Neil Kiefer cherishes recollections of the initial Hooters eatery, which he helped establish in 1983 in Clearwater, Florida. Even though the name of his restaurant chain carried a significant amount of suggestive undertones, he and his associates envisioned it as a casual beachfront eatery catering to younger crowds and families.
TL;DR
- Hooters CEO Neil Kiefer is leading a family-friendly renovation after private equity ownership.
- The brand aims to return to its casual, beach-themed roots, moving away from a "boys club" image.
- Hooters Inc. reacquired Hooters of America, controlling 140 of its establishments nationwide.
- The company plans to refresh its menu and server attire to attract women and families.
“It started as a place five miles from the beach,” Kiefer, now the CEO of Hooters Inc., told Coins2Day. “You came in from the beach, could throw some coveralls on, shorts…and it was a hangout.”
But recently, the restaurant chain known more for its scantily clad servers than perhaps its wings and beer, strayed too far from its roots, according to Kiefer. He blamed the chain’s private equity ownership, particularly over the last five or six years, though the company has passed through several hands over the past few decades. That included the likes of businessman Hugh Connerty, who bought the rights to Hooters from the owners a year after its founding with the hopes of national expansion, followed by Robert Brooks and a group of investors at what is now Hooters of America, Inc., who bought the company from Connerty. In 2011, private equity firms H.I.G. Capital and KarpReilly helped finance Chanticleer Holdings LLC’s acquisition of Hooters, a North Carolina-based development company. In 2019, Hooters was sold to private equity firms Nord Bay Capital and TriArtisan Capital Advisors.
Hooters for America, the private equity-controlled entity overseeing the restaurant chain, initiated Chapter 11 bankruptcy proceedings in March. This move provided Kiefer, his co-founders, and franchisees a pathway to reacquire over 100 establishments. For approximately two years, Kiefer and his associates at Hooters Inc. Had been amplifying the franchises' dissatisfaction with the company's trajectory under private equity management.
“It’s a beach-theme restaurant, not a sexualized one,” Kiefer said. “So I think they went too far down the road of making it more like a little boys club hangout, and they therefore alienated the women and the families we have.”
Kiefer can now address the restaurant's daring image: Hooters Inc. Revealed this month that it has completed its purchase of Hooters for America. Hooters, with its associate Hoot Owl Restaurants LLC, will control approximately 140 of the 198 Hooters establishments nationwide.
The chief executive promised to bring the restaurant chain back to its coastal origins, asserting that Hooters offers a family-oriented dining experience with seaside ambiance. This involves not only a refreshed menu featuring hand-breaded chicken wings, various sauces, and salads with homemade dressings but also server attire reminiscent of Hooters' 1980s athletic shorts.
Kiefer mentioned that he integrated 4,600 new staff members into his eateries during the initial week following the acquisition. Hooters predominantly employs women as servers, utilizing a legal provision known as bona fide occupational qualification. This allows businesses to decline hiring individuals based on their national origin or sex if a specific characteristic of their identity is “reasonably necessary to the normal operation of that particular business or enterprise.”. A lawsuit, 1997 lawsuit, brought forth by men who were not hired by the restaurant, concluded with a settlement that mandated Hooters to offer certain kitchen roles to men.
Casual dining’s private equity crisis
Hooters faces a challenging revival. Its planned relaunch arrives when consumers are anxious about the economy and consumers have numerous casual dining alternatives, as noted by Neil Saunders, managing director at GlobalData. Companies such as TGIFridays and Red Lobster have also pursued rebranding efforts to contend with establishments like Chili’s, which has soared, driven by operational improvements, a knack for online popularity, and offering good value to customers more mindful of food costs.
“There’s volume shrink in the restaurant industry,” Saunders told Coins2Day. “At the moment, there’s very high costs and cost increases, and really, because people are dining out less often and they’re buying less, it’s really a big battle for market share.”
A shared characteristic among many of these revived casual dining establishments, beyond their menus of burgers, wings, and seafood, is a troubled past involving private equity. Pitchbook data indicates that 21 restaurant or bar chains filed for bankruptcy this year, with 10 of those having received private equity investment. Red Lobster and TGI Fridays were among those 10 chains.
Saunders said private equity is to blame for these restaurant chains’ woes “very, very often.” It’s is an appealing option for business owners looking to sell and get a bang for their buck, as private equity firms are willing to give up lots of cash—most of which is leverage—and in return, try to flip the business, which can look like carving up its assets or selling its real estate to other investors, only to lease it back.
“Private equity tends to take quite a short-term view of the businesses it owns, and very much is about profit maximization in the short term, and it isn’t really about long term brand health,” Saunders said.
Kiefer's dissatisfaction with Hooters' private equity owners stemmed from their business decisions, including the 2021 introduction of more revealing shorts for the uniform. Approximately 160 company-operated establishments embraced the updated attire, whereas the few dozen franchised sites managed by Hooters Inc. Opted out.
The CEO observed a shift in the customer demographic at these stores. Franchise locations he owned reported that women and children constituted 28% to 40% of their clientele. Conversely, in the stores he's acquiring, women and children represented only 5% to 18% of customers.
“When you just appeal to just men or just women, you’re cutting the market in half totally,” he said.
The future of Hooters
Saunders indicated that a primary element for Hooters' future prosperity hinges on its capacity to surmount its image as a so-called “breastaurant.”
“One of the key questions is, Is that what consumers actually want? Is it still relevant today?” He said. “It’s a lot more of a love-it, hate-it-type proposition than it used to be. It’s polarizing.”
However, by aiming to attract more women and families, Hooters might lose its unique selling proposition compared to numerous other casual dining establishments that also emphasize being family-oriented, Saunders noted. This challenge is compounded by restaurants facing consumers' increasing preference for dining at home and cooking more.
Kiefer's focus is on ensuring the brand's enduring viability. He expressed disinterest in the private equity approach that emphasizes profit above all else, instead preferring to back franchise operations, some of which have operated for four decades. Furthermore, there are no immediate intentions for the company to undergo another ownership transition.
“Our plan is to never sell it,” Kiefer said. “Our plan is to have the next generation of Hooters operators take over.”
That doesn’t mean striking a chord with diners is any less important.
“It’s still a heavy climb,” Kiefer said. “We’re all consumers. When you go out to eat, you have a bad experience, you simply don’t go back. We’ve got a lot of work to do to straighten things out and then to win the customers back and get new customers, too.”