Category: 2013

Ignite Restaurant Group looks for bonanza in acquisition of Romano’s Macaroni Grill

Ignite Restaurant Group’s announcement in February that it agreed to acquire Romano’s Macaroni Grill from Golden Gate Capital, including its management and investors, raised some eyebrows. Read more

By Mark Brandau

Thu, 2013-09-05 15:10

McDonald’s Corp.’s test of a “Dollar Menu & More” offering poses a new value proposition to guests, but its effect on owners-operators’ ability to operate their kitchens or grow profitability is far less clear, two franchise consultants said. Read more

By Alan J Liddle

Mon, 2013-08-19 16:22

In a business where differentiation is key to success, strong positioning is driving the momentum of The Next 20 -a group of restaurant chains among which some are poised to crack into the ranks of Nation’s Restaurant News’ Top 200 by virtue of their sales volumes. Read more

By Mark Brandau

August 9, 2013

Officials from McDonald’s Corp. pushed back against reports of mutiny among its owners-operators this week after public comments from McDonald’s franchisees revealed ongoing discussions with the franchisor over its rent structure, value strategy and remodeling program. Read more

In the spring of 2010, McDonald’s quietly began pushing more franchisees to remodel units, providing them with additional incentives to accelerate the chain’s efforts to rebuild each of its locations. It was a bold move at the time, particularly given its already massive lead over its fast-food competitors. Read more

The icing is coming off America’s cupcake craze.

The dessert became a cultural and economic phenomenon over the last decade, with gourmet cupcake shops proliferating across the country, selling increasingly elaborate and expensive concoctions.

The craze hit a high mark in June 2011, when Crumbs Bake Shop Inc., CRMB -3.36% a New York-based chain, debuted on the Nasdaq Stock Market NDAQ -0.67% under the ticker symbol CRMB. Its creations—4″ tall, with fillings such as vanilla custard, caps of butter cream cheese, and decorative flourishes like a whole cookie—can cost $4.50 each.
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After trading at more than $13 a share in mid-2011, Crumbs has sunk to $1.70. It dropped 34% last Friday, in the wake of Crumbs saying that sales for the full year would be down by 22% from earlier projections, and the stock slipped further this week.

Crumbs in part blamed store closures from Hurricane Sandy, but others say the chain is suffering from a larger problem: gourmet-cupcake burnout.

“The novelty has worn off,” says Kevin Burke, managing partner of Trinity Capital LLC, a Los Angeles investment banking firm that often works in the restaurant industry.

Crumbs now has 67 locations, nearly double the number it had less than two years ago. “These are singularly focused concepts,” says Darren Tristano, executive vice president at Technomic Inc., a Chicago research and consulting firm that specializes in the food industry. “You’re not going to Crumbs every day.”

“It’s a short-term trend and we’re starting to see a real saturation,” he adds. “Demand is flat. And quite frankly, people can bake cupcakes.”

Crumbs last week warned that it now expects 2013 sales to reach about $57 million, sharply off its previous estimate of $73 million.

Husband-and-wife entrepreneurs Jason and Mia Bauer opened the first Crumbs bakery in 2003 on Manhattan’s Upper West Side. Today, the company, which also sells $42 “colossal” cupcakes that serve six to eight, is one of the largest players in the gourmet-cupcake industry, with locations in at least 10 states and the District of Columbia.

Crumbs went public in June 2011 after a shell company bought it. The buyer, 57th Street General Acquisition Corp., had raised money the previous year for its Crumbs purchase. 57th Street changed its name to Crumbs Bake Shop shortly after the merger.

Some investors appear to have been spooked when Crumbs last week disclosed it had to raise $10 million in financing. Crumbs recently signed a term sheet to sell not less than $10 million in convertible promissory notes to a company controlled by the family of Michael Serruya, a Canadian entrepreneur and co-founder of Yogen Fruz, a chain of 1,300 frozen yogurt stores in 35 countries.

Mr. Serruya disputes the notion that gourmet cupcakes are losing their appeal. “I don’t believe that for a second,” he said. “This category isn’t going away, the category is here to stay. We wouldn’t have committed our money to this deal, if we believed otherwise.”

The transaction “will give us the money to execute our plans to move into the suburban mall arena where we have experienced growth,” said Julian Geiger, president and CEO of Crumbs. “The decreases in business are in the metro markets where the stores have existed for quite a while.”

As a business, making cupcakes has a relatively low barrier to entry and the field has become saturated with competitors, including individual bakeries, chains and grocery stores. Gigi’s Cupcakes USA, based in Nashville, Tenn., has opened 85 stores in 23 states since 2008 through its franchising system.

Crumbs rivals include people like Cynthia Hankerson, owner of the three-year-old Cupcake Salon in Jersey City, N.J. Sales at her bakery cafe are slipping and she said she suspects the cupcake fad may be waning. Last year, a typical Saturday brought in an average of $600 to $700 in sales for her signature cupcakes, which come in flavors like pistachio, amaretto vanilla and strawberry banana. But now “we’re lucky if we get $300,” she says. “People get tired of things,” the 42-year-old adds.

Even so, at least two other specialty cupcake businesses have opened up in her area within the past year, selling cupcakes at higher prices. “It’s very competitive,” she says.

Demand for gourmet cupcakes exploded in the early 2000s after Magnolia Bakery, another popular New York cupcake chain, was featured in the HBO series “Sex and the City.” The sweet treats have since become central characters in TV shows like the Food Network’s “Cupcake Wars” and TLC’s “DC Cupcakes.”

Magnolia, now with seven stores in urban areas of North America and four overseas, remains consistently profitable through “close attention to managing expenses,” according to Sara Gramling, a spokeswoman. Sales are up over last year, she said, though she declined to say by how much. Less than half of sales at the closely held company are cupcakes, which cost up to $3.50 each. The remainder are desserts such as cheesecakes, pies and pudding.

In the Crumbs earnings report last week, Mr. Geiger said the Sandy-related closures cost the company $700,000 in lost sales in the last quarter of 2012. Crumbs also indicated that certain locations “incapable of reaching acceptable levels of financial performance” would need to close. The report didn’t specify how many might close.

