Mall unit sales on rise despite retailing slump

Nation's Restaurant News,  Nov 18, 2002  by James Peters

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As the crucial holiday shopping season begins for wary mall-based retailers, several large restaurant chains with substantial concentrations in retail malls are reporting sales growth even as consumers grow more tightfisted with their wallets.

Mall branches of Red Robin Gourmet Burgers and California Pizza Kitchen, for example, managed to post same-store-sales growth in their most recent quarters, while many major retailers performed anemically.

Red Robin, the 194-unit casual-dining chain based in Greenwood Village, Cob., posted a 1.4-percent increase in same-store sales at company-owned units for the third quarter ended Oct. 6. Comparable-store sales at the 14 company-owned Red Robins in traditional shopping malls also were up for the quarter, said chief financial officer Jim McCloskey.

Los Angeles-based California Pizza Kitchen saw its mall units actually exceed the performances of the chain's nonmall restaurants in the third quarter. In the period ended Sept. 29, same-store sales at the company's mall units--accounting for about half of the 145-unit chain--grew 5.7 percent, exceeding the 5.3 percent growth at all company owned units, said Greg Levin, CPK's chief financial officer. The company operates about 113 restaurants and franchises or licenses another 32.

Mall-based CPKs are attracting a "destination" clientele and drawing people who visit shopping centers for entertainment purposes "but aren't using the malls for shopping per se," Levin said. "They're going there for something to do on the weekends, and as a result, they're eating."

As the holiday season approached, many large retailers reported better-than-expected October sales. According to a survey of 81 retail chains by Bank of Tokyo-Mitsubishi Ltd., retail same-store sales climbed 3.1 percent last month. If similar trends continue through the holidays, the rising traffic trend could be expected to benefit neighboring restaurants.

And even though 608-unit Ruby Tuesday reported that its nearly 180 mall locations experienced a slight dip in same-store sales in the most recent quarter, the Maryville, Tenn.-based company said its mall-based restaurants have been insulated somewhat from the more pronounced traffic drops in surrounding retail stores.

In a recent conference with analysts, Sandy Beall, chairman and chief executive of Ruby Tuesday, said retailers in malls had told him traffic was off recently by 6 percent to 7 percent. In contrast, traffic for Ruby Tuesday was off only 1 percent to 2 percent, he said.

Beall explained that the differing declines were due to the fact that half of the chain's mall-unit customers are drawn to those restaurants solely for dining.

However, Ruby Tuesday said its substantial number of mall units--nearly 30 percent of the chain--has made it vulnerable to consumers' pullback in retail spending. In the first quarter ended Sept. 3, same-store sales at company-owned mall units slid 0.4 percent. By comparison, first-quarter same-store sales grew 1.9 percent at the company's freestanding restaurants and dipped 0.6 percent at domestic freestanding franchises.

Ruby Tuesday is attempting to strengthen customer traffic by launching a "neighborhood introduction" coupon marketing program at about 90 units, half of which would be mall units.

Despite recently shaky consumer confidence and more frugal spending patterns, a number of casual-dining chains have continued to generate solid performances they attribute to attractive and affordable price points.

"If you have a concept that is executing consistently and delivering good food at the right value, I don't think you're hurt by being in a mall," CPK's Levin said.

Although the pizza-and-pasta specialist this month is rolling out a list of 20 wines for dinner and a new menu, no new mall-unit strategy would explain the pacesetting performance of those branches in the quarter.

"It all gets down to execution," Levin said. "If you have a concept that is executing consistently and delivering good food at the right value, I don't think you're hurt by being in a mall."

Citing several prime Red Robin sites in California, McCloskey said regional location likely was a factor in the positive same-store sales at his chain's mall branches.

Red Robin currently owns and operates 95 restaurants and franchises and licenses 99 others. The company's 14 mall branches are considerably more than the number of such units operated by franchisees, McCloskey said. Same-store sales at domestic franchises in all venue types declined 2.4 percent for the quarter.

Other operators in different dining segments have been affected disproportionately at their mall locations in recent months.

Piccadilly Cafeterias Inc. said its mall locations, which account for about half of its more than 200 units in the Southeast and mid-Atlantic regions, experienced a 5.5-percent decline in same-store sales in the first quarter ended Oct. 1. By comparison, same-store sales at the Baton Rouge, La.-based chain's nonmall branches declined 2.3 percent.