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Earnings Wither for Salad Bar Chains

Garden Fresh and Fresh Choice are facing increased competition and changing tastes.

May 12, 2003|Karen Robinson-Jacobs | Times Staff Writer

As consumers clamor for healthful dining choices and the economy forces many to hunt for bargains, you'd think that salad buffets -- with all-you-can-eat access to radicchio, bok choy and butterhead lettuce -- would have lines out the door.

But it's not that easy being green, the nation's two publicly traded salad buffet chains have found. After growing rapidly in the 1990s, Fresh Choice Inc. of Morgan Hill, Calif., and San Diego-based Garden Fresh Restaurant Corp. find themselves dealing with tepid growth and competition from numerous rivals ranging from full-service chains to burger joints.

Fresh Choice reported a loss of $541,000 for its fiscal first quarter ended March 23, contrasted with a profit of $113,000 in the year-ago period. Same-store sales were down 2.6%.

The company, which has 47 Fresh Choice outlets in California and Texas and five Zoopa restaurants in Washington and Texas, said last month that it would cut corporate staff by 30% and slice pay for key executives by 10%.

Its shares closed Friday at $1.70 on Nasdaq, unchanged from the previous day. The shares are down from a 52-week high of $2.64 in December and have fallen 95% from their high-water mark of $32 in 1994.

Although not as drastic, the story is similar at Garden Fresh, which runs nearly 100 salad buffets -- 33 Souplantation restaurants in Southern California and 64 Sweet Tomatoes sites in Northern California and 14 other states.

For its second fiscal quarter ended March 31, the company reported net income of $1.6 million, down 33% from a year-ago profit of $2.4 million. Same-store sales fell 1.1%. Its stock closed Friday at $8.76, up 3 cents, on Nasdaq.

Industry analysts and company executives say the self-serve chains are victims of changing consumer tastes, stepped-up competition and management missteps.

Consumers are leaning toward casual dining chains such as Applebee's, owned by Overland Park, Kan.-based Applebee's International Inc., and myriad fresh Mexican concepts, seeking more unusual flavors and tableside service.

Many of these restaurants offer entree-size salads. And in the last year, even the burger barons have begun to offer premium salads, siphoning off budget-conscious customers.

"Buffet chains need to find out what it is that consumers are after and make their concepts more relevant," said analyst Robert Derrington of Memphis, Tenn.-based Morgan Keegan & Co., who tracks Garden Fresh. "You have fewer and fewer consumers using buffets today."

Another challenge is Americans' growing desire to eat restaurant food at home. At most buffet restaurants, taking lunch or dinner with you is at best cumbersome.

And because most salad restaurants don't offer meat entrees, they lose business when co-workers go out for lunch and one or more insists on something besides greens and beans, said Randall Hiatt, who heads Costa Mesa-based Fessel International Inc., a restaurant consulting firm. That's important, he added, because salad spots typically do half their business at lunch.

"The salad concepts need to attract a broader audience, and I think they haven't really found a way to do that," he said.

Executives of Fresh Choice and Garden Fresh acknowledge that they need more food diversity, especially to draw young men, who tend to favor fast food. Both companies are using discount coupons to help attract and retain customers, who are mostly women -- especially professionals -- as well as older couples and families with small children drawn to child discounts.

Omar Carrera, 28, was one of the few young men at a Fresh Choice in Northridge one recent Sunday. He forked over $8.29 for all-he-could-eat offerings of Azteca chicken salad, tuna tarragon, Southwestern black bean soup, pasta, pizza and other freshly prepared items.

"I was surprised that they had a lot of variety," said Carrera, who had not dined at the restaurant before. "I'm a meat eater, but this was good for a change."

David Pertl, chief financial officer of Fresh Choice, sees his company's offerings as a perfect match for people typically drawn to casual and fast-casual restaurant chains. The challenge, he said, is getting people past perceptions of buffet chains as low-quality cafeterias.

With the chain's restaurants concentrated in Northern California, Pertl said, the company has suffered from the tech bust. And he said previous management made mistakes in locating restaurants.

"They didn't understand about trading areas and they put them too close together," said Pertl, who joined the company in 1997.

Garden Fresh has fared better, but has seen its bloom fade considerably since the '90s.

Garden Fresh went public in 1995 at $9 a share and saw its share price climb to $20 by 1999. In the last two years, rising expenses for utilities and insurance, coupled with a too-rapid expansion and a decline in the performance of some stores, took a toll on the company's profit picture, said David Qualls, chief financial officer.

Earnings have been on a roller coaster. In 2001, they dropped nearly 60% to 42 cents a share, down from $1.02 in 2000. Last year they were back up to 98 cents, Qualls noted, but added, "That kind of up-and-down performance won't help your stock grow."

The salad buffets are doing better than traditional meat-and-potatoes buffets that tend to attract large numbers of seniors and value-seeking families.

And despite the current problems, Qualls and Pertl remain firmly planted in the salad buffet camp. They believe that an improving economy and spicy new menu items, such as trendy Mexican-themed salads, will perk up sales.

"I think there is a place for buffets, but they have to be contemporary," Qualls said. "As a group, we haven't done a good job of that."

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