Mexican Fast-Casual Chains Revamp Offerings As Parents Mull Spinoffs
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S L A C I D O I R E P THE NEWSWEEKLY OF THE FOODSERVICE INDUSTRY ● WWW.NRN.COM Vol. 40, No. 29 PUBLISHED EACH MONDAY • A LEBHAR-FRIEDMAN® PUBLICATION • $5/ISSUE JULY 17, 2006 Rank Group PLC Corporate eyes potential spinoff of Hard boards get Rock Cafe brand makeovers in LONDON — The iconic Hard Rock post-SOX era Cafe brand, whose high-grossing blend of edible Americana, By Sarah E. Lockyer museum-grade rock-’n’-roll arti- facts and branded merchandise Faced with increasing pressure helped inspire a generation of from regulators, stock exchanges “eatertainment” rivals, may be and shareholders, put up for sale by its British par- today’s corporate ent, the Rank Group PLC. boards — includ- Analysts responding to that ing those in food- July 4 disclosure by London-based service — require Rank have speculated that the 123 a new breed of Hard Rock Cafes and six Hard director more Rock Hotels and Casinos in more La Salsa Fresh Mexican Grill aims to re-emphasize its taqueria roots at new fast-casual units that will boast full savvy,committed and impervious than 40 countries could fetch up to bars with tequila margaritas and other cocktails. The new design seeks to spur growth for the 100-unit chain. than directors of yore. $1 billion from private-equity With the days of the rubber firms or other strategic buyers. stamp banished with the passage In disclosing the potential of the Sarbanes-Oxley Act in spinoff, Rank said it had hired 2002, the role of director has (See POTENTIAL, page 6) Mexican fast-casual chains revamp changed dramatically during the past four years. Where once board members may have been able to turn a blind eye to corpo- offerings as parents mull spinoffs rate malfeasance or abstain from hard questioning to uncover sus- Chipotle IPO inspires growth plans at El Pollo Loco, Qdoba, La Salsa pect activities, today’s directors By Lisa Jennings are more aware of the businesses they’ve been tapped to oversee, The success of this year’s initial However, some outfits that equity stake to the public as the possess more expertise in specif- stock offering by Chipotle once hoped for market conquests chicken chain plots multiregional ic areas and are less likely to Mexican Grill has inspired other are looking at bleaker prospects growth. have questionable conflicts of big players in the hot Mexican because of prolonged sales woes But Dublin, Ohio-based (See NEW, page 23) fast-casual segment to examine or internal problems at their par- Wendy’s International, which has similar moves, including one ent companies. indicated that its troubled Baja Analysts say a spinoff of the 123 stalwart brand that plans to add Among the more upbeat con- Fresh Mexican Grill chain may Hard Rock Cafes and six Hard Rock counter-service cocktails to its tenders, Irvine, Calif.-based El be spun off at some point, will Hotels could fetch up to $1 billion. growth formula. Pollo Loco is planning to offer an (See MEXICAN, page 6) Hardee’s expands Red Burrito co-branding push Clones of sister chain Carl’s Jr.’s dual-brand partner, Green Burrito, grow via retrofits By Carolyn Walkup ST. LOUIS — Hardee’s, the 1,963- parent company CKE Restau- addition to the St. Louis-based the Green Burrito brand, whose unit brand known for such beefy rants has confirmed. Hardee’s chain, said the Mexican- signage and menu are now indulgences as the Monster CKE president and chief exec- inspired co-brand identity and included at 263 Carl’s Jr. branch- Since he became chairman of Così E S A Thickburger, is expanding its co- utive Andrew Puzder, whose com- additional menu would enable the es. Those dual-concept units tally Inc. of Deerfield, Ill., in 2003, William C W O branding test with the internally pany is operator or franchisor of chain to expand its customer base. sales that are about 17 percent D. Forrest, has since overseen the H S developed Red Burrito concept, 1,069 Carl’s Jr. burger units in The model for the venture is (See HARDEE’S, page 37) restructuring of the company’s board. R E H P A R G O T O H P ALSO NRN EDITORIAL: HUMAN RESOURCES: CULINARY CURRENTS: THIS Operators should respect, welcome Elliot Institute: Leaders profit by On the menu: The Italian cuisine of WEEK: diners from all backgrounds pg.13 strengthening corporate cultures pg.10 Boulder, Colo.’s Trattoria on Pearl pg.18 NATION’S RESTAURANT NEWS July 17, 2006 • 23 SPECIAL REPORT: ACROSS THE BOARD NEWNEW DIRECTIONSDIRECTIONS FORFOR DIRECTORSDIRECTORS Since the passage of the Sarbanes-Oxley Act, many restaurant companies have restructured P I C their boards of directors to include objective outside T U R E A R T experience and stand up to stricter government scrutiny S (Continued from page 1) last month to plead guilty to federal fraud charges. The up-and-comers interest. And despite all of the headaches of complying Micatrotto’s June 20 guilty plea was believed to be Deerfield, Ill.