Ruby Tuesday, Inc.

Ruby Tuesday, Inc.

4721 Morrison Drive
Mobile, Alabama 36609
U.S.A.
(334) 344-3000
Fax: (334) 344-4998

Public Company
Incorporated: 1972
Employees: 36,000
Sales: $620.13 million (1996)
Stock Exchanges: New York
SICs: 5812 Eating Places

Ruby Tuesday, Inc. is a leading company in the casualdining restaurant industry in the United States, specializing in the under-$10 per person category. Its flagship Ruby Tuesday chain has grown to 314 units from its original location in Knoxville. The company also runs two other major chains, both featuring ethnic specialties—Mozzarella’s Cafe, an Italian style restaurant with 47 locations, and the 20-unit Tia’s Tex-Mex. Ruby Tuesday was founded in 1972 with the opening of the Knoxville outlet, enjoyed ten years of expansion as an independent company, then spent 14 years as part of Morrison Inc. (later known as Morrison Restaurants Inc.) from 1982 to 1996, and finally became independent again in 1996 when Morrison split up into three separate publicly traded companies, one of which was Ruby Tuesday, Inc.

Origins in Knoxville

That original Knoxville location had its beginnings in a Hollywood-like deathbed scene. In 1972 Samuel E. (Sandy) Beall was a 22-year-old University of Tennessee, Knoxville, student majoring in finance, who on the side helped William Kholmia manage a group of Pizza Hut restaurants. Kholmia suffered a massive heart attack that year. On his deathbed, Kholmia—wanting his protege to be his own boss—offered Beall $10,000 to open a restaurant.

Beall took up the offer, and together with four of his college buddies scraped together another $10,000 to open the first Ruby Tuesday, which was located near the university campus in Knoxville. Beall named the restaurant after the then-ubiquitous Rolling Stones’ song “Ruby Tuesday,” which he kept hearing on the jukebox. The restaurant itself, which was a converted old house, featured barn wood walls, fake Tiffany lamps over the tables, and a $1.45 hamburger served on an English muffin. Beall also secured the first liquor-by-drink license in Knoxville, which enhanced the restaurant’s popularity with students. Ruby Tuesday’s subsequent success made Beall too busy for school, so he dropped out to devote himself full-time to his venture.

Over the next several years, Ruby Tuesday grew slowly, adding a new outlet about every nine months. As the chain expanded, the rustic decor and inexpensive fare proved popular with not only college students but also young couples. By 1982, ten years after founding, Ruby Tuesday was a chain of 15—nearly all of which were located in regional shopping malls—and Beall had begun to develop a second concept called L&N Seafood Grill.

Sold to Morrison in 1982

As Ruby Tuesday’s rate of growth began to increase in the early 1980s, Beall realized he needed more capital to expand the flagship chain and develop other concepts. He considered taking the company public, entering the franchising game, or selling the company. It was the last option that he eventually took, following a real estate agent/acquaintance’s suggestion that Morrison Inc. might be a likely buyer.

Morrison was a cafeteria and contract food service chain founded in 1920 and headquartered in Mobile. An ill-conceived diversification in the 1960s into motels, china and small wares, insurance, and other disparate areas led to confusion and reduced profit margins by the late 1970s. Morrison’s fortunes were turned around following the appointment of Ernest Eugene Bishop as CEO in 1980. Bishop quickly divested the company of all its non-restaurant and food-service businesses, and then, in April 1982, enhanced Morrison’s restaurant sector by buying Ruby Tuesday for $15 million in cash and stock. At the time, Ruby Tuesday revenue averaged about $1 million a year per restaurant.

Bishop left Beall in control of the day-to-day operations of Ruby Tuesday, making Beall president of the newly created Specialty Restaurant Division of Morrison. Beall soon opened the first L&N Seafood Grill, located in Knoxville, then developed the Silver Spoon Cafe concept, a New York City delicatessen-style restaurant. The first Silver Spoon opened in 1984, also in Knoxville.

Rapid Growth in the Mid- and Late 1980s

By 1985 it was clear that the sale of Ruby Tuesday to Morrison had indeed enabled the restaurant chain to markedly increase its growth rate. At fiscal year-end 1985, there were 35 Ruby Tuesdays in business, more than double the number at the time of the sale, along with seven L&N restaurants. The Specialty Restaurant Division as a whole brought in $70 million in revenue, 11 percent of Morrison’s total. More importantly, the Ruby Tuesday restaurants were improving Morrison’s overall profitability since the Specialty Restaurant Division’s $7.5 million in profits represented 18 percent of the parent company’s total.

