a perfect world, a top-performing restaurant company like those on the RH list of America’s Fastest Growing Chains would have more than great numbers that document sales and unit growth. They’d also have so many patrons singing their praises that next year’s numbers are likely to be even better than this year’s, no matter how many new stores do or don’t come on line.

On that score, 11 companies on our list seem to be already ahead of the game.

Six of them showed up on a list in a July 2000 Consumer Reports article which tallied chain restaurant rankings supplied by 68,000 of the magazine’s readers. Appearing on the "dinner house" list (First place: Ruth’s Chris Steak House with a score of 85; Planet Hollywood, with a 64, brought up the rear.) were:

These scores reflect patrons’ overall satisfaction with their dining experience at these restaurants. Granted, this was not a strictly controlled research project, and many companies on our list were too small or new to be part of the study when it was conducted. But, still, the numbers indicate that a lot of repeat business is in the offing for these seven chains.

The same is true for the quartet of chains who scored well on the Sandelman & Associates syndicated "Quick-Track" study of the fast-food segment, portions of which were released early this spring. A nationwide sample of 68,600 fast-food users were asked to rate their most recent experience at a universe of chains, with the percentage of "excellent" answers (on a 5-point scale) reported out. Scores ranged from 59 percent for In-N-Out Burger to 27 percent for Taco Bueno, with these four RH-listed companies scoring highly.

• Baja Fresh Mexican Grill, 44 percent

• LaRosa’s Pizzeria, 46 percent

• Rubio’s Baja Grill, 42 percent

• Subway, 40 percent

When this many customers are having an excellent experience at a restaurant chain, it is difficult to find a reason why the chain would not continue to grow at an accelerating rate.

We Knew Them When
Before they were RH’s Fastest-Growing Chains, four of the businesses on this year’s list were Restaurant Hospitality Concepts of Tomorrow. RH picked these winning chains—Bahama Breeze, Buca di Beppo, Dave & Buster’s and Gordon Biersch/Big River Breweries—based on some important criteria. We look for concepts that have been carefully tested and proven in multiple markets. Concepts of Tomorrow must have in place a solid growth strategy. They dovetail with strong market swings, fitting into and capitalizing on appealing and enduring consumer trends. And most importantly, and perhaps most elusively, Concepts of Tomorrow have that quality that just....clicks. It’s a confluence of appealing food, the right decor, and just a good vibe that tells us the concept will be a major player.

When we profiled Buca di Beppo in September, 1997, the kitschy Minneapolis-based "immigrant" Italian chain had just five units. President and c.e.o. Joe Micatrotto told RH then that, "In this day of plasticizing everything, people are dying for a concept like this." Hyperbole aside, the guy knows a winner when he has it. Buca closed 2000 with 51 units across the U.S., and is second on our list.

In September of 1998, RH named Dave & Buster’s a Concept of Tomorrow. The 16 units in the eatertainment chain were posting fabulous numbers—1998 revenues were about $175 million. At the time of the story, co-founder Dave Corriveau told RH, "We’re envisioning 200 units coast to coast and a billion dollars in annual business." Of course, they’re not there yet, but still, their performance is nothing to balk at. Dave & Buster’s comes in at number 15 on our list.

Bahama Breeze—Darden Restaurants’ casual Caribbean dinner house—is another concept RH pegged for greatness early on. When we named Bahama Breeze a Concept of Tomorrow in November, 1998, the chain operated just three units. Today, it’s number one on our list of growth chains, having closed 2000 with 19 units, a 185% increase in number of units from the previous year.

Lastly, we named Gordon Biersch a Concept of Tomorrow in March, 2000, just after the Las Vegas-based chain was bought out by Chattanooga, Tenn.-based Big River Breweries. At the end of last year, Big River had grown the chain to 24 units—doubling its number of Gordon Biersch operations since RH profiled the microbrewery with the upscale-casual Asian-inspired menu. Today, Gordon Biersch/Big River is number 42 on our list of powerhouse chains.

Smith Drives BW-3 to the Top
Buffalo Wild Wings Grill & Bars are rapidly winging their way across the U.S., landing their family-friendly, fast-casual restaurants and sports bars in major markets throughout 26 states. With last year’s systemwide sales at $173 million, and projected sales of $220 million this year, it's hard to believe that just six years ago, the company was on the verge of bankruptcy.

When Sally Smith was hired as the company's chief operating officer in late 1994, the financial records, such as they were, were a mess. But instead of seeing disaster confronting her, "I saw opportunity," she says. "They knew they had a great concept and that they could expand, but not without putting in the things they needed to grow a business."

During the first few years, Smith and her management team got back to basics in the company's new Minneapolis headquarters. They kept growth down, closed some franchises and began to modify the concept from college bar to family-friendly restaurant.

"As we got away from the college towns, we found that people knew us, but they now had young families," Smith explains. "We wanted to make it less of a bar environment. I wanted people to come for the food. When you compete on the bar level, you're only as good as the next happy hour down the street."

While many of the original units remain self-serve, limited service is available in newer units and allows patrons to order their meals at the counter, while waitstaff deliver the food and fill additional drink, food and dessert orders.

"Quality is very important and our food costs reflect that, but that's why there is limited service," Smith explains. "It has to come from somewhere." And what was the biggest challenge in those lean years? "We had no money," she says. "I spent a lot of time trying to raise money. Every dollar had to count."

Smith says that while some concepts that are flush with cash try things without really thinking them through, she had to make sure every marketing campaign worked.

Smith's formula also required each member of the management team to "wear a lot of hats," she says. "That's part of making it so fun and so exciting."

That team will work to add 35 to 40 units this year, and 45 next year, keeping the 2 to 1 ratio of franchises to company restaurants. Smith expects the same rate of growth for the next few years. While the company is not exploring international expansion, Smith doesn't rule out the possibility.

"I can't see why we can't grow like Applebee's (has grown) in the future," Smith says. "But I want to make sure we do it right."

The secret to Buffalo Wild Wings' success may well lie in Smith's business philosophy: "I recognized early on that we can't be all things to all people," she explains. "I read every customer comment card. And as much as some people would really like pasta, I'm not going to add pasta. We stay true to the food."—By Polly LaHue