Jiordan Castle, a former Crumbs assistant manager, says the New York outlet where she worked from 2009 to 2010 was “pretty disorderly.” While the company says its cupcakes are baked fresh daily, “it doesn’t mean the cupcake you’re eating was made that day,” the 22-year-old says.

Crumbs’ Mr. Geiger said, “I dispute the allegation that the cupcakes are not sold fresh.”

Crumbs perhaps grew too fast into suburban markets that couldn’t support the brand, suggests John Gordon, principal at Pacific Management Consulting Group, a restaurant-industry analysis firm. “There are only 15 to 20 metro areas in the country where it would work,” he says of the gourmet concept. “There is only so large of a market.”

Fast-food chains are hanging a lot of hopes on night owls and early birds.

With a lean economy squeezing their sales, thousands of restaurants are extending their hours to try to get more people through the door. But franchisees are learning that it can take a lot of work to get the most out of off-hours snackers.

The basic problem: Restaurants need to shoulder more expenses to keep the lights on longer—but the crowds usually aren’t that big at odd hours, and customers don’t end up spending very much. In fact, franchisees and industry experts say, some markets may not have enough all-night types to make the concept work at all.

Longer hours appeal mostly to “younger folks out and about, and they have cut back so much on restaurants,” says Bonnie Riggs, restaurant-industry analyst at research firm NPD Group. “Maybe if you’re in some big metropolitan or tourist areas it’s worthwhile.”

24-Hour Patty People

The concept of extended hours has made big inroads at some franchises. About 45% of McDonald’s Corp.’s 14,100 U.S. locations are now serving customers around the clock, up from about 30% in 2005. Dunkin’ Donuts has doubled its number of 24-hour restaurants over the past decade to nearly a third of its more than 7,000 U.S. outlets.

It isn’t just night owls they’re going after. Fast-food chains are also trying to appeal to early diners. For instance, Taco Bell, a subsidiary of Yum Brands Inc., implemented a breakfast menu for the first time last year, and today 825 stores across 14 states open their doors between 7 a.m. and 9 a.m., instead of the usual 10 a.m.

For many franchisees, extending hours is an alluring idea, since it lets them bring in more revenue without boosting fixed costs like rent. It can also simplify other parts of the workday: Outlets that stay open around the clock, for instance, can eliminate procedures for opening and closing the restaurant.

But some owners and franchise experts worry that the practice simply doesn’t bring big payoffs. Even though fixed costs don’t rise, owners say, there are added expenses such as higher utility bills and extra pay for hourly employees working the graveyard shift. Simply finding people to work those hours can be a struggle.

“It is always difficult to get people [to work] overnight. It’s just contrary to the body,” says John A. Gordon, a restaurant consultant in San Diego. “When you get them, you work hard to keep them.”

Meanwhile, the boost in sales can be meager. Research shows that consumers still prefer to eat at fast-food joints during traditional hours. Noon to 1 p.m. is the busiest time of day for quick-service restaurants, accounting for about 15% of customer visits last year, according to NPD Group. In contrast, the hours between 9 p.m. and midnight represented just 6% of visits, and the hours from 1 a.m. to 4 a.m. less than 1%.

Waiting Up Late

A group of franchisees aired those kinds of concerns in a 2008 lawsuit against Burger King Holdings Inc. —which, unlike most chains, mandates extended hours instead of giving restaurant owners a choice.

In 2008, the chain required franchisees to open at 6 a.m., an hour earlier than was previously required, every day but Sunday. And the chain said stores should stay open until 2 a.m., three hours later than was previously required, on Thursdays, Fridays and Saturdays.

Three franchisees sued Burger King in the 11th judicial circuit court in Miami-Dade County, Fla., to protest the move. They argued that the mandate violated their franchise agreement, and they lost money by staying open longer. They also said that the mandate exposed managers and employees to “unreasonable and unacceptable risk of crime, injury, and even death,” according to court papers.

On some evenings, the franchisees sold as little as $5 worth of items between the hours of midnight and 2 a.m., according to attorney Robert Zarco of Miami, who represented the plaintiffs in the case.

“The longer the hours the franchisee is open, the more money the franchiser will make in royalties and advertising fees, regardless of whether the franchisee is losing money,” he says.

Burger King argued in court papers that it could mandate extended hours of operation. The case was settled in February of last year. Now all franchisees must stay open until midnight every night. Burger King says, “The hours of operation at Burger King restaurants enable us to more effectively compete with our peers. [The company] believes its policy provides franchisees with greater flexibility, allowing them to open earlier than 6 a.m. and remain open after midnight based on the needs of their individual markets.”

Making It Work

For all the risks, some franchisees argue that extended hours can work—provided owners do their homework before implementing them. “You can’t take the lifestyle of a certain demographic and universally apply it to everyone,” says Peter Riggs, vice president of brand promotion for Pita Pit USA Inc., based in Coeur d’Alene, Idaho.

Many of the chain’s franchisees established their businesses in the early 2000s in college towns, where hungry students could order veggie pitas, gyros and smoothies until 3 a.m. But when the brand started expanding into other markets in 2005, some franchisees discovered that consumers in those areas didn’t have as much of a yen for late-night eats. As a result, they scaled back their hours to better reflect local dining habits.

Leticia Bernal-Bosey did this about a year ago, before expanding the hours of a Pita Pit she owns in Albuquerque, N.M. She canvassed local bars near her restaurant and discovered they often stayed busy until closing. What’s more, none of them served food. “There’s a lot of night life in the area,” says Ms. Bernal-Bosey, 30 years old, adding that her outlet’s overall sales have increased 10% since she tacked on the extra hours.

Franchisees also advise having patience when it comes to building traction with late-night sales. Joe Hertzman, owner of 13 Checkers/Rally’s Drive-In Restaurants Inc. outlets throughout Indiana and Kentucky, used to close his restaurants at midnight. Then in 2008 he expanded the hours at one of them to 2 a.m. on Fridays and Saturdays and 1 a.m. the rest of the week.

