Shack Attack

Bob Krummert

THREE CASUAL CHAINS LIGHT A FIRE UNDER

SHACK ATTACK

After all, they work for Orlando, Fla.-based Darden Restaurants, Inc., a publicly traded casual dining giant. You’d think they’d be up on Wall Street, schmoozing with some security analysts, dropping one-liners about "demographics" and "unit economics" and the like. But they’re not. Instead, they’re here in Memphis, knocking heads at the world’s largest barbecue competition with the likes of Big Al and the Butt Rubbers, the Sicilian Smokers, Any Pork In A Storm, the Basty Boys and 240 other top-notch teams that spend all or part of the year on the barbecue circuit.

What’s the deal? Darden knows that if its barbecue offerings pass muster in Memphis, the Smokey Bones concept can make it anywhere in the U.S. And they think there’s a lot of business to be had outside the traditional barbecue belt in the South.

Darden is not alone. Two other savvy barbecue chain operators—Famous Dave’s and Damon’s—are now in intensive growth mode, too. All three see barbecue as a segment that is relatively untapped, at least from the casual dining operator’s perspective. At the rate these companies intend to open new units over the next few years, casual barbecue could turn into one of the fastest-growing niches in the industry.

Granted, there are plenty of barbecue places out there already. NPD’s ReCount service estimates that there are more than 8,000 barbecue locations across the U.S. Some are part of a local or regional chain, with only 252-unit Tony Roma’s being a true national player. But a lot of them are independents, often legendary spots whose fervent following will overlook a no-frills location in a shaky neighborhood in their search for authentic ’cue.

Famous Dave’s, Damon’s and Smokey Bones wouldn’t dare try to change what these barbecue patrons eat. But they definitely think they can succeed by changing patrons’ expectations about where they go to eat it and what the overall dining experience is like. Their plan to move barbecue out of the shacks and roadhouses and into 200-seat suburban casual dining locations could make this segment explode.

Stroll the grounds at this year’s Memphis In May World Championship Barbecue Cooking Contest and you have to ask yourself: What are these guys from Smokey Bones BBQ Sports Bar doing here? Don’t they seem a little, well, corporate for this type of event?

Northern Exposure

It must pain the barbecue aficionados of the South that the headquarters of one of the fastest-growing barbecue enterprises in the country, 62-unit Famous Dave’s of America, is in Eden Prairie, Minnesota. But that’s where founder Dave Anderson and c.e.o. Martin O’Dowd execute their company’s three-pronged strategy that includes growing the number of company owned stores, bringing on more franchisees, and also building a licensing division that peddles ribs through the retail grocery channel and even through the mail.

The opportunity seems huge to O’Dowd. "Right now, the barbecue segment is about where the Italian segment was 20 years ago," he says. To grasp it, Famous Dave’s is tightly focused on the food. Over the years, the company has won a staggering number of contests and awards for its ribs and sauce and other meats, and it still competes regularly in barbecue contests. How come? "It sharpens the skill set of our culinary people, and keeps us and them in touch with what is happening in the barbecue community," O’Dowd says. "Otherwise, you risk becoming just another corporate restaurant."

The knock on restaurant chains in general is that the food tastes the same no matter where you go in the country. But that’s not a negative for barbecue. In fact, O’Dowd says, the inability to do so is one reason the barbecue segment has been slow to take off.

"Up until five years ago, chain-wide consistency was elusive," he says. "What happened was technology came along that allowed us to develop and implement corporate-controlled smoking and sauce production specs and eliminate the need for the ‘good old boy’ type of pitmaster at every location." O’Dowd points out that there is a tremendous amount of skill and art that goes into the preparation of barbecue meats. And even though the price points in the barbecue segment are relatively low, customer expectations about barbecue quality are unusually high. That’s why high-tech equipment that ensures uniformly great barbecue is a must for any chain that has national aspirations.

"The equipment we have now allows us to go into, say, a distant location like Salt Lake City and serve the very same rib 24/7 all year long," O’Dowd says. "Barbecue is highly competitive; consistency, at a high level, is the key."

The Famous Dave’s chain isn’t having much trouble finding investors who want to get on board, particularly among owners of other restaurant franchises. "Over the past 18 months, we have gone from only 15 open and committed franchise restaurants to 113 opened or committed," says Mark Bartholomay, Famous Dave’s vice president of business development.

