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The Right Time For Ribs

For the moment, Darden Restaurants is still in the barbecue business. When it announced its intentions to leave it this past May, the company said it was immediately closing 56 underperforming Smokey Bones BBQ units, which it did, and putting the remaining 73 up for sale. The company still operates those units today, and no deal to buy them has yet been announced.

“This was a difficult decision because guests continue to give the Smokey Bones experience solid marks and there is a core of restaurants with good sales and earnings levels," Clarence Otis, Darden Chairman and Chief Executive Officer, said at the time. "However, the Smokey Bones concept and related business model was designed to be a nationally advertised brand. Since it is not on a path to achieving this vision, we have concluded that it is not a meaningful growth vehicle for Darden. As a result, we’ve decided to exit the Smokey Bones business and offer it and the related assets for sale.”

Sad news for Darden, but it caused operators elsewhere in the barbecue segment to turn cartwheels. Overnight, what had been potentially their strongest competitor was suddenly out of the picture.

It maybe wasn’t that big a deal at Famous Dave’s of America, Inc., the largest player in the category. The publicly traded company was already going great guns, having 41 company owned units and 113 franchised stores. Famous Dave’s also has signed development agreements for another 155 franchise locations, which means that the company will double in size even if it never sells another franchise. Its cash flow is such that it is currently conducting a vigorous stock buyback program. Just yesterday, Sept., 27, the company announced it was going to repurchase another 1 million shares, out of 9.9 million outstanding.

Famous Dave’s is strong in its home state of Minnesota, has units in many other states already, and should have a true national presence by the time the rest of those new franchises come on board. But the real excitement in this segment can be found one tier down, where a variety of regional barbecue brands are looking to expand into new territories, mostly via franchising. Among them are Brentwood, TN-based Bar-B-Cutie Barbecue Restaurant, Shane’s Rib Shack, a Raving Brands concept based in Atlanta, Virginia Barbecue of Fredericksburg, VA, Red Hot and Blue, another Virginia operation, Tulsa, OK’s Rib Crib BBQ and Grill and plenty of others. Some are quick-service based, others full-service casual dining operations. But perhaps the ones with the most potential are those that emphasize a fast-casual approach, the area where much of the growth in foodservice is taking place right now.

Let’s take a look at one fast casual entrant, Dickey’s Barbecue Pit. It was founded in 1941 by Travis Dickey, at a location that’s still going strong today. Franchising began in 1994. The Dallas-based company grew slowly, reaching 34 stores in 2005, climbing to 67 stores in 2006, with 48 additional units expected to come on line this year. Their goal is to open 60 restaurants per year for the next five years, with almost all of that growth taking place in what we might call nontraditional barbecue markets in the East, Midwest and Western parts of the U. S. The company is still family owned, with the 2ndand 3rdgeneration of Dickeys now at the helm.

We don’t know if they’ll hit that ambitious 60-units-per-year pace, but it’s hard to find fault with their business model. The fast-casual approach–customers order at a counter, then take a seat in the dining room—keeps operations simple and labor costs low. But what we really like about the Dickey’s approach is that it brings eight separate revenue streams together under one roof: dine in, take out of individual meals, take out of bulk meals, drive-thru individual meals, drive-thru bulk meals, delivery, full-service catering and seasonal products such as spiral hams, smoked turkeys and ready-to-serve holiday feasts. All this comes out of 4,000 sq. ft. units, with newer stores squeezing the whole works into a 3,000 sq. ft. footprint. The smaller model seats 108 guests, 20 fewer than the 4000. sq. ft. size. Locations are primarily freestanding and endcap units in suburban areas.

It’s all a far cry from the traditional barbecue joint. But the menu reflects barbecue orthodoxy: slowly smoked beef (barbecue brisket), pork (pulled pork, ribs and smoked ham), sausage (polish sausage and spicy hot links) and poultry (smoked turkey and chicken breasts). Other options include five cold salads, a dozen hot veggie sides, drinks and an assortment of cobblers and pies for dessert. Pricing is moderate: A plate—two meats and two sides—goes for $8.99; the Family Pack (1 pound Polish sausage and 1 pound of beef brisket plus one pint each of creamy cole slaw, original potato salad, barbecue beans plus four rolls and a side of barbecue sauce) feeds four comfortably for $24.99. Company officials say that lunch draws a professional crowd, families come at night, and a steady crowd of home meal replacement seekers hits the drive-thru window each night between 4 and 7 p.m. Thirty-seven percent of revenue comes from drive-thru business.

Would something akin to Dickey’s work in your area? You’d have to decide if the Dickey’s approach is one in which you’d want to invest. But we like the odds of success for its small footprint, fast-casual approach to barbecue—from both the initial investment and simplicity of operation perspectives—rather than the more-complex full-service approach, of which Smokey Bones is an example. And we’re big fans of the eight-revenue-stream strategy, especially at a place that draws customers at both lunch and dinner.

There are many good franchise opportunities in the barbecue market besides this one, and we encourage readers to check out a number of them to find out more about how you might best approach this segment. But we’re pretty sure that if you’re ever going to do it, now, in the wake of the Smokey Bones closure, is the time to take your shot.

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