Sales between Sunday and Thursday started out bleak, with night owls spending an average of just $35 during that final hour after midnight. In comparison, “an average reasonably strong” lunch hour brings in $600 or more, he says.

Over the next few months, more customers began stopping by on those days for late-night burgers and fries, prompting Mr. Hertzman to test their appetites for even later hours. Now, with some of his Rally’s units open on weeknights as late as 4 a.m., he’s averaging $50 in sales for the final hour, while on weekends, when some units close at 6 a.m., the last hour brings in an average of $100. “You have to stick with it,” says the 56-year-old franchisee. “It took us six months to a year to really learn the anomalies of each store.”

We read with interest this Wall Street Journal piece on the cupcake fad, in light of sales declines at the New York-based cupcake shop Crumbs. But a deeper look at the sales declines show that Crumbs’ issues are not so much related to the end of the cupcake fad, so much as they’re due to concerns about Crumbs itself.

In short: Crumbs overestimated demand for its cupcakes, primarily in its home market. But it remains to be seen whether the cupcake fad is actually fading.

There’s no doubt that Crumbs is struggling. Consider this: two years ago, when the chain went public through a reverse merger with a blank check company, its average unit volumes were an impressive $1.1 million. Today, those unit volumes average $788,000. That’s a decline of more than 28 percent in just two years. And remember: Crumbs is supposed to be a growth concept.

Last year, sales at the 37 stores in the company’s same-store sales base declined $5.9 million—an average of nearly $160,000 per store.

“I’m not happy about our past or present performances,” CEO Julian Geiger said on the company’s most recent earnings call. “No excuses. We should have done better.” The company reported a net loss of $7.7 million last year and recently agreed to sell $10 million in convertible promissory notes to a company controlled by Michael Serruya, the co-founder of the Canadian Yogen Fruz frozen yogurt chain.  The chain’s lower store cost was supposed to protect profits in case of a sales decline.

Crumbs’ sales problems started early. Crumbs went public in 2011. The second quarter of that year, the company reported a 6-percent fall in its same-store sales. By the end of that year, it had replaced its CEO and quit reporting same-store sales numbers. When a young restaurant chain has sales numbers like that, “you either overpenetrated, or customers went in for a trial and either didn’t like the product or thought it was too expensive,” said the restaurant consultant John Gordon.

It may have overpenetrated. Crumbs has 21 locations in Manhattan alone. The chain sells primarily one product, cupcakes. Those cupcakes are good. But they’re heavy and dense, and people don’t need to eat them that often. A recent visit to New York found a Crumbs shop there completely empty at 1:30 p.m. on a beautiful day. “It’s not an impulse buy,” Gordon said. A cupcake shop cannot penetrate a market in the same way that a coffee chain can because people don’t get cupcakes as often as they buy coffee.

Then again, maybe it’s the product, because we also noted this: according to its latest annual report, Crumbs’ e-commerce, catering and wholesale sales fell 28.3 percent last year. That’s not over-penetration. People are simply not using these other avenues to get their cupcakes.

Crumbs’ stock, which had traded in the $13 range in 2011 before the sales problems became evident, is now trading below $2 a share. The company is now focused on the questionable strategy of aggressively opening new locations when its current sales are suffering so much—the chain kept opening new stores through sales declines and sales at existing locations have only worsened. The company is opening in different types of locations, focusing on suburban mall development rather than its traditional urban locations. Geiger did indicate on the company’s conference call that it may look to terminate leases for underperforming stores, and he said the company needs to “do a better better job of energizing the in-store customer experience.”

Crumbs is also working with a well-known but still-unnamed chef to create a line of sandwiches for those struggling New York locations. Will it work? We don’t know, but its last effort to use a non-cupcake product to bring in business didn’t work, either.

Last year, Crumbs enjoyed a share price spike after it announced that it would replace its coffee with Starbucks coffee in the hopes that the coffee would lure cupcake buyers. That didn’t work. The company increased the price for its coffee, and sales subsequently fell. Sales of regular coffee fell “significantly.” Suffice it to say, that didn’t help same-store sales. (By the way: why go to a Crumbs for Starbucks coffee when you can just go to Starbucks, which probably isn’t that far away?)

It can be argued that Crumbs’ sales decline could be a precursor to a broader end of the cupcake fad—after all, New York is the epicenter of the movement, the home of Sex and the City, which popularized the cupcake. If consumers in New York have taken their treat business elsewhere, perhaps consumers in other areas will, too, eventually.

Yet other chains that have emerged in recent years haven’t had the same troubles. Magnolia Bakery appears to be doing OK—the company told the Journal that its same-store sales grew last year, though it didn’t say by how much. The California-based chain Sprinkles appears to be doing well and just got an investment from the private equity firm Karp Reilly, which generally has a good track record of making restaurant investments. Then there’s the Nashville, Tennessee-based Gigi’s, which has grown from zero to 84 units in just four years.

None of these concepts are nearly as saturated as is Crumbs. Magnolia, also based in New York, has just five locations there, compared with the 27 (including six in the suburbs) for Crumbs. Sprinkles has six locations in its home Los Angeles area, but those are spread out, too.

This summer wasn’t the best time for Subway sandwich shops — the world’s largest restaurant chain — to stumble.

Founder and owner Fred DeLuca — the driving force and vision behind the Milford, Conn., chain’s growth into a 40,000-unit chain — is in a Connecticut hospital getting treatment for leukemia and, he has told associates, is awaiting a bone marrow transplant.

Still, the 65-year-old billionaire businessman is directing the chain’s operations from a hospital bed.

The hands-on owner is still in daily contact with regional managers trying to find new ways to reverse the sales decline, a Subway development agent told The Post

Same-store sales at the closely held company dipped 2 percent last month and are down over the last several months — the first declines in recent memory, sources close to the company tell The Post.

Faced with the business setback, DeLuca is not letting his hospital stay stop him from continuing a recent discount marketing blitz aimed at igniting revenue growth, the sources said.

DeLuca in June launched a $4 lunch special — a six-inch sub, beverage and chips — and plans the re-introduction next month of its popular $5 footlong campaign.

