Romacorp, Inc.

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Romacorp, Inc.

9304 Forest Lane, Suite 200
Dallas, Texas 75243
U.S.A.
Telephone: (214) 343-7800
Fax: (214) 343-7721
Web site: http://www.tonyromas.com

Private Company
Incorporated: 1976 as Roma Corporation
Employees: 3,150
Sales: $128.2 million (2002)
NAIC: 722110 Full-Service Restaurants

Romacorp, Inc. owns, operates, and franchises Tony Roma’s Famous for Ribs restaurants in the United States and throughout the world. As of mid-2003, the company owned and operated 43 locations and franchised 215 restaurants. If you are planning on applying for a Tony Roma’s franchise, the company recommends that you have a net worth of $3 million (not including personal assets) and liquid assets of at least $1 million. While individual units tend to be profitable, the company consistently reported losses from the late 1990s through 2003 as the cost of its signature dish, baby back ribs, continued to increase.

1970s Origins

Tony Roma’s first restaurant opened in 1972 in North Miami, Florida. At first it specialized in steaks and hamburgers. Then one weekend, according to company legend, Tony Roma and chef David Smith decided to throw some baby back ribs on the grill and serve them using a rib sauce developed by Tony Roma. It was intended to be a temporary menu item, but the ribs proved so popular that the restaurant soon became famous for its barbecue rib dinners. Before Roma opened his restaurant in North Miami, he was a food and beverage specialist for the Playboy Club.

The story of Tony Roma’s restaurants took a significant turn in 1976. The Dallas Cowboys football team was in town for the Super Bowl, and team owner Clint Murchison, Jr., went to Tony Roma’s for one of their famous rib dinners. He was reportedly so impressed with his dining experience that he bought the restaurant, or at least the U.S. franchise rights, from Tony Roma. Murchison could do that because he was a Texas millionaire and the founding owner of the Dallas Cowboys, among other investments.

Murchison and Roma established a jointly owned company to operate the Miami restaurant and sell franchises for other locations, with Murchison owning 80 percent of Roma Corporation, as the company was known. In 1979, the first international Tony Roma’s restaurant opened in Tokyo, Japan.

By 1983, there were 30 Tony Roma’s in existence, most of them in Florida and California. Of the 30 restaurants, 15 were company-owned, nine were franchised, and six were joint ventures. In October 1984, Roma Corporation hired Restaurant Franchise Systems to develop new franchises, but after a year the company decided it would handle new franchisees itself. By the end of 1985, Tony Roma’s had 44 units operating in its chain of restaurants. In a span of six weeks five new units opened in Queens, New York; Chicago; Oklahoma City; Fair-field, California; and Okinawa, Japan. Company plans in the mid-1980s called for growth through more franchises, especially multi-unit franchisees, rather than through opening company-owned stores. The company’s Okinawa franchisee, for example, also operated two units in Hawaii, four in Japan, one in Guam, and had plans to open ten more units in Australia, Hong Kong, New Zealand, and Taiwan. Plans were in place for the Queens franchisee to open three additional restaurants there over the next two years. By 1990, Roma wanted two-thirds of its restaurants to be franchised.

New Ownership in the 1980s

In 1984, ownership of Roma passed to the children of Clint Murchison, who purchased the company from him. Kenneth Reimer, who had been hired by Murchison in 1982 to manage six companies that Murchison owned, including Roma Corporation, became president and CEO of Roma. As Reimer told Nation’s Restaurant News, Roma was in “dire financial straits” when he took over. In 1984, the decision was also made to move the company’s headquarters from Miami to Dallas. Many key personnel refused to relocate, and it took Reimer several years to rebuild the organization. Around this time, Tony Roma severed his ties to Roma Corporation by selling his interest to the Murchison family.

Although individual units of Tony Roma’s were profitable, Roma Corporation experienced financial problems from 1985 through 1990, due in part to Clint Murchison’s bankruptcy. Although Murchison was reportedly worth $500 million in 1983, he put up the Dallas Cowboys for sale at the end of 1983 and sold the team in 1984 for $60 million. In 1985, Murchison filed for personal bankruptcy, one of the largest personal bankruptcies in Texas history. Murchison also suffered from a progressive nerve disorder, and in 1987 he died of pneumonia.

Some of Clint Murchison’s creditors claimed that the sale of Roma to his four children—Clint Murchison III, Burke Murchison, Coke Anne Saunders, and Robert Murchison—was improper. The resulting legal proceedings made it difficult for Roma to secure capital from outside sources, according to Reimer. In 1990, the creditors’ claims were settled when the Murchison family agreed to pay $1.5 million to resolve the dispute.

