Theme-Restaurant Plate Too Full?
By Bob Shemeligia
"Eatertainment" establishments are losing their luster
among the publicaround much of the country. But one
expert says they can do well in tourist destinationsif
too many don't try squeezing into niches that are too narrow.
Once considered the darlings of the food service industry, several theme restaurant chains have been experiencing growing pains in recent monthsespecially on Wall Street, where stock prices for publicly traded "eatertainment" venues have fallen as quickly as a tray of souvenir glasses from the arms of a waitress smacked by a swinging door.
But, industry experts and analysts note that while publicly traded, fast-growing eatertainment chains such as Planet Hollywood and Rainforest Cafe have weathered lower-than-expected earnings in recent months, flagship restaurants with strong themes in destination resorts such as Las Vegas and Orlando continue to post strong revenues.
"Theme restaurants work very well in destination locations such as Las Vegas, such as Mall of America, such as Disney World, venues that have mass traffictourists that are there for a short period, looking for something to do, and looking for a stuffed animal or a key chain," says Andrew Zarnett, an analyst with Ladenburg Thalmann & Co. in New York City. "But while these restaurants work very well in primary marketing locations, they experience problems in secondary locations simply because there is not as strong an appeal to repeat customers."
Zarnett estimates that theme restaurant chains garner only 10 or 15 percent of revenue from repeat business.
"This is why theme restaurants tend to do well in a city such as Las Vegas where you have 30 million visitors each year," Zarnett says. "Let's face it, the Hard Rock Cafe has done terrifically in Las Vegas for a long time at what you would consider to be a secondary location [on Paradise Road, nearly a mile east of the Strip]. So, if you're in Las Vegas you can post strong revenues without worrying about repeat clientele. But if you're in Gurnee Mills outside Chicago or in Tysons Corner in the greater Washington, D.C., area [two locations where there are Rainforest Cafes], you have to appeal to local customers in order to do well."
In a presentation on theme restaurants during the October 1997 World Gaming Congress & Expo in Las Vegas, Zarnett noted that in 1995 average revenues for each Planet Hollywood restaurant totaled just over $14 million, and revenues for each Rainforest and Hard Rock Cafe totaled just over $10 million. But Zarnett stressed that certain theme restaurants in major tourist markets posted significantly greater revenues.
For example, the Hard Rock Cafe in Las Vegas and Planet Hollywood in Orlando each posted over $45 million in 1995 revenues. And just four Planet Hollywood unitsLas Vegas, London, New York and Orlandoaccounted for $118.5 million, or nearly 44 percent of Planet Hollywood lnternational's total 1995 revenues of $270.6 million.
Zarnett explained there are four reasons why theme restaurants do better in a tourist location such as Las Vegas:
n Higher restaurant utilization. The greatest restaurant utilization (measured on both revenue per seat and turnover rate) is generally achieved in those markets that attract the largest volumes of tourists. Such places draw a continual flow of people who eat throughout the day, whenever they're hungry. Residents, on the other hand, have to go to work, and tend to eat at regular meal times.
n Higher retail sales. The greatest retail sales (measured on both a per-capita basis as well as a percentage of total unit sales) are also generally achieved in tourist-oriented markets. Tourists are more predisposed, and have a greater propensity, to buy souvenirs of their visit than do residents.
In 1994, Planet Hollywood's retail merchandise accounted for an average 35 percent of total unit sales. Retail sales at individual units ranged from a low of 23 percent to a high of 53 percent, with best results occurring at the best tourist locations.
n Lesser need for change-out. At tourist-oriented locations there is not as great a need to continually change the environment, menu and entertainment as there is at other locations.
n Less price sensitivity. In tourist cities, restaurant patrons are more apt to pay higher prices for menu items than they would be paying in other locations.
Other industry experts agree that, as with real estate, the three most important rules to success in the theme restaurant industry are location, location and location.