But the plans are not going down well with many of its franchisees.

At that price, franchisees complain, they just barely cover their costs.

DeLuca, sources said, feels these multiple promotions are necessary to reverse the recent declines at the 48-year-old chain.

John Gordon, who runs the Pacific Management Consulting Group, said Subway’s 2 percent same-store sales decline came as McDonald’s and Wendy’s saw slight increases.

For the moment, Brooklyn-born DeLuca is ignoring the pushback from the franchisees.

“There are not any subway owners who like it,” a franchisee who owns thee stores told The Post. “Everybody is pissed off.”

Margins at a typical store, where revenues are about $400,000 a year, are now between 8 percent and 10 percent, the franchisee said.

That is because of the price cuts.

Just a few years ago, margins were 12 percent, the franchisee said.

In mid-July, as whispers started to circulate around the fast-food chain about the founder’s health, Subway announced that DeLuca, who started the chain in 1965 to earn money for college, was battling leukemia.

DeLuca’s condition hasn’t slowed expansion yet — subway has opened nearly 1,800 locations this year.

In February, DeLuca said he hoped to reached 50,000 stores in four years.

Rival McDonald’s is the No. 2 fast food chain with about 35,000 locations.

“He’s working every day from his bed,” said the development agent, who participated a few days ago in a conference call with his boss.

“He tells us he fully expects to be back at work in a year.”

DeLuca, married with one son, has no successor and a very small corporate structure. His founding partner, Peter Buck, is involved in the day-to-day running of the business.

DeLuca who splits his time between homes in Fort Lauderdale, Fla., and Milford, is one of the most low-key billionaires in the business world.

He is known for not wearing suits, and driving old cars.

For example, several years ago he drove from Florida to Subway’s Milford headquarters, making surprise trips at Subways along the way.

Without a clear succession plan, if DeLuca were forced to step aside from running the chain, it is likely it would be sold, sources said.

The privately held chain does not report results and profits, and total revenue could not be learned.

Gordon of Pacific Management said the chain generates about $400 million in earnings before interest and taxes.

Subway did not return calls.

Johnny Rockets’ parent company is considering a sale of the classic Americana-themed burger chain.

Officials confirmed Monday that parent Red Zone Capital Management Co. LLC has hired North Point Advisors to explore a possible sale of the nearly 300-unit casual-dining concept.

Cozette Phifer Koerber, vice president of brand management and communications for The Johnny Rockets Group Inc., based in Aliso Viejo, Calif., said the company could offer no further details on the process.

John Gordon, principal of Pacific Management Consulting Group in San Diego, said he was familiar with the offer and that the company’s asking price was in the range of $100 million to $150 million, which would be about nine to 13 times earnings before interest, taxes, depreciation and amortization, or EBITDA, of about $12 million.

“To get those kinds of numbers, one must demonstrate growth or potential growth,” Gordon said.

Founded in 1986, Johnny Rockets is known for its diner-style burgers, sandwiches, fries served with a ketchup smiley face and milkshakes. Tableside juke boxes play 1950s-era music, and servers are encouraged to dance and sing along.

The 75-percent franchised concept grew rapidly in the 1990s but later became mired in debt. Toward the end of the decade, growth was put on hold while the company closed underperforming locations.

Red Zone bought Johnny Rockets in 2007 from former owners Centre Partners Management LLC and Apax Partners Inc., two private-equity firms that owned the chain along with heirs of late founder Ronn Teitelbaum, who died in 2000. The acquisition price for the chain was not disclosed, though it was described by company officials at the time as “a high single-digit multiple” of corporate cash flow.

Red Zone is the investment vehicle of Daniel Snyder, an owner of the Washington Redskins football team and Six Flags amusement parks.

In recent years, Johnny Rockets has been aggressively building its presence overseas, opening for the first time in Nigeria, for example, where five units are planned over the next seven years. The company has also struck franchise agreements in Colombia, Honduras, Costa Rica, Nicaragua, El Salvador, Guatemala, Pakistan, Indonesia and the Philippines.

Johnny Rockets has restaurants in more than 16 countries. Growth in the U.S., however, has been slow.

For the fiscal year ended April 2012, Johnny Rockets had 223 restaurants in the U.S., including 26 company-operated locations.

The chain had U.S. systemwide sales of $212.7 million, which was virtually flat, or down 0.1 percent, compared with the prior year, the company reported.

In recent years the company has experimented with dual branding and new formats, adding alcohol service to some restaurants.

Last year, a Johnny Rockets franchisee in Phoenix began testing a new fast-casual variant called JR’s Burger Grill, featuring smaller dishes at a lower price point that would compete with the growing number of fast-casual burger concepts that have threatened to eclipse older brands like Johnny Rockets.

Labor organizers are calling for quick-service workers across the country to stage a day of strikes on Aug. 29, what could be the largest event in an ongoing campaign to pressure restaurant chains to raise wages.

Low-wage workers have organized one-day job walkouts in various cities across the country this summer, such as New York, Washington, D.C., St. Louis, Milwaukee and Detroit.

The event planned for Aug. 29, however — timed to commemorate the 50th anniversary of the March on Washington for Jobs and Freedom — will be the first national effort in the campaign, and organizers are predicting that it will be the largest strike in quick-service history, impacting dozens of cities in all regions of the U.S.

Next week’s strike will target the entire quick-service industry, including McDonald’s, Wendy’s, Burger King, Taco Bell, KFC, Pizza Hut, Domino’s, Little Caesar’s, Subway, Jack in the Box, Jimmy John’s, and more, according to a spokesman for the unidentified group behind the website LowPayIsNotOK.org, which is promoting the event. He asked for his identity to remain anonymous.

At issue is the argument that the median wage of about $8.94 an hour puts most workers below the poverty line. Workers are calling for a pay increase to $15 an hour and the right to form a union.

Rather than focus on the wage issue, chains such as Domino’s and McDonald’s, as well as officials at Burger King, have noted the career path offered to all in the industry, even those who start out at the lowest pay levels.

