Colton?s Steak House Cooks Steady Growth

While the American appetite for sizzling slabs of beef hasn’t changed much during the last couple of decades, the steakhouse itself has. Many of the buffet-style chains that operated thousands of locations – Sizzler, Bonanza, Western Sizzlin’ – have either closed or been forced to adapt.

That scenario is what led Robert Fain and his associates, who owned several Bonanza restaurants in Arkansas, to create the concept for Colton’s, the first of which opened in Conway in 1999.

“The bigger restaurants, the Ryan’s and Golden Corrals, came along with 11,000- or 12,000-SF buildings, and it made it difficult for Bonanza, with its 4,000- or 5,000-SF buildings, to compete,” said Fain, CEO of Colton’s Restaurant Group in Little Rock, which is the franchising company for Colton’s Steak House & Grill.

The most recent addition to the chain opened late last year in Farmington, Mo., bringing the total to 24 in five states.

If the enthusiasm of some of the Colton’s franchisees is any indication, the restaurant has been a smashing success.

“I’ve made the comparison before that these Colton’s are like 7,000-SF cash registers,” said Ed Featherston, who owns two of the restaurants in northern Missouri. “The revenue is always good.”

Revenue for 2009 at the Hot Springs Colton’s was up slightly from the year before, at a little more than $2.1 million, putting it at No. 10 on the list of highest-grossing restaurants in the Spa City.

The Conway location’s $2.37 million in 2009 revenue was down 1.2 percent from the year before. But its profit was up compared with the year before, said owner Tim Nail. The increased profit was the result of controlling labor and food costs. Nail attributed the revenue decline to a number of factors, including the recession and new competition for the consumers’ dollars.

It’s hardly a secret that the recession has been tough on casual restaurants. But Colton’s seems to be weathering the economic environment well, and a franchisee group will likely open a new store later this year in northern Missouri, Fain said.

Colton’s was down about 1.6 percent in overall comparable store sales for 2009, he said.

“All things considered, it still was a good year for us. We got three new stores open,” Fain said.

Beef prices have been very stable over the last year, Fain said.

“The saving grace in this business for the last 12 months has been commodity prices. Most restaurant concepts have dealt with a decline in comp store sales, but commodity prices, beef prices, everything has been down. So we’ve been able to pretty well protect our margins by lower operating costs, even if sales were soft.”

Lower prices have definitely worked in the restaurant’s favor.

“And it looks favorable on through this year,” Fain said. “We’ve been able to negotiate most of our contracts for all of 2010, and 90 percent of them have been at or below where we were in 2009.”

Though CRG is based in Little Rock, there is not a Colton’s location in the city. Fain said if he found an ideal location, he would consider opening one, possibly with other CRG shareholders. However, Colton’s Restaurant Group itself does not own any Colton’s locations.

Other areas that could be right for franchisees to open stores in are southeastern Kansas and eastern Oklahoma, he said.

 

Right Recipe

A focus on food quality was the main priority when coming up with the Colton’s concept, Fain said.

Nail echoed that statement. He started as a busboy and dishwasher at one of Fain’s Bonanza locations and worked his way up to being owner of the Conway Colton’s and serving on the CRG board of directors.

Prior to starting Colton’s, Fain and Nail drove around the country looking at other steak restaurants for ideas and developing the concept.

“The big thing was, we were looking at doing food quality as the No. 1 position – cutting our own steaks every day and using aged beef,” Nail said.

Colton’s only serves steaks that are graded USDA choice or USDA prime, Featherston said. Prime beef, the highest possible grading, accounts for only 2 percent of all beef sold in the country, according to the U.S. Department of Agriculture Web site. The steaks are aged for 21 days before shipping and are cut onsite, with the exception of T-bones, which require a band saw.

“A lot of places will cut their own steaks but can’t have it aged before they bring it in. And then others, when they get so very big, they’ll have it processed offsite and it’ll be brought in frozen,” Nail said.

Another step for ensuring food quality was prepping and cooking as much food as possible at each location.

“We felt that cooking food was more important than just reheating food,” Nail said. “There are several concepts out there that spend a lot of money on microwaves, and that’s something we don’t do.”

Colton’s gets great customer feedback on its food, Fain said.

“If you don’t have good food in this business, you can just shut your doors and move on,” he said.

As far as assistance to franchisees goes, CRG is excellent, said Featherston, the franchisee in northern Missouri.

“Whenever I get on the phone and ask them – and I’m the farthest franchisee away from them – they do not hesitate to send somebody up here to help me. They do not hesitate to answer my questions. They get on top of it right away,” he said. “You couldn’t ask for better people to buy a franchise from.”

 

Small Markets

Another reason for the restaurant chain’s success lies in establishing itself primarily in smaller markets, said Greg Simmons, owner of Simmons Franchise Consulting in Dallas. He has worked with Fain and CRG for several years.

“We like to go into small rural towns that have a decent population to support the investment,” he said. “And normally if you’re the first one there, and it’s a smaller town, your competition will think twice about coming in and therefore you often get the market for quite some time.

“As [the area] grows, you’ll get more competition, but that will be many years after you’ve probably recouped all your investment and you’re rocking and rolling pretty well,” he said.

This is something Featherston has experienced firsthand.

“Colton’s likes to go to little markets,” he said. “My restaurant in Sedalia [Mo.] – there’s not another quote-unquote steakhouse place. The demographics of the town probably wouldn’t let that survive, because you’re talking about a town of 20,000 people or less.”

The Fayetteville store had revenue of $1.1 million for 2009, compared with $2.6 million at Logan’s Roadhouse and $3.3 million at Golden Corral. The Hot Springs Colton’s had 2009 revenue of $2.12 million, according to city hotel-motel-restaurant tax records.

 

Selective Partners

Opening a Colton’s requires a minimum net worth of $1.5 million and liquidity of $750,000 for individuals or groups of partners, according to CRG franchise documents. The initial franchise fee is $50,000, with royalty fees of 4 percent, production fees of 0.5 percent for marketing and local advertising fees of up to 2 percent, all coming out of total sales.

Now that the chain has grown, CRG will offer a reduced initial fee structure and discounts on royalties as incentives for multi-unit operators after the opening of a fifth store. When CRG is considering a potential franchisee, the company prefers the person or group of people to be multi-unit operators, Fain said.

“If we can’t find someone who is interested in doing multiple stores, we’ll pass,” he said.

Controlled growth has been the name of the game for Colton’s.

“There’s been very little, if any, effort advertising or looking for franchisees because we’ve got a pretty good group right now and we’ve been able to do anywhere from one to three stores a year, and that’s worked out pretty good for us,” Fain said.

But Colton’s has generated a significant number of inquiries despite the lack of publicity.

Simmons estimated that maybe two out of 100 people who ask about opening a Colton’s would meet CRG’s standards.

“Most of them think it’s a $30,000 deal and real easy to operate,” he said. “I don’t care what kind of restaurant you’re in, there’s challenges, especially with one that’s full-service like ours. Hiring as many as 120 employees for the opening and training those many folks and then getting it down to 40 to 60 employees that are there after – that’s a lot of supervision and a lot of knowing what you’re doing. It’s more complicated than most people think.”