"In any location where there is a constant influx of people, a theme restaurant is bound to do better," says Mike Mueller, analyst for NationsBanc Montgomery Securities in San Francisco. "In a destination city such as Las Vegas where there is so much visitor traffic, a good theme restaurant is bound to do well. There are just so many people."
Dennis Lombardi, executive vice president of Technomic Inc., a Chicago-based restaurant consulting company, also says the importance of a good location to the success of a theme restaurant cannot be overstated.
"In gateway cities where you have a constant influx of tourists and conventioneers, you have the best business climate for theme restaurants," Lombardi says. "In other cities you don't have that constant influx. And so, it works just fine in Myrtle Beach during the season, thank you very much, but it doesn't mean that it works in Kansas City in January."
Death of a Star
Even in a premiere resort destination such Las Vegas, it doesn't work for every theme restaurant. An example is Country Star Restaurant, built on the South Strip in 1996 for about $5 million, and sold to Mirage Resorts Inc. last March for $1.55 million in cash. Mirage purchased the 500-seat country western theme restaurant from Country Star Las Vegas LLC, a Las Vegas company majority owned by Country Star Restaurants Inc. of Los Angeles.
Three months earlier, Mirage had purchased the nearby Boardwalk Casino for $135 million, bringing the company 817 feet of continuous South Strip-front property. The purchase of Country Star was viewed by industry experts as a prized acquisition for Mirage Resorts chairman Steve Wynn, who has indicated through spokesman Alan Feldman that he plans a project there eventually. It was also viewed as the last nail in the coffin of the once-promising Country Star restaurant chain.
At the time of the acquisition, the Country Star-Las Vegas restaurant was the only theme restaurant the four-year-old chain still was operating. Two other Country Star restaurants in Atlanta and Los Angeles had already closed. And the Las Vegas corporation that owned the Las Vegas restaurant was in bankruptcy. It had not paid its $65,000 monthly rent since September, 1997.
While Mirage Resorts agreed to reduce Country Star's monthly rent to "one-half of the company's positive cash flow," according to filings with the Securities and Exchange Commission, it is one of the safest bets in Las Vegas that the days of the country western theme restaurant are numbered.
In his World Gaming Congress presentation, Zarnett noted that Country Star has weathered financial problems from the very beginning. The development cost of each 500-seat restaurant is $7.5 million, compared to $8.3 million for each Rainforest Cafe and $5.6 million for each Planet Hollywood. But average revenues of just over $5 million for the Los Angeles Country Star totaled only about half of the average revenues of Rainforest and just over a third of revenues of each Planet Hollywood.
Today, stock in Country Star Restaurants Inc., which traded as high as $14 per share on NASDAQ in early 1997, has fallen to about five cents.
Neither Dan Rubin, president of Country Star, nor spokesman Robert L. Davidson could be reached for comment, but industry experts say there's really no mystery behind the reasons for the imminent failure of the theme restaurant chain that adorned the walls of its eateries with portraits of country western stars and served drinks such as Cowboy Coladas and Ozark Jamborees along with appetizers such as Texas cheese toast.
"It's quite a challenge to keep a theme fresh and new to attract a constant stream of diners," says Muriel Stevens, food editor and restaurant writer for the Las Vegas Sun. "You have to remember that the food is secondary to the theme, and it's vital to keep the public interested."
Richard Martin, national reports editor for Nation's Restaurant News, a business newsweekly covering the food service industry, explains that keeping the public interested has proved very difficult for Country Star.
"Country Star thought Las Vegas would be a very strong market" Martin says, "but with some of these concepts there's a waning enthusiasm among consumers, and most of the analysts agree that the more peripheral the theme is to mainstream culture, the narrower the market."
In other words, another industry expert says, "The problem is that there are too many theme restaurants that have narrow appeals. People start to sense that they're not getting value, that they're not getting a brand name. It's all about kitsch, and people catch onto that.
|
