Ground Round, Inc. History
Braintree, Massachusetts 02184
Telephone: (617) 380-3100
Fax: (617) 380-3168
Incorporated: 1968 as Ground Round Restaurants
Sales: $ 218.8 million (1996)
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6719 Holding Companies, Not Elsewhere Classified; 6794 Patent Owners and Lessors.
The first Ground Round restaurant opened its doors in 1969. Though much has changed since then, the goal has always been a friendly neighborhood-style eating and drinking place that features great food, moderately priced, served in a casual, comfortable and fun atmosphere where friends and family could gather.
A pioneer in casual dining restaurant chains, Ground Round, Inc. owns or franchises approximately 190 full-service family-style restaurants, mostly in the Northeast and Midwest. In addition to its signature half-pound Ground Rounder hamburgers, the restaurants feature a moderately priced menu of Italian, Mexican, Oriental, and Tex-Mex foods, plus appetizers, entree salads, specialty sandwiches, seafood, baby back ribs, steak, chicken, and pasta. The company's restaurants, many of which have operated under the Gold Fork name since early 1997, offer a casual dining atmosphere for families as well as for adults by providing a main dining area for guests accompanied by children and a smaller dining room and bar for adults.
Open seven days a week for lunch and dinner, Ground Round/Gold Fork restaurant locations are divided into 24 regional units grouped within four divisions, each managed by its own senior vice president, and division vice presidents. A regional director oversees between four and eight company-operated restaurants, as well as any franchise locations in his or her region. General managers of each store oversee such day-to-day operations as food procurement, inventory control, hiring and firing of personnel, and local marketing; general managers report to their respective regional director. The average restaurant employs 60 people, half of them on a part-time basis.
Each restaurant averages approximately 5,600 square feet in size and holds seating for 210 people. They are divided into adult dining areas containing a bar and lounge area, and a family dining section that encompasses
In addition to its company-operated stores, Ground Round, Inc. operates approximately 45 franchises throughout the eastern United States, and considers such stores an effective means of increasing brand-name recognition through minimal investment. Choosing franchisees with significant experience in the restaurant business, the company assists with site selection, construction, cooperative national advertising, and training of staff. In return, franchises must serve only Ground Round/Gold Fork menu items, develop an aggressive local advertising plan, and purchase all food and equipment through the company. Franchise agreements run for a term of 20 years, and require payment of both a franchise fee of $40,000 and an ongoing royalty of 3.5 percent of monthly gross sales.
The doors of the first Ground Round restaurant opened to customers in 1969, offering moderately priced food in a comfortable, neighborhood-style atmosphere. Since that time the chain quickly expanded from its Massachusetts home to cover New England, then the eastern United States from Maine to Missouri. In 1988 alone 19 new Ground Round eateries were opened after Marriott Corporation sold its Stuart Anderson's Cattle Co. restaurants to the company--which was then a unit of London-based Hanson Trust PLC--for an undisclosed amount. In November 1989 Hanson divested itself of the Ground Round chain, selling it to International Proteins Corporation (IPC) in exchange for $49 million in cash and 2.85 million shares of IPC stock. IPC quickly showed its dedication to operating the acquisition by changing its name to G.R. Foods, Inc., in May 1990. All of IPC's non-restaurant operations, including several food production companies, would be discontinued by mid-1991.
Families Come First, the 1990s
Former Wall Street executive Michael P. O'Donnell joined the company as president, chief executive officer, and chairman of the board in 1990. Previously involved in the food service industry, O'Donnell served as senior vice president of TGI Friday's southern division from 1986 to December 1989. Appointed one of Ground Round, Inc.'s directors in 1991, O'Donnell's vision for the company was to aggressively expand its restaurant chain. Under his direction, the company instituted strategic upper-level management changes and renamed itself Ground Round Restaurants the following June. By September 1991 the company had completed a public offering of 4.6 million shares of stock on the American Stock Exchange, allowing it to retire some indebtedness and establish a line of credit to grow the company.
In tandem with O'Donnell's vision, executive-level managers decided to revamp the exterior of their many stores, believing that the 20-year-old chain needed a fresh, new image to compete with newer casual dining restaurants. Plans were implemented to begin a renovation program to revitalize existing stores while construction of at least five new Ground Round restaurants each year was planned using a cost-efficient layout. A comfortable seating area and a more intimate bar area, both featuring polished mahogany, slim lighting, brass fixtures, and etched glass accents, were planned while the store's tasteful, more brightly colored exteriors still sported the signature green and yellow backlit awnings that customers had come to associate with the Ground Round eatery chain. The company would have 200 restaurants in operation by 1992.
