America’s Top 10 Restaurant Groups

A snapshot of the Top 10 restaurant groups based on their 2013 sales shows little movement from 2012, with the exception of newcomer Ignite Restaurant Group stepping onto the roster. (Ruby Tuesday was included in last year’s list of Top 10 groups, but with just one full-service brand and one fast-casual concept, it no longer constitutes a restaurant group. For FSR’s Top 10 list, a portfolio must include at least two full-service concepts to be considered.)

But if 2013 was a relatively uneventful and calm year, 2014 has already felt the winds of change blow through—all thanks to the movement of one very big fish. As Darden Restaurants and Golden Gate Capital prepare to close on the $2.1 billion Red Lobster transaction, both restaurant groups will see a substantial shift in overall corporate revenues.

For now, Darden holds fast to the No. 1 spot on the Top 10 ranking with 2013 sales topping $8.76 billion, but without Red Lobster’s $2.4 billion contribution in 2014, Darden stands to slip a notch in the coming year. On the flip side, netting the seafood chain should take Golden Gate from its position as a $1 billion player to a $3 billion force in the coming months. And other groups face lingering questions and potential opportunities for growth as 2014 continues to unfold. Here’s a brief take on the outlook for leading restaurant groups:

Darden Restaurants

Olive Garden
LongHorn Steakhouse
The Capital Grille
Bahama Breeze
Seasons 52
Eddie V’s
Yard House
Red Lobster was part
of the group in 2013.

2013 Sales: $8.76 billion Early in 2014, the fate of Red Lobster reigned as the looming 800-pound gorilla in Darden’s corporate living room, especially as activist investors clamored for change, and sales and traffic counts continued to founder. When news broke in early summer that Darden would sell the seafood chain to Golden Gate Capital, questions surrounding Red Lobster abated.

Yet, Darden is far from off the hook.

Olive Garden, Darden’s dominant chain, faces its own stimulating battle. Late last year, the Italian concept introduced menu developments aimed at boosting sagging sales, including an Italiano Burger and expanded “Lighter Italian Fare,” the latter being a clear push to attract lunch diners and compete for health-conscious consumers.

Darden veteran CEO and chairman Clarence Otis prioritized tech investments, including one-on-one marketing with customers and data mining. Olive Garden, meanwhile, should complete its nationwide rollout of online ordering this fall, while the chain also tests tabletop units.

On the positive side, Darden is recording success at its upscale specialty brands, including double-digit sales gains at Eddie V’s and Seasons 52, as well as impressive growth at Yard House. This uptick is expected to continue, as John Secor, managing director with Duff & Phelps Securities, a global valuation and corporate finance adviser, explains, “Higher-end brands are benefiting from the continued recovery trends of fine dining.”

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DineEquity

Applebee’s
IHOP

2013 Sales: $7.34 billion It’s a tale of two cities at DineEquity, where IHOP has enjoyed a strong streak of same-store sales gains, while sales at sister brand Applebee’s remain stagnant. Even so, DineEquity chairman and CEO Julia Stewart maintains a confident posture and seemingly impenetrable optimism.

“We’re the only restaurant company in America with two No. 1 brands … so these are very exciting times for us,” she says.

Stewart attributes IHOP’s recent surge to a continued focus on menu enhancements (such as Griddle Melts and new crepes), innovative advertising (led by robust social media platforms and National Pancake Day buzz), and a menu redesign that increased check averages. In 2013’s third quarter, for instance, IHOP captured a same-store sales jump of 3.6 percent, its largest gain in more than five years.

According to Wally Doolin of restaurant tracking firm Black Box Intelligence, breakfast is the nation’s fastest-growing daypart, a trend playing in IHOP’s favor.

Performance, however, hasn’t been as rosy at Applebee’s, where Stewart told analysts in May that DineEquity was pushing “the reset button” on the nation’s largest casual-dining chain—this following an aggressive system-wide remodeling program, menu upgrades, and the rollout of tabletop tablets.

“The challenge for large, heavily franchised brands is that making changes across all franchises is no small feat,” Secor says.

Bloomin’ Brands

Outback Steakhouse
Fleming’s Prime Steakhouse and Wine Bar
Bonefish Grill
Carrabba’s Italian Grill
Roy’s

2013 Sales: $4.1 billion Tampa, Florida-based Bloomin’ Brands entered a new league in 2013 as system-wide sales topped $4 billion, a 3.5 percent leap from the previous year and enough growth to push it ahead of Brinker International to the coveted No. 3 spot among the Top 10.

