Sbarro's New Owners Plan to Step up Growth

PERIODICALS

T H E N E W S W E E K LY O F T H E F O O D S E R V I C E I N D U S T R Y ● W W W. N R N . C O M

Vol. 40, No. 49 PUBLISHED EACH MONDAY • A LEBHAR-FRIEDMAN® PUBLICATION • $5/ISSUE DECEMBER 4, 2006 Sbarro’s new owners plan to step up growth Private-equity firm MidOcean Partners looks to revitalize core concept By Paul Frumkin

MELVILLE, N.Y. — The acquisition Italian quick-service concept. new owner said it would concen- Nicky McGrane, a partner with late last month of Sbarro Inc. by Though earlier this year trate on expanding the brand’s MidOcean in New York. Citing MidOcean Partners, a London- Sbarro executives had unveiled limited-menu food court opera- periods in Sbarro’s history when and New York-based private-equi- several plans to explore opportu- tions around the world. much of its expansion had ty firm, is expected to accelerate nities in the fast-casual and casu- “Our focus will be on the stemmed from franchise growth, Quiznos Sub now sells holiday- the growth of the 1,000-unit al-dining segments, the company’s mainstay QSR concept,” said (See SBARRO’S, page 38) theme, personalized gift cards in an effort to drive sales and traffic. Lights! Camera! Chains: ’Tis Product the season to placement! build traffic Roles in movies, through gift TV shows give chains After testing this store prototype in Sanford, Fla., Hooters rolled extra brand exposure card sales out the new design nationwide. PR NEWSWIRE By Gregg Cebrzynski By Sarah E. Lockyer

R&D executives The gang on “Friday Night Lights” With the last of the turkey left- eats at Applebee’s. Harold and overs consumed, the holiday sea- find testing new Kumar went on a road trip to find son — and the race to sell restau- a White Castle. Let’s not forget that rant gift cards — is officially products, designs Dr. Evil escaped from Austin underway. Powers by blasting into space in a Even as two major restaurant rocket shaped like a Big Boy statue. companies, Darden Restaurants costly but necessary Those examples of product Inc. and OSI Restaurant Partners By Milford Prewitt placement — also known as Inc., work with federal officials to branded entertainment or product resolve potentially costly account- Research and development costs integration — represent an ing problems that can arise from for new products, unit redesigns increasingly popular tactic among the marketing of gift cards, a and store prototypes at Yum! marketers to get their brands growing number of operators are

Brands Inc. jumped 26 percent in before consumers as a supplement JODY CORTES/WENN seeking to boost holiday sales, White Castle approved the use of its one year, to $33 million, accord- to traditional TV advertising. drive new-customer traffic and name in the movie “Harold & Kumar Go ing to the company’s 2005 annu- Paid product placements in the increase average checks through to White Castle” because it was an al statement of income. United States reached $1.5 billion gift card sales. Still others are opportunity to reach 18- to 24-year-olds, Chick-fil-A officials told the in 2005, a 48.7-percent increase introducing new generations of a key demographic for the brand. South Florida Sun Sentinel that over the previous year, and are cards that can be personalized or they once took six years and expected to increase to $5.5 billion that double as reward cards. In nearly $500,000 to perfect one in 2010, according to media place products in their entertain- Media Research, released in mid- addition, sales at gift card kiosks menu idea — a char-grilled bar- research firm PQ Media of ment vehicles for free or in November, showed that product and so-called gift card malls are becue chicken sandwich tested in Stamford, Conn. exchange for promotional tie-ins. placement in TV shows can raise eliminating point-of-sale head- Sarasota, Fla. — before rolling Marketers don’t necessarily PQ Media estimated that global brand awareness by 20 percent aches for individual operators. the product out systemwide. have to pay to place products, unpaid product placements were and that 57.5 percent of viewers “The knock always was that The corporate chef of a major however. Costs can range from valued at about $6 billion in 2005 recognized a brand in a place- gift cards are lazy — who’s going dinnerhouse brand recalled how less than $10,000 to several hun- and are expected to reach ment when the brand also adver- to be thrilled?” said Bob Skiba, he was nearly fired seven years dred thousand dollars, but TV $7.45 billion this year. tised during the show. That tops executive vice president and (See R&D, page 41) and movie producers routinely Results of a study by Nielsen (See LIGHTS, page 27) (See CHAINS, page 6)

ALSO FINANCE: DISTRIBUTOR NEWS: CULINARY CURRENTS: THIS Cheesecake Factory confirms Perkins: Distributors’ value-added A lotta ricotta: Versatile cheese WEEK: errors in stock option grants pg. 9 services benefit chains, indies pg. 14 offers rich flavor, creamy texture pg. 21 6 • December 4, 2006 NATION’S RESTAURANT NEWS NEWS Chains: ’Tis the season to build traffic through gift cards

