Roadhouse Grill, Inc.

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Roadhouse Grill, Inc.

Suite 160
6600 North Andrews Avenue
Fort Lauderdale, Florida 33309
U.S.A.
(954) 489-9699
Fax: (954) 489-1485
Web site: http://www.roadhousegrill.com

Public Company
Incorporated: 1996
Employees: 4,100
Sales: $62.4 million (1996)
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Roadhouse Grill, Inc. operates a series of more than 40 casual dining, family-oriented restaurants throughout the southeastern United States under the name “Roadhouse Grill.” The restaurant chain is known for its honky-tonk atmosphere and its grilled steak, chicken, and fish entrees. Although primarily located in Florida, Roadhouse Grill also owns restaurants in Georgia, South Carolina, Mississippi, Louisiana, Ohio, and New York. Another eight locations—in California, Oregon, and Malaysia—are either franchised or licensed to others.

The Early Years

The initial concept for the Roadhouse Grill restaurant chain was developed through the partnership of J. David Toóle III and John Y. Brown. Toóle brought many years of experience to the project, having served previously as a regional supervisor for Ryan’s Family Steak House and having already been involved in the development of Logan’s Roadhouse, a midwest-based chain with a concept very similar to that of Roadhouse Grill. His partner, John Y. Brown, was also a veteran of the restaurant industry. A former chairman of Kentucky Fried Chicken, Brown had most recently founded Kenny Rogers’ Roasters, another chicken-based restaurant chain. Toóle joined Brown in 1992 after leaving the Logan’s project, and the two men began developing Roadhouse Grill.

The first Roadhouse Grill opened in Pembrooke Pines, Florida, in March 1993. Along with bringing restaurant industry experience to the company, Brown was also able to provide the financial support to get the company off the ground. The three investment groups that backed the Roadhouse concept were all financially connected to Brown’s Kenny Rogers’ Roasters. These investors were Horn Venture Partners of Cupertino, California; the Malaysia-based Berjaya Group; and Sabi International Ltd., which is based in Cyprus. In the first calendar year of operation, Toóle, Brown, and their investors were able to open six restaurants, all located in the Dade, Broward, and Palm Beach counties of southeast Florida.

Despite the fact that there was ever-increasing competition developing in the steakhouse market, Roadhouse Grill took on a very aggressive expansion campaign in its second year. With money supplied by the three initial investors, Toóle and Brown opened another 10 restaurants, bringing the total number of units in operation to 16. This expansion moved the company into northern Florida and into Georgia.

It was during this growth spurt that the company opened its first ground-up prototype unit, in Deerfield Beach, Florida, occupying 7,500 square feet and seating nearly 230. Prior to that point in time, the company had merely been renovating existing buildings and turning them into Roadhouse Grill units. The new Roadhouse Grill unit cost the company about $1.1 million to build. Construction of the building accounted for most of the cost, but the elaborate interior cost roughly $291,000.

Unfortunately, the rapid pace of expansion initially forced Toóle to put some inexperienced managers in charge of fully operational facilities. The company was young and did not have a large enough base of employees to ensure that experienced people ran each restaurant. Luckily for Toóle, however, the quick growth of the company and its rising sales worked to hide this problem. Later, as word spread of Roadhouse Grill’s success, they had no problem finding more qualified managers for the restaurants. These employees played a big role in the success of the company, which placed great pride in its customer service. As Toole pointed out in the March 27, 1995 issue of the Bradenton Herald, “Regardless of the concept, if you are not consistent with your services, you will fail. The customer must receive the same service every time they come in.” This attention to customer service was just one of the factors that led to the early success of Roadhouse Grill.

Inside a Roadhouse Grill

The atmosphere found inside each Roadhouse Grill created a very unique dining experience for its customers. From the brick and cedar walls, to the loud music that greeted customers when they entered, the restaurant was designed with a honky-tonk feel. Adding to this laid-back feeling were the barrels of peanuts found throughout the restaurant; customers were encouraged to eat the peanuts as they waited for their meal and to toss the shells on the floor. The restaurant’s interior was designed around multilevel seating that allowed patrons to view the grill and the kitchen. Customers could watch the steaks being prepared on a mesquite grill, alongside crocks of homemade soup and containers of hand-cranked ice cream. There was even an in-house bakery where customers could watch biscuits being made before being brought to their table.

In the evenings, the restaurant chain targeted families who desired quality dining at an affordable price. The menu at each Roadhouse Grill featured steaks, ribs, chicken, and seafood— all grilled to order. All appetizers were priced at less than $5, with the most popular being the “Roadhouse Cheese Wrap,” which was an eggroll stuffed with Monterey jack and cheddar cheeses and jalapeno peppers. Entrees were priced between $2.99 for a house salad and $15.99 for the 16-oz. ribeye. The restaurant also featured the “Messy Sundae”—a parfait glass coated entirely with hot fudge and filled with homemade ice cream, chopped peanuts, whipped cream, and a cherry. Furthermore, all children’s menu items were priced at $2.99, every Roadhouse Grill was equipped with video games in the lobby, and each child received his or her own balloon.