-based Così, which operates and franchises with Sarbanes-Oxley, which some have decried as creat- the first fraud conviction under rules governed by the about 110 fast-casual sandwich and salad restaurants, ing reams of time-consuming paperwork, many restau- Sarbanes-Oxley Act, a testament to its effectiveness, is part of a growing number of younger restaurant com- rant companies are finding the new complexion of their sources have said. panies that are focused on building sophisticated boards boards not only holds up under scrutiny but leads to The Securities and Exchange Commission had been of directors before the chains reach their potential. improved results. investigating Buca and its former officers since 2004, and Since Forrest’s arrival as chairman in 2003, Così has “Closer governmental scrutiny combined with in order to settle civil charges against him, Micatrotto worked to attract well-known industry names and inde- increased shareholder expectation will continue to force stipulated that he would not serve as an officer or direc- pendent directors that would help the chain reach its the issue of improved corporate governance,” says David tor of any public company in the future, the SEC said. mission of becoming a large national player and leader Mansbach, managing director at HVS Executive Search Buca isn’t the only restaurant company to suffer in the self-described “premium convenience” category. in Mineola, N.Y., a division of the restaurant and retail from weak corporate governance, as Winston-Salem, “When I was doing the architecture for the Così board industries-focused consulting firm HVS International. N.C.-based Krispy Kreme Doughnuts Inc. still is facing … what I looked for first was strong industry experience, “Shareholders, investors and board director candidates accounting investigations by the SEC and others for in both operations and finance,” Forrest says, “second, understand that the ‘new’ board member needs to have a possible fraud under the tenure of chairman and chief experience in helping public companies through a specific expertise and spend time to achieve the results executive Scott A. Livengood. growth curve … and third, strong technical skills in the expected.” Red Robin Gourmet Burgers Inc. also faces an SEC governance of public companies.” investigation related to the use of chartered aircraft and Currently, only one director, Creed L. Ford, remains Boards fulfill their watchdog mission travel and entertainment expenses by Michael J. Snyder, from the company’s former board that served prior to The goal of today’s board members is to put an end to the Greenwood Village, Colo.-based company’s former Forrest’s hiring and during Così’s turbulent initial public the fraudulent behaviors epitomized by the high-profile chairman, president and chief executive. offering and subsequent failure to meet expectations in collapses of Enron Corp. and WorldCom earlier in the As Così Inc. chairman William D. Forrest explains, the late 2001 and through 2002. decade as well as some of the restaurant industry’s own relatively recent increase in scrutiny from both the feder- Ford was kept on, Forrest explains, because of his vast debacles, including the June convictions of three former al government and from more active shareholders, is “for experience in the restaurant business, having started his Buca Inc. executives. the most part good.” career under Norman Brinker and eventually serving as Joseph P. Micatrotto, former chairman and chief exec- He says: “I think people that are going on the boards chief operating officer at Brinker International Inc. utive of Buca, the 104-unit parent of the Buca di Beppo of public companies have a greater awareness of what Currently, he is chairman and co-chief executive of Fired and Vinny T’s dinnerhouse brands, and two other former that means and put more thought into whether they Up Inc., parent company of Johnny Carino’s Country executives of the Minneapolis-based company agreed will serve. And that’s a good thing.” (Continued on page 24) www.nrn.com 24 • July 17, 2006 NATION’S RESTAURANT NEWS SPECIAL REPORT: ACROSS THE BOARD DIRECTORS GO IN NEW DIRECTIONS (Continued from page 23) entrench Parker into The mature mavericks Italian restaurants and Gumbo’s Louisiana a long-term employ- Yet there still are numerous high-profile restaurant Style Café, and the president of Ford ment contract and a executives serving as both chief executive and chair- Restaurant Group, a Chili’s Grill & Bar hefty payday. man at successful entities, including Julia A. Stewart franchisee. Tim Taft, the cur- at IHOP Corp. and Michael A. Woodhouse at CRBL In addition to Ford, current board rent chief executive Group Inc.