Purring Along
Still, just across the Strip from Country Star, at the comer of Las Vegas Boulevard and Harmon Avenue, there stands a theme restaurant that has what is arguably a fairly narrow appeal, and is not truly a brand name, and still the 500-seat Harley-Davidson Cafe purrs along.
The two-story, 20,000-square-foot cafe, adorned with a 28-foot-high, Harley-Davidson Heritage Softail Classic bike bursting through the facade, is the second in the chain. The Las Vegas restaurant follows the New York Harley-Davidson Cafe, which opened in 1993.
Despite the elaborate trappings throughout the theme restaurant, which include the "Captain America" Harley from the film "Easy Rider," there is no authentic Harley-Davidson merchandise in either of the restaurant's two retail shops.
"We have our own merchandise. We established our own brand, and we pay royalties to the Harley-Davidson Corporation," says Marc Packer, president of Motorcycle Equities Inc., the ownership group of the Harley-Davidson Cafes.
"It's quite a challenge to keep a theme fresh and new to attract a constant stream of diners. You have to remember that the food is secondary to the theme, and it's vital to keep the public interested"-Muriel Stevens. food editor, Las Vegas Sun
And so, at the Las Vegas Harley Davidson Cafe, tourists will not find an authentic Harley-Davidson leather jacket, but they are invited to try on a Harley-Davidson Cafe leather bomber jacket, as well as sweatshirts, baseball caps and other memorabilia, all with the Harley-Davidson Cafe logo.
"Las Vegas is certainly a very good market. There are 30 million visitors each year and they all come with money in pocket and looking to have a good time," says Packer, who estimates the Las Vegas restaurant takes in nearly $15 million in revenue each year.
The money is spent on everything from the retail items to $9.50 Harley Hog sandwiches and $6.95 baskets of Roadhouse chicken wings.
Packer says he doesn't foresee any theme recognition or marketing problems at the Harley-Davidson Cafes on the horizon.
"You have to understand that we are the exclusive licensee for the Harley-Davidson Corporation," Packer says, "and this is a brand that is known worldwide. It's a brand that exists in more locations than Hard Rock and Planet Hollywood combined. We're as recognizable as Coca-Cola."
Catch 22:
Pleasing Shareholders
Although minuscule compared with gargantuan theme restaurant chains such as Planet Hollywood and Rainforest Cafe, Harley-Davidson does have one distinct advantage over these public corporations: Because it's a private company, it doesn't have to answer to shareholders.
Attempting to increase shareholder value has posed great problems for both Planet Hollywood and Rainforest Cafe, two public corporations whose stock has fallen significantly in recent months. Planet Hollywood, which was trading at nearly $20 per share on NASDAQ in early 1997, has plummeted to $8.50. Meanwhile, Rainforest Cafe, which was trading at nearly $30 per share in late 1997, closed on the New York Stock Exchange recently at just over $14.
The drop in Rainforest stock prompted a class action suit against the Minnesota-based theme restaurant chain. The suit, filed in January in federal district court in Minneapolis, said unnamed plaintiffs seek to recover losses incurred after they bought Rainforest stock between Aug. 5, 1997, and Jan. 6, 1998, when the company said 1997's fourth-quarter earnings wouldn't meet expectations.
When the suit was filed, Kenneth Brimmer, Rainforest's then-interim president, told the Wall Street Journal that while he hadn't seen the suit, "We believe any purported class action would be without any merit whatsoever." In May, Brimmer was named president of the restaurant chain.
The Minneapolis company, which operates 18 tropical-theme restaurants including one that opened in December at the MGM Grand resort in Las Vegas, triggered the downpour of disheartenment among investors when it announced in mid-January that it would fall short of analysts' earnings forecasts of 25 cents a share in the fourth quarter of 1997.
Just a few days later, Planet Hollywood announced that it would post a $44 million unexpected loss for the fourth quarter and would slash its aggressive expansion plans. In his announcement, chief executive Robert Earl blamed heightened competition for the company's loss, but added that Planet Hollywood "is best positioned for the long term as the market leader with several key brands."
The firm later announced that it would proceed with its $250 million music-themed Las Vegas property with 1,000 hotel rooms and a 50,000-square-foot casino, which industry sources say will be named Sound Republic. It will be built behind the under-construction Aladdin Hotel in Las Vegas. But Planet Hollywood has decided to indefinitely put off plans to develop Marvel Mania, which is a comic-book themed eatery and retail store, and another project known as Chefs of the World.
In addition, Planet Hollywood has decided to add just three new company-owned Planet Hollywood restaurants and retail outlets to its chain of nearly 80 properties worldwide this year, rather than the nine once planned. Moreover, the firm will add only two more Official All-Star Cafes, rather than the six once contemplated.
Joe Valdes, senior gaming analyst for Arthur Andersen, said fast-growing, publicly traded restaurant chains like Rainforest Cafe and Planet Hollywood are in a Catch 22.
"Because they're publicly traded, they're held accountable to stockholders to increase value, and one way to do that is to drive earnings, but as they grow, the novelty of the establishment begins to wear thin, " Valdes says. "When tourists start to see these theme restaurants in smaller cities, suddenly they're not so high on their visitation lists when they travel to destination resorts."