The restaurant also attempted to appeal to business people during their lunch hour by featuring a special menu section called “Lunch in a Rush.” It contained 13 extra-quick menu items, ranging from a grilled chicken sandwich to soup and salad specials. This part of the menu, which the company guaranteed to be served in less than 10 minutes, accounted for around 25 percent of a typical restaurant unit’s daily sales.

Continued Growth in the Mid-1990s

By 1994 the restaurant chain was holding its own against the bigger competition supplied by the Outback, Lone Star, and Longhorn Steak Houses. Individual Roadhouse Grill restaurants were averaging between $50,000 and $75,000 per week, leading to an average of $3 million in revenue per unit per year.

The company continued to expand throughout the remainder of 1994 and into 1995. Meanwhile, management began to question whether to look for further funding from private sources or to go public to fund the company’s future. In February 1995, the Berjaya Group became the majority backer of the company by providing $22.5 million in funds, giving it a 52 percent stake in the company. Berjaya also became a licensee of the company and began plans to develop Roadhouse Grill units in Malaysia.

Also in 1995, Toóle began to negotiate franchise deals for Roadhouse Grill. A San Diego-based company, HomeTown Buffet, became one of the first to franchise the restaurants and thus bring Roadhouse Grill to the west coast. The group’s first Roadhouse Grill franchise, located in Gresham, Oregon, performed extremely well, prompting HomeTown to open a second unit in the San Diego area. One year later, HomeTown Buffet was purchased by Buffets, Inc., the owner and operator of the Old Country Buffet chain. Therefore, plans were developed to transform some HomeTown Buffets into Roadhouse Grills in locations where HomeTown and Old Country Buffets were located in close proximity.

Roadhouse Grill Goes Public in 1996

By the time Roadhouse Grill was ready for its initial public offering (IPO), the company had grown to include 30 company-owned restaurants and six franchised or licensed units. The target for the stock was placed at $9-$ 11 per share by Piper Jaffray, Inc. and Robertson, Stephens & Co., the underwriters for the offering. Things were beginning to look good for the company as it returned its first profit, an operating income of $144,693, in June 1996.

Many people were very impressed with the growth of Road-house Grill and even more impressed with Toóle. As one Wall Street banker remarked in the August 1995 issue of Restaurant Hospitality, “He is a very basic guy who works the fundamentals. He knows the numbers, what customers want, and how to make employees happy. That’s a plus.” But despite the initial enthusiasm, clouds of doubt began to swirl around the restaurant sector and Roadhouse Grill as the date for the IPO drew closer. Concerns about rising food and labor costs, combined with increasing competition in the steakhouse segment, became a sore point with potential investors. Roadhouse’s management made assurances that the company would do everything possible to continue identifying and responding to the changing conditions in the restaurant business.

Roadhouse’s assurances were not enough to keep the stock price from falling, however. When trading finally began in November 1996, the stock price was marked down to $6 from the initial level of $9-$ll. The company, which still managed to raise $15 million from the sale of 2.5 million shares, used the proceeds from the public offering to pay back debts to a former chairman, with the remainder of the money being used to fund the company’s continued expansion.

Company Perspectives:

The Roadhouse Grill concept offers a fun, value-oriented dining experience that features premium quality grilled entrees and friendly service consistent with the Company’s motto, “Good Food and a Smile. .. That’s Roadhouse Style!”

The End of the Decade and Beyond

On August 5, 1997, Toóle officially resigned as president and CEO of Roadhouse Grill, Inc. He stated in a company press release, ’ The company has reached a size where it makes sense to bring in a seasoned industry veteran to take the Company to the next level.” His departure left the vice-president of operation, Brad Haber, and chief financial officer, Dennis Jones, to head up the management team. Meanwhile, the search for Toóle’s replacement was put in the hands of an executive search firm.

After having built Roadhouse Grill from the ground up, Toóle had paved the way for someone to step in and lead the company into its next round of expansion. Roadhouse opened its 40th restaurant on September 9, 1997 in Marreo, Louisiana and made plans to open an additional four units during the remainder of the year. Also included in the company’s plans was a decision to begin restructuring its building procedures and use multiple contractors in the construction of the new Roadhouse Grill units.

In just four years of existence, Roadhouse Grill had grown to include more than 40 company-owned restaurants and was expecting to add another 20 units in 1998. Furthermore, even without Toóle’s leadership at the company’s helm, Roadhouse Grill was reporting increased earnings for 1997. It was clear that Roadhouse Grill had the necessary strengths for continued success in a competitive steakhouse marketplace.