In a statement that was not attributed to a spokesperson, McDonald’s USA said the Oak Brook, Ill.-based burger giant aims to offer competitive pay and benefits, providing training and professional development for all who wish to take advantage of such opportunities. “Our history is full of examples of individuals who worked their first job with McDonald’s and went on to successful careers both within and outside McDonald’s,” the statement said.

Tim McIntyre, vice president of communications at Ann Arbor, Mich.-based Domino’s, said 90 percent of U.S. franchisees started as delivery drivers or at in-store positions. “We are a company of opportunity,” he said. “In addition to our store owners, most of our managers, supervisors, franchise consultants, trainers, operations auditors, even some of our executives, started in the stores,” he said.

Additionally, pizza delivery staffers earn a combination of wages and tips, allowing them to make more than the minimum wage. And, for many, work at Domino’s is a second job they can do at night and on weekends, supplementing a traditional day job or school, McIntyre said.

Miami-based Burger King Corp. said the almost-all franchised burger chain has also served as a workforce entry point for millions of Americans, and that restaurant compensation and benefits are consistent with the QSR industry.

“In addition, through the Burger King McLamore Foundation, all Burger King employees and their families are eligible for college scholarships to encourage further growth and education,” Burger King said in a statement from the media relations team.

John Gordon, principal of San Diego-based Pacific Management Consulting Group, said the industry has a strong argument for offering opportunity — noting that he also got his start in high school working at the now-defunct Burger Chef chain in 1973.

Still, he said, “They may be off base in arguing that everyone can advance up. Only a few can. Practically speaking, the cream always rises to the top, but that’s a harsh message.”

At the same time, Gordon said a $15 wage in the restaurant industry is unsustainable and would roughly double the average hourly restaurant wage rate in the country — an increase that would be very difficult for the franchise operators that dominate the space to take on, given their small profit margins.

“Progress has to be slower and more gradual over time,” he said.

Depending on how workers respond to the call for a national strike next week, a larger number of restaurants and brands could be impacted, Gordon said.

“When a restaurant loses a sale, about 50 cents of that drops to the bottom line,” he said.

CKE Restaurants Holdings Inc., parent to the Carl’s Jr. and Hardee’s quick-service chains, is exploring a possible sale, according to a Reuters news report that ran Thursday.

The affiliate of private-equity firm Apollo Global Management LLC that took CKE private three years ago is working with Goldman Sachs Group Inc. to explore a possible sale, according to the report, which cites three unnamed sources.

The company could be valued at more than $1.7 billion, the report said.

Spokesmen for both Apollo and CKE said they could not comment on the report.

The move comes after CKE registered for an initial public offering last year that aimed to raise as much as $230 million. By August, however, the company put the IPO on hold, citing market conditions.

In April this year, CKE completed a $1 billion refinancing of debt, according to filings with the U.S. Securities and Exchange Commission. Observers said reports of the possible sale indicate the IPO is not going to happen, so the private-equity firm is likely looking to move on.

“They needed an exit,” said Kevin Burke, managing director of Trinity Capital LLC in Los Angeles, whose firm often handles such company sales in the restaurant space.

Burke noted that Apollo will likely benefit from the deal.

Apollo affiliate Columbia Lake Acquisition Holdings Inc. acquired CKE Restaurants in 2010 in a deal valued at about $1 billion. At the time, the offer from Apollo trumped an earlier offer from another private-equity firm, Thomas H. Lee Partners, for about $615 million in cash and the assumption of $309 million in debt.

In recent years, however, CKE has stepped up international growth. The company has 500 units in 28 foreign countries, and the company has pledged to double that number within the next five years.

Over the past two years, the company has seen 148 international locations open in 10 new countries, a rate that outpaced domestic growth. Pending deals include plans to bring 100 units to Brazil, expand the existing presence in Russia and first-time moves into Denmark, Guatemala and Puerto Rico.

At the end of the last fiscal year ended Jan. 28, the company operated and franchised 3,318 restaurants, including 1,369 Carl’s Jr. and 1,944 Hardee’s units in 42 states and around the world.

For the January-ended year, CKE reported revenues of $1.3 billion, an increase of $46 million, or 3.6 percent, compared to the prior year, according to SEC filings. Adjusted earnings before interest, taxes, depreciation and amortization for the year were expected to be between $195 million and $197 million.

Consolidated same-store sales rose 3 percent for the year at company locations, with Carl’s Jr.’s comparable sales rising 3.6 percent and Hardee’s’ increasing 2.3 percent.

John Gordon, principal with Pacific Management Consulting Group in San Diego, said it’s unusual for private-equity firms to sell after less than three years of ownership. “What has the company gotten out of it?” he posed. “What has Apollo gotten out of it, other than debt-driven dividends?”

The answer will largely depend on what sort of price CKE could get if it does find a buyer. The environment for quick-service remains challenged, which could scare potential investors away from the space, Gordon said.

On the other hand, Gordon said CKE’s growing international profile could make an investment more attractive.

“What sells in these big levered transactions is the potential for growth,” said Gordon. “My opinion is they have to find a private-equity firm not interested in a quick flip.”

Del Frisco’s Restaurant Group Inc., which reported solid second-quarter performance on Tuesday, has bounced back from a slight dip in its stock price that came the same day its largest shareholder, Lone Star Funds, announced it would be selling 5 million shares.

Southlake, Texas-based Del Frisco’s, which went public last summer, saw its stock price dip by nearly 6 percent Tuesday, when it also reported a 22-percent increase in profit for the second quarter, which ended June 11.

But the parent of the Double Eagle Steakhouse, Sullivan’s and Del Frisco’s Grille chains saw its stock rebound by Thursday, when it closed at $22.64 a share. The shares were trading near $23 by Friday afternoon.

Proceeds of the secondary offering announced Tuesday will go to Lone Star Funds, the private equity firm that bought Del Frisco’s in 2006. When Del Frisco’s went public, Lone Star held about 18 million shares, and it sold 4.9 million shares earlier this spring.

Secondary offerings aren’t necessarily a negative signal, but rather a part of the private-equity process, said John A. Gordon, principal with Pacific Management Consulting Group.

