Retooled O’Charley’s faces uphill fight

Friday, December 14, 2012, Vol. 36, No. 50
By Joe Morris

O’Charley’s in Franklin was the first location to get the restaurant chain’s new look. It is expected to be 24 to 36 months for the remainder of location to be updated.

-- Photo: Lyle Graves | Nashville Ledger

Having survived a rough period that saw its footprint reduced by a third, Nashville-based O’Charley’s is launching an ambitious brand overhaul in hopes of solidifying its place in a shrinking casual dining market.

At the height of its success, O’Charley’s stock was moving briskly, and the company had more than 300 company-owned and franchise operations. It also harbored bold plans to expand outside its Southeast hub markets.

Founded in 1971, the company had been growing for years, but the economic downturn hit the casual dining sector -- and O’Charley’s -- hard. Most of the franchise locations were lost, and now the restaurant’s footprint is 213 locations in 20 states, with only six franchise locations remaining.

Earlier this year, the company was purchased and delisted by Fidelity National Financial Inc., and since May has been operated by American Blue Ribbon Holdings, Fidelity’s subsidiary restaurant division.

Now all those internal shifts are beginning to face outward as the chain launches its first branding changes in years. A new logo, redesigned restaurants and expanded food offerings all are on the menu, and the goal is to build on the O’Charley’s name and reputation, says Mickey Mills, vice president of operations.

“In a very short time we’ve put together a prototype new design and launched that with a new logo and menu,” Mills says. “We have a lot of new features, but we also are going back to our roots.”

As for the reduction in locations, Mills says: “We still have a great footprint; what’s left is very effective. We have a strong hold in the South, where the guests love us. The new menu is resonating very well, and we’re working to give guests more of what they want.”

The new logos will be going up at all locations during 2013, while the facility rebuilds will take more time, 24 to 36 months in total.

Unlike many chains, O’Charley’s did not pattern all its interiors and exteriors the same, so some sites may need a more comprehensive overhaul than others. In some cases that will mean a short-term closing, but the current plans call for most sites to remain open, or only be shuttered for a brief period, during the changes.

“Having a lot of unique locations has been a fun thing about us, but now it offers interesting challenges,” Mills says. “But it’s not insurmountable, and we’re looking forward to it.”

The first fully revamped restaurant is in Franklin, having reopened in late November. It features a more open floor plan and seating upgrades. As to the menu, new items there are being billed as “classic American,” and include such offerings as crispy pickle chips, honey-drizzled Southern fried chicken and, for the first time, pie.

“We’re proud of adding pies, because it fits in well with our heritage,” says Mills, who equates the food additions with the overhauled logos and interiors.

“We’re revitalizing and re-imaging all of our restaurants, because there haven’t been a whole lot of changes for a long time. We’re going all out and strong. It takes this kind of strategy to make sure that you’re not getting tired, especially in this climate, so we’re going to be constantly adding new menu items and fresh ideas for our guests.”

That’ll be necessary to just stay even, much less ahead, in the casual dining market, says Bob Derrington, managing director and equity research analyst with Northcoast Research in Nashville, who has followed O’Charley’s for several years as managing director and senior analyst at Morgan Keegan and, prior to that, at SunTrust Equitable Securities.

“The whole industry is struggling, and they’re doing a lot of things to try to bring customer traffic in the door,” Derrington says. “You’ve got an economy where consumers are squeezing every nickel tighter and tighter. People are not going out to eat as often.”

O’Charley’s, he predicts, will “try and stay progressive and aggressive with their promotions and their remodeling.

“Whether that’s a silver bullet for them remains to be seen,” he adds, “because the entire sector is going to be dealing with higher operating costs when it comes to food, labor and healthcare, and they’re all trying to figure out how to squeeze more out of the customer through higher pricing or a higher check average. Whether or not O’Charley’s gets the return they need is not clear, but they are signaling that they are going to be competitive.”