Cover Story: Hot Growth Companies: LOGAN'S ROADHOUSE
THE WELL-DONE STEAKHOUSE
When Edwin W. Moats was asked to help beef up sales at a Lexington (Ky.)-based steakhouse, the first thing he did was drop by for an incognito meal so he could check out the restaurant from the diner's perspective. He liked the neon signs that dotted the walls, the blaring jukebox, and the way diners threw peanut shells on the floor. But Moats noticed patrons were waiting up to two hours to be seated, the bar was cramped, and the menu was limited. He suggested adding more seats and enlarging the kitchen to handle larger volumes and more choices. Within months, the restaurant started bringing in $80,000 a week, a 60% hike.
Moats, a former savings-and-loan CEO who first acquired a taste for the restaurant business when he was a lending officer to Shoney's Inc. in the mid-1970s, knew he was on to something. Moats already owned six Captain D's seafood restaurant franchises, and he left banking in 1991 to become a restaurant consultant because he wanted more exciting work. He has certainly found it: Along with two top managers, Moats, 48, bought an 80% interest in the revamped steakhouse, which became the prototype for Logan's Roadhouse Inc., the Nashville-based dining chain that is No.9 on BUSINESS WEEK's 1996 list of Hot Growth Companies.
Since its 1991 start, Logan's has opened 10 company-owned restaurants in Indiana, Kentucky, and Tennessee. It went public last July, and the stock has more than doubled, to about 30. And in a crowded industry dominated by Outback Steakhouse Inc. and Lone Star Steakhouse & Saloon Inc., it has carved out a profitable niche. Last year, Logan's earnings rose 83%, to $1.9 million, on sales up 86%, to $27.9 million.
What's the sizzle behind the numbers? For starters, Logan's appeals to value-hungry families. It's pulling down customers from Outback and Lone Star--but yanking diners up from cheapie chains such as Ponderosa Steak House. Logan's average check, a tidy $11.25 per person, compares with about $16 at Outback or Lone Star. His secret: more smaller portions and low-priced menu options. One top-seller is a six-ounce sirloin dinner that goes for around seven bucks. But Logan's isn't just steak. Nearly 55% of sales comes from the seafood, chicken, and rib entrees--another way to stand out in the crowd. "We can ride the wave of the steak craze but not get pigeonholed," Moats says.
Aware that once-successful entrepreneurs have burned out by expanding too fast, Moats prefers the slow-paced approach. He'll open only 11 or 12 additional restaurants by the end of 1997, plus three franchised units. Each restaurant costs a pricey $2.2 million to build, but high volume means sales average close to $3.8 million a year. Analyst Robert M. Derrington of Equitable Securities Corp. expects Logan's earnings to double this year, to $3.8 million, with revenues climbing 48%, to $41.2 million. There aren't too many restaurant chains that can serve up results like that.By Nicole Harris in Nashville