Dick Papiernik, financial editor of Nation's Restaurant News, concurs with Valdes: "This type of problem doesn't happen to just theme restaurants. It happens to all kinds of public corporations that try to promote their products and are seen as overselling the stock because of it," Papiernik says. "And with theme restaurants, when you try too hard to promote the product you tend to denigrate the novelty."
Still, representatives of publicly-traded theme restaurants contend that recent challenges have sparked them to improve their eatertainment venues.
"I think the public has become more sophisticated," says Phil Froehlich, director of operations for Rainforest Cafe-MGM Grand. "They're not coming on for fast food and a cheap room. They want entertainment and value, and if we are to continue to grow, we've got to stick to that side of the market."
Apparently the Rainforest formula has begun to work very well in Las Vegas. Zarnett projects a run rate of $16 million in revenue from food, beverage and retail this year at the MGM Grand location.
"Performance has been very strong at the MGM Grand," Zarnett says. "With those type of volumes [of traffic at the megaresort] they should be making very good margins."
Indeed, from Rainforest's most recent earnings report, it would seem that the entire company is off to a good start this year. In May, Rainforest announced that revenues for the first quarter increased $22 million, compared with the same period in 1997. The company also reported record first-quarter net income of $4 million or 16 cents per share for the quarter, representing a 150 percent increase over the comparable fiscal quarter in 1997.
But Papiernik of Nation's Restaurant News attributes the increase in revenue to the recent addition of nine Rainforest Cafes throughout the United States and the addition of three in London, Cancun and Mexico City. "At this point, as far as the stock value is concerned, I'm not seeing any solutions to the problems these theme restaurants face in terms of growth saturation and theme denigration," Papiernik says.
But Froehlich has a more optimistic outlook on the future of the Rainforest chain. "Diversity is a good thing in this marketplace, and I don't think it's a question of oversaturation. It's a matter of what you offer the consumer," Froehlich says.
Explosion
One who agrees with this assessment is Caitlin Storhaug, spokeswoman for the National Restaurant Association.
"The entertainment restaurants are certainly not a new concept. After all, Hard Rock Cafe is more than 25 years old," Storhaug says. "But in the last five to seven years, the number of entertainment restaurants have exploded, and this is tied to lifestyle changes among Americans. People are traveling more than ever and they're always on the lookout for a great vacation spot and appealing dining choices."
Other industry experts note that eatertainment is today a $500 million industry and could expand as much as tenfold within just a few years, as entrepreneurs continually dream up new theme restaurant ideas to entice the palates and imaginations of time-pressed vacationers.
"You've heard the saying, `Been there, done that,'" says Lombardi of Technomic Inc. "This illustrates the challenge to theme restaurant operators to come up with refreshing new ideas and to combine these ideas with good food and service."
Among those in the theme restaurant industry who have turned it up a notch are the Hard Rock Cafe, the grand-daddy of eatertainment, and Planet Hollywood.
Hard Rock, a private corporation owned by The Rank Group PLC, owns or franchises a worldwide network of 86 cafes in 30 countries, and recently announced plans to open 15 more theme restaurants this year.
"We are proud to bring the Hard Rock experiencegreat food, hospitality and the excitement of rock `n' rollto even more people all over the world," says Jim Berk, president and chief executive officer of Hard Rock Cafe International. "The opening of these 15 new restaurants.signifies not only the growth of the company, but also the sense of vitality and community generated by rock'n' roll in cities across the globe."
`It's Really About Food and Service'
Both Hard Rock and Planet Hollywood also have devoted a great deal of time and effort to funding charitable organizations. While the Hard Rock focuses on environmental causes such as Friends of the Earth and Conservation International, Planet Hollywood benefits many civic and children's organizations such as the American Cancer Society, Boys and Girls Club and the Make A Wish Foundation.
Planet Hollywood officials say civic work and restaurant entertainment are all part of the fun and good spirit of the restaurant chain. "That's the difference between us and everyone else," says Todd Margoluis, spokesman for the Las Vegas Planet Hollywood. "There's always something magical going on at Planet Hollywood , something that transcends all age groups."
At Planet Hollywood and the public corporation's subsidiary, Official All-Star Cafe, both high profile restaurant chains are partially backed by star-studded groups of stockholders including Bruce Willis, Demi Moore, Arnold Schwarzenegger at Planet Hollywood, and athletes Andre Agassi, Monica Seles, Joe Montana and Tiger Woods, among others.
"At this corporation, it's about Hollywood. It's about stars and celebrities and it's about magic." Margoluis says.
But Margoluis is the first to admit that it's also about food and service. He explained that at both Planet Hollywood and the public corporation's subsidiary, Official All-Star Cafe, the menu items and food presentation are constantly refreshed and upgraded. "It's really about the food and quality of service," Margoluis says. "That's what keeps them coming back."
Daniel Harf, executive vice present of operations for Official All-Star Cafe, concurs. Seated at the Las Vegas Official All-Star Cafe on the South Strip before an order of Monica's Top Spin Caesar and Tiger's Hole In One Cheeseburger, Harf explains that All-Star's menu was recently revamped and refreshed to give diners more choice while they view their favorite live sporting event on one of the three-story theme restaurant's big screen TVs.
"The good news for us and for the consumer is that cream rises to the top," Harf notes. "Over here the focus is on food. That's first and foremost. You have to be a good restaurateur to survive in this business."
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