Johnny Rockets Group, Inc. History

Address:

15635 Alton Parkway, Suite 350
Irvine, California 92718
U.S.A.

Telephone: (949) 789-7575
Fax: (949) 789-7588

Website: www.johnnyrockets.com

Private Company
Incorporated: 1986
Employees: 2,600
Sales: $115 million (1999 est.)
NAIC: 722110 Full Service Restaurants

Company Perspectives:

Johnny Rockets maintains a dedication to the integrity, high standards, and ongoing attention to detail that has become its hallmark. Reasonable prices, snappy, happy service, and a simple menu of nostalgic favorites--that's the winning combination that keeps our guests coming back time and time again. Key Dates:

Key Dates:

1987:: First shop opens on Melrose Avenue in Los Angeles.
1989:: Period of rapid expansion ensues, including a Johnny Rockets in Tokyo.
1995:: New ownership by Carpenter Investment and Development Corporation.
1998:: 100th Johnny Rockets unit opened in The Georgetown area of Washington, D.C.
1999:: Michael Shumsky named CEO.

Company History:

Johnny Rockets Group, Inc.'s restaurants offer American nostalgia with a menu of basic American food, served in a 1940s-style diner complete with an open chrome kitchen, a chrome and black formica counter, red vinyl seats, and countertop jukeboxes that play old tunes for a nickel. The restaurants' signature items are its four hamburgers: 'The Original,' a hand-shaped hamburger; 'The Double,' with two patties, cheddar cheese, and a special sauce; '#12,' with cheddar cheese and 'red, red sauce'; and 'St. Louis,' with bacon, Swiss cheese, and 'St. Louis' sauce. The balance of the menu consists of a few 'classic' sandwiches, such as a BLT, a hot dog/chili dog, 'American Fries,' chili, and few other items. Malts and 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. Beverages include Coca-Cola flavored with cherry, chocolate, or vanilla. Apple pie, baked fresh on the premises, is available with ice cream or Tillamook cheddar cheese and is served with a small paper American flag.

A Company Founded on a Dream

Ronn Teitelbaum founded Johnny Rockets in 1986, at the age of 46, after selling his successful, Beverly Hills-based chain of fine men's clothing stores. Though he had no experience in the restaurant business, it had been his dream to own and operate a 1940s-style diner. Teitelbaum's restaurant reflected the nostalgia he felt for his own childhood memories of the 1940s, such as the friendliness and the cleanliness 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 burger and malt shop, using the same attention to detail that he gave to his men's clothing business. Teitelbaum sought to recreate the hamburger of his childhood memories. He cooked hamburgers with a number of seasoning combinations until he found the right flavor. A favorite employee story exemplified the extremes Teitelbaum took to attain perfection in every detail. After Teitelbaum had eaten a delicious tuna fish sandwich at a Los Angeles restaurant, he returned to the restaurant with a flashlight after hours and looked in the dumpster for an empty tuna can to see which brand the company used.

Teitelbaum's $250,000 restaurant project encompassed an 844-square-foot malt shop with 20 red vinyl stools. Skeptical friends and restaurant business consultants thought that the small-scale concept could not succeed. They assumed that peak meal times would require too long of wait and that the shop could not maintain an adequate level of business during slow business hours, between lunch and dinner, and late at night. In addition, the high-fat menu, with hamburgers, fried potatoes, and ice cream shakes, did not fit the stereotype of the Californian's preference for salad and pasta.

The moment Johnny Rockets opened on chic Melrose Avenue in Los Angeles, 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 vintage countertop jukeboxes. Instead of using a machine that would squeeze the juices from the fresh ground beef, kitchen staff hand-patted hamburgers 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 yellow neon on a red and blue lighted background. On its first day of business, June 6, 1987, Johnny Rockets stayed open until 5:00 a.m. to serve all of the day's customers.

Attracting a panoply of Los Angeles residents of all ages, the restaurant sustained a continuous flow of customers in the days that followed. Business hours spanned from 11:00 a.m. to 12:00 midnight except Fridays and Saturdays, when the shop stayed open until 2:00 a.m. The high turnover cycled at approximately every 30 minutes. Johnny Rockets served 600 to 700 customers per day, involving around 19 percent takeout sales. With customers spending more than $5.00 each, revenues reached $1 million the first year.

