Timber Lodge Steakhouse, Inc.

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Timber Lodge Steakhouse, Inc.

1801 E. 79th St., Suite 27
Bloomington, Minnesota 55425
U.S.A.
Telephone: (952) 920-9353
Fax: (952) 929-5658
Web site: http://www.timberlodgesteakhouse.com

Private Company
Incorporated: 1991 as Q-Steaks Incorporated
Employees: 1,300
Sales: $42.9 million (2004)
NAIC: 722110 Full Service Restaurants; 722410 Drinking Places (Alcoholic Beverages)

Timber Lodge Steakhouse, Inc. is a chain of steakhouse restaurants known for its northwoods lodge-like décor and its moderately priced menu. The company operates 24 Timber Lodge restaurants covering seven different markets in Minnesota, Wisconsin, Illinois, South Dakota, Nebraska, North Dakota, and New York. Food choices include steak, chicken, pork, seafood, and a variety of accompaniments. The restaurants also feature wine and spirits and a lengthy list of appetizers.

The company was once publicly traded on the NASDAQ but in successive buyouts Timber Lodge went private when a group of former management signed a deal to buy the company. CEO and President Peter Bedzyk owns the majority of stock, holding 45 percent in 2005.

Minnesota Steakhouse

In 1991, when two St. Louis Park, Minnesota, partners formed Q-Steaks Incorporated, the restaurant business in the Midwest was characterized by small town supper clubs and meat and potato fare. Unlike many other parts of the country where national and regional chain restaurants were taking root all over the place, the Midwest market was just opening up to chain restaurants. Several non-fast food thematic establishments had only just successfully entered the local landscape.

Minnesota restaurateurs Doren Jensen and Dermot F. Rowland took note of the regional carnivorous diet and began a chain of steakhouses, naming the establishments The Minnesota Steakhouse. The two settled on a cabin-like northwoods theme for The Minnesota Steakhouse. The restaurant atmosphere guaranteed the relaxation of an up-North cabin with its roaring fire and log timbers, an atmosphere many Midwesterners longed for. The company was to change its name, ownership, and management over its lifetime but the one constant would be its emphasis on meat, particularly red meat and its generous Midwestern portion size.

When the chain opened two Buffalo, New York, restaurants in 1994, Q-Steaks decided to drop the Minnesota reference and name those operations after Minnesota legend Paul Bunyan. The company introduced P. Bunyan's Steakhouse to the Niagara Falls area, an important tourist destination and an expanding restaurant market.

In 1993 Q-Steak went public and company shares were listed on the NASDAQ. The company needed investment for expansion, and thus had turned to an initial public offering (IPO) to secure that funding. In 1995 the company sought to rename its six restaurant establishments Timber Lodge Steak-house. Shareholders of the company's stock granted permission for the name change in the early summer of 1995. The company issued a statement to the press explaining the reason for the name change saying, "This is intended to raise consumer awareness of [the restaurant chain's] distinctive style and to increase name recognition throughout the company's current and potential market area." Timber Lodge opened in Sioux Falls, South Dakota, at this time and the company closed its restaurant in Williamsville, New York. Timber Lodge management cited problems with the strip mall location in Williamsville as its reason for the closure.

By August 1996 Timber Lodge opened its 12th restaurant, and had rebounded from some losses it had incurred as a result of its name change and the confusion it created with its customers. Timber Lodge won the Minnesota Beef Council Beef Backer Award that same year, a prize it was awarded for selling approximately $17 million in steaks during its calendar year.

In the early weeks of 1997, Timber Lodge benefited from a surge of investor interest in the company. Analysts had marked Timber Lodge stock as a good buy and it had jumped in a three-week period from $3.50 to $5.12 per share. In May 1997 Timber Lodge opened its 14th steakhouse. The company chose St. Cloud, Minnesota, for its 240-seat dining facility.

The 1990s Buyout and Expansion

In December 1997 G.B. Foods Corporation (GBFC) announced that it intended to acquire all the outstanding shares of capital stock, taking over the company. GBFC, based in California, owned and operated or franchised 185 Green Burrito quick-service Mexican restaurants. Its chairman, William Foley II, also was chairman of CKE Restaurants, which owned the Hardee's and Carl's Jr. fast-food chains. GBFC planned to take Timber Lodge west to Arizona, Utah, Idaho, and New Mexico. The $32.4 million acquisition allowed for an influx of capital needed to expand the restaurant into new markets.

Timber Lodge reported strong fourth quarter earnings in 1997, up 33 percent over the same period the prior year. While net income had increased, expenditures at the company had also increased. Timber Lodge reported costs up 5.2 percent in 1997. The company blamed the higher expenses on increased advertising, leases, and short-term borrowing.

The acquisition was finalized in January 1998, with Timber Lodge shareholders receiving 0.8 shares of GBFC common stock for each Timber Lodge share. GBFC made public its plan to convert 16 JB's Restaurants into Timber Lodges over the next several years. JB's Restaurants was a wholly owned subsidiary of CKE Restaurants Inc.

In February 1998 CKE announced its plan to sell GBFC JB's Restaurants for one million shares of GBFC common stock. At the close of the deal GBFC became Santa Barbara Restaurant Group (SBRG)

By July 1998, Timber Lodge had added its 18th location. The restaurant was the first Timber Lodge Steakhouse to open in Rochester, Minnesota. Timber Lodge parent company GBFC signed a letter of intent in August 1998 with Franchise Finance Corporation of America for financing properties the company hoped to buy. The strategic alliance allowed GBFC to expand its new concept restaurants without raising capital for the projects.

Timber Lodge Steakhouse began airing a new advertising campaign in October 1998. The company hired Cevette and Company of Minneapolis to produce the spot, which featured an ambulance rushing a hungry patient to one of its restaurants. The concept was hailed as unusual because the advertisement did not feature any food items, only the suggestion to head to Timber Lodge when one was really hungry.

The company opened its ninth Twin Cities location in November 1999, a Timber Lodge Steakhouse in the Southtown Shopping center in Bloomington, Minnesota. The company continued its rapid growth with the addition of two more Twin Cities steakhouses the following year, one in Maple Grove and another in Stillwater, Minnesota. Timber Lodge ventured into North Dakota by opening a restaurant in Fargo towards the end of 2000.

The company opened several converted JB's Restaurants to Timber Lodges in the Salt Lake City area and Phoenix and Tucson, Arizona, which brought its number of steakhouses to 23 by June 2000.

In March 2000, Santa Barbara Restaurant Group, Inc., agreed to sell the remainder of its JB's Family Restaurants to the chief operating officer of the restaurant chain. The deal included 52 company operated establishments and 29 franchised facilities. SBRG also agreed to sell its six Galaxy Diners. A number of JB's Family Restaurants had already been converted to Timber Lodge Steakhouses in Arizona and Utah and those six restaurants were not included in the sale.

Sales declined for the company in the first and second quarters of 2001. Revenue was down by 1.1 percent in the first quarter compared to an increase of 8 percent the previous year, and second quarter results showed even further decline, with a loss of 5.8 percent, compared to an increase of 2.8 percent the same quarter in 2000.

SBRG President and CEO Andrew Puzder spoke regarding the disappointing trend when the company announced its earnings report through PR Newswire: "Regarding Timber Lodge Steakhouse, I am certainly disappointed with the negative sales trends, and we are working very hard to reverse them. Fortunately, in spite of the soft sales, we have been able to improve operating margins at Timber Lodge, which positions us very well to capitalize on any future sales improvement."

News of a buyout of SBRG by closely related CKE Restaurant Group surfaced in November 2001. CKE announced its intent to purchase SBRG despite its own struggles with debt mostly incurred by its holding of Hardee's. Hardee's was purchased by CKE in 1998 for more than $750 million, but the chain was poorly managed and in need of a turnaround.

The sluggish American economy took its toll on restaurants throughout the years 2001 and 2002. Still, according to a Minneapolis Star Tribune article, consumers seeking the convenience of ready-made meals were still buying food on the go. In 2000, according to the Star Tribune, "the restaurant industry took in 45 percent of all dollars spent on food."

The web site Beef.org reported that 3.8 percent of American households visited a steakhouse in an average two-week period, and steakhouses continued to be one of the fastest-growing areas in foodservice. The site claimed that from 1993 to 2000 consumer expenditures at casual steakhouses increased 150 percent.

Company Perspectives:

Timber Lodge Steakhouse, Inc. develops, owns and operates Timber Lodge Steakhouses. These are full-service, casual restaurants serving dinners of generous portions at moderate prices and featuring a "northwoods" atmosphere. The menu features steaks, prime rib, barbequed ribs, fresh seafood, chicken, pasta and specialty regional entrees and appetizers.

Timber Lodge parent company CKE signed a beverage deal with Coca-Cola Fountain in January 2003. Coca-Cola provided all Timber Lodge Steakhouses with soft drinks and bottled water.

Low carbohydrate diets became the craze of the new decade and the push for protein was only countered by the fear that shocked the nation when a possible positive report of bovine, spongiform encephalopathy was reported in an adult Holstein cow in Washington state. The report was the first confirmed case of mad cow disease in the United States. CKE issued statements in December 2003 that none of its suppliers purchased meat from the implicated Washington beef packer.

2000 and Beyond: Back in Private Hands

In September 2004 CKE Restaurants sold its Timber Lodge holdings to T. Lodge Acquisition, a privately held group of former management and other investors. The deal was for approximately $8.8 million, with $7 million in cash and $1.8 million in secured notes.

The menu at Timber Lodge was recreated in February 2004. Although the standard entrees remained, Executive Chef Tim Ristow received some assistance from Corporate Chef Scott Foster to tweak the offerings and raise the bar a notch. The company included extra features listed as Timber Toppers that were added to traditional entrees for a minimal extra charge. The toppers allowed patrons to custom order a meat or fish entree with specialty crusting or additional sauces and rubs.

The company hired Medvec-Eppers Advertising in the spring of 2004 to produce radio spots promoting the restaurant. The campaign featured local Twin Cities talent, including Mick Sterling and the Stud Brothers and Jack Knife and the Sharps. Another campaign, featuring Minnesota Vikings Head Coach Mike Tice, was aired throughout the Twin Cities radio market and brought a great deal of publicity to the company.

The American diet, despite the diversity of its culture, was a diet committed to the consumption of meat products. The Midwest restaurant market catered to the demand for quality affordable steaks and Timber Lodge Steakhouse was poised to meet the growing needs of a public eager for prepared foods, creating a warm, homey retreat atmosphere and affordable prices.