Charlie Brown's: sales gains reflect emphasis on quality, value

Nation's Restaurant News, Dec 13, 2004 by Paul Frumkin

MOUNTAINSIDE, N.J. -- Operating in an area dominated by larger national players, 43-unit regional dinnerhouse operator Charlie Brown's Steakhouse has assembled an unbroken chain of same-restaurant sales gains that the company credits to a sharply focused menu emphasizing value and quality.

Owned by New York-based investment firm Castle Harlan Inc., the beef-oriented Charlie Brown's brand claims 13 consecutive years of comparable-store sales increases, with an average annual rise of about 3 percent.

Russell D'Anton, president and chief executive of Charlie Brown's, said the 38-year-old Mountainside-based concept remains competitive by appealing to a wide range of customers with larger portions, moderate prices, high-quality products and an extensive salad bar.

"Our pricing is generally lower than that of the national competition," said D'Anton, who joined the chain as an hourly employee in 1976 and worked his way up the management ladder. "We offer high quality at low prices. It's a value proposition."

Charlie Brown's, whose outlets are in New Jersey, New York and Pennsylvania, generates an all-day check average of about $15.90.

While the 75-item salad bar is popular with customers--it accounts for 13 percent of lunch sales--beef products generate 55 percent of the chain's total revenues. Charlie Brown's steaks and prime rib selections are all USDA Choice grade, and its burgers are made with Angus beet'.

D'Anton acknowledged that 2004 was "a rough year" because of increased commodity costs, including poultry, produce, dairy and beef. But, he added, "we were somewhat protected against the increases in beef prices by contract."

Nevertheless, commodity price hikes led to a 2-percent menu price increase last May. Food costs currently run about 37 percent of sales.

Despite some commodity pricing bumps over the past year, the brand has been growing steadily. Since Castle Harlan purchased Charlie Brown's Steakhouse for $50.4 million in 1997 from New York-based Restaurant Associates, the chain's sales have more than doubled --from $60 million to an estimated $150 million at the close of the current fiscal year ending in September 2005. While same-store sales have shown steady increases, the chain also has added 22 new units over the past seven years.

Charlie Brown's also operates two smaller concepts: the seven-unit Office Beer Bar & Grill and the two-unit Jolly Trolley Bar & Grill, both of which run higher alcoholic beverage sales percentages --40 percent at The Office versus 17 percent at Charlie Brown's, for example. However, future growth plans focus on the Charlie Brown's chain.

"It was a good company in 1997, but it has improved dramatically since we bought it from Restaurant Associates," said Justin B. Wender, senior managing director and chief investment officer for Castle Harlan, adding that each of Charlie Brown's 43 outlets are profitable. Castle Harlan also owns Morton's Restaurant Group, Marie Callender Pie Shops and Caribbean Restaurants LLC, a 165-unit Burger King franchisee in Puerto Rico. The investment firm also retains a 25-percent stake in the seafood dinnerhouse chain McCormick & Schmick's, which went public earlier this year.

"We tend to think about businesses like we will own them for 20 years," Wender said. "Of course, eventually we have to get liquidity."

Restaurant Associates chose not to expand Charlie Brown's during its 13 years of ownership, but it invested in upgrades, according to John Harding, former vice president of marketing at RA and now a public-relations consultant in New York. "We upgraded the quality of the steaks and focused on the key products, like steak, burgers and the salad bar." He added that the chain also "has benefited greatly from the renewed interest in suburban restaurants since 9/11."

While Charlie Brown's has been averaging about four openings a year since Castle Harlan's purchase, plans call for six outlets to debut in fiscal 2005 and another six to open a year later. The chain has two new, larger prototypes to accommodate expansion --one with 6,500 square feet and a second with 9,500 square feet--seating more than 250 diners.

Charlie Brown's average unit volumes run $2.8 million, although stores opened after 1997 average $3.2 million, D'Anton said.

"We're well-situated for growth," said D'Anton, who forecaste that the chain could have as many as 120 outlets by 2010. Future growth could include Connecticut, Delaware and Maryland. Expansion is funded through cash flow or bank facilities. There are no plans to franchise.

D'Anton said Charlie Brown's veteran executive staff is helping to facilitate the brand's more rapid expansion push. "The top 10 people in the organization have been here an average of 14 years. And we have many general managers who have been with us for more than five years." Total employee turnover for the company is about 60 percent, while turnover among general managers runs 12 percent.

Growth is being fueled by a value message," D'Anton said. For example, Charlie Brown's offers a 10-ounce prime rib with a starch and salad or salad bar for $13.90 at dinner. Prime rib accounts for 20 percent of total food sales. A 10-ounce Angus burger with fries and coleslaw is $9.95.