Within the first year of operation Johnny Rockets grew into a small chain with franchises and company-owned stores. In the Los Angeles area, restaurants opened in Westwood, Sherman Oaks, and Beverly Hills. Franchises in Atlanta and San Francisco resulted when interested parties approached Johnny Rockets to license the concept. Johnny Rockets restaurants also opened in Minneapolis and Chicago. In an article in the October 24, 1988 Nation's Restaurant News, Teitelbaum attributed the success of Johnny Rockets to his own inexperience in the restaurant business, stating, 'I didn't know it was impossible to do over $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 protect the Johnny Rockets trade dress. The company won the first of its trademark-related cases in New York in August 1989. Despite the objections of Teitelbaum, the Johnny Rock-it bar and grill opened in New York City in early 1989. Teitelbaum contended that the value of the Johnny Rockets name was undermined, and he supported that view with the deposition of a prospective franchisee reluctant to open a Johnny Rockets 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 of American popular culture abroad. Teitelbaum used a business connection from his clothing business to open a Johnny Rockets restaurant in Tokyo in September 1989. City Centre Restaurants, which operated a variety of casual dining chains in London, opened a Johnny Rockets there in 1990. In addition, a prospective franchisee approached the company to open a Johnny Rockets in Melbourne, Australia, which went into development at this time. By June 1992 the company had expanded to 28 stores in the chain, with six company-owned units and 22 franchises.

The Johnny Rockets dining concept found many believers, including Lloyd Sugarman. Originally senior vice-president of Johnny Rockets, Sugarman acquired ownership of the first San Francisco restaurant, a 42-stool location in the Marina, as well as franchise rights to the San Francisco Bay area. Sugarman boosted growth in northern California with two new shops in the summer of 1992, while negotiations for locations in San Jose, Santa Rosa, and Fisherman's Wharf in San Francisco progressed.

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 Wharf, in an effort to retain the historical integrity of the area. The city did allow a Johnny Rockets malt shop, however, as cooked-to-order hamburgers and made-to-order shakes differed from fast food restaurants, which precooked sandwiches to be available upon request and dispensed premixed shakes. The issue defined the market niche that Johnny Rockets occupied, between fast food and casual dining restaurants. That niche served customers who had grown weary of fast food, who wanted full service and an inexpensive, fresh-cooked meal. Johnny Rockets accommodated that customer base with quick food preparation, but further distinguished itself with wait people who were known to suddenly break into song and dance routines using ketchup bottles as microphones. Johnny Rockets' wait staff learned as many as nine dance routines, to such old songs on the countertop jukeboxes 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 stores in Encino and Agora Hills in August 1992. New franchises opened around the United States, in Miami; Baltimore; Scottsdale, Arizona; Sunriver, Oregon; and Burlington, Massachusetts. Unit-level sales averaged $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 its identity. Teitelbaum set a new precedent for the Mexican government's acknowledgement of international franchise law after an imitation of Johnny Rockets appeared in Cancun, Mexico. The company won the case and government officials shut the place down at gunpoint, just in time for the debut of Johnny Rockets in Mexico City in April 1993. Another situation occurred two days before the grand opening of a Johnny Rockets restaurant at West Edmonton Mall, the world's largest shopping mall at that time, in Alberta, Canada. McDonald's of Canada obtained an injunction to prevent the opening. The agreement between McDonald's and the mall owner, Triple Five, stated that no other fast food restaurant in the Phase II area could serve hamburgers, except in the food court. Johnny Rockets used the Fisherman's Wharf store as an example of the company's identity as a full-service restaurant. In June an Alberta Court dismissed the argument by McDonald's of Canada, which identified Johnny Rockets as a fast food restaurant, and lifted the injunction.