Pretty good indeed from an operation that Dave Anderson first opened in 1994 in the decidedly non-barbecue hotbed of Hayward,Wisconsin. The restaurant’s menu now features hickory-smoked St. Louis-style ribs, Texas beef brisket, barbecue chicken and pulled pork sandwiches plus a classic lineup of traditional side dishes. How’s the food? It must be pretty good, because Famous Dave’s still dominates the rib cook-off events it travels to in numerous Midwest markets each year.

But the food is just part of the package. Just as much attention is paid to the décor and ambiance inside a Famous Dave’s, both of which are carefully designed to provide a casual dining experience that’s several cuts above that of a roadside rib joint.

The chain operates two different formats. One is Famous Dave’s Shacks, which aims to recreate the ambiance of authentic barbecue joints of years gone by, subtly modernized to casual dining standards. The other, Famous Dave’s Lodge, goes for the Northwoods hunting lodge look and feel, complete with birch bark canoes and exposed timber walls.

"The food and pricing and the sequence of service is the same everywhere," O’Dowd adds. "There’s only $90,000 difference in costs to build and equip these two different types of units."

Another hallmark of the Famous Dave’s experience is its in-store music. No generic background music here. Instead, there’s an emphasis on blues and roots music, all of it hand-chosen by the chairman himself. Stores don’t exactly have the earthy feel of a true blues club, but the ambiance is close enough for the suburban rib eaters who frequent these places. Point being: In true casual dining style, your dining experience includes more than just the food at Famous Dave’s.

Heading Higher Hog

Columbus, Ohio-based Damon’s is a long-time player in the casual barbecue segment, opening its first unit in 1979 and adopting a casual-dining-like sports bar format (big screen TVs, tableside speakers) during the 1980s. Big (142 units) already, it is nevertheless in the middle of a serious growth push.

But this privately owned chain is taking a different route than Famous Dave’s or Smokey Bones. Instead of hanging its hat on its proven barbecue expertise, Damon’s decided instead to give its concept a serious makeover. Oh, they’re still selling those award-winning ribs. But now they’re calling themselves Damon’s Grill, and the menu emphasizes grilled chicken and seafood and salads, and the layout and décor are casual dining all the way.

It’s a formula that president/c.e.o. Shannon Foust has carefully crafted since he took over the top spot in 1999. Damon’s was a strong company then, and ex-c.f.o Foust’s job was to reposition it for further growth. The idea was that potential franchisees would be found among current multi-unit restaurant operators who were looking to build their portfolios.

"The Damon’s of today is very different than the Damon’s of a few years ago," Foust says. "We now have a very good story, and it’s time to start telling it to the franchise community." The word has apparently gotten out in a hurry. Between company owned and franchised units, Damon’s opened 15 new stores in 2001, expects to add 20 new locations this year, and plans to eventually double the size of the chain to 300 units a few years down the road.

Foust’s plan was to boost the company’s average unit volume, increase sales and make the sales to investment ratio as juicy as other top-performing casual dining chains. A sound strategy, to be sure. But the methodology might be considered a little radical.

Give Foust some credit. It was pretty nervy to adopt a strategy that included the radical de-emphasis of both Damon’s signature item—those award-winning ribs—and the sports bar-style interior motif. No "if-it- ain’t-broke-don’t-fix-it" attitude for him.

But what was he thinking? "Ribs used to be unique for us when we started, and 50 percent of our sales were barbecue ribs," he recalls. "Then everybody got into it, even though you never knew what quality of barbecue ribs you were getting. Now everybody is getting better at barbecue. The challenge for us was how we could maintain our heritage of quality and make our customers aware that our other menu items are of the same quality as our rib products."

To pull it off, Damon’s scratched a long-running format that featured big-screen sports broadcasts and interactive games, a menu that emphasized barbecue ribs, and an interior that was long on dark wood and short on windows. This set-up was just the ticket for attracting groups of single guys—enough of them so that Damon’s could grow from one store in 1979 to 100 by 1996. But it wasn’t especially appealing to families or others who didn’t want to eat ribs and catch a game on TV. That’s the crowd Foust felt he had to attract to make the financials even more alluring.

