Granite City will open more restaurants

Minneapolis-based company gets financing to expand its dining and drinking empire.

Granite City Food & Brewery, the dining and drinking concept that got its start in St. Cloud 13 years ago, is on the move again with new financing for national expansion.

While the ambitious chain has been a perpetual money loser, Granite City has been racking up respectable gains in customer traffic despite the restaurant industry's continued weakness. And its new majority owner has now injected two rounds of fresh capital, more than $15 million altogether.

Minneapolis-based Granite City said Monday that it has obtained $6.5 million to fund its growth in a stock-for-cash transaction that will increase the holdings of its largest shareholder, Concept Development Partners, by 3.125 million shares. Concept already has a 72 percent ownership stake.

Granite City, which last month opened a 260-seat restaurant in Troy, Mich., will use the funds to help finance an October opening in Franklin, Tenn., near Nashville; a store in downtown Indianapolis around the first of next year; a site in Cleveland and other potential locales.

With the Tennessee and Indianapolis locations, Granite City, with $93 million in sales last year, will have 29 restaurants in 13 states. "We're ready to roll. We're very excited," said Granite City founder and president Steve Wagenheim. "This allows us to lengthen our development pipeline."

Concept Development Partners became Granite City's majority owner in May 2011, infusing $9 million of equity and lining up $10 million in new credit. Concept is a partnership of one-time McDonald's executive Robert Doran and CIC Partners, a Dallas-based private-equity outfit.

Granite City's format features its own roster of craft brews coupled with an expansive menu, with most food items priced between $8.49 and $17.99.

Wagenheim said Granite City's expansion plans were put on hold from 2008 through 2010 because of the recession. Its restaurant in Rogers, Ark., was closed during the downturn. But with the ownership change, the company is expanding again.

In late 2011 and early 2012, it bought six Cadillac Ranch All American Bar & Grill restaurants in five states, including one at the Mall of America. And the Granite City brand is growing once again.

Wagenheim said the new Troy, Mich., store is already the highest-volume store in the Granite City system. The restaurant is a prototype for future Granite City sites, with a larger bar and private dining room.

The casual-dining business -- Granite City's turf -- still hasn't fully recovered from the recession, and it's an intensely competitive segment, including such national chains as Applebee's, the Cheesecake Factory and P.F. Chang's.

In the year ending in March, the casual dining industry posted $6.5 billion in sales, down from around $7 billion before the recession took hold, according to market researcher NPD Group.

While larger national chains together managed a 1 percent annual sales gain through March, the overall category fell 2 percent, pulled down by small chains and independent operators, said Bonnie Riggs, a restaurant analyst at NPD.

"The little guys just don't have the [marketing] means to go up against the larger chains," she said. Thus, they need a particularly sharp concept to succeed, she said.

Granite City's concept has held up, at least as measured by customer traffic counts, an important gauge. Traffic rose 3.5 percent in 2011 over 2010, leading to a 3.6 percent gain in same-store sales, federal securities filings say.

Granite City's thinly traded stock closed Monday at $2.19, up 9 cents or 4 percent.

dphelps@startribune.com • 612-673-7269 mhughlett@startribune.com • 612-673-7003

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