Hops Restaurant Bar and Brewery

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Hops Restaurant Bar and Brewery

2701 North Rocky Point Drive, Suite 300
Tampa, Florida 33607
U.S.A.
Telephone: (813) 282-9350
Fax: (813) 282-9307
Web site: http://www.hopsonline.com

Wholly Owned Subsidiary of Avado Brands, Inc.
Incorporated: 1989
Employees: 7,290
Sales: $186.5 million (2000)
NAIC: 722110 Full-Service Restaurants; 312120 Breweries

Hops Restaurant Bar and Brewery is the largest chain of brewpubs in the United States, with over 70 units in 16 states. As a microbrewery and a casual dining restaurant, Hops complements the meals its serves with handcrafted beers, including seasonal beer, brewed on-site with original recipes. The company emphasizes food quality, using fresh ingredients and made-from-scratch recipes. Hops’ menu offers steaks, hamburgers, chicken, ribs, pasta, seafood, salads, and desserts. Signature dishes include Walker’s Wood Shrimp, with Hops’ proprietary sauce; Jamaican Top Sirloin, marinated for 72 hours in a sauce made with pineapple, soy, and ginger; and, for dessert, fresh Key Lime Pie.

New Restaurant Concept: 1988

David Mason and Tom Schelldorf moved from Kentucky to Florida in 1988 to open the first Hops Grill and Bar. They traveled to Tampa with many years of experience in restaurant chain operations and with the intention of developing Hops into a chain of brewpubs. Both had held management positions at Houston’s Restaurant and at the Steak & Ale chains. Also, Schelldorf was involved in development of the Rafferty’s Restaurant & Bar concept and chain in Kentucky. Mason and Schelldorf sold their interests in four Rafferty’s units and 18 Wendy’s franchises in Tennessee and Kentucky to fund the start-up of Hops.

In formulating the Hops brewpub concept, Mason and Schelldorf were inspired by George Biel, founder of Houston’s Restaurant, and Norman Brinker, founder of Steak & Ale, Bennigan’s Grill & Tavern, and Chili’s Grill & Bar. These restaurant chain concepts involved limited menu options, meals made from scratch, and excellent service in a casual yet ambient setting. Mason and Schelldorf combined the popular casual dining concept with another new concept, the restaurant with an on-site microbrewery. While most brewpubs emphasized the handcrafted beer over the food, the Hops founders planned to serve high-quality food as well. The company used fresh ingredients, rather than from frozen or canned foods, and original, made-from-scratch recipes for everything, including soups, sauces, and salad dressings. Hops served hand-patted hamburgers prepared with freshly ground chuck beef and pork ribs smoked on the premises.

Mason and Schelldorf chose the Tampa area in which to start the Hops restaurant and microbrewery, seeing that the diversity of the population provided a good test market for the concept. The first Hops opened in a small shopping center in Clearwater in November 1989. Located in a 5,000 square-foot building, the brewpub sat up to 165 customers, mostly in booths, in a rustic yet ambient atmosphere with wood walls, soft lighting, and carpet in the dining room to minimize background noise. Open for lunch and dinner, meal prices ranged from $6.00 to $12.00 and a frosted mug of handcrafted beer cost $2.25.

Hops produced four kinds of beer from original recipes using imported Czechoslovakian hops: Clearwater Light, a low calorie beer; Alligator Ale, a full-bodied, mahogany ale; Hammerhead Red, a malt amber ale; and Lightning Bold Gold, lager style beer. The microbrewery produced 750 to 800 barrels of beer each year, over 100,000 glasses per month. Hops offered customers a tour of the brewing process led by brewmaster Tom Netolicky or a store manager. The low cost of producing beer in-house, as compared to purchasing beer from a distributor, allowed Hops to provide good value on their meals and provided financial stability against the variable cost of food products. While food sales at brewpubs usually account for 40 to 50 percent of total sales, Hops meal items accounted for about 85 percent of total sales. At Hops the beer acted as a complement to the meal, rather than as the main attraction.

With the success of the first Hops Grill and Bar, Mason and Schelldorf opened new locations in the Tampa area, following a strategy of slow, profitable growth. Hops opened units in North Tampa, South Tampa, and Palm Harbor, each with its own brewmaster. A fifth unit opened in Bradenton in summer 1993. That year Hops recorded $12 million in sales and $670,000 in profits. Locations opened at least one year recorded average sales of approximately $2.75 million, with check averages at $10 per person.

