Rock Bottom Restaurants, Inc. Business Information, Profile, and History

Company Perspectives:

Our Mission: To run great restaurants ... for the benefit of our Guests, our Community, and Ourselves. Our mission is embedded throughout our company and our people. It is the foundation for all of our decisions. We believe in it and strive to live it, everyday.

History of Rock Bottom Restaurants, Inc.

Rock Bottom Restaurants, Inc. (RBR) owns or operates more than 100 dining and entertainment establishments under several brands; its namesake brewpub chain, with 29 company-owned locations, is one of the largest in the United States. Other brands are Old Chicago (54 units), The ChopHouse (4), The Walnut Brewery (1), as well as three Sing Sing piano bars and the Axiom nightclub. There are also eight Old Chicago restaurants owned by franchisees. The company's Old Chicago restaurants feature deep-dish pizza and a trademark 110-brand beer list. The Rock Bottom Brewery units feature an eclectic menu and microbeers brewed on the premises. The company's upscale dining and beverage concept is its ChopHouse & Brewery. The first publicly traded restaurant-brewery company in the United States, RBR was taken private in a 1999 management buyout. The company was looking to franchises to deliver growth in 2004 and beyond.

Origins

The central personalities responsible for Rock Bottom's rapid expansion during the 1990s first met in 1973, roughly 20 years before they joined forces to create a chain of combination restaurant-breweries. One of the pair, and the junior of the two, was Thomas A. Moxcey, who was working in Boulder, Colorado, as a waiter at a restaurant named Cork & Keg during the early 1970s. Moxcey proved to be in the right place at the right time because in 1973 he was recruited by a restaurateur named Frank Day, who was putting his academic training as a Harvard MBA to the test. Day was opening his first restaurant, an establishment called The Walrus, and hired Moxcey to help him run the Boulder-based business. Day and Moxcey spent two years working together, then went their separate ways, beginning a 15-year period that saw Day continue as an entrepreneur and Moxcey embark on a career in restaurant management. Day opened a restaurant named Old Chicago in 1976 and developed it into a small chain, while Moxcey climbed the managerial ranks at two restaurant chains, Cork & Cleaver and Village Inn. When Day and Moxcey reunited in 1990, they brought together their experience to launch a new concept in the food service industry, one designed to appeal to the interest in microbrewed beer. The result of their efforts would become known as Rock Bottom Restaurants, Inc.

The idea behind the new establishment was a restaurant that featured an open kitchen and a prominently displayed brewing operation, complete with shining steel vats in which premium beers were produced. Specialty beers as an instrument to lure dining patrons was not a new idea for Day. His Old Chicago restaurants featured more than 100 different types of imported beers and used bottled beers and keg taps as an integral part of their decor. What Day and Moxcey had in mind with the new concept, however, was distinctly different from Day's Old Chicago units. The brewery-restaurant they opened in 1990, named Walnut Brewery, was slightly more upscale than Old Chicago, and the new concept was underpinned by the onsite brewing facilities. The ability to brew their own beer enabled them to realize hefty profit margins, as much as 94 percent of the $3 per pint price they charged, giving the two entrepreneurs much to hope for with their new concept.

When Moxcey and Day opened their second brewery, they struck upon the name for the holding company that would be created to superintend the operation of the restaurant-breweries and Day's chain of Old Chicago restaurants. The second restaurant-brewery was opened in Denver in the Prudential Plaza, which was owned by the giant insurance company of the same name. Day and Moxcey came up with a twist on Prudential's long-standing advertising theme of "A Piece of the Rock" and dubbed their new restaurant-brewery "Rock Bottom Brewery," thereby lending a permanent name to their enterprise. After the opening of the second restaurant-brewery, Day and Moxcey opened another with the idea of expanding the concept into other regions set in their minds. At the time, it was an unusual strategic objective to pursue: There were many independently owned brewery restaurants scattered throughout the country, but there were only a limited number of companies operating multiple, full-service restaurant-breweries. The number of companies operating multiple, full-service restaurants in multiple states--as Day and Moxcey would do--was lower still. Day and Moxcey's few competitors would be wiped away completely once they executed their next strategic move. They were going to take their business public, something no other restaurant-brewery operator had ever done before.

Initial Public Offering in 1994

Before converting to public ownership, Day and Moxcey needed a single corporate entity to offer to Wall Street. Rock Bottom Restaurants, Inc. was formed in April 1994 to serve such a purpose, combining what previously had been a number of "S" corporations under the umbrella of a holding company. From its first day of existence, Rock Bottom comprised the three restaurant-breweries operating under the names Rock Bottom Brewery and Walnut Brewery and eight Old Chicago restaurants. A majority of the restaurants were located in Colorado, but the geographic scope of the company was expected to broaden after its initial public offering (IPO), which was completed in July 1994. The IPO netted Day and Moxcey nearly $16 million, a total drawn from the two million shares of stock that debuted at $8 per share, giving them the financial wherewithal to move forward with their expansion plans. Rock Bottom's development program, funded by the slightly more than $10 million set aside from the IPO, called for the establishment of five Rock Bottom Brewery units and 14 Old Chicago restaurants by the end of 1994. Expansion plans for 1995 projected the establishment of three or four Rock Bottom Breweries and eight Old Chicago restaurants.

