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Grill Concepts Hopes for Buzz With Gastro Pub

It’s been almost 30 years since Grill on the Alley opened its doors in Beverly Hills, drawing Hollywood’s elite and tourists who wanted to rub shoulders with them. Since then, Grill Concepts Inc. has opened six more of its fine-dining restaurants while also getting a piece of the casual sit-down business with its Daily Grill chain. But while local competitors such as Calabasas-based Cheesecake Factory Inc. have flourished, Grill Concepts has struggled to come out of the recession, closing restaurants and posting losses every year since 2008. And the former Nasdaq stock has been reduced to trading on the Pink Sheets to save reporting costs. Now, the Woodland Hills company is hoping it can turn itself around by jumping on the latest trend in dining with a quirky gastro pub concept. Its Public School restaurants are a place where menus are printed on composition books and happy hour is called recess. More to the point is a menu built around a wide selection of burgers and craft beers – which are often an ingredient in the dishes. Instead of the $42.75 Australian lamb chop at Grill on the Alley or a $25.50 Cedar Plank Salmon at Daily Grill, diners can feast for $15 on a Colorado Lamb Burger topped with tomato cranberry jam, arugula and brie, or a Citizen Lager Fish & Chips. “It’s about more than making a fun burger,” said Phil Kastel, vice president of culinary for Grill Concepts. “For Public School, it’s about local ingredients and incorporating beer into the food.” The first location, Public School 612, was opened last March inside the Daily Grill in Downtown Los Angeles as a test restaurant. Solid sales prompted the chain to open a second location, Public School 310 in Culver City in December. In June, Public School 805 will open adjacent to the Grill on the Alley at the upscale Promenade at Westlake shopping center in Westlake Village. Plans call for four more Public School locations next year, including in states such as Texas and Washington, where the company has Daily Grills. Conrad Lyon, senior restaurant analyst at the Los Angeles office of equity research firm B. Riley Caris, said the gastro pub concept is the hottest in the industry – but he warned it’s starting to get saturated. “The gastro pub plays right into the right trend at the right time,” Lyon said. “Everyone is trying to do this.” Turnaround The company has been in the midst of a turnaround since 2009, when Chuck Mathewson, a private investor, invested $15 million, giving him nearly 90 percent of the voting shares. In 2010, one of the company’s founders, Bob Spivak, rejoined Grill Concepts as chief executive after a four-year hiatus. The annual losses have decreased since then, though in 2011 they still totaled about $2.5 million. Chief Financial Officer John Bayley said when the company’s 2012 results are issued in the next few weeks, there will be further improvement. He expects the company to turn a profit within two years. “We’re still in a net loss situation, but we don’t worry about paying the bills anymore,” he said. “We’re very pleased with the progress we’re making.” Still, any financial improvement has largely come as the result of cost cutting. The company reported total sales of about $70 million in 2008. In 2011, they were only up to $72 million, while operating expenses have been slashed by $11 million. And in the last three years, Daily Grill locations have closed in Newport Beach, El Segundo, Boston and McLean, Va. The company said the closures were as a result of leasing issues and would not comment on the success of each location. In that same time span, one Daily Grill in Century City has opened. Investors have reacted accordingly. The stock, which traded at its peak in 1996 at $14.50, now trades for less than 40 cents. But with restaurant sales growing again nationwide, Grill Concepts is banking on more than improving same-store sales to put itself back in financial health. “We’ve really minded our Ps and Qs on the business side,” Spivak said. “Now, it’s time for us to grow.” The company plans to open as many as six new restaurants before the end of 2014, which will include a new Daily Grill set to open in Northern California later this year, he said. But much of the chain’s hopes rest on the Public School concept. Angie Pappas, a spokeswoman for the California Restaurant Association, a trade group in Sacramento, said strong chains such as Cheesecake Factory are focusing on international expansion, leaving opportunity for domestic growth to mid-sized companies. “All the players in the middle, like Grill Concepts, are seeing opportunity to grow,” she said. “You don’t have to grow slowly today; you just have to grow strategically.” Still, with both new entrants and established restaurant companies opening gastro pubs, Lyon said it will be critical that Grill Concepts gets premium, high-traffic locations. The next planned Public School is in the Conejo Valley, where there is limited gastro pub competition. The company also plans to tweak each location to reflect the local market and competition. For example, the menu at the Westlake Village Public School will heavily resemble its Culver City predecessor, but Kastel said it will have a wood-fired oven, which will allow him to create some pizzas or flatbreads. “I’ve got a lot to play with,” he said.

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