Famous Dave’s of America, Inc.

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Famous Dave’s of America, Inc.

7657 Anagram Dr.
Eden Prairie, Minnesota 55344
U.S.A.
Telephone: (952) 294-1300
Fax: (952) 294-1301
Web site: http://www.famousdaves.com

Public Company
Incorporated: 1994
Employees: 1,800
Sales: $70.2 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: DAVE
NAIC: 72211 Full Service Restaurants

Famous Dave’s of America, Inc. is a growing restaurant business that was founded in 1994. Forty-five Famous Dave’s barbeque restaurants operate in seven states in three different types of theme styles: roadhouse barbeque shack, hunting lodge, or blues club. The Minnesota-based company has an aggressive expansion and franchisee plan to create more restaurants each year and is well known, not only for its unique atmospheres but its barbecue fare, which is also marketed outside its establishments to other retail outlets.

Beginning of Famous Dave’s: 1994-95

Dave Anderson opened his first restaurant in 1994 and named it “Famous Dave’s BBQ Shack.” Anderson’s background included sales for a major Fortune 500 company, and an instrumental position in Grand Casinos, Inc. A Chicago native and fan of barbeque, Anderson claims to have searched for the perfect barbeque sauce for twenty years before opening his first restaurant. Located in a Hayward, Minnesota resort he had purchased, the restaurant was a quick success and soon Anderson was serving huge crowds of up to 1,000 daily. The restaurant began as a hobby for Anderson but soon grew to an investment as he spent $2 million into building the restaurant. The restaurant featured his “famous” sauces—Rich & Sassy, Hot Stuff, Texas Pit, Georgia Mustard, and Devil’s Spit.

In 1995 a second location was added in Minneapolis with seating for 75 when the screened-in porch was in use. The “shack” concept with Americana antiques was featured in the restaurant. That same year, Famous Dave’s earned a blue ribbon in the “Best BBQ Sauce in America” contest at the American Royal International Barbeque Contest.

Going Public in 1996

By 1996, Anderson was thinking about growth. His restaurants were generating over $1 million in annual revenues and he was ready to set his sights on a new theme and the national expansion of his dream.

As a Chicago native, Anderson knew that a combination of barbeque and blues music was hard to resist, so in September 1996 he opened a new concept restaurant, featuring both ribs and blues music, in Minneapolis with 9,000 square feet and at a cost of $1.4 million.

In October 1996, the business announced its initial public offering. Traded on the NASDAQ market under the ticker DAVE, the restaurant’s shares saw opening day prices rise from $6.25 to $11.25 on 2.3 million units.

In an article in Nation’s Restaurant News, Chairman Dave Anderson said, “We’ve learned a lot coming out this year. We’re looking to triple our current store base in 1997 with anywhere from six to eight units. We’ve begun to identify sites for 1998 that will take us to out-of-state locations such as Madison, Wisconsin, Chicago and possibly Indianapolis.”

Despite the strong showing in the stock market, the business itself was not producing a profit. At the end of 1996, Famous Dave’s reported a loss of $706,598, compared to a loss of $306,190 for 1995.

New Leadership in 1997

In 1997, Douglas Lanham was named chief executive officer of Famous Dave’s with Anderson still serving as chairman of the board. Mark Payne became president of the company to oversee the finance, real estate, and construction areas.

Regarding the management changes, Dave Anderson said, “I have been on a 20-year quest to bring the best barbeque to America. As part of that mission, I made a commitment at the end of 1996 to assemble the very best team of professionals to execute my vision and take this concept into the future. That team is now in place and ready to implement our expansion plans.”

The company announced plans to open ten locations in 1997, and another 24 in 1998, with a goal to be the first national chain of barbeque restaurants. Nation’s Restaurant News, a. Chicago-based trade journal, named Famous Dave’s one of the “Hot Concepts” in 1997. In June 1997, Dave Anderson received the emerging entrepreneur award from Ernst & Young.

In December, a new concept for the restaurant was launched in addition to the barbeque shack and the blues club themes. This new concept, the Lodge, was based on the northwoods lodges of the 1930s and 40s. Other new restaurants were opened in Stillwater and Highland Park, Minnesota.

At the end of 1997, the news from NASDAQ was as disappointing as the business’ expected losses. The stock fell 44 percent in December based on reports that the company would not be meeting earnings expectations. At the end of the year, the loss was $4.6 million.

Readjusting in 1998 and 1999

At the beginning of 1998, Famous Dave’s was facing two major challenges: falling stock prices and lagging sales. Just a year earlier, its executive team had called for an aggressive expansion, but in 1998, the company revised its plans in favor of more “controlled expansion.”