The structure of the Hops’ restaurants evolved with new development, channeling customers past the display kitchen as they were escorted to their tables. Hops slowly enlarged the size of each unit for added seating capacity. Each unit required approximately $1 million to develop, including $160,000 for brewing equipment. One of the tricks to opening a Hops brewpub involved beginning the brewing process one month before the scheduled opening; brewing began during the final stages of interior construction, even before hiring the staff.

In preparation for continued expansion, Hops hired John Schwaizen as vice-president of brewing operations. Schwaizen was a third generation brewmaster recently retired from the Anheuser-Busch brewing company, while most of the store-level brewmasters started making beer at home as a hobby. Hops’ brewmasters met weekly to taste each other’s beer as a test for consistency of taste and quality.

Hops’ management planned to expand the chain both inside and outside the state of Florida. They controlled the process of expansion by company ownership of the brewpubs, rather than by selling franchises. The company formed a joint venture with another Steak & Ale veteran Camp Fitch to develop four Hops brewpubs in Jacksonville, Florida. Another partner planned to open units in Kentucky, Tennessee, and Alabama. Development outside of Florida depended on the state-by-state repeal of laws that prevented the operation of microbreweries. In 1994, Hops opened three more restaurants in Florida (one each in Lakeland, Jacksonville, and Ft. Lauderdale) and one in Bowling Green, Kentucky. Hops entered the south Florida market with a store opening in Coral Springs in October 1995 and in Boynton Beach in early 1996. Hops opened in Denver, one of the country’s largest brewpub markets, in March 1996; another opened in North Carolina. By the end of 1996, Hops counted 18 brewpubs in four states. In 1997, Nation’s Restaurant News named Hops as one of the “Hot Concepts.”

In addition to the product they sold, Mason and Schelldorf attributed the success of Hops to a number of factors, including its treatment of employees, the restaurant’s public image, and maintaining customer approval. Creating a fun work atmosphere and involving employees in decision-making led to a high rate of employee retention. Hops also offered sales incentives to servers and issued “Smart Cards” to both front of house and back of house employees to recognize good job performance; they used the cards for prize drawings, occasionally giving away a television or stereo. While Hops advertised in radio and print, Mason and Schelldorf preferred direct interaction with the public through sponsorship of charity golf events and “Taste of …” festivals. Word-of-mouth ultimately provided the best advertising. Perhaps most important to its success, Hops maintained repeat customer business with a changing menu, which evolved with customer tastes.

1997 Merger With Apple South

For two years Mason and Schelldorf sought to take Hops public, to raise funds for expansion, and to pay down its debt, but the market was not receptive. The reasons for this situation were various. It may have been due to the slow pace of growth at Hops; fluctuating profits, with only $1,000 net income on $24.3 million in sales in 1995; or simply saturation during a bull market. Nevertheless, Hops found capital funds and debt relief through a merger with Apple South, the largest franchisee of Applebee’s Neighborhood Grill & Bar, its main territory being in the southeastern United States. Other chain restaurants owned by Apple South included Don Pablo’s Mexican Kitchen, McCormick & Schmick’s upscale seafood restaurants, and Canyon Café, serving southwestern cuisine. Apple South acquired Hops in March 1997 for $31.5 million, involving $15.7 million in cash and $15.8 million in stock, plus $25 million in assumed debt. In June, Mason became chairman and retained his position as CEO, while Schelldorf became president and COO, overseeing brand and divisional development. Shortly afterward Mason left the company.

Expansion of the Hops chain accelerated under new ownership. In summer and fall 1997, four new units opened in South Florida, near shopping malls in Plantation, South Dade, Pembroke Pines, and Pompano Beach. Hops surpassed Colorado-based Rock Bottom Brewery as the largest chain of brewpubs in the United States. New development followed in North and South Carolina, Tennessee, and Georgia.

In February 1998, Hops changed its name from Hops Grill and Bar to Hops Restaurant Bar and Brewery. The change followed from a dispute between Tom E. DuPree, Jr., Apple South founder and CEO, and the Applebee’s franchisor. The franchisor contended that Apple South had violated development agreements in Hops similarities with Applebee’s, including menu and operations as well as the words “grill” and “bar” in the name. In addition to changing the Hops name, DuPree decided to sell the Applebee’s chain and focus on the company’s other chains, particularly the Hops brand. Apple South then became Avado Brands.

Company Perspectives:

We are a casual dining microbrewery restaurant that offers high quality menu items in a relaxed atmosphere featuring signature dishes that are created from fresh ingredients and prepared in a display style kitchen that allows you to view the cooking process. We complement the made-from-scratch food by offering hand-crafted, microbrewed beer, brewed in a glass encased brewery that separates the non-smoking dining room from the bar dining area.