As part of its refreshed outlook, the company focused its attention upon tapping into the needs of parents and children, realizing that baby boomers and their young families were the fastest-growing segment of the U.S. population. The Ground Round instituted several programs catering especially to children, including dining table visits by Bingo the Clown, balloons, popcorn, and menu selections with child-appeal. One of the company's advertising strategies was a blanket mailing to residents within a certain distance of each of its locations: the mailing included coupons for buffalo wings, as well as for a kid's meal.
Ground Round restaurants balanced their family-oriented approach with a full-service bar and a section where dinner guests without children could dine. Additional changes to the menu and point-of-sale promotions for high-profit bar items added a level of sophistication geared at more discriminating diners: center-cut sirloin steak, a complete brunch menu, daily seafood specials, and sautéed foods served over pasta also contributed to increasing sales. Underlying these menu enhancements was the company's philosophy: that going out to eat as a family did not mean that anyone had to compromise their preferences. By its fiscal year-end in 1992, continued increases in the amount of the average customer's guest check contributed to the company's $4.65 million in net income on sales of $296.7 million. Ground Round, Inc. shareholder earnings-per-share leaped 175 percent from 1991 levels to crest at $0.42.
Aggressive Outlook Guides Decisionmaking in 1993
Continuing to expand its restaurant base by strengthening its existing New England market through remodeling, the company also expanded its market area nationwide through the opening of 13 new restaurants. There were 210 Ground Round restaurants in operation by the close of 1993, three-quarters company-owned-and-operated and the remaining one-quarter under franchise. The company's sales area now extended west to Minnesota, and the Ground Round's menu featured more than 80 food items designed to allow for a pleasurable dining experience for both parents and children. The company balanced this expansion with efforts to improve the training of its sales staff and automate many managerial functions to allow for increased attention to store operations and customer service.
The company moved from the American Stock Exchange to the NASDAQ National Market System as an over-the-counter listing in June 1993. That same year it posted revenues of $232.5 million, with net income at $5.33 million. Ground Round management attributed the consistent gains in sales to the work of its divisional vice presidents, as well as to both the opening of seven new Ground Round restaurants throughout New Hampshire, Rhode Island, Massachusetts, and Connecticut and to the remodeling of almost 20 older Ground Round restaurants.
Buyout Attempt by Upper Management Proposed in 1994
As a result of its program of careful, controlled growth, the company posted net income of $6.25 million for 1994--a 17 percent increase over 1993 levels--due to the work of employees at its 205 restaurants. A profit-sharing program between the company and store managers was instituted to encourage cost savings and enhance customer satisfaction and return rates. Nine new Ground Round restaurants were opened and 47 restaurants in the company's 23-state sales area were remodeled, with the enhancement program scheduled for completion by July 1995. The decision was also made and implemented to close over 30 unprofitable locations over the next two years. With rising sales volume due to its increased number of outlets, cash flow also increased, allowing the company greater flexibility in paying down portions of its debt and enabling it to fund ongoing capital expenditures associated with opening new locations and continued store remodeling.
Marketing enhancements during 1994 included a "Kids Pay What They Weigh" promotion offered two nights per week during which each child's complete dinner would cost only 1¢ per pound of their body weight. Obtaining the right menu mix continued to occupy attention: the decision was made to review and re-target menu items on a semi-annual basis as a means of reflecting customers' changing tastes. While they continued to expand the number of Ground Round restaurant locations, management decided to actually cut back the number of menu items--from 88 to 50&mdash a way to reduce both preparation time and expense.
The company continued its efforts at expansion, opening 10 new stores by the close of the year and scheduling between 15 and 20 new store openings for each succeeding year. For reasons that may have involved a difference in opinion about the timing and course of such expansion efforts, in August 1994, acting as part of an umbrella investment consortium GRR Acquisition Corp., company CEO Michael P. O'Donnell initiated an attempt to purchase Ground Round, Inc. for $160 million&mdashout $77,670 for each of the Ground Round's 206 dinner-house units or approximately $9 per share.
Drop in Earnings Prompts Reorganization from Top Down in 1995
By the winter of 1994 GRR's offer of purchase had become held up due to financing problems; the company entered 1995 with lagging sales that were attributed by analysts to a lack of marketing focus over the past few years. During the second quarter of 1994 the company's earnings had been reported at $1.6 million; the same period in 1995 would witness a loss of $738,000, signaling even more serious difficulties. This loss was credited not only to the frequent changes in ownership and identity it had experienced during the decade but also to increased competition in the casual dinner-house market. Corporate marketing strategies were re-evaluated during the year and a radio campaign was established, but it was later proven to be ineffective in combating an economic downturn that extended beyond sales.
