Ruby Tuesday deploys sales, service initiatives: chain reintroduces coupon program and increases staffing in effort to drive traffic

Nation's Restaurant News, Oct 21, 2002 by James Peters

MARYVILLE, TENN. - Ruby Tuesday Inc., seeking to combat softer same-store sales trends, is moving forward with initiatives to boost staffing levels and marketing campaigns, particularly at the chain's mall-based branches.

Officials at Ruby Tuesday said the 608-unit casual-dining system would introduce a coupon program in the current quarter at about 90 of its restaurants in an attempt to increase traffic. In recent months the company also has continued to increase staffing at the unit level by as much as 12 percent in efforts to raise guests' perceptions of service chainwide.

While a number of casual-dining chains have seen softer sales in recent months as consumers have pulled back in spending, Ruby Tuesday chairman and chief executive Sandy Beall said his chain's substantial number of mall units has made it more susceptible to a continued weak performance of the retail sector.

The company's freestanding units generated a 1.9-percent same-store-sales increase for the first quarter ended Sept. 3, but its company-owned mall units, which account for about 30 percent of the Ruby Tuesday store system, slid 0.4 percent. Same-store sales at domestic franchised units slipped 0.6 percent. The company owns and operates about two-thirds, or 405 restaurants, of its 608-unit system.

"Our malls are what are really pulling us back," Beall said in a first-quarter conference call with investors and analysts. He added, however that the chain's "freestanding units, which represent over 70 percent of the system, are still performing well in terms of same-store sales."

According to a research not from Joseph Buckley, an analyst with New York-based Bear Stearns, "Sales have softened in the restaurant industry but seemingly more so at Ruby Tuesday."

Buckley said the company's substantial number of mall locations and its strategy of not advertising were the two primary factors responsible for the company's soft same-storesales performance.

In recent months, the sluggish performance in retail sales had a negative impact on traffic at Ruby Tuesday's mall locations, company officials stated.

Beall claimed that retailers who operate at malls have told him that traffic has been off by about 6 percent to 7 percent as consumers have tightened their discretionary spending.

In comparison, traffic at Ruby Tuesday mall units is off 1 percent to 2 percent "at the most," Beal said, explaining that the company's mall locations are somewhat "sheltered" from the adverse retail environment because they traditionally draw half of their customers from outside the shopping crowds.

Beall said the company revised its initial strategy to not use any marketing and decided to implement its "neighborhood introduction" program in about 90 of its stores -- about 22 percent of its company-owned units. Roughly half of the stores slated for the program will be mall units. The other half will consist of freestanding restaurants, company officials said.

Beall said the company would invest roughly $750,000 in the initiative during the quarter, which largely would be rolled out in mall units that are operationally sound and well staffed, but are experiencing a slide in same-store sales.

"We believe spending a little bit of money on this to generate traffic is prudent at this time," he said. "I'd rather not spend it, but it does drive same-store sales somewhat."

The initiative, which the company has used on a limited basis in the past, entails the distribution of coupons to businesses that typically are located in a 3-mile radius around each store, said Ruby Tuesday senior vice president Rick Johnson.

The coupons generally offer $5 off of a minimum purchase of $10, he said.

"It's just a way to build some trial," he added. "And it's worked tactically on a unit-by-unit basis in the past."

Analyst Buckley said the marketing measure was a move in the right direction.

"In a soft environment, we think marketing can be an effective way to stimulate sales," he said.

Although Buckley characterized the strategy as a "favorable move," he noted it is "unclear if it will be enough to turn sales positive."

Beall said the company does not traditionally use marketing efforts, but places significant investments in its training and staffing efforts.

In order to help drive unit performance the company has continued to increase its staff at its restaurants, which on average has grown by seven additional people per restaurant -- a 10-percent to 12-percent rise from staffing levels a year-ago, Beall said.

Despite lower-than-expected same-store sales, Ruby Tuesday managed to post a 20-percent increase in first-quarter profits, to $20.2 million, or 31 cents per share on a diluted basis, up from $16.8 million, or 26 cents per share, in the year-ago period.

Revenue grew 10 percent, to $222.5 million, compared with $203 million in 2001. Systemwide sales rose 13 percent, to $314.3 million, from $279.3 million a year ago.

Beall said the company's bottom line benefited from the company's focus on cost controls in the challenging environment.