Table Stakes

As the casual-dining industry suffers one of its worst downturns, CFOs are in the kitchen and feeling the heat.

Ruby Tuesday, a chain of American-style restaurants based in Maryville, Tennessee, completed a nationwide reimaging last spring, according to CFO Margie Duffy. The company recognized three years ago that “the bar/grill segment was becoming commoditized,” she says, and that a makeover was necessary. Accordingly, the chain recently said goodbye to the old Ruby Tuesday, spending $65 million to replace Tiffany-style lamps, polished brass, and antiques at more than 600 company-owned restaurants with colorful lighting fixtures, earth tones, and custom artwork. Since Ruby Tuesday had halted its expansion plans a year ago (because of industry overbuilding) and finished its remodeling program this spring, the company’s modest capital needs are unaffected by the credit crunch, says Duffy.

Ruby Tuesday is also shifting its advertising emphasis to value, says Duffy. A hamburger is now a dollar cheaper, at $5.99. The chain is also tailoring promotions to local markets; in parts of Florida, for example, it promotes early-bird dinner specials. And the company is emphasizing the freshness and quality of its ingredients and a rededication to service. As a result, Duffy can cite internal surveys showing that Ruby Tuesday has attained its highest-ever levels of customer satisfaction.

The restaurant, in short, has pulled out all the stops — to little avail. For the first quarter of fiscal 2009 (ended September 2), Ruby Tuesday reported that same-restaurant sales had dropped 10.8 percent and 7.9 percent at company-owned and domestic franchise restaurants, respectively, compared with declines of 4.8 percent and 2.9 percent for the same quarter a year ago. Earnings were down to a penny a share, compared with 21 cents last year. The company continues to pay down debt with the free cash flow it generates, so its best bet may be to keep its restaurants shipshape and wait for the economic tide to turn.

Please Don’t Wait to Be Seated

When might that be? Mark Basham, a restaurant analyst at Standard & Poor’s, predicts aggregate 2008 sales for full-service restaurants will total $181 billion, and traffic will be down 3 percent from last year. For 2009 he forecasts flat sales of $180 billion, with an average menu price increase of 4.2 percent. Paul of Technomic thinks the casual-dining industry is near or at the bottom. Still, he adds, it’s not time to start thinking about five-year plans. “The long term is next month,” he says.

“Normally in our industry, whenever we see a sudden shock — the Iraq war, 9/11 — it takes consumers between 60 and 90 days to get back to their normal routines,” says Sonsteby. “What we have today is almost a continual series of crises,” marked by extreme volatility in the Dow and S&P 500. Sonsteby thinks a semblance of stability will have to be restored to the financial and equity markets “before that 60-to-90-day period starts.” (In early November, the Dow Jones Industrial Average was 32 percent off its 2008 peak. At the same time, Brinker’s stock traded around $9, down 60 percent from its high of $23.86 in May. The company’s revenues of $984.4 million for the first quarter of fiscal 2009 were 6.7 percent below revenues for the same period last year, in part because of the sale and closing of restaurants.)

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