Enter the new Damon’s Grill, which debuted in the summer of 2001. Yes, they’ve still got big TV screens on one wall and you can still find those dynamite ribs on the menu. But the exterior and interior designs were brought up to date with a brighter, more sophisticated look. And the floor plan changed so that arriving patrons no longer step immediately into the bar. On the menu, the emphasis now is on grilled meats such as steak and chicken, prime rib, seafood, appetizers, sandwiches, plus items like a new barbecued pork quesadilla.

How well does this makeover work?

"The new Damon’s units do about $3 million or a little more per year, and do so out of a smaller box," Foust says. "It’s all about efficiencies." Damon’s reduced each new store’s footprint by 1,000 square feet. Seating capacity shrunk from around 200 to 150. That makes a Damon’s cheaper to build—$100 per square foot or so—and pushes sales per square foot into the $475 neighborhood, Foust says. The end result: An operation that attracts more customers and is more profitable.

He hopes these numbers are sweet music to the ears of potential franchisees. Foust argues that for all the hard work and risk that’s involved in the restaurant business, the typical casual dining unit’s gross of between $1.5 and $2.5 million per year isn’t enough. "Why not go for that big return you get on the last $1 million of sales?" he asks.

Some South for Their Mouth

Of course, you don’t want to tell the people at Darden Restaurant that the era of the barbecue rib/sports concept is over. They think it’s just beginning, and their Smokey Bones BBQ Sports Bar is the vehicle that will allow them to cash in on it.

"Our thinking was that while there is a lot of competition in barbecue in some parts of the country, other parts were lightly penetrated," is how Darden Chairman Joe Lee detailed the thinking behind the Smokey Bones concept last month at a Goldman Sachs investment conference held in New York City. "And where penetration was light, people didn’t really like the experience. They said the décor seemed too hokey and the operations were not all that sanitary, leading to concerns about the health safety of the product." In short, customers used to eating in a well-scrubbed casual dining environment found a lot of barbecue places a little too funky for their tastes.

There was opportunity in the sports bar segment, too. "A lot of sports bars looked like locker rooms, and people were using them in the same way they used to use their dens," Lee said. "Our research showed negatives in décor and food at pure sports bars. Customers simply wanted to be more comfortable; that why we went with our mountain lodge theme.

"Also, sports bar operators were ignoring the food side. They concentrated too much on a fries/burgers/nachos sort of menu, not paying attention to high flavor and good variety."

It was an opportunity Darden was ready to exploit.

"The brand demographics for Smokey Bones are broad," said Dick Rivera, now vice-chairman of Darden. "Walk into a unit today and you’ll see families in the dining room, plenty of older folks having a meal, and yet there are still lots of people sitting at the bar and watching a game on TV."

Lee noted that the Smokey Bones concept has done well both in those under-penetrated markets in the Northeast ("very high volume") and in a market like St. Louis, where the concept goes head-to-head against strongly entrenched competition.

Another sign of how well the Smokey Bones concept has performed is the rate at which Darden is rolling them out. When RH first wrote about the concept in our June 2000 issue, Smokey Bones had two test units, both in Orlando. Two years later, under the guidance of Smokey Bones President Bob Mock and Darden new business honcho Blaine Sweatt, it’s already a 19-unit chain. Lee says that number should double soon. From there, "the Smokey Bones brand has the potential to be the size of an Olive Garden or a Red Lobster," he says.

"We have a national potential with this concept," Lee says. "There is no state we wouldn’t take the Smokey Bones concept into." They show up with big restaurants when they do. The typical Smokey Bones has an 8,000 sq.-ft. footprint and can hold 250 guests.

Certainly the food seems ready to go, The Smokey Bones culinary team entered their first-ever barbecue competition back in the fall of 2000, and qualified their way into the Memphis in May contest. In the 2002 event, the team placed well, finishing third in the vinegar-based sauce category, fourteenth in ribs and scoring well in several other categories. Add this level of food to Darden’s proven expertise in restaurant development and it’s clear why Smokey Bones has become such an important growth vehicle for Darden.

Right now, the core customer base for barbecue is concentrated in the Southern U.S. Famous Dave’s, Damon’s and Smokey Bones think there can be just as many customers elsewhere in the country. At the rate they’re opening new stores in these areas, we’re going to learn in a hurry if they’re right.