By February 1995, Day and Moxcey had opened eight new restaurants during the previous 12 months, giving them a total of five Rock Bottom Breweries and 16 Old Chicago restaurants. On the heels of this ambitious effort, they continued to stick to their plans for opening four Rock Bottom Breweries and eight Old Chicago restaurants in the coming year. To finance the expansion, the company needed additional capital, having essentially exhausted the funds gained from the July 1994 IPO. Once again, Day and Moxcey turned to Wall Street for financial help, announcing a second public offering in February 1995 that found a receptive audience more than willing to invest its cash in the fortunes of an aggressive restaurant-brewery operator. Investors' interest was piqued by Rock Bottom's sound management, its attention to food quality and service, and by the profit margins the company was realizing from the sale of its microbrewed beers. When the second public offering was completed in March 1995, 2.1 million shares had been purchased at $18 per share, grossing $37.8 million for Rock Bottom's future expansion efforts. With this cash, Rock Bottom pushed ahead into new geographic areas, building on its presence in Colorado, Minnesota, Texas, and Oregon.

The second public offering resolved the financing problems for Rock Bottom's immediate expansion, but there was another nagging issue with which Day and Moxcey had to contend in the early months of 1995. Both of the executives knew there was a finite number of urban markets capable of supporting a Rock Bottom Brewery and that they could not expect to rely heavily on the Rock Bottom Brewery concept as a vehicle for expansion. More Rock Bottom Breweries could be established in new markets, to be sure, but for greater market penetration the pair felt a need for a third concept to drive future sales and earnings growth. In March 1995, the same month the second public offering was completed, they celebrated the debut of their new, third concept, the Denver ChopHouse & Brewery. Expected to generate $4 million a year in sales, the Denver ChopHouse provided Rock Bottom with an entry into the top tier of the restaurant-brewery industry, giving Day and Moxcey a more upscale concept to flesh out their restaurant business. As the company moved forward from this point it could wage a three-pronged attack, with Old Chicago units competing for business in the low-end segment of what insiders referred to as the "brew and chew" market, while Rock Bottom Breweries competed in the middle tier and the new ChopHouse formula competed in the upper tier.

Troubles Arise in 1996

By the beginning of 1996, Rock Bottom was a $70-million-in-sales company deriving nearly half of its revenue volume from the sale of its high-profit-margin beverages. Scattered throughout the country were 28 Old Chicago restaurants, ten Rock Bottom Breweries, and the company's lone ChopHouse & Brewery in Denver, with more restaurant openings in the offing. Much had been achieved since Day and Moxcey began developing new restaurant-breweries in earnest in 1994, but by the beginning of 1996 problems began to surface that were related directly to the ambitious efforts of the two long-time partners. The aggressive expansion undertaken by Day and Moxcey had produced prodigious leaps in sales, driving the company's revenue volume upward as more and more restaurant-breweries joined Rock Bottom's operational fold. Consistently rising sales, however, did not represent the only ingredient for a company's success. Profitability, important to any company's vitality, was particularly important for a publicly traded company such as Rock Bottom, which had made a tacit agreement with investors to give them a meaningful return on their investments. In this area, Rock Bottom was suffering. Sales for the first fiscal quarter of 1996 jumped more than 60 percent, but the increasing cost of opening new restaurants began to hobble earnings growth, engendering a nearly 6 percent decline in profits for the quarter. Although the decline in earnings did not represent a staggering loss, it was sufficient to set off alarms both inside the company and in the minds of industry observers. An analyst from the underwriting firm for Rock Bottom's public offerings offered his riposte to the company's anemic earnings growth, remarking, "The company committed one of those rookie mistakes--they got a little ahead of themselves." Moxcey admitted as much, saying, "The development side became distracting." The ensuing months were spent trying to lessen the sting delivered by Rock Bottom's growing pains.

Despite the financial ills stemming from the company's rapid expansion, Rock Bottom officials reiterated their intention to move forward with the expansion of the ChopHouse concept, although no particulars were offered. Moxcey, whose promotion to chief executive officer in 1995 conferred upon him the responsibilities of curing the problems Rock Bottom faced, handled the more pressing concerns regarding slipping earnings. As president of the company, Moxcey had earned the reputation of a "hands-on" leader, devoting considerable time to visiting each restaurant-brewery, meeting with employees and managers, and overseeing day-to-day issues. In 1996, as Rock Bottom began to reel from fundamental problems, Moxcey had to check his desire to know everyone and everything on an operational level and blossom into a genuine chief executive officer, that is, less of an in-the-field leader and more of a tactician in the realm of strategic planning. Along these lines, Moxcey realigned Rock Bottom's businesses into two divisions in late 1996, organizing a Brewery Restaurant Division and an Old Chicago Restaurant Division.

