Baltimore, MD-based Majestic Group Inc. acquired the franchise and development rights, beginning in 2005, the territory will be developed over eight years.
The agreement with Majestic marks the third franchise venture in the Pacific Rim for Ruby Tuesday, following Hong Kong and Taiwan. The restaurant operator currently owns, operates and franchises more than 750 casual dining restaurants in the United States and around the world. Besides Hong Kong and Taiwan, Ruby Tuesdays are currently located in Canada, Chile, Greece, Honduras, Iceland, India, Kuwait, Mexico, Puerto Rico, Romania and Trinidad.
The international expansion is continuing despite the fact that same-store sales for the second quarter fiscal 2005 declined significantly. At company-owned Ruby Tuesday restaurants, sales decreased 8.6%, while same-store sales at domestic franchise Ruby Tuesday restaurants decreased 5.1%.
Chairman and CEO Sandy Beall notes that same-store sales for September, October and November at company-owned restaurants were down 8.9%, 8.7% and 8.1%, respectively. He attributes the decrease to a shifting business model.
"We're moving away from previous business model that provided… strong financial results for a long-time, now more emphasis on price and advertising," Beall says. "We hoped that the transition would evolve over several years… hoped that it would have gone smoother."
In particular, Beall points to the reduction in coupons as the company transitions to media advertising like its competition and portion problems. The company estimates that 4 to 6% of the same-store sales decline for the quarter resulted from less couponing. "We did not understand the magnitude of the coupon program," he says. However, he adds that Ruby Tuesday is spending more on advertising – roughly $5 million per quarter.
According to Beall, the problems with portion sizes have been solved. And, the restaurateur will launch a new menu on January 18, 2005. "It's the best menu we've ever had – the best for value and quality," he says.
"We know it's painful right now… it may take us two to three quarters to get through this tough period, but we do believe we can drive sales," Beall concludes.
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