Meanwhile, the offer to purchase the company by GRR Acquisition Corp. expired in early 1995 due to a change in the high-yield financing market originally funding the acquisition. In April O'Donnell resigned from his positions as CEO and president. The withdrawal of the merger offer and the subsequent resignation of O'Donnell caused associated charges totaling $1.6 million to be written off against first and second quarter 1995 earnings. By the end of fiscal 1995, Ground Round, Inc. posted a net loss of $5.7 million against sales of $300 million.
Following O'Donnell's resignation in 1995, Daniel R. Scoggin, a company board member since 1991 and, as president and chief executive officer, a 15-year veteran of Ground Round-rival TGI Friday's, was appointed president and chief executive officer of the company. A new business plan supported by those banks extending the company its line of credit included provisions for Ground Round to accelerate the repayment of some notes and other financial obligations. The restructuring of company debt would result in a debt reduction of $2.8 million by the end of fiscal 1996. Management hoped to end its reliance upon further debt by funding all capital expenditures for fiscal 1997 through revenues and the proceeds due it from the sale of various restaurant locations.
Attributing the continuing drop in sales to the former management's decision to eliminate the Ground Round's familiar menu in favor of more exotic fare that some maintained held little appeal to women or health-conscious consumers, Scoggin and his team resolved to stabilize the company's identity. In December 1995 a new, 200-item, core casual dining menu was implemented to replace the limited 50-item menu previously used. The new menu included Mexican, Oriental, and Italian items, as well as a wide variety of salads, soups, appetizers, and a generous summer menu. A new children's menu was also introduced. Under Scoggin's leadership the company initiated efforts to enhance the quality of the food it served at its Ground Round restaurants and improve customer service through more thorough employee training programs and greater communication between employees and management.
While management would institute changes in the Ground Round menu, it would continue to close restaurants that were no longer deemed profitable, and by the close of 1995 had only 197 restaurants in operation, 46 of those under franchise.
Reduction of Restaurants Continues Through 1996
The first quarter of fiscal 1996, which ended on December 31, 1995, saw the company post a $3.02 million loss. Although the company had begun retraining its staff and catering to younger customers through a game-based program, such efforts could not put the skids on its downward descent, which was burdened by over $50 million in debt and leases. By July the company had posted a 9-month loss of $9.7 million; the year-end loss for 1996 would be $22.95 million, including an $8.9 million accounting charge against assets as a result of closing certain of its restaurants. Despite the loss, through the efforts of its 7,900 employees at 143 restaurants, the company's fiscal 1996 revenue reached $218.8 million, still a 5 percent drop over the fiscal 1995 level of $230.4 million. Fortunately, in mid-1996 Lone Star Steakhouse, one of the company's major competitors who wished to expand its market into New England, purchased 11 Ground Round restaurant locations in the northeast. Planning to convert the units within 12 months, Lone Star paid the struggling chain $16 million. Ground Round restaurants still in operation by the end of fiscal 1996 would number 189.
In addition to reducing overhead through the sale of several units, the company also made efforts to further adapt their format to the changing needs of families... and to the tastes of children, whose likes and dislikes often dictated where families went on their night out. Surveys showed that families eating out spent more money at restaurants than any other consumer group, and Scoggin was determined to capitalize upon that fact. Hiring a consulting firm, the company began to plan adjustments to its overall image and its menu. Ground Round restaurants changed portion sizes for children under the age of 13. The menu was also changed to feature 30 vegetarian dishes, as well as a new summer menu. The company began experimenting with a new restaurant design attached to a Ramada Inn in its Manhattan, Kansas, location. And in April 1997, now operating what it considered a manageable number of restaurant locations, Ground Round, Inc. changed the name of its restaurants to Gold Fork: Casual Food and Dining.
While the company would continue to post losses into fiscal 1997, during the first quarter of that year Ground Round, Inc. was able to retire over $12 million of debt. The company planned to increase efforts to promote the franchise opportunities within its casual dining chain as a means of more financially conservative expansion and as a means of enhancing recognition of its restaurants' new name.
- Allen, Robbin Lee, "Scoggin Lays Out Strategy for Ground Round," Nation's Restaurant News, August 14, 1995.
- Carlino, Bill, "Ground Round Execs, Investors Team Up for $160M Buyout Plan," Nation's Restaurant News, September 5, 1994.
- Klara, Robert, "No Kidding," Restaurant Business, January 1, 1997.
- Van Houten, Ben, "Rounding the Bend: Will Ground Round's New Name Mean a New Beginning?," Restaurant Business, April 15, 1997.
Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.