Despite the menacing cloud that loomed in Rock Bottom's future, the company opened 16 new restaurants in nine new markets in 1996, exceeding its own projections for the year by two units. In 1997, the company opened its second ChopHouse in Washington, D.C., at last moving forward with its expansion plans for its third dining concept, but optimism at Rock Bottom's headquarters did not eliminate the problems that arose in early 1996. Financial losses continued to pile up, particularly in the company's fourth fiscal quarter when it registered a numbing $4.25 million loss as it shuttered unprofitable units. For the year, sales were up because of continued expansion, swelling from $109 million to $150 million, but $4.7 million in losses were racked up, intensifying the need for righting the floundering company. Rock Bottom's precarious but not fatal financial position was compounded in December 1997 when the company lost its primary caretaker. Moxcey resigned from the company in December 1997, leaving to pursue other business interests. His departure left Day in charge and as the holder of Rock Bottom's three top executive positions of president, chief executive officer, and chairman. (Day was also founder and president of Concept Restaurants Inc.)

By 1998, several strategic options had been explored, including the possible sale of Rock Bottom in its entirety or in parts, but as the company looked to its future from the vantage point of early 1998 it was pressing ahead with the pace of expansion that had characterized its growth throughout the mid-1990s. With Day at the helm, Rock Bottom planned to open five Rock Bottom Brewery units, a third ChopHouse, and three restaurants through Trolley Barn Brewery Inc., a joint venture partner. Whether the financial troubles resulting from the company's mid-1990s expansion were temporary or indicative of a more serious flaw was a question to be answered by the future progress of Rock Bottom. To Day fell the responsibility for making his creation an unequivocal success.

Day later told the Rocky Mountain News that he had unsuccessfully tried to find a buyer for the company during its lowest point, when it was almost sold to Landry's Seafood. RBR's stock fell to $6 a share in December 1997 (it had peaked at $30 in June 1995). With bad weather and increased competition in the brewpub sector eating into earnings, RBR brought in consultants to spice up its menu and streamline its kitchen management.

Rock Bottom sold its 50 percent interest in Trolley Barn Brewery Inc. towards the end of 1998, fetching $7 million. Sales were $160.1 million for the year.

Private in 1999

RBR was taken private in an August 1999 buyout by Day and company co-founders Bob Greenlee, Arthur Wong, and David Lux. The cost of meeting cumbersome regulatory requirements was one strong disincentive for a business of Rock Bottom's size to remain a public company, one analyst told the Denver Post. (Consolidated Restaurants Cos., owner of El Chico and other chains, and ConQuest Partners, both based in Dallas, had also bid for the company.) The deal was worth about $80.6 million, according to the Denver Post.

At the time, Rock Bottom had annual sales of $190 million. The company was growing even though some observers thought the brewpub concept was tapped out. Sales were estimated at $204 million for 2000, with net income of $26 million, as noted in the Boston Business Journal.

Ned R. Lidvall became RBR's president and CEO in October 2001. Once president and COO of Brinker International's On the Border Cafes Corporation, Lidvall had held a number of executive posts at RBR since 1995. Frank Day remained with RBR as chairman. Day had opened more than 100 restaurants in the previous 30 years, noted the Denver Post.

No other brewpub chain sold more beer than Rock Bottom in 2001, according to the Institute for Brewing Studies. It sold 39,342 barrels of beer in all. During the year, the company acquired four Northeast units of bankrupt Brew Moon Enterprises Inc., plus one Hops and one Cougan's location in Arizona.

By 2003, sales were up to $250 million a year. RBR expanded its headquarters to accommodate the growth. It had been occupying more than half of a 39,000-square-foot building in Louisville, Colorado, and leased out the remainder of it to increase administrative space by almost 80 percent. The company owned and operated 90 restaurants in all and was beginning to franchise its Old Chicago concept.

A franchised Old Chicago location in St. Cloud, Minnesota, became RBR's 100th restaurant in April 2004. Old Chicago was RBR's only franchise concept. The company was preparing for an aggressive expansion plan that would open more than 100 new Old Chicago Restaurants, ten of them by 2008, reported the Denver Business Journal. Many of the new Old Chicago locations were being opened by multi-unit franchise partners.

There was more to the Rock Bottom story than the numbers, suggested CEO Ned Lidvall. "We're in a business that is all about people, and we believe that there is a greater purpose than simply running great restaurants," he said.

Principal Operating Units: Axiom; Chophouse; Old Chicago; Rock Bottom Restaurant and Brewery; Sing Sing; Walnut Brewery.

Principal Competitors: Brinker International, Inc.; Gordon Biersch Brewery Restaurant Group, Inc.; Hops Grill and Bar Inc.; Uno Restaurant Holdings Corporation.

Chronology

• Key Dates:
• 1976: Frank B. Day opens the first Old Chicago restaurant in Boulder, Colorado.
• 1991: The first Rock Bottom restaurant opens in Denver.
• 1994: Rock Bottom makes an initial public offering.
• 1999: The firm is taken private in a management buyout.
• 2004: RBR opens its 100th restaurant.