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Ruby Tuesday Still Rocks

Poised to open 50 new units this year, Ruby Tuesday may
have its casual dining competitors seeing red.

Ruby Tuesday Still Rocks

With little fanfare, Maryville, Tenn.-based Ruby Tuesday has quietly grown to be the seventh-largest casual dining chain in the United States, according to Morgan Keegan & Co. research. As such, the 575-unit operation finds itself in the distinguished company of much more highly visible brands, including Red Lobster and Outback. Even more impressive is that among its varied-menu casual dining competitors, Ruby Tuesday (which does almost no advertising—more on that in a minute) has annual sales that are bested only by powerhouse chains Applebee’s and T.G.I. Friday’s.

Ruby Tuesday, which turns 30 this year, is pacing itself to grab even more market share from those major chain competitors. Adding up to 50 company-owned units annually for the next five years—in addition to several franchised units—Ruby Tuesday c.e.o. and founding partner Sandy Beall predict that his chain, which specializes in big portions of "fun-to-eat" foods like ribs, burgers and fajitas, will eventually grow to more than 1,000 restaurants.

2001 was a big year for Ruby Tuesday, as the company grew its number of units by 55, nearly 13%. This growth contributed to a sales increase of 18.2%, the biggest jump, according to data from Technomic, among all of Ruby Tuesday’s casual dining competitors. But more than the addition of new units and new markets, Beall credits strong comp sales for beefing up the company’s bottom line last year. On average checks of $9 at lunch and $12 at dinner, Ruby Tuesday’s same-store sales grew 3.7% at company-owned units, a figure that nearly mirrored 2000’s 3.8%. Both the 2000 and 2001 same-store sales figures represent a significant jump from 1999’s same-store sales growth of 2.0%. The company reported fiscal 2001 system-wide revenues of $1,015,746,000 and Sandy Beall is confident that this year’s figure will grow 15% to $1,168,107,900.

Ruby Tuesday’s 2001 Annual Report boasts that these comp sales hikes were achieved "without significant advertising." Beall adds that they also raised same-store sales without hiking the menu prices. So where should the credit for the comp sales growth be placed? "Our focus has been on a great guest experience," says Beall. An experience, he explains, "that makes guests come back more often every year and tell more friends about their experiences."

This was done, says the c.e.o., "by focusing on the food, making it better, improving what we have and ridding ourselves of items that weren’t great in the guest’s mind." It all boils down to execution, because in a growth plan that hinges on building repeat business, rather than rounding up new customers, flawless performance is crucial. "Good execution means the customer will be more satisfied and come back more often," Beall says. The goal of perfect execution means that not much changes from month to month at Ruby Tuesday. "The more you change," says Beall, "the more disruption in the kitchen, the more your ability to execute at great levels is reduced."

Back to the idea of not advertising. Why doesn’t Ruby Tuesday loosen the purse strings and spend more money on promotions and marketing, like other casual operators of its size? "I’m the custodian of the shareholders’ capital," said Beall. "And I believe that if we can drive same store sales without advertising—which we’ve been able to do very well for the last four and a half years—and bring all that money to the bottom line for the shareholders, then we are creating great value. It’s just a different strategy. I wouldn’t have enough to compete against an Applebee’s anyway, so we invest in training and culture to try to get a bit of an advantage."

Ruby Tuesday’s place in the crowded casual dining segment is defined in part by its value orientation. With its "We Feed America for Under $10" strategy, the company has deliberately positioned itself to perform consistently, even in down markets. "That $10 point is important because it represents value," says Beall. "The lower (your price points), the more people there are that can afford you, and they’ll have higher frequencies. I think that’s important." Moreover, the $10 price point allows Ruby Tuesday "to be successful in any size market in America," he says. Value is enhanced with large portions for that "wow" factor. "It’s like a mass-American Cheesecake Factory," Beall says.

That said, Beall and his colleagues are savvy enough to know they should capitalize on neighborhoods that are a bit more free-spending. Understand that value is a subjective construct. "The idea of ‘value’ in Kankakee, Illinois, is different than it is in Old Bridge, New Jersey," he says. The company thus employs different incarnations of the basic Ruby Tuesday concept, reflected in more upscale (that is, pricier) menu offerings, such as bruschetta and pot stickers. "Things customers wouldn’t care about in Greenville, Alabama," Beall explains. Upscaling and downscaling individual units to their respective neighborhood’s demographics and tastes has been a practice at Ruby Tuesday for the last four years, and it is one that will allow for the existence of "a thousand or more" units, says Beall, rather than "three or four hundred" additional locations.

The recent recession has served to remind Beall of Ruby Tuesday’s fortunate spot in the marketplace. The bar and grill segment, to again quote Ruby Tuesday’s Annual Report, "offers the best growth prospects, supported by demographic trends and lifestyle patterns and [this is the important part] is most likely to be resistant to economic downturns." So how’s business faring at Ruby Tuesday during this latest economic downturn?

"Very well," says Beall. "The lower your check is, the less risk you have. People are still going to eat out, but they’ll come here [versus a pricier place] so that they can spend less money. America loves to go out to eat, and they’d rather spend less per visit than cut out visits altogether." Look at the high-end steakhouses, says the executive. "In any recession, they’ll decline in same-store sales quite a bit. The decline is less as check averages go down. So we’re doing well."