Nevertheless, Roma expanded during the second half of the 1980s, with 68 units operating for its fiscal year ending February 1987. By fiscal 1990, the company had 137 units, and in 1991 it grew to 146 restaurant in 16 states and on four continents. The company owned and operated 17 of the restaurants, with the rest being franchised. Revenue for the fiscal year ending February 1992 was about $250 million.

Under Reimer’s leadership, Tony Roma’s restaurants were remodeled, new operating systems were introduced, and the menu expanded. In 1984, Tony Roma’s had a “roadhouse” image. Reimer characterized the look as “brown to the nth degree” because there were no windows and everything from the walls to the carpets was brown. Remodeling involved adding windows, lightening the fabrics, and changing the lighting. New operating systems improved the company’s relationships with its franchisees. While the core menu included barbecued ribs and chicken, steaks, hamburgers, and onion rings, the company added items such as grilled fish and entree salads. Other changes included the addition of home delivery at some units.

Tony Roma’s South Florida franchisee, T.R. Restaurants, operated eight units in the late 1980s. In 1990, T.R. Restaurants announced plans to open an additional six locations over the coming year in Boca Raton, Fort Myers, Lake Worth, Key West, Orlando, and St. Petersburg. In 1992, Tony Roma’s signed another multi-unit franchisee, ZSA Inc., in Wisconsin.

A Private Subsidiary in the Mid-1990s

In May 1993, Tony Roma’s was acquired by National Pizza Inc., a publicly traded company, through the purchase of its parent company, which was then known as NRH Corporation. NRH’s principal owners were the four Murchisons, including chairman Robert Murchison, and Kenneth Reimer. Following the sale, Reimer left Tony Roma’s, and two of the Murchison brothers planned to become Tony Roma’s franchisees. Under Reimer’s tenure at Roma, revenue grew from about $50 million in 1984 to about $210 million in fiscal 1993.

At the time of the sale, there were nearly 150 Tony Roma’s units, including 27 company-owned Tony Roma’s restaurants and 114 franchisees. Based in Pittsburgh, Kansas, National Pizza was Pizza Hut’s largest franchisee and competed with Pizza Hut for non-company-owned franchises. National Pizza also owned Skipper’s, Inc., a fast-food seafood chain, which it acquired in 1990. However, National Pizza found growth opportunities limited at both Pizza Hut and with Skipper’s, so it purchased Tony Roma’s as a new growth vehicle. For 1993, National Pizza had sales of $285 million.

Tony Roma’s had achieved strong brand-name recognition as the only national, coast-to-coat barbecue chain. It had secured several high-visibility locations, including one at the entrance to Universal Studios in Orlando, Florida, and one in Times Square in New York City. The company also had several restaurants in busy tourist locations in southern California and South Florida. It recently rebuilt its Las Vegas unit as a prototype with a bright new look, with black-and-white checkered flooring, neon highlights, a metal ceiling over the bar, and new lighting and window treatments. Three company-owned restaurants in South Florida were also remodeled in the previous year, with plans for more remodeling to take place. Recently added menu items included spicy ribs, grilled prime rib, and ribs basted in sweet molasses sauce.

Although National Pizza benefited from many of Kenneth Reimer’s improvements to Tony Roma’s—including franchise development, expansion plans and construction, and capital improvements—the company immediately began to install new management. Jerry Brunotts, formerly with Shoney’s, was hired out of retirement to oversee daily operations at Tony Roma’s. In January 1994, the largest national television advertising campaign in the restaurant’s history was launched for Tony Roma’s. The ads focused on ribs and featured Les Paul, a well-known musician who invented the electric guitar in 1941.

Company Perspectives

The first Tony Roma’s restaurant was opened in Miami almost 30 years ago. Word spread and more restaurants were opened in Florida, Beverly Hills, Las Vegas, New York, and Texas. In 1979, the first international restaurant opened in Tokyo. The brand grew because of great food and service, but also because of company and franchisee commitment to invest capital and expand the brand. Today, Tony Roma’s is the largest casual theme restaurant chain in the world specializing in ribs. With locations in 30 states, 22 countries, and five continents, it is one of the most globally recognizable brands in the industry.

