Ruby Tuesday repositions (again) for a rebound

by Eric Schroeder
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MARYVILLE, TENN. — In the mid-2000s, Ruby Tuesday, Inc., a restaurant chain with nearly 800 units, undertook a significant shift in strategic direction. The goal: to reposition the brand as “high-quality casual dining.” The mission missed its mark, though, prompting longtime founder, chairman and chief executive officer Sandy Beall to leave the company in June 2012. His successor, James J. Buettgen, was hired in December 2012 and has spent the past year trying to guide the company to firmer footing.

In a Jan. 8 conference call with analysts to discuss second-quarter financial results, Mr. Buettgen admitted it has been a challenging first year at the helm. The company late in the second quarter and into the third quarter initiated a number of significant cost savings measures, including eliminating 70 positions, primarily from its restaurant support center. Plans also call for the closing of 30 restaurants during the third and fourth quarters.

Mr. Buettgen traced many of Ruby Tuesday’s problems back to the mid-2000s and the failed shift in strategic direction.

“(In the mid-2000s), essentially the intent was to elevate Ruby Tuesday from the bar and grill segment to a more polished, casual concept,” he explained. “Success in large part was dependent upon raising the execution and perceptions of the brand to a much higher level and on attracting a more affluent guest base. The reality of this transformation effort was that the changes did not resonate with Ruby Tuesday core users, many of which viewed the new Ruby Tuesday as too expensive and too formal, and were disappointed to see many of their favorite menu items go away. As a result, many loyal guests quickly stopped visiting as frequently or stopped visiting at all. Additionally, the brand was not able to attract new, more affluent polished casual diners. As a result, the brand experienced sustained guest count and sales declines and a decline in brand relevance.”

At its high point in fiscal 2007, Ruby Tuesday had annual revenues of $1.4 billion and net income of $91.7 million. But the following year, for the first time in six years, revenues fell, and net income plummeted to $26.4 million. In its fiscal 2013 year ended June 4, 2013, revenues totaled $1.25 billion, and the company sustained a loss of $39.4 million.

“In retrospect, the attempt to differentiate Ruby Tuesday from the other large bar and grill competitors was a sound, strategic decision,” Mr. Buettgen said. “But the execution strayed too far from the equity and heritage of the brand and from what core casual dining guests want and expect from Ruby Tuesday. So, a logical question might be why we believe the new current brand transformation strategy will be successful. Our brand transformation strategy today is focused on reclaiming Ruby Tuesday’s heritage as a casual, affordable, energetic and approachable brand, on delivering what guests want and expect from Ruby Tuesday. The development and implementation of our strategy is based on market opportunity and consumer research and informed by management experience and insights. We believe this positioning will make the brand more broadly appealing and appropriate for a wider variety of dining occasions.

“As we leverage our investment and higher quality food in our Garden Bar and greater menu variety, and a broader range of price points, we believe this positioning allows us to draw from a broader audience and will make us relevant for more occasions. Over time, this should lead to increased frequency from current guests while also helping us attract new and last users.”

Mr. Buettgen said Ruby Tuesday identified “value and variety” as the most pressing need, and took steps in mid-August 2013 to address the issue with the launch of pretzel burgers and flatbreads, all priced under $10. It was the first major menu change for Ruby Tuesday in more than seven years, he noted.

“These new menu items generated immediate and significant guest trial and continue to drive strong preference,” he said. “The success of these items confirmed our guest desires for new, broadly appealing and affordable menu offerings.”

Then, in mid-November, the restaurant chain followed up with the launch of fresh hand-breaded Southern-style chicken tenders at a price point starting at $7.99.

“As we look out to the back half of the fiscal year, we remain intently focused on reengineering our core menu through both innovation and simplification, and ensuring we have a wide range of price points and compelling value throughout our menu,” Mr. Buettgen said. “As an example, some of you may have noticed that this week we launched our latest promotion featuring 20 items under $10, which dimensionalizes the depth of affordable choices on our menu today.”

The road to recovery will not be easy for Ruby Tuesday, though, and financial results issued Jan. 8 show a company still fighting to find its way. In the first half of fiscal 2014 ended Dec. 3, 2013, Ruby Tuesday sustained a loss of $56,625,000, which compared with a loss of $12,469,000 in the same period of fiscal 2013. Net revenues were $565,883,000, down 10% from $628,000,000 in the same period a year ago.
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