Famous Dave's: boning up on the competition

Nation's Restaurant News, May 12, 1997 by Amy Zuber

Deve Anderson, founder and chairman of Famous Dave's of America, has a bone to pick with people who say regional barbecue chains cannot make the national leap.

Anderson says he is confident his four-unit chain, which currently operates only in the Twin Cities, can compete with any other neighborhood barbecue joint in the country.

"We have four regional sauces better than any sauces out there," claims Anderson, who developed his recipes after a 20-year, nationwide pilgrimage in search of the country's best barbecue.

The sauces have received accolades from local magazines and won several awards, including first place in the mild-tomato category at the American Royal Barbecue Contest in Kansas City in 1995. In addition, Famous Dave's has spent about $150,000 on a traveling team that enters regional contests, and, according to Anderson, his recipes always place in the top three.

Nevertheless, some observers maintain that Famous Dave's still has a considerable hurdle to overcome if he is to expand nationally. "Barbecue is largely regional," says Allan Hickok, an analyst with Minneapolis-based Piper Jaffray. "The definition of barbecue is regional. Barbecue to a North Carolinian is different from barbecue to someone in Chicago. The sauces are different."

But, Hickok adds, "if food quality and the flavor profile is any barometer of success, in my view, they have that part figured out."

Anderson argues the high-quality food at Famous Dave's can support the company's aggressive expansion plans, which include eight to 10 unit openings this year and than 20 additional restaurants in 1998.

While other national barbecue chains, such as Tony Roma's and Damon's, have expanded their menus over the last several years to include items ranging from salads and pastas to sandwiches and burgers, Famous Dave's remains focused on ribs, says the company's president, Mark Payne. He adds that in contrast to other national chains, ribs account for about 70 percent of the product mix at Famous Dave's.

And, Payne notes, while Tony Roma's and Damon's both bake their ribs, Famous Dave's smokes them over a pit.

Famous Dave's operates three BBQ Shacks -- one in Linden Hills, which opened in June 1995, a second in Roseville, which opened in June 1996, and a third in late April in Maple Grove. While the Linden Hills unit generated $1.7 million in sales last year, the Roseville unit is projected to annualize about $2.5 million for its first year in operation. The majority of the shacks are retrofitted in existing buildings and typically cost about $1 million to $1.5 million, Payne says.

Last year Famous Dave's debuted a 250-seat barbecue restaurant in Calhoun Square that features live music seven nights a week and was designed to resemble a traditional Chicago blues club. The concept cost about $2.5 million to open and is projected to generate more than $5 million in sales for its first year in operation, according to Payne.

While unit sales remain strong, Famous Dave's has yet to show a profit. For the first quarter of 1997, the company reported a loss of $619,287, compared with a loss of $250,448 for the year-ago first-quarter period. Food and beverage costs were $780,026 for the 13 weeks ended March 30 compared with $94,743 for the year-ago period. The company attributed the increase to the addition of two new units and a rise in pork prices. For the year ended Dec. 29, 1996, Famous Dave's lost $706,598 in 1996 compared with a loss of $306,190 for the same span a year before.

But Payne, who attributes the slow growth to administrative and development costs for the company's infrastructure, says he is not concerned about the red ink for now and expects Famous Dave's to be profitable by late 1997 or early 1998.

"We are staffed to be a 200-unit company," Anderson maintains. "I have purposely front-loaded the staff so that the company will grow exponentially.

"We can't grow piecemeal. We have to have a team assembled beforehand."

Anderson -- the chain's spirited leader who still concocts his recipes in the elaborate kitchen in his lodge-style home -- is bringing more to the table than his passion for ribs. As the former executive vice president of the large gaming concern Grand Casinos and as an investor in Rainforest Cafe, he is a local celebrity restaurateur. In fact, many financial analysts say it was Anderson's reputation that helped Famous Dave's raise $15 million last year in an initial public offering.

The additional resources raised aUowed Famous Dave's to recruit several new executives, including vice president of real-estate development John Rose, who was most recently the senior director of development for Papa John's International.

Reflecting the rapid pace of change in the company, two executives received new titles late in March to reflect their responsibilities better. Douglas Lanham, who joined the company in January as president and chief operating officer, was named chief executive -- a position formerly held by Anderson. Lanham, who most recently had been a Chili's franchisee in Florida and before that had held vatious posts with Steak & Ale, Bennigan's and Chili's, retains the title of chief operations officer.