Food quality rift, sales slump spur shakeup at S&A

Nation's Restaurant News, August 3, 1992 by Bill Carlino

DALLAS - The sudden ouster of S & A Restaurant Corp's top management team late last month was prompted by parent Metromedia Co.'s displeasure over stagnant sales growth and the departed executives' move to lower purchasing standards at the expense of food quality.

"The company hadn't seen top-line growth under present management," said Jennefer Hirschberg, a spokeswoman for parent Metromedia Co. "A company has to stay attuned to the needs of the customers. Metromedia intends to focus on upgrading quality and increasing volume."

Asked to resign from the company, which operates the 157-unit Steak and Ale and 223-unit Bennigan's chains, were S & A president Donald J. Slater; chief financial officer Robert S. Svehlak; senior vice president and general manager Jack Camp Fitch; and research and development vice president Andrew J. Revella, who also headed purchasing.

Contacted at their homes, both Slater and Svehlak declined to comment.

Metromedia has quickly installed Arnold J. Wadler, a senior vice president and veteran strategist, to oversee the company on an interim basis. The company confirmed circulating reports that Wadler arrived at S & A's Dallas headquarters with a company security officer in tow to "make sure none of the assets were taken" and to "oversee their departure."

"Metromedia is presently taking a more hands-on role in their restaurant holdings," Hirschberg said.

S & A's purchasing strategies and procedures reportedly have come under five before. But it was the move to boost margins by sacrificing food quality that apparently was the final straw for Metromedia.

"The [former management] were examining ways to cut food costs with center-of-the-plate products," said a representative from the Wichita, Kan.-based Excel Corp., the dominant meat supplier to S & A Restaurant Corp.

"Their traffic was off, and general performance was suffering. They intended to pursue the purchasing changes as a short-term strategy. That decision apparently didn't sit well with Metromedia."

"This didn't come as a surprise to anyone here," remarked an S & A Restaurant Corp. employee who opted for anonymity. "We could see it coming. They were changing the food around."

Metromedia would not elaborate but indicated that it would strive to maintain customer satisfaction through quality products.

Metromedia's disenchantment over the S & A management team was compounded by a scathing review of Bennigan's appearing in the June issue of Consumer Reports - which contained an in-house ratings survey on the nation's top restaurant chains.

The survey, a quantitative evaluation of 13 categories, ranked the chain dead last among dinner houses surveyed. The blistering results sparked a top-down examination of S & A Restaurant Corp. by Metromedia.

In the same Consumer Reports survey, Steak and Ale was ranked third.

Augmenting the rift in purchasing philosophies and quality perception between Metromedia and S & A management was the absence of any real growth for the two chains.

According to Nation's Restaurant New's latest Top 100 census figures, both sales and unit growth at Steak and Ale and Bennigan's has been dormant.

Bennigan's is projected to accrue $468 million in systemwide sales during its current fiscal year, while Steak and Ale is expected to top $221 million. Both figures represent a scant 1-percent jump over the prior-year results.

Meanwhile, Slater remains part of a shareholder group that owns a 10-percent stake in S & A. Metromedia said it has not made a decision whether it will make an offer to purchase the remaining stake in the company.

Headed by billionaire John W. Kluge, Metromedia Co. also owns and operates the Ponderosa and Bonanza steak-house chains under its Metromedia Steakhouses Inc. division.

Metromedia tightens grip on

troubled empire

The S & A controversy is the latest incident to have an impact on Metromedia's foodservice portfolio, which accounts or nearly $2 billion, or 60 percent of company revenues.

Over the past four years, Metromedia has swallowed about $150 million in red ink at Ponderosa and watched its Bonanza chain shrink from about 620 units to its present total of 325.

Wadler is the second Metromedia executive to be placed in charge of operating a restaurant division in five months.

In February Metromedia did not renew the contract of MSI chief executive J. Michael Jenkins and replaced him with Michael Kaufman, a former managing director for a Metromedia acquisitions subsidiary.

"They [S & A Restaurant Corp.] lost considerable momentum in the marketplace," remarked Lou Neeb, chief executive of the Garland, Texas-based Spaghetti Warehouse. Neeb is a former president of S & A Restaurant Corp. "Bennigan's was overshadowed by Chili's, TGI Friday's and Applebee's, while Steak and Ale let companies like Outback grab market share. They have not evolved the business at all and were going to a lower-quality meat. You can't do that in an industry where you have to change with your customers."

Metromedia purchased a 90-percent interest in S & A Restaurant Corp. for $450 million from Grand Metropolitan PLC in 1989. Several months earlier Grand Met had acquired the dinner-house concern as part of its $5.75 billion takeover of Pillsbury. The transaction also included the Burger King chain.