“These offerings aren’t really a surprise,” said Gordon, noting that the investors typically will divest. “The backer has other liquidity requirements or is trying to book a profit while things are relatively good.”

He added, “Del Frisco’s did make it last quarter onto my restaurant standouts list.” He also noted that the good performance has extended to other upper-end steakhouse companies like Ruth’s Chris, Capital Grille and Fleming’s.

In announcing the secondary offering, Del Frisco’s said it will not receive any proceeds from the sale of those shares.

On Tuesday Del Frisco’s Restaurant Group reported net income of $4.4 million, or 19 cents per share, for the second quarter, compared to $3.6 million, or 20 cents per share, in the year-earlier period. Revenue increased 19 percent to $60.4 million from $50.7 million a year earlier.

DFRG has 35 restaurants in 19 states and Washington, D.C. The company has 10 Double Eagle units, 19 Sullivan’s and six Del Frisco’s Grille locations.

The biggest fast food burger chains in the U.S. are eager to fight sluggish sales trends and the perception that they’re downscale shops serving nutritionally deficient or bland fare. But the battle for a better reputation isn’t just about the food.

Yes, a hefty part of the bid to counter the traditional view of fast food establishments can be seen on the menus, where offerings billed as healthier, more creative or both are finding space. McDonald’s (MCD) recently started selling a new chicken-based line called the McWrap, an egg white McMuffin and chicken wings as a special promotion. Burger King (BKW) put a turkey burger on sale at its stores for a limited time and tweaked its veggie burger. Wendy’s (WEN) went pub-style with a pretzel-dough bun. And salads, we all know, are frequently found options at the hamburger sellers.

But store remodels, while less publicized than menu changes, also play a critical role in the industry’s customer-acquisition plan. With an ever-growing number of updated exteriors and dining rooms under their banners, the burger giants are aiming to appeal to customers not just with what’s on the tray but with features such as wall-mounted TVs, Wifi and lounge seating. And they could use the boost: In the second quarter, McDonald’s had U.S. same-store sales growth of only 1%. For Wendy’s, second-quarter comp sales at North American corporate stores increased 0.4%, and at franchised locations it was 0.3%. Burger King’s U.S. and Canada same-store sales fell 0.5%.

John Gordon, principal at Pacific Management Consulting Group and a long-time analyst of the restaurant sector, says the new looks do matter to American diners.

“In the restaurant space, particularly in the United States, but really worldwide, customers judge the perceived price value of the restaurant not just about the food, but also the appearance of the store, the location of the store [and] how the employees act,” he says.

Throughout the industry, remodeling is a goal, although the financial resources might not always be there. This push toward fresh visuals, when it can be done, is driven by several factors, among them the nicer chains such as Chipotle (CMG) and the fact that the competition is doing it – no one wants to be left behind.

While the cost and extent of the remodels vary by chain, quite often the bulk of the expense falls on franchise owners, who run the vast majority of McDonald’s, Burger King and Wendy’s locations. Regardless of who pays, redoing one store is going to cost several hundred thousand dollars, generally speaking. There does appear to be a positive result, with Wendy’s saying sales at company-operated remodeled or new-style restaurants “have increased on average by more than 25 percent.”

Though not a guarantee, boosting the receipts is clearly at the top of a restaurant owner’s wish list when they undertake an expensive remodel. “In almost every case, not every case, though, but in many cases, there is incremental sales and profit flow-through that results from a remodel, and they wouldn’t do it if that kind of incremental gain wasn’t being realized,” Gordon says.

Below, we look at the largest U.S. burger chains by unit count and some of what they’re putting into their facelifts.

You can buy a Hot ‘n Spicy McChicken at McDonald’s for $1, a Junior Whopper from Burger King for $1.29, and 4-piece chicken nuggets at Wendy’s for 99 cents. Is it possible that fast food is getting too cheap?

As these restaurants contend with increased competition, cost-conscious consumers and a still-uncertain economy, they’re trying to outdo each other by slashing prices ever more in the hopes of getting customers through the door. But some franchisees are grousing, suggesting those rock-bottom prices are getting too cheap for their comfort.

A recent report from Janney Montgomery Scott on McDonald’s (MCD) surveyed several franchisees. Many seemed to feel it was a problem for restaurants to rely so much on discounted items. As one franchisee responded in the survey: “We need ‘new’ news – not just cheap food.” That sentiment was echoed by others, who on the whole said their stores’ level of discounting was too high. “It’s one or the other, the Dollar Menu or other discounting. We can’t continue to do both,” one said. Another McDonald’s store owner griped that all the discounts aren’t strategic, while another said, “Every item introduced comes with unlimited coupons for FREE and a ‘suggested price point’ that is ridiculous and does not meet franchisees’ needs for profitability.”

Widespread discounts

To get a sense of how widespread the discounts are among the major fast-food players, just check out the latest promotions. McDonald’s late last year brought back its Dollar Menu after trying to push more premium items. In January Taco Bell, which is owned by YUM Brands (YUM), began testing a new $1 Cravings Menu in two markets featuring nine items, three of them new. Also in January, Wendy’s (WEN) introduced a revamped menu called “Right Price Right Size,” with items, including the Crispy Chicken Sandwich and Double Stack burger, ranging from 99 cents to $1.99. Subway fans who thought $5 footlongs were too pricey started getting 6-inch subs for $3.

And following McDonald’s, Burger King got aggressive with its menu and launched a limited time offer for a Junior Whopper for $1.29 in February. At the time, Steve Wiborg, head of Burger King’s North America business, said a stronger “value message” will hopefully “drive more customers to Burger King – some of whom will end up ordering higher-priced items once they get there,” according to a Wall Street Journal report. This practice is known in the restaurant industry as a barbell strategy.

The value push, though, hasn’t been sufficient to bolster weak sales, if McDonald’s earnings report Friday is any indication. Global sales at restaurants open at least 13 months fell 1% in the first quarter, and the company warned that sales would be slightly lower in April.

