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ALL-YOU-CAN-EAT CHAINS ARE HUNGRY FOR TRAFFIC

By Jesse Serwer

Whether it’s the traditional favorites served up at an Old Country, or one of the extravagant smorgasbords offered at many a Las Vegas casino, the all-you-can-eat buffet is as American as the expanding waistline.

But U.S. buffet chains, which typically offer 100-plus food choices for well under $10 per person, have been struggling.

“On a real growth basis, buffets have been on the decline, with most chains in the segment posting sales growth well below the 6 percent industrywide average,” said Darren Tristano, executive vice president of Technomic, a Chicago-based restaurant consulting firm. Unit growth has been flat too, Tristano says, pointing to MetroMedia Restaurant Group’s Ponderosa and Bonanza concepts, which have shrunk from 620 stores in 1999 to 359 units today (including 60 abroad).

Still, given buffet restaurants’ capacity to accommodate great numbers of customers in a short period of time, they can be highly attractive to a shopping center landlord. “Everyone wants tenants that bring in the customer who’s hitting two or three shops on their way out, and buffets are great for that,” said Brad Merrill, vice president of leasing and acquisitions at NewMark Merrill Cos., which has three HomeTown Buffet restaurants and numerous off-brand buffets in its California properties. Though buffets tend to be associated with lower-income groups, “they have a very good price point that works well with the demographics of our shopping centers, which are middle-to-upper-middle-income centers.”

Despite recent growing pains, a number of major players in the segment see a bright future. Chief among these is Eagan, Minn.-based Buffets, Inc., operator of HomeTown Buffet, Old Country Buffet and several smaller buffet concepts. Buffets pioneered the popular “scatter bar” system of separate, smaller food stations, as opposed to the centralized, single-line format that had characterized buffet restaurants.

Last year Buffets merged with Ryan’s Restaurant Group, operator of some 300 Ryan’s Grill, Buffet & Bakery and Fire Mountain Grill restaurants. Instantly doubled in size, at 650 units (it also operates 11 sit-down Tahoe Joe’s Steakhouse restaurants), Buffets now holds the largest share of the grill-buffet market.

With HomeTown Buffet anchored on the West Coast (it has 90 restaurants in California) and Old Country Buffet firmly planted in the Midwest and Northeast, the addition of the Southeast-focused Ryan’s gives Buffets a national presence for the first time. “We feel pretty good about where we are, considering where the industry is,” said Karlin Lindhardt, Buffets’ senior vice president of marketing. “There’s been a major pullback in visitation across the board. It’s very much a market-share game, and whoever can get out there [nationally] is going to be pretty safe.”

Though Buffets has closed some Ryan’s and Fire Mountain units since the merger, the chain intends to engineer growth by reactivating a franchise program. “We plan to sign up six or seven HomeTown Buffet franchisees for 2008, and then to start seeing six to 10 openings a year,” said Damon Fraser, Buffets’ vice president of business development.

Buffets does have some in-line units, but going forward it will prefer freestanding or endcap units measuring between 9,500 and 11,000 square feet near big-box-anchored power centers and regional malls. Initially, new stores will be focused in California, where HomeTown is already dominant, and in Florida, where the company sees similar demographics but has only two units. In Florida Buffets will go head-to-head with its closest competitor, Raleigh, N.C.-based Golden Corral, which, at 49 units, holds the largest share of the market in the state.

Before the Buffets-Ryan’s merger, Golden Corral was the dominant name in the grill-buffet market, with 481 units across 41 states. Golden Corral pulled in some $1.45 billion in receipts last year and anticipates about $1.5 billion this year. Apparently, the chain is not to be outdone. Golden Corral intends to open as many as 150 stores over the next five years, according to Bob McDevitt, senior vice president for franchising.

“We plan on being a national company, meaning stores in all 50 states,” McDevitt said. “We’ve only got two stores in California, one in Washington and none in Oregon, so we’ve got lots of work to do out West and also in New England and the Northeast.” This growth is to be driven primarily through franchising, he says. “For every one company store we open, we’ll open about six franchise stores.”

The company, which prefers sale-leaseback deals and does not enter into ground leases, is seeking freestanding pads measuring between 8,000 and 12,000 square feet. “We prefer to be near a power center with big boxes rather than a mall, because we think we have the same customer base as a Home Depot, Wal-Mart or Kohl’s,” said McDevitt.

But the buffet concept growing fastest nationwide is Coppell, Texas-based CiCi’s Pizza Buffet, which has opened 155 units since 2005. The chain operates about 600 stores across 29 states and expects to open 80 new ones next year. “We plan to double in size in the next five years,” said Jim Sheehan, vice president of franchise sales. All but 21 of CiCi’s existing stores are franchises, and the next batch of stores will keep to that pattern. “We just opened our first store in Vegas, and we haven’t opened any stores in California yet, so we’re looking to make a big push out West,” said Sheehan.

The relatively diminutive dimensions of the typical CiCi’s unit is helpful. At about 4,200 square feet, its box is significantly smaller than a Golden Corral or a Ponderosa. And unlike those concepts, CiCi’s considers in-line units suitable.

These three are the segment’s success stories. But chains that are suffering stagnant growth are far more typical. Among these is Madison, Tenn.-based Barnhill’s, which has hovered at about 40 units in seven Southern states for several years, and Newark, Calif.-based Fresh Choice, which operates 33 units in California, Washington and Texas.

Few buffet concepts have succeeded in the Northeast, specifically in Boston, New York or Philadelphia. Even fewer have been able to enjoy healthy expansion overseas. The primary exceptions are Ponderosa and Bonanza, which have a total of 60 units across six countries, including Kuwait. Though there are several notable American-style buffet chains abroad, such as Russia’s My My and Australia’s Foodstar, few, if any, have expanded beyond their countries of origin.

In the U.S. growth has occurred in rural areas and in markets with significant Hispanic populations. “It’s hard for buffets to compete in urban locations and upper-middle-class suburban locations, because of the variety of options there and the high expectations from more-affluent consumers, so they tend to exist in larger trade areas that are more rural,” Tristano said. “Latinos really love buffet concepts for a couple of reasons. One is they happen to really like Asian flavors. Another is you don’t have to speak English to go to a buffet. You pay up front and you don’t have to interact.”