The increasing importance of the specialty restaurants to Morrison’s future was quite evident when Bishop decided in 1985 that Beall should be his successor. That year Bishop made Beall executive vice president of Morrison’s specialty restaurants and cafeteria operations. Since before Ruby Tuesday was sold to Morrison, Beall lived in the resort town of Hilton Head, South Carolina, and commuted to Knoxville, where Ruby Tuesday was still based. In 1986 Bishop asked Beall to relocate to Mobile to become president and COO of Morrison, and Beall agreed, proving his dedication and his desire to succeed Bishop by leaving his beloved Hilton Head.

Meanwhile, the specialty restaurants continued to grow at a rapid pace in the late 1980s, nearing the 200-unit mark by decade-end, with more than 125 Ruby Tuesdays among them. All of this growth was achieved through company-owned units, keeping Morrison in total control of operations, control that would have been impossible if the company had decided to franchise. And as Morrison’s cafeteria operations suffered from a general category-wide decline, the specialty restaurants became even more important, accounting for half of Morrison’s profits by decade-end.

Revamped Restaurant Lineup in the Early 1990s

In the early 1990s, in order to provide more growth opportunities and to guard against the fluctuations of the retail market, the Ruby Tuesday chain was shifted from an emphasis on shopping mall locations to a longer-term 50-50 mix of mall and free-standing locations. In conjunction with this shift came Ruby Tuesday’s inclusion in so-called restaurant parks, clusters of dinner houses that share some development and ongoing operational costs and that provide customers a range of restaurant choices in a small area—even the easy ability to switch their restaurant choice if the wait at one restaurant is too long. One of the first restaurant parks featuring a Ruby Tuesday was located in the Denver suburb of Englewood—with the other dinner houses being Chevys, Grisanti’s, and Stanford’s.

In 1992 Morrison restructured itself, emphasizing restaurants over cafeterias by changing its name to Morrison Restaurants Inc. The dinner house restaurants—Ruby Tuesday, L&N, and Silver Spoon—were positioned within Morrison Restaurants as the Casual Dining Group, later known as the Ruby Tuesday Group. The year 1992 also saw Beall become CEO of Morrison, and Morrison posted its first $1 billion revenue year.

In the early 1990s, Beall was beginning to become disenchanted with the L&N Seafood concept. Ruby Tuesday’s success was largely attributed to its per-person check average of $8.75, and Beall was finding it nearly impossible to get L&N’s average even under $10. At the same time, the Silver Spoon concept was not overly successful either, and was considered too similar to Ruby Tuesday itself. Meanwhile, Beall was strongly interested in entering the burgeoning Italian restaurant sector, and signed a letter of intent late in 1992 to acquire Uno Restaurants Corporation and its chain of 110 Italian restaurants. Early the following year, however, Uno pulled out of the deal after a disagreement over the purchase price.

Left without this prize acquisition, Beall decided it was time to abandon Silver Spoon and create a new casual Italian restaurant, to be called Mozzarella’s Cafe. In 1993 Silver Spoon units began to be converted to Mozzarella’s, which featured a variety of pasta dishes and pizzas, as well as fresh seafood, steak, and grilled chicken selections. The check average—$9.50—was higher than Ruby Tuesday’s, but still under the $10 mark; the under-$10 category was where Beall wished to position all of the Ruby Tuesday Group concepts.

Company Perspectives:

We mark our new beginnings, firmly rooted in the success and experience of our heritage, with a new Mission Statement: to be our guests’ first choice, a great place to work, and a great investment. We will strive to make those words more than just words, and we believe their straightforward simplicity make them more memorable and, therefore, more meaningful to our team members and team leaders. All of our day-to-day operations and our near- and long-term plans revolve around guests, employee teams, and share owners.

Beall continued to revamp the Ruby Tuesday Group later in 1993 and in the following two years. The group entered into a joint venture in mid-1993 with the Dallas-based 12-unit Tia’s Tex-Mex, founded by Larry Lavine (founder of the highly successful Chili’s chain), who needed financing to fund further expansion. As part of the joint venture agreement, the Ruby Tuesday Group was given a five-year option to acquire Tia’s, which it did in January 1995 for $9 million in common stock. Tia’s restaurants were conceived to be “reminiscent of a grand old Mexican restaurant,” featured display kitchens and outdoor patios, and offered various Tex-Mex dishes with a $9 check average.