Bloomin’ Brands continues its remodeling program at both Carrabba’s Italian Grill and Outback Steakhouse, where about 10 percent of Outback’s 760-plus units are receiving larger waiting areas and modernized bars and dining rooms. In 2014, Bloomin’ Brands has also expanded Outback’s remodeling program to include exterior upgrades. In addition, the company continues to close underperforming Outback units, while relocating others from secondary spots to prime locations within the same trade area.

Bloomin’ Brands also identified Bonefish Grill as its top development priority. After opening 20 Bonefish Grill units last year, another 15 are on the docket for 2014, and the company has announced plans to have more than 300 Bonefish Grills in operation over the coming four to six years, a significant increase from the nearly 200 units running today.

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Brinker International

Chili’s Grill & Bar
Maggiano’s Little Italy

2013 Sales: $4 billion Technology topped the menu at Chili’s Grill & Bar, which completed its rollout of tabletop tablets to its corporate-owned restaurants earlier this year. Franchised locations will follow soon, as Brinker anticipates the technology, which allows diners to place orders for appetizers, desserts, and additional beverages, will bolster check averages.

“Brinker has embraced this technology, which is intended to change the guests’ dynamic with service staff and enable consumers to be in more control of their dining experience,” Secor says.

Recently, Chili’s also upgraded its Fresh Mex menu, introducing new fajitas and margaritas as well as a tableside guacamole presentation called “Guacamole Live.”

In addition to opening new Chili’s outlets, Brinker is looking to expand Maggiano’s Little Italy, including a decision to launch a new, smaller prototype. The Italian chain has been the Brinker darling, achieving more than three consecutive years of quarterly sales growth.

Sun Capital Partners

Johnny Rockets
La Place
Smokey Bones
Friendly’s
Fazoli’s
Bar Louie
Restaurants Unlimited
(a collection of 46 restaurants, including Kincaid’s and Palomino’s)

2013 Sales: $2.26 billion Industry analysts are inclined to describe Sun Capital as a “turnaround shop,” a label befitting the Florida-based private equity company’s penchant for purchasing underperforming concepts, then leveraging its financial backbone and operational expertise to spark positive results. Last year, Sun Capital recorded a nearly 2 percent sales gain in its restaurant portfolio, despite having 41 fewer units in operation compared to 2012.

Case in point: Just two years after exiting Chapter 11 bankruptcy with Friendly’s, Sun Capital has repositioned the family-dining chain with remodeled restaurants, new units, and fresh, upgraded menu offerings. Optimism is high that Friendly’s will soon capture positive sales gains and further solidify Sun Capital’s turnaround reputation.

Sun Capital’s plum project, however, speaks to acceleration, not revitalization. All eyes are on the retro brand with compelling growth promise: Johnny Rockets, the hamburger-slinging diner that Sun Capital acquired from Red Zone Capital last summer. Despite an 8 percent drop in its unit count in 2013, Johnny Rockets’ sales still increased 1.4 percent from 2012 to last year, and Johnny Rockets is expected to expand on both the domestic and international fronts in the years ahead.

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The Cheesecake Factory

The Cheesecake Factory
Grand Lux Café
RockSugar Pan Asian Kitchen

2013 Sales: $1.87 billion According to company reports, collective sales at The Cheesecake Factory’s three restaurant concepts jumped 3.8 percent in 2013 as total revenues hustled toward $2 billion.

The Cheesecake Factory’s namesake eateries continue to lead the casual-dining segment with average unit volumes above $10 million alongside a finely executed mix of quality service, food, and atmosphere. Capitalizing on restaurants in high-income markets and overcoming wretched weather that hampered the chain’s performance, the concept nevertheless notched its fourth consecutive fiscal year of same-store sales growth in 2013. Those results have spurred increasing development, as The Cheesecake Factory is expected to open up to a dozen new restaurants this year.

Interestingly, while a number of casual-dining power brokers are implementing tabletop tablets, The Cheesecake Factory has remained true to its voluminous menu and ordering the old-fashioned way, with a server to help navigate and upsell the many options. Black Box Intelligence’s Doolin advises that, while tabletop technology is most applicable in the casual-dining environment, it must be consistent with the restaurant brand—and so far, that’s not been the case at The Cheesecake Factory.