By 1995, there were 130 Tony Roma’s restaurants in the United States and another 39 in 14 other countries. The first Kentucky location opened in April 1995 in Lexington. Meanwhile, National Pizza changed its name to NPC International Inc. to better reflect its diversified holdings. Robert Page, a former operations executive with NPC, was named president of Romacorp, the division in charge of Tony Roma’s operations and franchises. For the first half of fiscal 1995, NPC International noted that sales gains at comparable units of Tony Roma’s and Pizza Hut contributed to strong profits. For the six-month period ending September 26, revenue from Tony Roma’s was $23.28 million, an increase of 15.8 percent over the previous year. NPC also operated 372 Pizza Hut units and reported six-month revenue of $113.44 million from that chain, as well as $23.23 million from its Skipper’s units. In February 1995, NPC closed 77 underperforming Skipper’s units. Overall profits for the first half ending September 26, 1995, were $7.76 million, an increase of 15.6 percent over the previous year.

In 1996, Romacorp, Inc. announced plans to open 24 additional franchised units over the coming year. These new units would employ the chain’s new bi-level prototype, a 6,100-square-foot design that was already in place in six locations, including three in Texas. The new design also featured an exhibition kitchen, a lighter color scheme, and more use of brick and wood. A newly designed marquee emphasized the new approach, with “Tony Roma’s Famous for Ribs” replacing the old “Tony Roma’s—A Place for Ribs.”

According to Nation’s Restaurant News, menu and marketing changes introduced since 1993 helped boost annual sales at new units to between $2.2 million and $2.6 million, compared with $1.7 million for older units. The menu boasted 19 new items, while ten low-performing items were eliminated. The new marketing effort was aimed at attracting a younger, more affluent customer to complement Tony Roma’s traditional target customer, 35- to 54-year-olds with a $50,000-plus household income. The company wanted to expand its base beyond ribs and also make Tony Roma’s a regular stop instead of a once-a-year destination. Ads aimed at older consumers, including those featuring Les Paul, were dropped in favor of more energetic and quick-cut commercials.

In other developments in 1996, Tony Roma’s closed its original location on Biscayne Boulevard in Miami while continuing to expand internationally. Romacorp signed a franchise agreement with Chagoury Group to open three units in France, including one in Paris in 1997. Tony Roma’s also opened its first unit in Manila, the Philippines; its second in Peru; and its fourth in Spain. Mas Millennium, a franchisee that opened ten units in Asia, signed an agreement to open nine Tony Roma’s restaurants in the United Kingdom, Germany, the Czech Republic, Russia, Hungary, and Australia.

In 1998, NPC International recapitalized Romacorp through an agreement with private equity firm Sentinel Capital Partners. NPC International received between $110 million and $120 million in cash and stock as a result of the recapitalization. Sentinel Capital Partners assumed an 80 percent ownership interest in Romacorp, while NPC International retained a 20 percent interest. As a result of the transaction, Romacorp, Inc. became a private company.

For its fiscal year ending March 28, 1999, Romacorp reported a 7.4 percent increase in revenue to $101.94 million, compared to $94.89 million in fiscal 1998. The increase in revenue was attributed largely to opening three new company-owned and five franchised restaurants, while two restaurants were closed. At year-end, Romacorp operated 52 company-owned units and franchised 159 units. However, net income in fiscal 1999 was down 60 percent to $1.66 million, compared to $4.17 million in fiscal 1998, largely as a result of interest expenses incurred as part of the company’s recapitalization. EBITDA (earnings before interest, taxes, depreciation, and amortization) increased 8.2 percent to $17.4 million, compared to $16.1 million in fiscal 1998.

Romacorp began introducing its Rib Grill casual-dining concept in the second half of 1998. By mid-2000 the company had about 16 Rib Grills in operation, 14 of them company-owned. Rib Grills were part of the company’s marketing effort to reach a broader demographic group and reduce the formality previously associated with Tony Roma’s. At 6,400 square feet with about 230 seats, Rib Grills were slightly larger than traditional Tony Roma’s locations, which were about 6,125 square feet with 212 seats. After 18 months, sales at Rib Grills were running about 15 to 20 percent higher than at standard Tony Roma’s restaurants.

Key Dates

1972:: Tony Roma opens his first restaurant in North Miami, Florida.
1976:: Clint Murchison, Jr., Texas financier and owner of the Dallas Cowboys football team, acquires a majority interest in Tony Roma’s and establishes Roma Corporation, a jointly owned company to operate Tony Roma’s restaurant and sell franchises.
1979:: The first international Tony Roma’s restaurant opens in Tokyo, Japan.
1984:: Clint Murchison turns over ownership of Tony Roma’s to his four children.
1987:: Tony Roma’s experiments with home delivery in selected markets.
1990:: The Murchison family pays $1.5 million to settle creditors’ claims on Tony Roma’s.
1993:: Tony Roma’s is acquired by National Pizza, Inc., which subsequently changes its name to NPC International, Inc.
1996:: Tony Roma’s restaurants offer an expanded menu.
1998:: Tony Roma’s opens its first Tony Roma’s Rib Grill; NPC International spins off Romacorp as a private company, with Sentinel Capital Partners owning 80 percent.
2003:: Restaurant founder Tony Roma dies at the age of 78.

