Embers America Restaurants

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Embers America Restaurants

1664 University Avenue
St. Paul, Minnesota 55104
U.S.A.
(651) 645-6473
Fax: (651) 645-6866
Web site: http://www.embersamerica.com

Private Company
Incorporated: 1956 as Embers Restaurants Inc.
Employees: 1,000
Sales: $16.6 million (1998)
NAIC: 533110 Franchising; 722110 Full Service Restaurants

Embers America Restaurants, which began as a single-unit neighborhood restaurant in the mid-1950s, has transformed itself into a unique franchising operation. The Embers America concept links independently owned restaurants but allows franchisees to use their own name and menu items in combination with the Embers logo and proprietary food offerings. Embers targets restaurants along major freeways and secondary highways, ones which travelers often bypass in favor of well-known chains, such as Denny’s, Perkins, McDonald’s, or Burger King. The company is owned and operated by one of the founding families.

Childhood Friends Building a Business: 1950s–70s

Henry Kristal and Carl Birnberg met as fifth graders, remained friends throughout school, and eventually signed up for the Navy together. Greasy-spoon hamburgers and military food were sorry substitutes for the home cooking they had both enjoyed while growing up in Minnesota.

“We used to write back and forth to each other,” Kristal recalled in a 1998 Twin Cities Business Monthly article by Brooke Benson. “We’d say, ‘wouldn’t it be great if there was a place that common people could go and have a good meal for a low price?’ That became our goal.” They achieved their goal, in 1956, when they opened a 36-seat restaurant in a south Minneapolis working class neighborhood; a loan from a local restaurant supplier helped fund the venture.

The restaurant’s signature Emberger—a quarter pound of beef topped by a special sauce—sold for 45 cents. A bacon cheeseburger, the Emberger Royal, went for 30 cents more. By comparison, during the period, higher priced restaurants charged $4 to $5 for a steak dinner, a price out of reach for a lot of working people.

The men prided themselves on a quality product. Their hamburgers were larger and leaner than most being sold and were charbroiled rather than fried. Their business was well received. Some customers were drawn back for the burgers, while others sought out the homemade pancakes or other breakfast items which were sold around the clock.

About six months into the operation, Kristal and Birnberg opened a second restaurant, this time across the Mississippi River in St. Paul. The men expanded exclusively in the Twin Cities area until the early 1970s. In 1972, units opened in St. Cloud, Minnesota, and Cedar Falls, Iowa.

A couple years later, the men kicked off the opening of a store in Mankato, Minnesota, with a 100-pound Emberger. Other attention-getting promotions of the era included their television advertising efforts. The 1970s “Remember the Embers” jingle is etched somewhere in the minds of many Midwesterners.

Twenty-six Embers restaurants were in operation by 1978. The men contributed their success to their innovative ways, claiming a number of market firsts. Not only did they up the ante in terms of burger size, wrote Benson, “Kristal and Birnberg swear they were the first to put bacon and cheese on a hamburger.” The chain also claimed leadership status in their television advertising and newspaper coupon efforts.

Flames Flickering: 1980s to Mid-1990s

The company’s marketing efforts began to go awry in the 1980s, when the business began emphasizing pricing over quality and value. The once healthy lunch and dinner crowds began to thin as advertising focused more and more on discounted breakfast specials such as the $1.99 “Blockbuster Breakfast.” The practice also began eroding Kristal and Birnberg’s business relationship: the two disagreed about how long to push the discounted meals.

Attention to daily operations began to slip about this time, according to a January 1998 Star Tribune article by Dick Young-blood. “Our customer service, at best, was unoffensive—not terrible, but indifferent, mediocre,” said Henry’s son David Kristal. “So was our ongoing maintenance: Burned out light bulbs remained unchanged for too long, for example, or a tear in the vinyl went unrepaired.”

Their once meticulous renovation cycle lapsed as cash flow grew tighter. A belated effort to turn things around by raising prices resulted in the exit of those customers primarily attracted by the discounts. Changes in the market had also put pressure on Embers.

Independently owned businesses faced competition from an increasing number of large chains, such as Applebee’s or TGI Friday’s, which targeted the family dining market but also sold more profitable beer, wine, and liquor items. Meanwhile, Embers’ sales stagnated as costs continued to rise.

“Fortunately, while the profit-and-loss statement was under siege, the relatively conservative management of the recent past left the company with an exceedingly robust balance sheet: There was no debt, and Embers owned most of its 26 restaurants, and the real estate beneath them, in Minnesota, Wisconsin, Iowa, and the Dakotas,” reported Youngblood.

As the pressure continued to build on the business his father co-owned, David Kristal was embarking on a different career path. He graduated from Stanford Law School in 1990 and then returned home to work for a St. Paul-based law firm. Kristal gained some notoriety for himself when he and another Winthrop & Weinstine attorney helped a small Atlanta company gain a much sought after contract for the cleanup of New York’s World Trade Center after a 1993 bomb blast. The experience also helped Kristal clarify what he liked and did not like about the practice of law.

David Kristal liked the business part of law, the deal-making, he revealed to Twin Cities Business Monthly, but not the research and writing end of the work. Consequently, when his father asked him to come work for Embers in 1993 he agreed—David had worked for the small chain as a cook and waiter during his high school and undergraduate years. Carl Birnberg’s son Brad also came on board at the time. The founders hoped the new blood would help shake things up.

The younger Kristal served as vice-president and general counsel for the next two years, but when the gridlock over strategy continued, David went to work for a development firm. While with Minneapolis-based Weisman Enterprises, according to Benson, Kristal helped educational institutions “generate new forms of revenue and develop private public partnerships.”