Teitelbaum's ambitions to expand the Johnny Rockets chain prompted negotiations with Carpenter Investment and Development Corporation (CIDC), whose primary activities involved hotel and shopping center development. CIDC would aid the growth of Johnny Rockets with its knowledge of city centers and shopping malls, as well as its affiliations with shopping malls and with the Hilton and Hyatt hotels. In June 1994 CIDC agreed to acquire a majority interest in Johnny Rockets International, as the company was called then. Internal disputes at Johnny Rockets slowed the transition to CDIC ownership, however. Rockets Holding Inc., which formed to handle the acquisition, had to negotiate separate terms of sale with Teitelbaum and Alfred M. Bloch, another majority 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 five 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 sandwich to the children's menu and the addition of a vegetarian burger, the 'Streamliner,' to the regular menu. In April 1995 Johnny Rockets signed an agreement to place a restaurant on the main floor of the casino at the Hilton Casino Resort in Reno, Nevada. The menu included breakfast to accommodate all night and early morning gamblers. Internationally, 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 percent ownership, with the balance owned by Teitelbaum and a group of small 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 total investment of $44 million involved $25.6 million paid to previous investors, $12 million for expansion, and $4.4 million to acquire five franchises.

New ownership was followed by a time of turbulent changes in leadership. With the formation of JRG, Teitelbaum remained on the board of directors and became the company's creative consultant. JRG hired Jeffrey Campbell, former CEO and chairman of Burger King, as the new CEO. Cabana retained the title of CEO, although he reported to Campbell until 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 open company-owned units. Glen Hemmerle became president of JRG in February 1997. He brought retail experience with Pearle Vision, Crown Books, and Athletes Foot, but no restaurant experience. Hemmerle's strong customer orientation led to the addition of a hot fudge sundae, lemonade, and a hot dog/chili dog to the menu.

Hemmerle became president during a surge in expansion. The earlier internal disputes slowed long-term growth, with only two restaurant openings from 1995 until February 1997, compared with 20 restaurants from mid-1994 into 1995. In addition, some restaurants closed, such as the Sherman Oaks, California store, because of the 1994 earthquake, and the Laguna Beach, California store, because of the 1997 floods. Some stores in Australia closed as well, because of poor locations chosen by subfranchisees. Finally, in February 1997 JRG opened four new malt 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 spring 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-traffic shopping areas. The company preferred mall locations near movie theaters, because it combined two distinctly American inventions--the diner and the movies. New stores in 1998 included openings at Providence Place Mall in Rhode Island and at Downtown Plaza Mall in Sacramento, 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 Shumsky because of the similarity of the Johnny Rockets and Sonic restaurant 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 stability, 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 operations, and market development. Though same store sales increased six percent during the fiscal year ended May 2, 1999, systemwide sales showed lower than expected revenues as some larger stores did not attain the same customer appeal as small, intimate stores. In addition, Shumsky found that JRG did not have a store prototype, and he planned to develop one based on the smaller units, which seated from 20 to 65 customers. 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 development with two new positions, regional vice-presidents of the eastern and western United States. Shumsky hired Pamela Britton, from Cinnabon, for the east, and Barry Cook, from Sonic Restaurants, for the west.

To sharpen Johnny Rockets brand identity, an art program was embarked upon. David Willardson, known for his posters for the movies 'American Graffiti' and 'Raiders of the Lost Ark,' produced ten oil paintings that featured Johnny Rockets' signature menu items, as well as its logo. The paintings then replaced some of the older pictures that hung at Johnny Rockets restaurants.

JRG cooperated with Warner Brothers in a movie promotion for the animated 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 after the movie's release, Johnny Rockets wait staff gave a comic book or cassette tape to each child customer. The promotion involved the sale of Johnny Rockets promotional items at Warner Brothers retail outlets, including t-shirts, sweatshirts, and caps with the Johnny Rockets logo in embroidery. A compact disc of old tunes from Johnny Rockets' jukeboxes, such as 'Stand By Me' and 'Under the Boardwalk,' was also among the company's promotional items.

With more than 120 restaurants in 25 states, Washington, D.C., and seven countries, JRG's plans for expansion in late 1999 involved 35 new units. Johnny Rockets' franchisee in Mexico opened a new store in Cancun in August and planned another for that city. In November 1999 Johnny Rockets became the first branded restaurant chain 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.

Principal Competitors: Dave and Buster's; Hard Rock Cafe; Ruby's Diner.

Johnny Rockets Group, Inc. History

Company Perspectives:

Key Dates:

Company History:

Further Reading: