Food chain grows in lean times

Food prices? Spiraling. The economy? Slumping. The restaurant biz? Stuck with the check.

So why is David Goronkin so confident?

The new CEO of Redstone American Grill says he just can't lose. Even as recent headlines bring fresh warnings of restaurant companies struggling to pay their tab, Goronkin says Redstone will grow from four restaurants today into a national brand.

The Wayzata-based company has already won $26.5 million in financing. Investors include Redstone founder Dean Vlahos, and local businessmen Tom Petters and Lyle Berman.

And then there's the counterintuitive idea that to make it in a tight economy, Redstone should have higher, not lower, prices than a typical meal at Applebee's, the 1,900-restaurant king of the $70 billion casual-dining industry.

"We know where we're going," Goronkin said. "I've been in this business long enough to know that this concept will be successful, and we will have a national brand," he said.

Walk into a Redstone restaurant and you think you've stepped into the dining room of a posh North Woods cabin, with high ceilings, an open kitchen and a stone fireplace. A bar set in the middle holds square glass canisters of the restaurant's corn bread.

This is the setting for the company motto, "spirited, rugged and romantic," a vision of Redstone founder Dean Vlahos, a man who in an earlier life created the Champps restaurant chain.

The American-style menu features starters such as $13 crab cakes and a $10 jerk chicken fondue to dinners ranging from $10 burgers to $34 filet mignon.

The first Redstone opened in Minnetonka in 1999. New locations opened in Eden Prairie in 2002, Chicago in 2004 and Marlton, N.J., in 2006.

The company, with $33 million in sales in 2007, plans aggressive growth this year, with a restaurant soon to open in Philadelphia followed by one or two more this year and three more openings in 2009. The company has no current plans for more Minnesota restaurants.

To get there the company has leaned on approximately 40 shareholders who put up $10 million. And last month Vlahos borrowed $16.5 million from General Electric Capital Corp., a Fairfield, Conn.-based subsidiary of General Electric Co.

Recession fare

Munching on a Redstone chopped salad during a recent interview, Goronkin said Vlahos spent months studying restaurants nationwide before settling on the Redstone concept.

"He's a great student of what the consumers are looking for," he said.

The niche of upscale casual dining has fewer competitors than the more crowded casual-dining industry, where companies offer $11 to $13 meals. Instead of Applebee's, Redstone hopes to lure people away from the Cheesecake Factories, Big Bowls and P.F. Chang's.

"We think there's a lot of room in that space for a national player," he said.

It's counterintuitive at a time when sales at Applebee's and other big casual-dining companies have suffered for months as high gas prices force loyal customers to skip dessert, order less or just stay at home.

The latest bloodletting involved Old Country Buffet parent Buffets Inc., which appears headed toward bankruptcy after missing an interest payment on a bond. Goronkin knows Buffets particularly well -- he was once a senior executive at the Eagan-based company.

"Casual dining has really been in the doldrums" in the past year or two, said John Hamburger, publisher of the Restaurant Finance Monitor, an industry newsletter. "The whole casual-dining concept is kind of being questioned right now."

IHOP, the owner of industry leader Applebee's, saw its stock value sliced in half in the last months of 2007, sliding from an all-time high of $71.70 in September to $34.70 by year-end. It rebounded in the first few weeks of this year to about $46 a share.

And Redstone's competition may be largely local, for example Parasole, the company behind Twin Cities restaurants Chino Latino, Salut Bar Americain, Muffuletta, Good Earth and others. Their higher-priced menus draw more affluent customers, people who are still eating out despite the slumping economy.

Redstone's typical customer -- who makes more than $70,000 a year -- won't stop eating out during a recession, Goronkin said.

In the business since age 14

Goronkin calls himself a product of chain restaurants, a guy who at 14 worked at his hometown Dairy Queen in Scottsdale, Ariz. Even after college he stayed in the restaurant industry, first for Ralston Purina's Stagg & Hound restaurant company in Phoenix, then for a TGI Friday's franchisee in the Kentucky area. The franchisee started opening up Godfather's Pizza locations but grew too fast and shut down the locations Goronkin was working on.

He went to Chi-Chi's based on a tip from the franchisee, where he stayed for more than 10 years, managing, operating multiple locations and finally as a franchisee himself before selling the restaurants back to the company.

He joined Hometown Buffet when it had 30 locations and had just gone public, then grew with the company as it acquired the Old Country Buffet, staying with the company for nine years before joining Famous Dave's as CEO in December of 2003.

Goronkin went on to build Famous Dave's BBQ from 80 locations to 157 over the past four years.

His departure for Redstone, where he was a member of the board for the past two years, was a six-month negotiation, according to Redstone founder Vlahos.

His hopscotch around the nation with various companies gave him insight into customers around the country, Goronkin said. He now lives in Chanhassen with his wife and three teenage children.

Focus will keep the company successful, he said.

"There are a lot of distractions out there today and it's easy to say, 'Gee, if we could just sell this one more widget ...' but is it believable? Is it consistent with your brand strategy?"

"We will grow thoughtfully. We're going to do it with the right people and the right real estate."

Matt McKinney • 612-673-7329