First-quarter profits leap 27% for Ground Round

Nation's Restaurant News, March 8, 1993 by Bill Carlino

BRAINTREE, Mass. -- Ground Round Restaurants Inc. has scored a 27-percent jump in first-quarter profits, to $1.4 million, even though results of the year-ago period were spiked by frequent discounting strategies.

For the quarter ended Jan. 3, the 204-unit casual-theme dinner-house chain posted a 14-percent rise in revenues, to $62.2 million, vs. the year-ago period's top-line total.

"We made a conscious decision to cease all discounting except our trademark 'Penny-A-Pound' promotion," explained David Terhune, Ground Round's vice president and chief financial officer. "Instead, we sharpened our focus on execution and store-level operations. We feel the results are significant, considering that they are matched against last year's numbers when we were heavy into discounting."

Last year Ground Round implemented an array of short-term marketing promotions in an effort to offset the tough economic climate, especially in the Northeast region -- home of the majority of the chain's restaurants.

The Penny-a-Pound promotion, in which prices on items for children under 12 are levied at the rate of one cent for each pound of body weight, was utilized on a daily basis in several Ground Round market areas. Ground Round augmented it with "Kids Pay By Degree," a climate-driven offshoot of Penny a Pound that charged children under 12 on the basis of the outside Fahrenheit temperature.

During the quarter Ground Round also reported a 2.6-percent hike in comparable-store sales. Average-unit volumes for the chain's restaurants hover at about $1.4 million annually although new stores reportedly generate about $2 million per year.

Terhune said Ground Round's hiring, last October, of former TGI Friday's executives Peter Beaudrault and Tony Santarelli, as divisional vice presidents, has honed both unit-level and regional execution.

"Tony and Pete are heavy hitters," Terhune explained. "Better customer service levels have been reflected in the balance sheet."

Ground Round also boasted seven more units in its system at the end of the quarter, compared with the year-ago period. The new branches are in Massachusetts, Rhode Island, Connecticut and New Hampshire. Ground Round also assumed control of two existing units in Michigan and Ohio that had been managed by Hanson PLC, the chain's former parent company.

"Ground Round's positioning gives them an advantage on their competition for two reasons," said Eric Wasserman, a foodservice analyst at the New York-based investment firm of Shearson-Lehman. "They make the dining experience fun for children, with a minimal inconvenience to the parent. That's clearly a fast track to repeat business."

Terhune said Ground Round currently is testing a series of saute items in the chain's Boston, Philadelphia and Ohio markets.

A gradual remodeling effort is expected to begin within 60 days. The revised decor, which encompasses back-lit awnings, green and beige color schemes, and an upgraded lounge area with mahogany wood tones, is slated for four regions -- Long Island and Albany, N.Y., Cleveland and Iowa.

"The new look was developed about one and a half years ago," Terhune observed. "It's been 10 years since Ground Round last had a systemwide remodeling effort."

The building makeovers eventually will be undertaken in each of the 160 corporate-owned stores. Sixty remodelings are scheduled to be completed by September of this year, with the balance completed by the end of 1994.

"We have the three basic ingredients: capital, people and a concept that appeals to families," Terhune said. "We're well-positioned for the 1990s. Many of our competitors in the dinner-house and family segment have more marketing resources than we do. We can't outmarket them, but we can out-execute them."