Balancing Appetites

Don’t look now, but the cutthroat chain restaurant business has gotten even more competitive.

In the crowded Southern California market, where one Caesar salad is much the same as another, doing everything right--location, pricing, quality--only gets you in the door.

“Thirty to 40 guys are trying to do just like you,” said Milford Prewitt, senior editor at Nation’s Restaurant News, a weekly trade journal.

So why is Calabasas-based Cheesecake Factory one of the most successful casual restaurant chains around, while rival Hamburger Hamlet Restaurants in Sherman Oaks is immersed in bankruptcy reorganization?

The answer, analysts say, lies largely with the tricky, elusive task of cooking up a concept that’s a hit with diners.

“You’ve got to have a gimmick,” said analyst Stephen D. Weinress at the Irvine investment firm L.H. Friend, Weinress, Frankson & Presson.

To be sure, Hamburger Hamlet’s problems are more complex than simply picking the wrong color scheme or not having a celebrity investor. Shawn Holder, Hamburger Hamlet’s chief executive, said the troubles at the company stemmed largely from an ill-advised expansion under previous management.

Hamburger Hamlet added restaurants in weak locations and where it had little name recognition, Holder said. Those sites have been closed and the company hopes to emerge from bankruptcy within six months with its 15 strongest restaurants remaining--down from 31 when it filed for Chapter 11 in December.

But Hamburger Hamlet also failed to keep pace with a changing market.

“If you don’t make changes with the times, you’re going to lose your customer base,” said Janet Lowder, president of Restaurant Management Services, a Los Angeles consulting firm. “You’ll be a dinosaur.”

So now, Holder said, he’s taking on the long overdue task of updating Hamburger Hamlet’s menu. He’s adding more dinner items such as pot roast, prime rib and turkey--which have high profit margins and are the sorts of “comfort foods” that are popular with consumers.

Holder said his goal isn’t a complete image overhaul. Many of Hamburger Hamlet’s servers are older than at trendier restaurants, he said, and that’s not going to change. “I think that’s part of our charm. I don’t think we’re perceived as a leading-edge restaurant. We just have good quality at a good price.”

The trouble is, so do many other chains, and Hamburger Hamlet faces a tough road ahead. For restaurant chains trying to set themselves apart from the competition, finding a winning concept can be as difficult as guessing what fashions will sell or what movie will be a hit.

“The consumer is finicky and hard to please right now,” said Prewitt. “If a person goes to a restaurant and has a great time, he might tell one person. But if he has a miserable time, he might tell 10 people.”

Many chains are hoping to be the next Cheesecake Factory, which has consistently managed to keep its tables full.

The 14-restaurant company’s success stems in part from its huge, diverse menu, with dishes ranging from Mexican to Chinese. “No one has a menu quite like Cheesecake Factory. It’s a very differentiated product,” said Ron Paul, president of Technomic Inc., a Chicago restaurant consulting firm.

Cheesecake Factory’s popularity is also attributed to its bright, high-energy atmosphere. Paul said a new Cheesecake Factory in the Chicago area often has a two-hour wait for dinner. Plus, over-the-counter sales of cheesecakes bolster the company’s profits. In 1995, Cheesecake Factory earned $8.6 million on $117 million in revenue.

Yet with competition so fierce, and the cost of opening a new restaurant running at upward of $3 million, Chief Financial Officer Jerry Deitchle said that Cheesecake Factory will be mindful of how it expands.

“Many chains get caught up in the game of opening restaurants in order to achieve a certain quota that perhaps some investors may expect,” Deitchle said. “But Cheesecake Factory has been very careful.”

One positive sign for restaurant companies is that Americans are eating out more than ever. But restaurant openings are more than keeping up with that growth, and the market shows every indication of becoming even more crowded.

“Once a week I get a new prospectus across my desk of a new restaurant concept,” said analyst Weinress. “One is a rain forest concept. The gimmick is eating lunch in a combination of Banana Republic and Lion Country Safari. It blows my mind.”

The success of themed restaurants such as Hard Rock Cafe and Planet Hollywood has spawned a rash of wannabes and created even greater problems for more traditional chains as consumers increasingly expect to be entertained while they’re being fed. Planet Hollywood, whose investors include actors Bruce Willis and Arnold Schwarzenegger, now has plans to go public and is expanding into sports- and comic-book-themed restaurants.

The competition faced by older restaurant chains also extends to newer, hipper rivals such as the Wolfgang Puck Cafe, a moderately priced chain started by the celebrity restaurateur.

The fierce market conditions haven’t deterred Jerry’s Famous Deli, a Studio City-based upscale deli chain that went public last October with a $9.2-million stock offering. After the stock sale, the company opened its fifth restaurant in Pasadena, and it plans to open another next month in Westwood and one later this year in Orange County.

Jerry’s said it’s looking into other locations in California and Las Vegas--even though its profit slipped 14% in 1995, to $782,000, while its revenue was about flat at $28 million.

Some chains, however, still manage to defy expectations. One is IHOP Corp., the Glendale-based owner and franchiser of International House of Pancakes restaurants, which is going strong with about 680 locations and counting. Last year the company earned $16 million, a 7% gain, while its revenue grew 10%, to $164 million.

House of Pancakes is a low-priced throwback to the days when families had little choice beyond coffee shops when eating out. Richard Herzer, IHOP’s chief executive, attributed the company’s staying power in part to a careful balancing of its “middle-of-the-road America” image with a continual fine-tuning of its operations.

Herzer uses little tricks like putting photos on the menu of higher margin items. Cheese blintzes have been on IHOP’s menus for 35 years, but since adding a photo recently sales of the dish have quadrupled.

But perhaps IHOP’s survival is more because of its utter lack of trendiness than in spite of it. The company plays up its unfashionableness in its television ads, in which pitchman Cliff Bemis orders up artery-clogging meals with a smile.

“The first thing you have to do is decide who you are,” said Herzer. Haute cuisine and low-cholesterol dishes would only confuse and alienate IHOP’s customers, he said.

“Generally speaking, fried chicken is going to sell, baked chicken is not. Why? Because Mom always made fried chicken.”