Smaller companies facing off against big-chain interlopers

Nation's Restaurant News, April 22, 1996 by Suzanne Kapner

When Phil Romano, who usually operates restaurants in the Southeast, built a restaurant for his sister, Rosalie, in Skaneateles, N.Y., he ran into a problem that has dissuaded numerous national chains from entering the area. The project cost 30 percent more than expected owing to the high labor and real-estate costs common in the Northeast and Mid-Atlantic states.

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Often lured by the dense population, national operators have been equally repelled by the high costs of doing business here. But, as other markets become saturated, an increasing number of chains are making inroads in these often cold and forbidding business climates.

Boston Market, California Pizza Kitchen, Applebee's, Hometown Buffet, Ruth's Chris Steak House, Morton's and Outback Steakhouse are just a few national chains that have put down stakes in the last year.

As these well-financed, operationally strong concepts continue to infiltrate the East Coast, regional chains often find themselves scrambling like mice under the feet of stampeding elephants.

But many smaller companies are rising to the challenge by sticking to their niche, strengthening community ties and differentiating their products and services.

In addition, there are some regional chains, like the 5-year-old Cranford, N.J.-based Linda's Flame Roasted Chicken, that are focusing on areas outside their home markets.

"We thought we'd have an advantage in our home market," founder Peter Weissbrod says. "But it's too expensive and too congested."

In a strategic about-face, the five-unit chain will switch emphasis from the New York metropolitan area to the Southeast and parts of the Southwest.

The company, which raised $6.4 million through an initial public offering in May 1994, is considering co-branding and nontraditional locations, like hotels, truck stops and highway toll plazas, as ways to stay competitive in the growing home-meal replacement category.

"When you're a little guy going against a big guy, you've got to be really careful with site selection," Weissbrod says.

The restaurants, which offer chicken, turkey, a variety of side dishes and gourmet sandwiches, generate between $400,000 and $1 million in annual sales, according to Weissbrod.

Like many small companies, Linda's has had its share of difficulties. A slower-than-expected growth rate led Weissbrod to hire Abbott Estrin two months ago as director of franchise sales. And two merger deals recently collapsed. Linda's signed a letter of intent to acquire 71-unit Jacksonville, Fla.-based Flamers Charburgers Inc. and also was in talks with 10-unit Philadelphia-based Bassett's Original Turkey. Both discussions broke down over failures to agree on price, Weissbrod explains.

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Rather than merge with Linda's, Bassett's has opted to shore up its regional markets of Pennsylvania, New Jersey and Maryland by sticking to what chief executive Richard Obrzut calls "sacred principles."

The home-meal replacement chain will capitalize on its turkey-only niche, grow geographically and pursue only high traffic locations, he says.

The chain, which pits itself against Au Bon Pain and Bain's Deli on city streets, pairs turkey products with side dishes, such as mashed potatoes, stuffing and vegetables. For an average check of $5.80, customers can get turkey sandwiches, pies, dinners and salads. Obrzut says stores average $550,000 and range in size from 600 square feet to 2,000 square feet.

"Kids today are growing up on turkey burgers, turkey meatballs and turkey hot dogs," Obrzut says. "That's our niche. We're only going to do turkey."

The company plans to focus its growth on the Eastern Seaboard, looking at deals from Boston to Washington. And it is interested primarily in high-pedestrian-traffic locations.

That fact places it out of direct competition with Boston Market, which prefers freestanding suburban locations, Obrzut says.

The company also is in the process of refining its operations and decor to make it more of a turnkey concept.

Obrzut says opening costs currently are about $300,000, but a new prototype is expected to knock $100,000 off that price. A redesigned logo that has more brand recognition and a new color scheme also are in development, Obrzut adds.

Just as Bassett's differentiates itself by serving only turkey, other regional players have managed to hold their own against national chains and expand into new territory by highlighting an unusual product or service.

At first glance it might be hard to differentiate Bucks County Coffee, based in Langhorne, Pa., from the host of other specialty coffee companies. Even founder Roger Owen says his stores resemble Timothy's, Pasqua and Starbucks units.

But Owen, who started roasting coffee beans in his garage in 1988 and has parlayed his concept into 43 company-owned stores, offers services that most of his competitors don't.

Each Bucks coffee house has computers where customers can surf the Internet. The stores also offer entertainment, like live music and storytelling for children.