Hops launched a new advertising campaign to cultivate recognition of its brand name and image as a brewpub chain. Radio and print ads emphasized the friendly service, the microbrewery, and fresh food preparation. A radio spot conveyed the difference in food quality by playing the sounds of frozen food preparation—the thump of the frozen food item hitting the countertop and the beeps of a microwave oven being programmed—as compared to the sound of a sizzling steak which played in the background as the narrator spoke about Hops. Billboard advertising featured the Hops logo and the phrase, “America’s Original Microbrewery.” The menu, table-top displays, and stationary were redesigned for a consistent presentation of the Hops brand.

In 1998, Hops surpassed the $100 million sales mark, ending the year with $106.3 million in revenues, compared to $49.5 million in 1997. With per person check averages at $15.00, some restaurant sales grew five percent and averaged $3 million per unit, and profit margins hovered at 16 percent. New unit development extended Hops’ reach in Florida, Colorado, Minnesota, Tennessee, and North and South Carolina. In March 1999, the 50th Hops restaurant opened, in Newington, Connecticut, which was also the first in that state. New units tended to be larger than the original Hops. For instance, a Hops in Polaris, Ohio, near Cincinnati, sat nearly 300 people in a 6,800-square-foot building. As such, development costs increased to approximately $1.4 million per unit.

While the number of units grew dramatically in 1999, with 24 new units, financial difficulties at Avado slowed new development in 2000, with only ten new units opened and the closure of two units, one in Kentucky and the other in Indiana. Hops ended 2000 with a total of 73 units in 16 states. New markets included Virginia and Rhode Island, with two units in each state, and Maryland, Indiana, Missouri, Louisiana, and Mississippi, with one unit in each state. Additional units opened in Florida, Georgia, Ohio, and Colorado. Revenues reached $186.5 million in 2000.

Changes for the New Century

While Hops prospered and expanded on the surface, behind the scenes, at Avado Brands, changes were taking place. Avado had overextended itself with debt from acquisitions and new unit development at all its subsidiaries. The situation prompted executive management at Hops, initiated by Schelldorf, to propose a buy-out. A breakdown in negotiations led to the departure of Schelldorf and other executives in April 2000.

Avado hired a new CEO in August, Ronald Macgruder. Macgruder’s credentials included building the Cracker Barrel Country Store and Olive Garden chains into nationally recognized restaurant brands. In particular, he oversaw Olive Garden’s growth from four to 350 units. Macgruder saw in the Hops concept the same potential for national expansion. He projected the chain to grow to 500 units through expansion in existing markets, with four to five new units in each market, maximizing the cost-benefit ratio of regional advertising programs.

Hops continued to build on its success in 2000. In fall of that year, Hops introduced its first seasonal beer and its first new beer since the company began. Schwaizen, with local brewmasters, created Hoptoberfest Seasonal Brew, a medium-bodied, red-gold beer with a “mild hoppy finish.” Other seasonal brews followed: Winter brews included Flying Squirrel Nut Brown Ale, produced in the warmer climate of the southern states, and the heavier Lumberjack Oatmeal Stout, for the colder climates of New England and the northern states. In 2001, Hops introduced Springtime Honey Bock, a traditional German beer produced with Pilsen and Munich malts and clover honey, evoking a mellow taste and aroma of honey. Beat the Heat Summer Wheat was the first beer Hops served unfiltered, adding a slice of citrus for summer freshness. Additions to the menu in 2001 included Seared Sea Scallops with lemon butter sauce and Banana Rum Croissant Pudding, prepared with Hops’ fresh-baked croissants.

As Avado continued to repair its financial situation, new unit development slowed dramatically, with only one unit opened, in Eden Prairie, Minnesota. To pay down debt, Avado arranged for the sale and leaseback of 20 Hops properties, obtaining proceeds of $28.4 million and applying $20 million to Avado debt. A slowing economy also led to a decline in sales. In this more competitive environment, Hops initiated its first television commercials, beginning in regional areas, such as Tampa, where a concentration of Hops brewpubs existed. The ads highlighted Hops’ dedicated staff, using actors to play Hops employees. In one spot a prep chef says, “I run this place. They’d be grilling air without me.” In early 2002, Hops promoted new products via radio, print, and regional and cable television advertising. Hops introduced the Spicy Caribbean Trio, with three skewers of Walker’s Wood Shrimp, jerk chicken, and spicy sirloin steak.