In 1997 things at Embers changed, and Henry asked his son to consider coming back to the company one more time. The Kristals were now sole owners of the floundering business: Henry had bought out his longtime partner. David Kristal recounted to Benson, “I said, I’ll come back to the company, but there can be only one decision-maker, one leader.” His father agreed but not without some trepidation, for David had his work cut out for him.

Sales peaked in fiscal 1993 at $22.5 million, then fell over the next four years, sinking to $20.7 million in fiscal 1997. The company experienced its first losses in its 40-year history during 1996 and 1997. Now on their own and with David at the helm, the Kristals embarked on an aggressive $5 million rebuilding program to “Rekindle the Embers.”

The program, begun in 1997, pumped more than $1.5 million into staff retraining; staff also expanded by about ten percent. Customer service had to be improved, and the Kristals employed a variety techniques to do so. Team building and customer service contests and store level promotions were added to the mix. Employees began going the extra mile for customers, and managers began displaying some entrepreneurial spirit.

About $1 million of the “Rekindle the Embers” funds were targeted for menu revamping. Kristal slashed the number of offerings in about half, from 152 to about 85, by weeding out less popular items and size variations. Embers also cut prices by five to ten percent and upped portion size by as much as 20 percent. Hooks such as a 35 cent desert (“The World’s Smallest Hot Fudge Sundae”), Vienna Beef’s Chicago Style Hot Dogs, and improved specialty bread items enticed new and former customers.

Embers doubled their ad and promotion budget. Part of the $1.5 million went to a television ad blitz. On the other end of the spectrum, the company sought to strengthen its connections with customers through community support and involvement.

The restaurants themselves received a $750,000 makeover: remodeled interiors and updated signs and exterior awnings. An additional $300,000 was earmarked for new point of service computer equipment—the old equipment was badly outdated.

Company Perspectives:

The Embers America program is truly revolutionary, as it has never been attempted in the restaurant industry before. We believe the restaurant industry has come full-circle, from mom and pop shops of the past and today’s fast food giants to a future that encompasses the best of both worlds. When an independent restaurant operator becomes a franchisee, he or she will discover vastly improved purchasing power and higher quality products, increased brand awareness and marketing power and enhanced growth. These tools will allow them to fight back against the industry’s giants... and win.

Taking It to Another Level: Late 1990s

The Kristals rebuilding plan was not limited to rekindling the company. They were positioning themselves to change the nature of how they had been doing business. Seven poorly performing stores were closed, and a plan to move from owner/operator to franchiser was set in motion.

“It’s truly revolutionary. It’s never been done before,” said Kristal in a June 1998 Minneapolis/St. Paul CityBusiness article by Dirk DeYoung, about the Embers America concept. Following the example of Ace Hardware stores, the Kristals wanted to created a group of affiliated yet unique restaurants.

In return for a $15,000 initial fee, one percent royalty on gross revenues, and a 6.5 percent royalty on sales increases after the implementation of the agreement, independent restaurants tied themselves to a well established Midwest trademark but retained much of their own identity.

Other franchisers required huge sign-on fees and a cookie-cutter image. Embers franchisees would carry a core group of trademark items, such as Embers America burgers and pancakes, but would sell their own specialty products and use their name in conjunction with the Embers logo. The smaller operations would benefit from their affiliation with Embers in terms of mass marketing, buying, training, and technology.

The concept was not without risk for both Embers and a potential franchisee. First, would the affiliation provide enough financial gain for a small operation to make the upfront cost worth while? Second, would the dilution of their independent status cost them customers? Embers, on the other hand, relinquished direct control over key signature products.

Times had certainly changed for Embers. The company, for example, now transmitted information such as proprietary recipes to franchisees via its Intranet system—a far cry from the days when Henry and Carl kept their recipes in a tin box in the kitchen. Their approach to advertising had changed dramatically as well.

The father-and-son team appeared in television ads both in and outside their market areas to pitch the endeavor. David and Henry touted the Embers “Real American Food” while asking patrons of good family-owned restaurants to call their toll-free number with referrals for the franchising operation. Ad consultants had been wary of the approach and warned that their Dave Thomas-like (Wendy’s) spin to their commercials might backfire.

Could they as non-actors convey the intended image? Would the abandonment of their 15-year emphasis on pricing result in another loss of customers? But David said, in a Minnesota Business & Opportunities article, that they “wanted to be noticed,” so they had to take the risk.

Their gamble paid off. They were noticed. Henry and David became recognizable figures in their target markets. “You’ve seen the ads: the impish Henry, 66, and the businesslike David, 33, knocking on the door of an ice-fishing house to explain their new menu and their money-back guarantee of customer satisfaction,” wrote Youngblood back in September 1998. Other ads showed a reluctant Henry, in full colonial garb, being urged on by David to introduce the Embers America concept.

Embers’ economic outlook appeared to be as upbeat as its ads. The company ended fiscal 1998 with sales of $16.6 million, up 18 percent from 1997 (the figures included the 16 remaining corporate stores). By September 1998, Embers had franchised three restaurants, and three corporate stores were in the hands of longtime managers. (Plans for the first new corporate stores since 1978 were also being tossed around.)

Optimistic View of the Future

Anticipating expansion into other markets, Embers signed on with Todd Daniels Marketing Group, a St. Paul-based firm, early in 1999. The company had depended solely on freelancers during the initial phase of its makeover but now wanted someone to coordinate all marketing activities. In May, Ember’s America’s growth plan was bolstered by the infusion of $3 million in financing.

The Kristals’ franchising goal was to bring in 50 restaurants in about the first 12 months and 1,000 or more over the next five to seven years—the company reported one franchiser had received a sales boost of 30 percent since signing on. As of July 1, 1999, four corporate restaurants and 26 franchise locations were operating in Minnesota, Wisconsin, Iowa, and North Dakota. David and Henry, in the meantime, continued to cut up the airwaves with their offbeat ads.