The year 1993 also saw the debut of Sweetpea’s, a Southern style dinner house, in suburban Atlanta. Featuring such homestyle and comfort-type meals as country-fried steak and chicken pot pie and a check average in the $7 range, Sweetpea’s was positioned to compete with such stalwarts as Cracker Barrel and Shoney’s. In 1994, having already grown to four units, the Sweetpea’s name was changed to Snapp’s because the Ruby Tuesday Group could not secure legal rights to the name and because the Dallas-based Black-eyed Pea (another Southern style restaurant) raised objections to the name, fearing customer confusion.

In mid-1994, the Ruby Tuesday Group announced that it would phase out the L&N Seafood Grill concept, given that L&N could not conform to the Ruby Tuesday under-$10 check average. Most of the L&Ns were subsequently converted to either Ruby Tuesdays or Mozzarella’s Cafes, although several were simply closed. $19.7 million was set aside to implement the phase-out.

Mid-1990s and Beyond

In May 1995, Ruby Tuesday entered into a license agreement with Jardine Pacific to develop Ruby Tuesday restaurants in the Asia-Pacific region. The first Ruby Tuesday located outside the United States opened in Hong Kong in July 1995, with additional units planned for mainland China, Singapore, Malaysia, and Australia.

Ruby Tuesday came full circle in 1996 when Morrison was split into three separate public companies: Ruby Tuesday, Inc., the former Ruby Tuesday Group; Morrison Fresh Cooking Inc., comprised of Morrison’s cafeterias and quick-service restaurants; and Morrison Health Care Inc., the health care food service business of Morrison. Of the spinoffs, Beall said, “Now that our businesses have matured, we no longer need a layer of administrative management between these self-supporting independent operations and the shareholders.” Legally, Ruby Tuesday, Inc. was the successor company to Morrison Restaurants Inc.; Beall retained his position as president and CEO of Ruby Tuesday.

Ruby Tuesday’s first year of its second period as an independent company was a rough one. Although revenues increased 20.3 percent to $620.13 million in fiscal 1996, the company posted a net loss of $2.88 million due in part to increased competition in its restaurant sector and in part to $25.9 million in asset impairment and restructuring charges that were posted during the third quarter. First-half 1997 figures showed modest profits but at levels lower than the first half of 1996.

Although off to a rocky start, Ruby Tuesday, Inc.’s potential as an independent company was great. Beall planned to open 35-40 new restaurants each year, and set a goal of having 500 Ruby Tuesdays in place by 1999. He also planned to start offering franchises to help achieve these goals, with the western United States—largely untapped territory—slated for franchised growth. There also was the potential to develop another hot concept, and Beall had mentioned an under-$10 Asian restaurant as a possibility. Overall, Beall set an ambitious goal of growing Ruby Tuesday, Inc. into one of the top restaurant chain groups by the turn of the century.

Principal Operating Units

Ruby Tuesday; Mozzarella’s Cafe; Tia’s Tex-Mex.

Further Reading

Bernstein, Charles, “Beall Puts the ‘More’ in Morrison: Samuel E. ‘Sandy’ Beall III Is Determined to Make Morrison Inc. a Casual Restaurant Chain Empire Every Bit as Strong as Brinker and General Mills Restaurants,” Restaurants & Institutions, July 1, 1994, pp. 20–22, 26, 30, 34.

——, “Morrison: Hello, Ruby Tuesday,” Restaurants & Institutions, August 26, 1992, pp. 27–28.

Carlino, Bill, “Forging a New Identity,” Nation’s Restaurant News, March 28, 1994, p. 66.

——, “Morrison Splits into 3 Companies,” Nation’s Restaurant News, October 9, 1995, p. 1.

——, “Ruby Tuesday Tunes Trio, Adds Sweetpea’s to Stable,” Nation’s Restaurant News, May 24, 1993, p. 5.

Gordon, Mitchell, “Morrison’s Moves: Cafeteria Operator Profiting from Full-Serve Eateries,” Barron’s, September 30, 1985, pp. 50–51.

Greenwald, Judy, “Profitable Recipe: Morrison Finds Few Things Beat the Cafeteria Trade,” Barron’s, September 13, 1982, pp. 52–53.

King, Paul, “Divided They Fall: Former Morrison Cos. Face Drop in Profits,” Nation’s Restaurant News, May 6, 1996, p. 11.

Palmeri, Christopher, “Hello, Ruby Tuesday,” Forbes, December 20, 1993, p. 194.

—David E. Salamie