(Continued from page 1) mer paper-and-stamp loyalty pro- flavors of Wendy’s Double Melt. general manager of Comdata gram where “the amount of fraud Sources noted that while gift Stored Value Solutions, a Brent- was high,” Carroll said. cards have proliferated exponen- wood, Tenn.-based company spe- Once consumers have regis- tially over the past four to five cializing in electronic payments. tered their stored-value and years, they can be problematic. “Card production has surged over reward cards and have opted to Declining balance or dormancy last year, and the types of cards receive communication from Così, fees, while less common than in available now have dramatically the company can send special the past, still are used by some increased.” offers to valued customers and companies, yet only serve to “put a This year the restaurant track and analyze consumer bad taste in a consumer’s mouth,” industry is expected to boast behavior, responses to new menu according to TowerGroup analyst $18 billion in gift card sales, a fig- items and different market met- Brian Riley, who heads the com- ure up 23 percent from 2005 and rics, Carroll explained. pany’s bank card division. second only to the retail industry, Così also decided to offer con- In addition, while some state which is expected to collect sumers a wallet-size card that can laws prohibit those fees, there is $29 billion in gift card sales, be snapped into a key tag. still no national regulation cover- according to research and con- “In our research we found that ing gift cards — a wrinkle that sulting firm TowerGroup in put Darden Restaurants Inc. Needham, Mass. Total gift card under pressure by the Federal sales, including branded cards Trade Commission. and universal cards, are expected In March, the Orlando, Fla.- to exceed $80 billion, a 20-percent based company said the FTC increase from last year, according began an inquiry into the mar- to TowerGroup. keting of its gift cards, and in July Several restaurant chains, the FTC said Darden did not give including Wendy’s, Quiznos Sub Così Inc. introduced in November adequate notice to consumers that and Così, in November began the a stored-value gift card that doubles its gift cards, if not used for 24 push to sell gift cards, following last as a customer loyalty card. Wendy’s consecutive months, are subject to year’s introductions of stored-value also has plans to use its gift cards a gradual reduction in value by a cards and gift cards by heavy- as reward cards in the future. dormancy fee. The company said weights McDonald’s and Subway, that the FTC has asked for “equi- who joined such early adopters as table monetary relief” of more Starbucks and Jack in the Box. than $31 million and for the com- According to gift card experts, pany to change its marketing convenience and personalization practices. Darden said it believes should entice more consumers to its gift card practices “comply purchase restaurant gift cards some people like credit cards and with applicable laws,” and as of its this holiday season. some prefer key tags,” Carroll latest-quarter regulatory filings “Gift card malls” — where a said. “It cost us a bit more, but we in October, the company said it variety of gift cards are available decided to produce a card that has “not yet determined a course at a central location, such as super- could be one or the other.” of action” with the FTC. markets or drug stores — simplify Wendy’s International Inc., In addition, accounting sur- the buying process for customers based in Dublin, Ohio, also plans to rounding gift cards needs to be and offer the possibility of extra use its new stored-value cards as logged as unearned revenues — a penetration for restaurants, which loyalty cards in the future, a com- liability on a balance sheet — still sell the majority of cards at pany spokesman said. For now, until the cards are actually their stores, sources noted. however, the operator or franchisor redeemed, experts said. Operators that offer gift cards of about 6,600 Wendy’s Old Tampa, Fla.-based OSI at those “malls” should see Fashioned Hamburger locations, Restaurant Partners Inc. fell into increased sales, as consumers on Nov. 24 began offering guests trouble in that regard and said purchase the cards without hav- the ability to purchase gift cards in last month it had understated by ing to go through restaurants’ denominations from $5 to $200. as much as $70 million its liabili- point-of-sale processes at specific Issuing gift cards almost two ty for unearned revenues from locations, said Comdata’s Skiba. years after the chain became one unredeemed gift card and gift cer- Such chains as Outback of the first national burger brands tificates. The error could result in Steakhouse and McDonald’s are customers to download a photo chase of 10 sandwiches, must reg- to accept credit cards at the point restatements of its past financial selling gift cards through such that will appear on the card. The ister their cards online in order of sale “was a logical next step,” results. n third-party sites. chain also is offering a plethora of for the company to track their said Bob Bertini, a company Similarly, some restaurant holiday-theme gift messages to purchases and issue rewards. spokesman. [email protected] chains like Buffalo Wild Wings purchase along with the cards, Deerfield, Ill.-based Così intro- In addition, the cards will and Bennigan’s Grill & Tavern are even for “Chrismukkah,” a pop- duced the new card Nov. 20 at all “open up the possibility” for prod- avoiding POS bottlenecks by test- culture partnering of Christmas 119 Così locations nationwide. uct cross-promotions, loyalty pro- FOR THE RECORD ing gift card kiosks, Skiba said. and Hanukkah. “It made sense for us to do this grams and other future initia- In the bar graph accompanying Restaurants also are expect- Along with increasing sales now during the holiday season, as tives, he said. “Premium products draw high- ed to benefit from the surge in and traffic around the holidays, opposed to just saying, ‘Here’s a To support its gift card intro- income consumers to QSRs,” Oct. business-to-business gift card some operators are viewing gift loyalty card,’” said Christopher duction, Wendy’s customers who 23, page 14, the color key was sales. Gift cards have become the cards as a way to building cus- Carroll, executive vice president purchase the chain’s newest burg- transposed in the representation No. 1 corporate incentive or tomer loyalty. and chief marketing officer for er, the Double Melt, will receive a of dollars per capita spent at bonus for associates, according Così Inc. introduced in Novem- Così. “Consumers are buying gift $1 gift card. The company project- quick-service and full-service to research from Comdata. ber its newest CosiCard, a two-in- cards anyway … but the idea here ed it will give away up to 8 million restaurants for the 12 months Finally, personalization — and one, stored-value gift card that is you build loyalty, and the con- cards. The company also offered ended in June. The graph should even video messaging linked to also can act as a reward card for sumers see the rewards.” during the Thanksgiving weekend have portrayed the fact that the cards — should further help loyal customers. Customers who The new card also allows the a $1 gift card to airline passengers higher-income consumers spend sales, gift card vendors said. want to benefit from the rewards restaurant operator and fran- at nine major airports who were proportionally less at quick- The Quiznos Subs chain sells program, which for example offers chisor “to begin a dialogue with assigned middle seats, or who service establishments than do personalized gift cards that allow a free sandwich after the pur- consumers,” and replace the for- were “stuck in the middle” like the lower-income consumers.