A lethal case of food poisoning may have, at least temporarily, derailed plans by Sizzler International Inc. to reinvent itself.
Earlier this month, two Sizzler franchises in Wisconsin were closed after an E. Coli outbreak left more than 50 people ill. A 3-year-old girl died as a result of E. Coli infection, allegedly contracted at a Sizzler restaurant in Milwaukee.
News of the E. Coli scare sent Sizzler’s shares in a tailspin. On Aug. 4, the stock closed at $1.44 a share, down from its 52-week high of $3.50 in March.
Not only is the company likely to face a plethora of lawsuits from those allegedly affected by food poisoning at its franchises, the chain will also have a tough task reassuring the general public that it’s safe to eat at Sizzler outlets.
“The places where such a tragedy occurs are often the safest places to eat afterward,” said Larry Stern, managing partner with consulting firm Nanas, Stern, Biers, Neinstein & Co. LLP. “Their success, however, depends on how well their public relations department handles the situation.”
Representatives for Sizzler declined to comment, and the company’s overall low profile and uncommunicative attitude during this crisis has raised some eyebrows in the restaurant industry.
“You need to be very active and tell people what you’re doing and why you’re doing it,” said Lloyd Gordon, a restaurant consultant with GEC Consultants Inc. “You need to go out there and educate the public about what E. Coli is and what kind of risk it actually represents.”
E. Coli, a toxic bacterium often found in undercooked beef, causes an estimated 73,000 illnesses a year in the United States. It can be fatal for children and adults with weak immune systems.
Thus far, Sizzler has only released a small number of prepared statements, expressing sympathy in the case of the deceased child and indicating that Sizzler USA’s Chief Executive Thomas Metzger is in Milwaukee, cooperating with health officials who are investigating the outbreak.
The tragedy in Wisconsin occurs at a time that otherwise was looking rather promising for the Culver City-based company.
After a period of ill-conceived format changes and heavy losses that culminated in a 1996 filing for Chapter 11 bankruptcy protection and a subsequent painful restructuring that involved the closure of 130 under-performing restaurants, the company is under new management and looked to be ready for a comeback to its glory days of the 1980s.
Looking to capitalize on a renewed appetite for red meat, last year Sizzler initiated a series of upgrades to its menus and the interiors of its 64 company-owned-and-operated restaurants. Thus, instead of refrigerated, pre-marinated and pre-cut steaks, the restaurants started serving USDA-select, fresh-cut steaks.
The move was an attempt to break with the unglamorous public image that Sizzler had acquired as a place to go for an inexpensive meal, rather than for a fine dining experience. But the jury is still out on whether the new look and menu will bring back the crowds.
Eventually, the company will try to implement similar changes at its 186 franchise outlets across the country.
Although the company has reported increased revenues at the revamped restaurants, neither sales nor earnings overall have shown dramatic gains.
For the fiscal year ended April 30, the company reported earnings of $2.4 million (8 cents per share), down sharply from $7.4 million (26 cents) for the previous year. The drop in net income came in spite of a slight increase in revenues, from $226.3 million in 1999 to $239.5 million in 2000, and resulted from nonrecurring costs such as debt service from the bankruptcy and the costs related to the sale of some franchises in Australia.
Further, only $2.8 million of the $13.2 million increase in revenues came as a result of sales gains at U.S. restaurants. The rest came largely as a result of exchange-rate fluctuations of the Australian dollar, impacting the results from the 101 KFC restaurants that Sizzler owns and operates in Australia, according to Sizzler’s annual report.
