How Ruby Tuesday Is Like JC Penney


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Is Ruby Tuesday the restaurant version of J.C. Penney? In some ways it is.

Both are legacy brands in mature industries operating in a changing market. Both had activist investors who drove major changes in the company that ultimately led to a change in CEOs. And both concepts have struggled ever since.

To be sure, the comparison is not perfect. While many of J.C. Penney's problems can be traced to changes made by activist Bill Ackman's handpicked CEO, Ron Johnson, the problems at Ruby Tuesday took root long before investors Becker Drapkin took a position in the concept in 2011. Nevertheless, in both cases the current CEOs are left trying to get their respective brands back in their customers' good graces.

Like J.C. Penney, Ruby Tuesday tried to upscale itself under former CEO Sandy Beall and took its eye off of its core customer. The chain tried differentiating itself from the "sea of sameness" that marked the bar & grill sector, by changing its menu to be more upscale—and more expensive. The company wanted to become like a "dinner house concept" and had a goal to increase its average check to about $14.

It didn't work.

The economy has continued to be hard on casual dining concepts. Their customers have been value focused. This is particularly true for Ruby Tuesday's customers that have traditionally struggled more than have the customers of its competitors. In short: by focusing on higher-priced items, it took the focus off of its traditional customer. And, frankly, those customers that did have money probably weren't going to go to Ruby Tuesday.

This is a big challenge for casual dining. At the recent MUFSO conference, held by Nations Restaurant News, we heard suggestions that casual diners try to give consumers an upscale experience for a casual dining price. Perhaps that a noble goal, but if that upscale experience comes with a higher average check, then that's going to alienate existing customers that don't have the money to pay that higher average check.

Not surprisingly, Ruby Tuesday's sales have worsened. Same-store sales at company-owned locations plunged 11.4 percent in its most recent quarter. The company says that comps will fall in the "high single digits" this quarter. The result: Ruby Tuesday's stock price has fallen off a cliff today, by more than 17 percent.

The current CEO, JJ Buettgen, is working through a return to the company's bar & grill roots, to "re-establish Ruby Tuesday as a fun, energetic and broadly appealing brand," he said in the company's financial release. Ruby Tuesday is introducing a bunch of new menu items that range in price from $5.99 to $9.99 in the hopes of bringing those customers back. It remains to be seen whether that effort will work, but the process will likely be painful.

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