2000 and Beyond

Romacorp’s top management changed in 2000. Robert Page left suddenly in mid-year, to be replaced in October by Frank Steed, who was formerly senior vice-president of franchise development for Metromedia Restaurant Group, whose brands included Steak & Ale and Bennigan’s. In addition, Alison Brushaber, Romacorp’s head of menu development, left to form her own consultancy. She was replaced by David Grail, who was formerly head of menu development at Denny’s.

Over the next two years, Romacorp sustained steady losses while expanding its international and domestic franchises. It began 2001 with about 230 locations in the United States and 23 other countries. For the fiscal year ending March 25, 2001, Romacorp reported a loss of $2.03 million, compared to a loss of $254,000 in fiscal 2000. Although same-unit sales grew 2.9 percent for the year, financial results were negatively affected by the higher cost of baby back ribs, a situation that was projected to continue for the next six months. At year-end, the company operated 62 Tony Roma’s restaurants and franchised 179 locations.

During fiscal 2002, international franchising agreements were signed to develop Tony Roma’s restaurants in Brazil, the Netherland Antilles, and Trinidad and Tobago. In addition, four international restaurants were opened in November 2001 in Quito, Eduador; Torreon, Mexico; Maracaibo, Venezuela; and Saskatoon, Saskatchewan, Canada. As a result of its international franchising efforts, Tony Roma’s could boast that it was the largest casual theme restaurant chain in the world specializing in ribs.

The company opened its first Tony Roma’s Express in Caracas, Venezuela, with a franchise partner, in the second half of 2001. This smaller prototype had about 430 square feet and offered a limited menu of ribs, chicken, onion loaf, french fries, coleslaw, and cheesecake. During the next year, the company continued to test four Rib Express units in Venezuela as well as one in Portland, Oregon.

Romacorp continued to post quarterly losses in fiscal 2002 and 2003. The cost of baby back ribs, which accounted for 25 percent of sales in fiscal 2002, continued to increase. The company began fiscal 2003 with a net loss of $478,000 in the first quarter. Revenue for the quarter fell 9.7 percent to $30.3 million, due in part to five closures in the previous year and a 4.9 percent drop in same-unit sales in the quarter. Second-quarter losses reached $651,000, while same-unit sales dropped 7.1 percent. Third quarter losses reached $1.1 million, and revenue for the quarter fell 7.2 percent to $27.1 million, while same-unit sales dropped 1.7 percent.

Nevertheless, Romacorp continued to open new restaurants and sign new franchise agreements in 2002. A new franchisee, Romaco of Michigan LLC, agreed to open seven restaurants in the Detroit area, while Washington Securities and Investment Corporation signed an agreement to open restaurants in southeastern Washington, northeastern Oregon, and north-central Idaho. Romacorp opened its thirteenth restaurant in Spain and its first in Australia. New restaurants were also opened in Lorea, Venezuela, and Brazil. In Primm, Nevada, a Tony Roma’s was opened in the Buffalo Bill’s casino, the fourth Tony Roma’s to open in a casino.

In 2003, Romacorp agreed to sell 11 company-operated Tony Roma’s locations in Texas and Oklahoma to a new franchisee, Romadal LTD I. The transaction was part of the company’s strategy to transfer ownership of company-owned restaurants to franchisees committed to growth. In June 2003, Romacorp hired a new president and CEO, David Head, who was formerly CEO of Shells Seafood Restaurants, Inc. of Tampa, Florida. Former Romacorp president and CEO Frank Steed, whose career was devoted largely to franchising, became president of Roma Franchise Corporation and Roma Systems, the firm’s domestic and international franchising operations, respectively. Finally, Tony Roma died in June 2003 of lung cancer at the age of 78. According to Nation’s Restaurant News Daily NewsFax, the founder of Tony Roma’s was remembered by associates as a sociable, colorful person who excelled at customer relations. When Tony Roma died, there were 258 Tony Roma’s restaurants, 43 of which were company-owned and operated. While the chain that bears his name faces a difficult economic climate on the road to profitability, Tony Roma’s remains famous for ribs throughout the world.