Also doing well is a somewhat curious feature that separates Ruby Tuesday from the rest of its casual bar-grill segment competitors. This feature is actually a last bastion of a casual dining relic—the salad bar. Though the term conjures up images of dried-out cucumber slices and browning iceberg lettuce, Ruby Tuesday—again, focusing on execution—has elevated the concept with higher-quality, fresher offerings. And, offered at $1.99 with an entree, the salad bar has been a proven guest draw and a boost to check averages. "There was a time when I thought that salad bars were no longer an asset...but it’s proven to be a positive, at least for our business. Guests see it as healthy, it’s fast, it’s affordable, and 40% of our customers buy it," says Beall.

Combination platters have also held an important spot in Ruby Tuesday’s check-average-boosting efforts. These higher-priced entrees sold well last year, and the company credits them with increasing gross profits. Also boosting 2001 profits were revenues from franchise partners, which increased by $4.2 million last year, as Ruby Tuesday upped royalties and license fees.

Putting People First
As mentioned earlier, perhaps the biggest point of difference between those mega chains that precede Ruby Tuesday on Technomic’s list of the largest casual dining operators is the company’s conspicuous lack of the big marketing campaigns in which similarly-sized chains invest.

"Rather than funding hefty media budgets in an attempt to attract guests," reads Ruby Tuesday’s 2001 Annual Report, "we invest dollars in training and support systems for our teams." The company’s mission statement takes this idea even further, suggesting that the team exists above all else. "Our mission statement is ‘to be the best place to work, the guest’s first choice, and a great investment,’" says Beall. "Note that the first piece of that statement is about the team. It all starts with the team, so now we’re doing a better job hiring them, training them and taking care of them."

Sandy Beall dismisses the cynical notion that Ruby Tuesday’s stated focus on its staff is just a bunch of touchy-feely lip service, a cliche companies espouse to look like good guys. To the contrary, says Beall, it’s an orientation that guides every decision Ruby Tuesday makes; a truth realized, he says, after 25 years of operating under the misguided belief that while taking care of staff was important, other priorities ranked just as high. Beall thinks differently now. In fact, he speaks about this realization reverently, calling this period of enlightenment Ruby Tuesday’s "final milestone."

"Five years ago we finally had the realization that it is one-hundred percent, unequivocally, about people. It starts with every hourly employee we bring on to our team. Everything builds on that team. The first 25 years in business led me to this realization: That we can build an OK company based on trying to do all things equally—serving the guests, the team and the shareholders. But to build a truly great company, you have to build the people side of the business," says Beall. "If we do that extremely well, it gives us the ability to deliver and satisfy our guest more than the competition. That, in turn creates volume and provides return to our shareholders." Get it? It’s a domino effect that starts with the guy in the dishroom. A good team makes for happy customers. Happy customers make for satisfied shareholders.

To create those content and effective teams, Ruby Tuesday employs several tools with the goals of reducing turnover and committing staffs to high performance. It starts with a six-point hiring process through which every potential employee must pass. For managers, a "Career Pathway" training program entrenches leaders in the Ruby Tuesday culture and guides them up the corporate ladder. A certification process and "Developing Manager Program" help grow hourly employees into managers. Ruby Tuesday has also invested in facilities devoted to training and development. "WOW-U" is where the basics are taught, but the real treat is an invitation to the RT Lodge, modeled after the luxurious facilities of high-end retailers, including Ralph Lauren’s "Second Home." Here, selected Ruby Tuesday leaders get to mix professional training with personal enrichment programs and a little R&R. Take care of the team and the team will take care of the customers. "They rest, sleep and play there. It’s the company’s cultural center, as well as its learning center," says Beall.

50 Units Next Year
In addition to building those all-important comp sales, adding company owned units (and franchise partners West of the Mississippi), is the focus of the company for 2002.

With the goal of building the core Ruby Tuesday concept, in 2000, the company sold the 69 restaurants it owned and operated under the American Cafe, L&N Seafood, and Tia’s Tex-Mex brands. The sale of these smaller chains to Specialty Restaurant Group created the capital the company needed to build more Ruby Tuesdays. Additionally, explains Beall, there was an important psychologial reason behind the move: Better results, they reasoned, could be achieved with a sole focus on its flagship concept. Also, Beall says "We wanted to be fair to those concepts; they need to have their own capital, and since we didn’t want to invest it, (selling them) took care of them, as well as us."

That newly found capital will help Beall and his team open another 45 to 50 company-owned units each year over the next three to five years. Beall contends that the company could well exceed its stated goal of growing to an eventual 1,000 units across the United States.

Franchising will play a role in this growth. While the company builds out its markets east of the Mississippi, growth in the West will take place under the Ruby Tuesday’s Franchise Partner program, which lets independent operators enter into 50-50 partnerships with Ruby Tuesday. The franchise partner provides the investment, and the company, which provides the support services, reserves a right to buy half of the operation. Currently, there are about 30 franchise partners in the Western U.S., as well as some international franchise units.

How will Ruby Tuesday pick locations? It’s not exactly rocket science when your critical mass is, well, the masses. "Our target is anybody in America. Same as Wendy’s. Wherever there’s a Wendy’s, we can have a Ruby’s," says Beall. And they don’t wring their hands about competition from other varied-menu competitors. They go into a market assuming there will be, if there is not already, an Applebee’s to contend with, and Beall says there’s almost always room for a Ruby Tuesday, no matter how crowded the market. "We check out how many restaurants there are; we don’t want to go into an over-crowded market, but it hasn’t been an issue. There are fewer bar and grill restaurants today than there were three years ago, because regional chains, independents and smaller nationals are closing more often than they are opening."

Ruby Tuesday will construct its own new units, mostly on property the company purchases. Beall sees the ability to do so as a sign of a strong balance sheet "with a lot of capital." He says, "To own is our strategy. That’s the strategy for anyone who has the money, because it’s easier to make a good return and you’re in control of your own destiny.

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