Barbecue vet Emerson enters into Smokey Bones contention: Famous Dave's vet divests his franchise, eyes buyout from Darden

Nation's Restaurant News,  July 2, 2007  by Paul Frumkin

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MOUNTAINSIDE, N.J. -- The chief executive and majority shareholder of North Country BBQ Ventures LLC, the largest franchisee of Famous Dave's of America Inc., has sold his stake in the 11-unit franchise as a first step in a bid to acquire Darden Restaurants' struggling Smokey Bones barbecue chain.

Robert Emerson, who founded North Country in 2001, said he was confident that he could turn around the 73-unit Smokey Bones, which was put up for sale in May by Orlando, Fla.-based Darden. The company closed 54 Smokey Bones locations in May and took a related $245 million charge in its fourth quarter.

Emerson, a former Wall Street financial analyst and investor, said Smokey Bones presents a significant opportunity for expansion in the burgeoning family-barbecue segment.

"I think the barbecue business right now is where the mid-priced steakhouse segment was in 1990 before everyone went public," he said. "And I think I know what's wrong with Smokey Bones and how to fix it."

He said of the approximately 10,000 to 12,000 barbecue restaurants across the United States, only about 6 percent are operated by chains, such as Smokey Bones, Famous Dave's, Sticky Fingers, Red Hot & Blue and Lucille's Smokehouse Bar-B-Que.

"Leadership in the segment is up for grabs," he said.

Jim DeSimone, vice president of communications for the publicly traded Darden, said its policy was not to comment on pending divestitures. However, he called Emerson "an early bird" in the bidding process and said Wachovia Securities only recently released the Smokey Bones' sales prospectus to the investment community.

Emerson, who sold his equity to North Country management and its investors--including Pequot Capital of Westport, Conn.--for an undisclosed sum, said he always had planned to exit the company. "But [the availability of] Smokey Bones accelerated it," he said.

Robert Fanelli, president and chief operating officer of North Country, said no changes were planned, and the franchisee would continue to fulfill its development agreement with Minneapolis-based Famous Dave's over the next five years. North Country, whose 11 outlets are in New England, Long Island, N.Y., and New Jersey, plans to open at least six more locations.

Famous Dave's and its franchisees operate 145 restaurants in 35 states. Its average unit volume is about $3 million, although Emerson said North Country units exceed that average.

Don McCullough, executive vice president of the National Barbecue Association in Austin, Texas, agreed that barbecue "is growing in leaps and bounds." But he said tastes in barbecue tend to be strongly regional. "Chains have a hard time adapting to a regional marketing strategy," he said.

He said Darden's original strategy to position Smokey Bones as a barbecue restaurant and a sports bar had confused diners.

Emerson agreed, saying he plans to move away from that positioning. "If you define yourself as a sports bar with lots of TVs, to some extent you're probably turning away some families," he said.

He also noted that alcohol sales at Smokey Bones accounted for only 11 percent of total sales. "They should be selling a lot more beer, and they're not," he said. "There's potential there to build bar sales."

In addition, Emerson said, "the food needs to be upgraded to [barbecue] competition level." To that end, he has formed a partnership with "a fellow who is a very capable pitmaster," he said, declining to identify the individual. "But I think we've developed a team that could bring a first-rate level of barbecue to Smokey Bones."

The NBBQA's McCullough said that Smokey Bones would do well if food quality improved. "The regional [tastes] would take some study, but I think somebody could make it work," he said. "Repeat business is the key to barbecue."

Emerson also believes there is a "tremendous" opportunity to boost business by offering catering and delivery. "Famous Dave's does not allow delivery, and I always believed they were missing an opportunity in that area," he said.

In addition, he said various technologies could be used to help improve the chain's margins, as he had done in bringing hourly labor costs below 15 percent of sales at North Country while lowering food and liquor costs to 27 percent.

In a statement addressing the sale of the eight-year-old chain, Darden chairman and chief executive Clarence Otis said, "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."

Emerson said he was working with Hill Street Capital in New York to put together financing for his undisclosed bid. "Our play should provide a worthwhile price to Darden shareholders. And I think it can be accomplished with minimal disruption [to the chain]."