Landry’s

Landry’s Seafood
Bubba Gump Shrimp Co
Rainforest Café
Morton’s The Steakhouse
The Oceanaire
McCormick & Schmick’s Seafood
Chart House
Saltgrass Steak House
Claim Jumper
Mastro’s

2013 Sales: $1.8 billion Secor calls Landry’s diverse collection of casual- and fine-dining restaurants “a strength for the company … because [it’s] seemingly not as reliant on a single brand.” The company has also been able to capitalize on strong tailwinds in fine dining, which benefits a number of its upscale concepts, including the 11-unit Mastro’s steak and seafood chain, where sales rose 10 percent in 2013.

The Houston-based conglomerate is controlled by billionaire Tilman Fertitta, and has also begun remodeling Morton’s, the Chicago-bred steakhouse it purchased for $116 million in early 2012. With contemporary furniture and lighting, Landry’s has provided Morton’s with a sleek, modern design that all of the brand’s units will convey by the end of 2015.

Industry observers expect Landry’s to increase its empire with a continued mix of organic growth and acquisitions, as it has done recently with McCormick & Schmick’s, Morton’s, and Mastro’s.

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American Blue Ribbon Holdings

O’Charley’s
Ninety Nine Restaurants
Max & Erma’s
Village Inn
Bakers Square

2013 Sales: $1.38 billion In 2013, sales at American Blue Ribbon’s stable of full-service brands ranged from a gain of 2.2 percent at the Village Inn to a 3.6 percent drop at Max & Erma’s.

Village Inn is the undeniable bright spot for the Nashville, Tennessee–based enterprise, with nearly 20 consecutive quarters of same-store sales jumps. The 205-unit family-dining chain is trending upward largely because of new franchise partners and fresh locations, along with a broad re-imaging program that modernized the restaurants and introduced an all-day breakfast menu that appeals to growing consumer interest in foods associated with that daypart.

What’s next at American Blue Ribbon is an intriguing question, as speculation mounts over which brands might be headed toward an IPO and which might hit the sales block.

Golden Gate Capital

California Pizza Kitchen
On the Border was part of the portfolio in 2013.

2013 Sales: $1.07 billion As quickly as Golden Gate Capital relinquished one casual-dining concept, it gained another.

In April, Golden Gate unloaded the 157-unit Mexican chain On the Border Mexican Grill & Cantina to Argonne Capital. That deal left the San Francisco–based private equity firm with California Pizza Kitchen (CPK), the 215-unit casual-dining chain that tallied an estimated $688.5 million in sales last year, a 4.2 percent jump over 2012.

Impressive as CPK’s performance was, industry observers did not expect Golden Gate to leave all of its restaurant eggs in the CPK basket for long. Predictions that the company would soon make a headline-grabbing deal to expand its restaurant portfolio took about a month to materialize.

In May, Golden Gate announced it would buy Red Lobster for $2.1 billion, and the restaurant group’s managing director described Red Lobster as “exactly the type of company in which we seek to invest.” Now, Golden Gate goes to work to make good on its fish story—amid pesky questions about potential store closures, portentous management shifts, and other strategic moves that might strengthen Red Lobster’s performance.

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Ignite Restaurant Group

Joe’s Crab Shack
Romano’s Macaroni Grill
Brick House Tavern + Tap

2013 Sales: $760 million The $55 million purchase of Romano’s Macaroni Grill from Golden Gate Capital in April 2013 pushed Ignite into a spot among the nation’s top 10 restaurant groups.

Yet, an interesting story is taking hold at Ignite: Despite Macaroni Grill representing about one-third of Ignite’s total 2013 revenue, the Houston-based restaurant group’s greatest growth potential remains with Joe’s Crab Shack and Brick House, concepts with plenty of marketplace runway. In fact, Ignite plans to convert sluggish Macaroni Grill locations into Joe’s Crab Shack or Brick House restaurants, raising the question: Was Ignite going for another restaurant brand or gaining purchase with prime real estate?

Regardless of Macaroni Grill’s position in the flock, the golden goose in Ignite’s portfolio remains the 20-unit Brick House chain, which finished 2013 with a healthy run of same-store sales gains across eight consecutive quarters. The bar-and-grill concept introduced its franchising program in May 2013, and is targeting development in the nation’s top 50 designated market areas.