Competition in this space has been especially intense, says John A. Gordon, principal of Pacific Management Consulting Group, a chain restaurant analysis and advisory firm. The reason: Same-store sales – the all-important benchmark of a restaurant’s positive growth – in the latest quarter were being compared with performance during winter 2012, which was relatively positive. Sales and traffic were higher then, driven in part by relatively good weather and an election-year bump, says Gordon. McDonald’s same-store sales trend was up 7.7% in January 2012 (for the U.S.), 11.1% in February and 8.0% in March.

“Those are big numbers to go up against,” Gordon says, adding that, as we went through balance of 2012, the sales trend began to fall a bit. Compare those numbers with this year: up 0.9% in January, down 3.3% in February and up 0.3% in March.

While the fast-food industry might be synonymous with “value,” the big players have also been introducing new, more premium offerings. Last month McDonald’s added chicken McWrap sandwiches (suggested price is $3.99) to its menu and Wendy’s announced limited-time Flatbread Grilled Chicken Sandwiches, in an attempt to appeal to healthier eaters and upgrade some of its product line – with the hope of boosting margins.

“In theory, over time if you drive traffic and you take care of customers, and it’s a good product, they will come back and you’ll do well,” says Gordon. But in the short term, the more discounted the products are, the more eroded the brands are in consumers’ eyes. “If you pound away too long on a low price point, it tends to alter a perception over time,” Gordon says. “And customers start to ask, what is the real worth or value of this brand or product?”

Bravo Brio Restaurant Group keeps growing, come recession or flat market.

The Columbus-based parent of Bravo Cucina Italiana and Brio Tuscan Grille restaurants expects to build between 40 and 50 restaurants in the next five years — about half of each format — some of them in high-population cities on the East and West coasts.

“We’re an aggressive growth story in a tough environment,” said Jim O’Connor, Bravo Brio’s chief financial officer, during a recent interview.

Considering that the casual-dining industry is not expected to expand in coming years, achieving that growth means Bravo Brio will have to take business away from other restaurants.

“We don’t look at the pie growing. We think this is a market-share battle,” O’Connor said. ” Those folks with better mousetraps are going to win.”

Winning restaurants put their stores in the right places, he said. Bravo Brio works with Buxton, a consumer analytics firm in Fort Worth, Texas, to pick the right spots.

Buxton finds locations where the best customers for each restaurant concept like to eat, said Paul Schlesinger, senior vice president of business intelligence for the Texas firm.

“You’re going to grab share” if you build restaurants in those locations, Schlesinger said.

Saed Mohseni, Bravo Brio’s president and CEO, told securities analysts on a conference call last week that he wants to add 50 percent to his restaurant count by 2018. That’s a slightly faster growth rate than during the past five years.

For a chain that has only 103 stores, “closing two units is a big deal,” said John Gordon, principal at Pacific Management Consulting Group in San Diego. “That is an indicator that the concept didn’t work in certain geographies.”

But they are saying they are more likely to put Brio, the chain with the more-expensive menu, rather than Bravo restaurants in areas that get a lot of business travelers who use expense accounts, such as New York City and San Francisco.

Brio customers spend an average $5 more than Bravo customers, Mohseni said.

“We like to say, if you see a Nordstrom’s, you’re likely to see a Brio” nearby, O’Connor said. ” If you see a Macy’s, you’re more likely to see a Bravo.”

In Columbus, the company operates Bravo restaurants on Hayden Road, and in Crosswoods Commons and Lennox Town Center. It operates Brio restaurants in Easton Town Center and Polaris Fashion Place, both higher-end shopping centers.

Analysts have both upgraded and downgraded Bravo Brio’s shares in the week since the company slightly scaled back its earnings and sales expectations for 2013.

The shares have risen more than 8 percent to $15.85 since Feb. 27, when the company released its 2012 results after the market closed.

Rax, Arthur Treacher’s Fish & Chips, York Steak House, Ponderosa Steakhouse and Damon’s franchises – all but one born in central Ohio – hit their stride in the 1970s and 1980s by appealing to customers with everything from British fish and chips to big-screen televisions.

During passes through Lancaster on business, Gary Ford usually stops for lunch at the Rax fast-food restaurant. Ford grew up in Indiana eating the Ohio chain’s Uncle Alligator kids’ meals and drinking from its alligator-shaped cups.

“I love Rax, too,” chimed in Ford’s lunch partner and business colleague, Sandy Carter. “I grew up on it in Columbus.”

Rax, Arthur Treacher’s Fish & Chips, York Steak House, Ponderosa Steakhouse and Damon’s franchises — all but one born in central Ohio — hit their stride in the 1970s and 1980s by appealing to customers with everything from British fish and chips to big-screen televisions.

The chains were bought and sold, often by investors who added debt and churned through managers, leaving them with tired menus and neglected restaurants, said John Gordon, restaurant analyst for Pacific Management Consulting Group in San Diego.

Today, the chains survive in small pockets in Ohio and elsewhere mostly because customers fondly remember their food.

“I really believe it’s all about loyalty,” said Bonnie Riggs, restaurant analyst for consumer and retail market research firm NPD Group. “People grew up with them, so they’re very loyal to them. That’s the staying power for these concepts.”

Rax Roast Beef

Started in Springfield in 1967, Rax peaked in the 1980s with more than 500 restaurants in three dozen states, said Rich Donohue, who owns five Rax restaurants, including three in central Ohio.

But Rax strayed from roast beef, confusing customers with offbeat menu items and driving them away with high prices. A management buyout in 1991 leveraged the company with debt.

Donohue got a management job at the Ironton Rax in 1982 after graduating from high school. He left the chain shortly after it filed for bankruptcy protection in 1992.

Donohue bought the Ironton Rax in 2002 when the company sold all its assets. He also owns restaurants in Lancaster, Circleville and Ashville, Ky., as well as the Rax trademark.

All 14 Rax restaurants in Ohio, Kentucky, Indiana, Illinois and West Virginia are independently owned but buy food and supplies as a group, Donohue said.

He refocused the menu on the roast beef customers remember. The BBC beef, bacon, cheddar — sandwich is a best-seller at the Lancaster location, manager Ashley Deyo said.

