3 Profitable Restaurant Remodels

Restaurant brands are getting more than just a fresh coat of paint with their latest efforts to refresh and remodel.

In addition to looking modern and relevant, now a necessity in a highly competitive restaurant landscape, chains are repositioning themselves, expanding into new dayparts and sales layers, and motivating their franchisees and staff through large investments for reimaging.

While major public companies like McDonald's, Wendy's and Bob Evans have identified remodeling as a major growth strategy, smaller brands also are targeting significant returns on reimaging investments and renewed growth. Schlotzsky's Deli, Moe's Southwest Grill and Sizzler spoke with Nation's Restaurant News about how their recent remodels have begun to pay off.

First: Schlotzsky's Deli

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Schlotzsky's Deli: Tripling down on new positioning

In order to complete the reimaging of its more than 375 restaurants in 2011, Schlotzsky's Deli invested $40 million in not only refreshing the chain's décor but also in adding service elements to solidify its positioning as a fast-casual brand.

"Schlotzsky's had gone through many years of being in between quick service and fast casual, so we repositioned from our marketing, service, and look and feel," president Kelly Roddy said. "We changed it to 'Lotz better,' with new packaging and colors, new signage, and with food runners bringing food to the table. ... We saw a significant improvement in customer counts and sales as soon as we finished the reimages."

The Austin, Texas-based chain, which is a division of Atlanta-based Focus Brands, steadily grew average unit volumes after accelerating the rebrand process in 2011, going from average sales of about $660,000 in fiscal 2007 to about $780,000 by the end of 2011. Year-to-date, average unit volumes are tracking at about $800,000, Roddy said.

Some units even co-branded with other Focus properties, including Cinnabon and Carvel, to expand into dayparts beyond the typical lunch rush, he added. Units co-branded with a Cinnabon are on pace to pay back the remodel investment within nine months, while other Schlotzsky's locations that simply updated the décor would reach their return in about 16 months.

"We now have a brand that's more relevant and seated more strongly in the fast-casual position," Roddy said. "We're very much a lunch business, so our goal now is to reach beyond lunchtime. We can take some items we currently sell, such as our pizzas, which we're starting to promote past 3:00 now, and introduce ourselves as a dinner player."

The ability to fill the restaurant with customers at all points of the day — including for Cinnabon treats in the morning or at snack time and for Carvel ice cream at night — has increased productivity without adding much incremental labor, according to Roddy. He added that franchisees are bullish on the potential of Schlotzsky's units tri-branded with Cinnabon and Carvel.

"It has re-energized the franchise base," he said. "They're starting to grow now, and people who haven't built stores in a decade are out there expanding. We're selling a lot of franchises, but we can be particular about who we let into the brand because it's in such high demand."

There currently are about 20 tri-branded locations, and Schlotzsky's plans to open 35 more in 2012, Roddy said.

Next: Moe's Southwest Grill

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Moe's Southwest Grill: Growing sales, gaining efficiencies

Atlanta-based Moe's Southwest Grill, also owned by Focus Brands, has more than 400 fast-casual restaurants, and 20 to 30 of them are usually in some state of remodel at one time, said brand president Paul Damico. Depending on how comprehensive the unit refresh gets — from adding a redesigned salsa bar, a Coca-Cola Freestyle machine, or new furniture — sales can rise as much as 16 percent to 35 percent, he said.

At the original Moe's location, sales are not only up 20 percent, but more sustainable bottom-line savings also will be possible due to more efficient elements like LED lighting and low-flow water fixtures, according to Damico. He noted that same-store sales year-to-date are up 8.9 percent due to a 5.5-percent increase in traffic, driven in part by a new look and feel at several restaurants.

Another benefit to the Moe's prototype remodel is the prevention of constant, costly repairs to its high-traffic areas, Damico said. "There was lots of wear and tear on that restaurant, so maintenance costs were really high," he explained. "We replaced all the soft surfaces and replaced them down to the floor with hard-surface material, so now there aren't remodeling requirements year over year over year for areas that get beat up."

Damico added that Moe's took the opportunity to decrease clutter in the restaurant, especially some of the equipment on the service line, which either got consolidated into new machines or hidden from guests' view. Speed of service has improved as a result, he added.

The morale of team members and franchisees has also improved. "The new remodel requirements let our franchisees be more sustainable ... and get credit for it," Damico said. "There's a recognizable change in the crew. They're more energized and love working in a new environment. And guests recognize that we're remodeling."

Next: Sizzler
Previous: Schlotzsky's Deli

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Sizzler: Empowering guests, franchisees with design

Sizzler, the Culver City, Calif.-based chain of nearly 170 family steakhouses, had been growing same-store sales the past few years on the strength of a culinary revamp that trimmed down the size of the menu and emphasized fresh preparation.

But the business has taken off at restaurants that also have completed a new interior and exterior look, with same-store sales rising as much as 20 percent to 30 percent in some refreshed locations, said Kerry Kramp, chief executive of Sizzler USA. Interiors are more open and more brightly lit, with more comfortable seating.

"Our guests were coming to our restaurants but couldn't tell people because the buildings looked old, and we had silk plants and just weren't empowering the guest," Kramp said. "But when you partner new food with a new look and image, and you can brag about the building instead of apologize for it; that's when you get the full value of the remodel."

Forty stores have been completely remodeled and another 16 will finish in the next six months, with the remaining 100 or so locations to be completed in the next 12 to 18 months.

The goal is to get average unit volumes up to $2.5 million from a current base of about $2 million, Kramp said. Remodeled stores are averaging weekly sales between 8 percent and 15 percent above the gains at locations that only have the new menu but not the new décor package, he said, making Sizzler's goal of paying back remodel costs in four years attainable.

The brand plans to build 16 new restaurants in the near term, and its largest franchisee, the BMW Group, just opened a new location with the new look near Sacramento, Calif. Sizzler also is close to announcing a new franchise partner, who would be charged with acquiring a few company-owned Sizzler locations, remodeling them and then building an equal number of new stores.

"We're really seeing people inside the company who have been franchising with us forever get excited, and now others from outside the company are getting engaged to help us redevelop outside California," Kramp said. "This is the final piece that we thought would get us kicked off for the next 50 years of Sizzler."

Previous: Moe's Southwest Grill

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN