Johnny Rockets Group, Inc. Business Information, Profile, and History

Company Perspectives:

Johnny Rockets was founded on the belief that everyone deserves a pla ce where they can escape today's complicated world and experience the food, fun and friendliness reminiscent of feel-good Americana. On Ju ne 6, 1986, the first Johnny Rockets opened on trendy Melrose Avenue in Los Angeles, offering its guests fast, friendly service, a simple menu, great food and fun.

History of Johnny Rockets Group, Inc.

Johnny Rockets Group, Inc.'s (JRG) restaurants offer American nostalg ia with a menu of basic American food, served in a 1940s-style diner complete with an open chrome kitchen, a chrome and black formica coun ter, red vinyl seats, and countertop jukeboxes that play old tunes fo r a nickel. Each year, the company serves up more than 22 million ham burgers to its guests in nearly 170 restaurants in 30 states, in coun tries around the world, and on Royal Caribbean cruise lines. The rest aurants' signature items are four hamburgers: The Original, a hand-sh aped hamburger; The Double, with two patties, cheddar cheese, and a s pecial sauce; #12, with cheddar cheese and red, red sauce; and St. Lo uis, with bacon, Swiss cheese, and St. Louis sauce. The balance of th e menu consists of several "classic" sandwiches, such as a BLT, a hot dog/chili dog, American fries, chili, and a few other items. Malts a nd shakes are hand-dipped and come with an extra serving on the side in the mixing canister, just like the old diners used to do. Beverage s include Coca-Cola flavored with cherry, chocolate, lemon, or vanill a. Apple pie, baked fresh on the premises, is available with ice crea m or Tillamook cheddar cheese and is served with a small paper Americ an flag.

Founding the Company on a Dream

Ronn Teitelbaum founded Johnny Rockets in 1986, at the age of 46, aft er selling his successful, Beverly Hills-based chain of fine men's cl othing stores. Although he had no experience in the restaurant busine ss, it had been his dream to own and operate a 1940s-style diner. Tei telbaum's restaurant reflected the nostalgia he felt for his own chil dhood memories of the 1940s, such as the friendliness and the cleanli ness of old-time diners, but his idea also coincided with a surge in retro dining concepts.

Teitelbaum took a year and a half to plan his first Johnny Rockets bu rger and malt shop, using the same attention to detail that he gave t o his men's clothing business. Teitelbaum sought to recreate the hamb urger of his childhood memories. He cooked hamburgers with a number o f seasoning combinations until he found the right flavor. A favorite employee story exemplified the extremes Teitelbaum took to attain per fection in every detail. After Teitelbaum had eaten a delicious tuna fish sandwich at a Los Angeles restaurant, he returned to the restaur ant with a flashlight after hours and looked in the dumpster for an e mpty tuna can to see which brand the company used.

Teitelbaum's $250,000 restaurant project encompassed an 844-squar e-foot malt shop with 20 red vinyl stools. Skeptical friends and rest aurant business consultants thought that the small-scale concept coul d not succeed. They assumed that peak meal times would require too lo ng a wait and that the shop could not maintain an adequate level of b usiness during slow business hours, between lunch and dinner, and lat e at night. In addition, the high-fat menu, with hamburgers, fried po tatoes, and ice cream shakes, did not fit the stereotype of the Calif ornian's preference for salad and pasta.

The moment Johnny Rockets opened on chic Melrose Avenue in Los Angele s, customers filled the restaurant, and a line of 30 customers formed at the door. The wait staff, dressed in white, 1940s-style soda jerk uniforms, mixed malts on 30-year-old spindle mixers (which required frequent repair) and supplied nickels to customers to play the vintag e countertop jukeboxes. Instead of using a machine that would squeeze the juices from the fresh ground beef, kitchen staff hand-patted ham burgers and cooked them to order. The burgers were served wrapped in paper on a cardboard plate. Outside the restaurant, above the smooth white exterior, a 1940s-style logo blazed, "Johnny Rockets," in yello w neon on a red and blue lighted background. On its first day of busi ness, June 6, 1987, Johnny Rockets stayed open until 5:00 a.m. to ser ve all of the day's customers.

Attracting a panoply of Los Angeles residents of all ages, the restau rant sustained a continuous flow of customers in the days that follow ed. Business hours spanned from 11:00 a.m. to 12:00 midnight except F ridays and Saturdays, when the shop stayed open until 2:00 a.m. The h igh turnover cycled at approximately every 30 minutes. Johnny Rockets served 600 to 700 customers per day, involving around 19 percent tak eout sales. With customers spending more than $5.00 each, revenue s reached $1 million the first year.

Within the first year of operation Johnny Rockets grew into a small c hain with franchises and company-owned stores. In the Los Angeles are a, restaurants opened in Westwood, Sherman Oaks, and Beverly Hills. F ranchises in Atlanta and San Francisco resulted when interested parti es approached Johnny Rockets to license the concept. Johnny Rockets r estaurants also opened in Minneapolis and Chicago. In an article in t he October 24, 1988, Nation's Restaurant News, Teitelbaum attr ibuted the success of Johnny Rockets to his own inexperience in the r estaurant business, stating, "I didn't know it was impossible to do o ver $1 million in 20 seats. I didn't know people wouldn't line up at midnight for a hamburger, fries, and a malt."

With intentions to further expand the chain Teitelbaum sought to prot ect the Johnny Rockets trade dress. The company won the first of its trademark-related cases in New York in August 1989. Despite the objec tions of Teitelbaum, the Johnny Rock-it bar and grill opened in New Y ork City in early 1989. Teitelbaum contended that the value of the Jo hnny Rockets name was undermined, and he supported that view with the deposition of a prospective franchisee reluctant to open a Johnny Ro ckets restaurant in New York because of concern that the similar name would cause confusion. Trademark infringement precedents helped win a federal injunction that prevented the lounge from using "Johnny" or "rock" in its new name. The company also filed suit against Suzy Q's diners in Winnipeg, Manitoba, for trade dress violation.

Johnny Rockets expanded internationally, capitalizing on the appeal o f American popular culture abroad. Teitelbaum used a business connect ion from his clothing business to open a Johnny Rockets restaurant in Tokyo in September 1989. City Centre Restaurants, which operated a v ariety of casual dining chains in London, opened a Johnny Rockets the re in 1990. In addition, a prospective franchisee approached the comp any to open a Johnny Rockets in Melbourne, Australia, which went into development at this time. By June 1992 the company had expanded to 2 8 stores in the chain, with six company-owned units and 22 franchises .

The Johnny Rockets dining concept found many believers, including Llo yd Sugarman. Originally senior vice-president of Johnny Rockets, Suga rman acquired ownership of the first San Francisco restaurant, a 42-s tool location in the Marina, as well as franchise rights to the San F rancisco Bay area. Sugarman boosted growth in northern California wit h two new shops in the summer of 1992, while negotiations for locatio ns in San Jose, Santa Rosa, and Fisherman's Wharf in San Francisco pr ogressed.

Sugarman attained the Fisherman's Wharf location with some difficulty , but it would set a significant precedent for the company. The city of San Francisco did not allow fast-food restaurants at Fisherman's W harf, in an effort to retain the historical integrity of the area. Th e city did allow a Johnny Rockets malt shop, however, as cooked-to-or der hamburgers and made-to-order shakes differed from fast-food resta urants, with precooked sandwiches to be available upon request and di spensed premixed shakes. The issue defined the market niche that John ny Rockets occupied, between fast-food and casual dining restaurants. That niche served customers who had grown weary of fast food, who wa nted full service and an inexpensive, fresh-cooked meal. Johnny Rocke ts accommodated that customer base with quick food preparation, but f urther distinguished itself with wait people who were known to sudden ly break into song and dance routines using ketchup bottles as microp hones. Johnny Rockets' wait staff learned as many as nine dance routi nes, to old songs on the countertop jukeboxes such as "Great Balls of Fire" and "Respect."

Expansion and Leadership Changes in the 1990s

In mid-1992 the company opened a new burger and malt shop every three to four weeks. The chain expanded in southern California with new st ores in Encino and Agora Hills in August 1992. New franchises opened around the United States, in Miami; Baltimore; Scottsdale, Arizona; S unriver, Oregon; and Burlington, Massachusetts. Unit-level sales aver aged $850,000 annually with only 20 to 26 seats. Expansion of the chain required experienced leadership in franchise development, and Ray Cabana, formerly of Taco Bell and Kentucky Fried Chicken, became president in June 1992. Teitelbaum remained chairman and CEO.

Growth at Johnny Rockets meant the company confronted challenges to i ts identity. Teitelbaum set a new precedent for the Mexican governmen t's acknowledgement of international franchise law after an imitation of Johnny Rockets appeared in Cancun, Mexico. The company won the ca se and government officials shut the place down at gunpoint, just in time for the debut of Johnny Rockets in Mexico City in April 1993. An other situation occurred two days before the grand opening of a Johnn y Rockets restaurant at West Edmonton Mall, the world's largest shopp ing mall at that time, in Alberta, Canada. McDonald's of Canada obtai ned an injunction to prevent the opening. The agreement between McDon ald's and the mall owner, Triple Five, stated that no other fast-food restaurant in the Phase II area could serve hamburgers, except in th e food court. Johnny Rockets used the Fisherman's Wharf store as an e xample of the company's identity as a full-service restaurant. In Jun e an Alberta Court dismissed the argument by McDonald's of Canada, wh ich identified Johnny Rockets as a fast-food restaurant, and lifted t he injunction.

Teitelbaum's ambitions to expand the Johnny Rockets chain prompted ne gotiations with Carpenter Investment and Development Corporation (CID C), whose primary activities involved hotel and shopping center devel opment. CIDC would aid the growth of Johnny Rockets with its knowledg e of city centers and shopping malls, as well as its affiliations wit h shopping malls and with the Hilton and Hyatt hotels. In June 1994 C IDC agreed to acquire a majority interest in Johnny Rockets Internati onal, as the company was called then. Internal disputes at Johnny Roc kets slowed the transition to CDIC ownership, however. Rockets Holdin g Inc., which formed to handle the acquisition, had to negotiate sepa rate terms of sale with Teitelbaum and Alfred M. Bloch, another major ity stock owner.

In the immediate interim Johnny Rockets continued to grow and succeed . When Johnny Rockets won the 1994 Golden Chain award from Nation' s Restaurant News, the company encompassed 63 units, including fi ve in Australia, three in Mexico, and one each in Japan, England, and Canada. Customer checks averaged $6.50 per person. Rare changes to the menu involved the addition of a peanut butter and jelly sandwi ch to the children's menu and the addition of a vegetarian burger, th e Streamliner, to the regular menu. In April 1995 Johnny Rockets sign ed an agreement to place a restaurant on the main floor of the casino at the Hilton Casino Resort in Reno, Nevada. The menu included break fast to accommodate all night and early morning gamblers. Internation ally, new stores opened in Kuwait and in the United Arab Emirates in 1995.

CIDC completed its acquisition of Johnny Rockets in November 1995 and named the new company Johnny Rockets Group (JRG). JRG held a 95 perc ent ownership, with the balance owned by Teitelbaum and a group of sm all investors. The majority investors included Patricof & Company Ventures, Inc. of New York with $12.5 million invested, General Motors Pension Fund with $10 million, Center Partners of New York with $6 million, as well as CSK Ventures, Tokyo, and CIDC. A tot al investment of $44 million involved $25.6 million paid to p revious investors, $12 million for expansion, and $4.4 millio n to acquire five franchises.

New ownership was followed by a time of turbulent changes in leadersh ip. With the formation of JRG, Teitelbaum remained on the board of di rectors and became the company's creative consultant. JRG hired Jeffr ey Campbell, former CEO and chairman of Burger King, as the new CEO. Cabana retained the title of CEO, although he reported to Campbell un til he eventually resigned. Campbell resigned in July 1996 because of disagreements over strategy, in regard to the pace of development of new stores, and management, in regard to whether to franchise or ope n company-owned units. Glen Hemmerle became president of JRG in Febru ary 1997. He brought retail experience with Pearle Vision, Crown Book s, and Athletes Foot, but no restaurant experience. Hemmerle's strong customer orientation led to the addition of a hot fudge sundae, lemo nade, and a hot dog/chili dog to the menu.

Hemmerle became president during a surge in expansion. The earlier in ternal disputes slowed long-term growth, with only two restaurant ope nings from 1995 until February 1997, compared with 20 restaurants fro m mid-1994 into 1995. In addition, some restaurants closed, such as t he Sherman Oaks, California store, because of the 1994 earthquake, an d the Laguna Beach, California store, because of the 1997 floods. Som e stores in Australia closed as well, because of poor locations chose n by subfranchisees. Finally, in February 1997 JRG opened four new ma lt shops, in Miami, Boston, Memphis, and Birmingham.

JRG opened a total of 14 stores in 1997 and 1998 with the assistance of $15 million in venture capital that the company received in sp ring 1997. JRG sought to develop company-owned stores in three kinds of locations: neighborhood outlets that would attract local residents , unusual locations like the casino at the Reno Hilton, and high-traf fic shopping areas. The company preferred mall locations near movie t heaters, because it combined two distinctly American inventions--the diner and the movies. New stores in 1998 included openings at Provide nce Place Mall in Rhode Island and at Downtown Plaza Mall in Sacramen to, a 2,200-square-foot store next to the movie theaters. In October 1998 JRG opened its 100th unit, in historic Georgetown in Washington, D.C. In addition, after four years in development, a Johnny Rockets opened in Beirut, Lebanon. The restaurant's interior was constructed in London, shipped to Lebanon, and snapped together at the site. The interior could be relocated if necessary.

In May 1999 Hemmerle suddenly resigned, and JRG immediately replaced him with Michael Shumsky, former president of Sonic Restaurants, a 2, 000-unit drive-in restaurant based in Oklahoma City. JRG chose Shumsk y because of the similarity of the Johnny Rockets and Sonic restauran t concepts and Shumsky's experience in franchise development. Shumsky would provide needed leadership, as JRG had decided to grow through franchises rather than through company ownership, as well as stabilit y, with Shumsky's agreement to a five-year contract.

Strategy and Identity in Focus in 1999

Shumsky intended to focus on brand development, store-level operation s, and market development. Although same-store sales increased 6 perc ent during the fiscal year ended May 2, 1999, systemwide sales showed lower-than-expected revenues as some larger stores did not attain th e same customer appeal as small, intimate stores. In addition, Shumsk y found that JRG did not have a store prototype, and he planned to de velop one based on the smaller units, which seated from 20 to 65 cust omers. New stores would be located in areas where Johnny Rockets malt shops already existed, mainly California, Florida, and New York, at an average cost of $575,000. Shumsky prepared JRG for new develop ment with two new positions, regional vice-presidents of the eastern and western United States. Shumsky hired Pamela Britton, from Cinnabo n, for the east, and Barry Cook, from Sonic Restaurants, for the west .

To sharpen the Johnny Rockets brand identity, an art program was unde rtaken. David Willardson, known for his posters for the movies Ame rican Graffiti and Raiders of the Lost Ark, produced ten o il paintings that featured Johnny Rockets' signature menu items, as w ell as its logo. The paintings then replaced some of the older pictur es that hung at Johnny Rockets restaurants.

JRG cooperated with Warner Brothers in a movie promotion for the anim ated feature film, The Iron Giant, during the summer of 1999. The storyline of the movie centered on a single mother employed as a wait person at a 1950s-style malt shop. For the first three weeks aft er the movie's release, Johnny Rockets wait staff gave a comic book o r cassette tape to each child customer. The promotion involved the sa le of Johnny Rockets promotional items at Warner Brothers retail outl ets, including t-shirts, sweatshirts, and caps with the Johnny Rocket s logo in embroidery. A compact disc of old tunes from Johnny Rockets ' jukeboxes, such as "Stand By Me" and "Under the Boardwalk," was als o among the company's promotional items.

With more than 120 restaurants in 25 states, Washington, D.C., and se ven countries, JRG's plans for expansion in late 1999 involved 35 new units. Johnny Rockets' franchisee in Mexico opened a new store in Ca ncun in August and planned another for that city. In November 1999 Jo hnny Rockets signed a deal to become the first branded restaurant cha in to be located on a passenger cruise ship. An agreement with Royal Caribbean International placed a 259-seat Johnny Rockets malt shop on the pool deck of its new cruise ship, Voyager of the Seas, in May 2000.

Johnny Rockets in the New Millennium

Founder Ronn Teitelbaum lost his battle with brain cancer in Septembe r 2000. His dedication to the business lived on at company headquarte rs and JRG worked diligently to preserve Johnny Rockets' position in the restaurant industry. As such, the company found itself on solid g round during the early years of the new millennium. JRG's strategy at this time was to close 13 unprofitable stores, turn seven corporate stores into franchise units, move company headquarters from Irvine to Aliso Viejo, and cut executive staff in order to trim costs. JRG als o began focusing on product quality and employee training. The compan y opened a restaurant at Cedar Point Amusement Park in Sandusky, Ohio , in 2001. It also bolstered its cruise line business, opening its fi fth cruise ship-based restaurant on Royal Caribbean International's Mariner of the Seas in 2003.

In all, CEO Shumsky had put JRG on track to open 25 new stores a year . While the company worked to open new corporate stores as well as fr anchise units, it began to embark on a creative advertising campaign. In order to raise brand awareness and bolster sales, JRG used produc t placement in the 2005 movie The Island and an episode of Queer Eye for the Straight Guy. It also worked to keep the atmosp here in its restaurants fun and entertaining. In May 2004, it celebra ted the 100th anniversary of the hamburger with a month-long celebrat ion at its restaurants. On June 3, 2005, the 175th Johnny Rockets ope ned its doors.

In late 2005, JRG announced plans to launch a new menu design in all of its restaurants. The move was significant--it was the largest rede sign of the Johnny Rockets menu in JRG's history. The new menu includ ed an image of a jukebox and photos of the restaurant's most popular food, including its Rocket Double hamburger, its shakes, and its frie s. Shumsky commented on the new menu in a November 2005 company press release, claiming, "The new design reflects our continued commitment to providing guests with a unique and quality dining experience."

Indeed, Shumsky's strategy over the past several years was paying off . In 2005, estimated sales reached $190 million and were expected to climb further in 2006. Industry analysts speculated that the comp any may be poised for an initial public offering, an acquisition, or a sale. Regardless, Johnny Rockets appeared to be positioned for futu re success. Management was confident that in the years to come custom ers around the world would continue to enjoy the food and dining expe rience that inspired Ronn Teitelbaum to open the first Johnny Rockets restaurant in 1986.

Principal Competitors: Carlson Restaurants Worldwide Inc.; Red Robin Gourmet Burgers Inc.; The Steak 'n Shake Company.

Chronology

• Key Dates:
• 1987: The first shop opens on Melrose Avenue in Los Angeles.
• 1989: A period of rapid expansion ensues, including a Johnny R ockets in Tokyo.
• 1995: The company is under new ownership by Carpenter Investme nt and Development Corporation.
• 1998: The 100th Johnny Rockets unit is opened in the Georgetow n area of Washington, D.C.
• 1999: Michael Shumsky is named CEO.
• 2000: Founder Teitelbaum dies of brain cancer.
• 2005: The company's 175th restaurant opens for business.