Corporate layoffs also resulted from the unexpected loss and change of expansion plans. President Mark Payne, Chief Financial Officer Steven Odpahl, Marketing Vice-President Stan Herman, and Franchising Vice-President Tom Ragan all left the company.

Careful evaluation of locations for profitability caused the closing of one of the restaurants in Madison, Wisconsin, with the second location remaining open. At the end of 1998, the company reported a loss of $4.4 million, including $2.7 million in charges for closings and corporate restructuring. Overall sales, however, continued to rise by over 124 percent.

Famous Dave’s opened its 24th location in May 1999. The new location, a second “Famous Dave’s Ribs n’ Blues,” was opened in downtown Chicago and could seat 500. Also in 1999, Anderson published a new cookbook, Famous Dave’s Backroads & Side streets.

In August 1999, President and CEO Doug Lanham left the company and was replaced by Martin O’Dowd, former president of Rainforest Café, Inc. Again, management changes came after falling stock prices. The stock price had fallen from a high of $8.50 in 1998 to a low of $2.56 in 1999. The company also reported a loss of $310,000 for the second quarter of 1999. The net loss for 1999 was $6.61 million.

Turning the Company Around in 2000 and Beyond

The purchase of a D.C.-based Red River barbeque chain created an expansion into the nation’s capital in 2000. Four of the five Red River restaurants were converted to Famous Dave’s joints. The entire acquisition was less expensive than building just one Famous Dave’s location from the ground up.

President and CEO Martin Dowd focused on improving the company and its growth. “To grow this company appropriately, we’ll do it in three ways. We’ll grow our own stores, through acquisition and through franchising,” he said. With two franchises at the beginning of the year, the company focused on marketing its franchise opportunity—even giving one franchise away in a lottery as a promotional effort.

The company also planned to distribute sauces and other food to retail outlets as well as offering stands and stores everywhere from sporting events to airports. Famous Dave’s already had a stand at the Metrodome Plaza and a location at the Minneapolis-St. Paul airport.

In January 2001, the company announced three new contracts that would increase the franchised locations to 27 restaurants in Illinois, Iowa, Georgia, Tennessee, Kentucky, Ohio, Florida, and West Virginia.

For fiscal 2000, the company earned its first profit since going public in 1996. Famous Dave’s reported an income of $2.1 million for 2000 compared to a $6.61 million loss in 1999. Contributing to the positive numbers was a 47 percent increase in revenue to $70.1 million.

Company Perspectives:

Our mission: “Be Famous.” Famous Dave’s of America is committed to creating environments that transcend current restaurant offerings by serving the highest quality, flavor intense foods in surroundings that are stimulating, interesting, and fun. We will he guided by our values and beliefs, creating a culture of productive and empowered associates that provide a service atmosphere certain to delight our guests beyond their expectations. This will result in maximized value to our shareholders and partners. Our passion: “Be Famous. “Famous Dave’s is a flavor intense eating experience that smells great, musically makes you feel good, and visually creates an overwhelming impression that our guests will never forget. We provide exceptional service that wows our guests beyond their expectations, full portions that are value priced, and great flavorful food that creates a craving so strong that our guests are excited to return again with friends. Our purpose: “Be Famous.” We are committed to becoming the best providers ofbarbeque in the nation. We create the best concept, prepare the best food, develop the best brand, and execute the best sensory experience for our guests. We are single-minded in being “Famous.”

“Fiscal 2000 was the first full year of implementation of our three-pronged growth strategy. Even though we have yet to realize the potential of this program, we have had very favorable results in the early stages,” said Martin O’Dowd, president and CEO.

The first quarter of 2001 exceeded expected revenues with an increase of over 3 percent in revenues. As of April 2001, the company operated 35 restaurants with ten franchises.

As Famous Dave’s refocused on the future, a combination of new stores and franchises were planned to add to growth, a strategy perhaps not as aggressive as in the past but one which promised to preserve the now profitable company. The focus remained on the food and the recipes of the company’s founder, Dave Anderson, whose guiding motto was, “May you always be surrounded by good friends and great barbeque.”

Principal Competitors

Applebee’s International Inc.; Hooters of America, Inc.; Timber Lodge Steakhouse, Inc.

Key Dates:

1994:: Dave Anderson opens first Famous Dave’s restaurant.
1996:: New blues-theme restaurant opens; Famous Dave’s is listed on the NASDAQ.
1997:: New management is selected; lodge theme restaurant opens.
1998:: Martin O’Dowd is named CEO.
2000:: Famous Dave’s posts first profits since going public.