“I believe the product that we sell is quality,” Donohue said. “We are still doing the things the same way we did back when I first started.”

Arthur Treacher’s Fish & Chips

Dave Thomas, founder of Dublin-based Wendy’s, was among investors who launched Arthur Treacher’s Fish & Chips in Columbus in 1969. Its anchor menu item: cod fried in a proprietary batter served with British-style fries, called chips, and cornmeal hush puppies.

Unable to achieve profitability, the chain’s third owner sought federal bankruptcy protection in 1983. More investors tried to invigorate the brand in the 1990s by testing new concepts, including grilled fish, but operations continued to flag.

For Tim Hopkinson, who bought his first two Arthur Treacher’s franchises in 1984, renewed support from his franchising company might have come too late.

Hopkinson’s seven restaurants in the Youngstown area “did well” in the 1980s and 1990s, he said. But his “operating costs flew through the roof” in 2009 after a bump up in the minimum wage, said Hopkinson, who had just finished a costly store remodeling project.

He began closing the restaurants in 2011 and now is down to two stores, in Warren and Austintown. “I don’t blame Treacher’s for my problems,” he said about his franchising company. ″The economics up here are still very poor. And as I get older, I don’t want to fight the battle.”

York Steak House

Elliott Grayson and Berndt Gros started York Steak House in Columbus in 1966. General Mills bought the chain in 1977.

York customers ordered their steaks, and then picked up bowls of fried onions or parfait glasses of gelatin cubes topped with whipped cream at cafeteria-style lines. The restaurants were popular during the 1970s.

“Everybody went to the mall, shopped, ate and went to a movie. That was your Friday night,” said Jay Bettin, who bought the York Steak House on W. Broad Street in 1989.

“We’re still going strong,” Bettin said. “Unfortunately, the others have gone under.”

“We still have all the favorites: sirloin tips, honey-glazed chicken, baked fish almondine,” said Bettin, who draws nostalgic customers from as far as Massachusetts and Texas.

Ponderosa Steakhouse

Ponderosa was started in Kokomo, Ind., in 1965 and tried to grow in Canada first. Its restaurants offer steaks accompanied by a hot side dish, salad and dessert buffets.

“Columbus used to be one of our strongest markets,” said Gordon of Pacific Management Consulting, who spent a decade as a Ponderosa cost analyst in the 1980s.

Ervin and Vickie Campbell bought the Ponderosa restaurant on S. High Street in 2006. “In the heyday, I think they had eight or nine restaurants in Franklin County,” Ervin Campbell said. “This is the only one that’s left.”

Ponderosa had 650 restaurants in 1990, but it’s down to about 200 restaurants, said Gordon, who keeps tabs on his former employer.

Ponderosa discounts meals served to veterans and active military members, and is one of the rare restaurant chains that’s open on Thanksgiving and Christmas. “It’s on those days that you really feel good about what you do,” Campbell said.

Damon’s Grill

Damon’s was founded in Columbus in 1979. It grew through the 1980s and 1990s because it was on the cutting edge of the TV sports-bar concept and among the few northern chains serving ribs.

But over time, sports bars cropped up on almost every corner, and many restaurants started serving ribs.

“It was a chain that failed to evolve over the years,” said Dennis Lombardi, executive vice president of food-service strategies at WD Partners in Columbus. “And their original point of difference, which was their sports-viewing area, became dated and fundamentally noncompetitive.”

Additionally, challenging economic times in the Midwest, where most Damon’s restaurants were located, cut sales at most of the stores.

In 2006, Damon’s and its 88 restaurants — down from 150 just a few years earlier — were sold to a North Carolina real-estate developer. Two years later, the concept was bought by a Pittsburgh developer. And in 2009, Damon’s, down to 90 locations, filed for bankruptcy protection.

A major shareholder of Bob Evans Farms is urging the company to split its restaurant and food-service businesses, and to sell and lease back its substantial real-estate holdings to “unlock shareholder value.”

Bob Evans “has traded at a perennial discount to its restaurant peers, and at an even greater discount to companies in the packaged foods space” because shareholders undervalue the company’s assets, New York hedge fund adviser Sandell Asset Management said in a letter this week to board members of the Columbus food company.

Sandell’s solution? Split up the company.

“The best way to create value is to sell BEF Foods,” which is Bob Evans’ food-service business, said Thomas Sandell, the asset manager’s CEO.

Many shareholders prefer “pure plays” — companies that operate in a single market segment. Bob Evans operates in both the restaurant and the food-service businesses, so its stock sells at a ” conglomerate discount,” according to Sandell.

Bob Evans executives, who have been building their company’s value by remodeling restaurants, emphasizing bakery and carryout food, and acquiring complementary food-service businesses, see such a strategy as a positive thing.

Their company’s food-service business makes items such as pork sausage and mashed potatoes mostly for retail stores. It also, however, does a lot of commissary work for its restaurants, lowering their operating costs.

It’s what some companies consider a “portfolio effect,” said John Gordon, restaurant analyst and principal at Pacific Management Consulting Group in San Diego.

“After you develop your restaurant business, you can take what you’ve developed and find other ways to use it,” Gordon said.

“We always welcome shareholders to express their views, and management and the board of directors regularly take into consideration shareholder concerns and suggestions,” said Scott Taggart, Bob Evans’ vice president of investor relations.

Sandell’s firm, which recently added to its Bob Evans holdings for between $55.29 and $55.94 a share, is thinking the company could buy its shares in a “self-tender” transaction for more than $60 a share.

“We feel the stock is worth $80” a share, Sandell said. His firm owns 1.4 million Bob Evans shares, or 5.1 percent.

Self-tenders sometimes are used as a defense against hostile takeovers.

“The only reason I mention the takeover possibility is because there’s been a lot more chatter from the likes of Sandell in the last month or so,” said Stephen Anderson, senior restaurant analyst for Miller Tabak & Co.

“I have not heard of a specific deal,” he said. Bob Evans executives “have been doing the right things all along, I think.”

Bob Evans shares rose less than 1 percent to $57.43 yesterday. The shares are up 43 percent for the year.