Armadillo Willy's: barbecue veteran racks up meaty plan for future growth

When John Berwald traveled to Texas 22 years ago, looking for the very best barbecue for his burgeoning restaurant concept, he ventured into nearly every rib restaurant in the state in search of the ultimate finger-licking barbecue experience.

He dug into ribs at 15 to 20 places a day and sampled a wide variety of sauces, and while conducting that culinary research, he even stumbled onto a news story that gave him an idea for the concept's name.

While reading the Fort Worth Gazette, he spotted the headline, "Willy takes all," referring to an armadillo that had taken first place in a recent race for the critters. And so Armadillo Willy's Texas BBQ was born, recalls Berwald, the concept's founder and chief executive.

Today the Armadillo Willy's chain boasts nine units. And although it is based in Los Altos, Calif., the chain prides itself on bringing the best of Texas, St. Louis and other traditional-style barbecues to Californians, who are more prone to "take out their Weber grill, throw on the hamburgers and steaks and then incinerate them," Berwald says.

The fast-casual chain, launched in 1983, has struck a chord with consumers in the area directly south of San Francisco, who enjoy Willy's succulent ribs, brisket, fajitas and sandwiches as well as sides like spicy peanut slaw, salads and potato salad.

Pointing to the success of other barbecue concepts, like Darden Restaurants' Smokey Bones Barbeque and Grill and Famous Dave's of America Inc., Ron Paul, president of Technomic Inc., a Chicago-based restaurant consulting and research firm, says, "There's an increased interest in the barbecue category."

Responding to the growing consumer appetite, Armadillo Willy's is planning to expand into California's Central Valley. But in a departure from the chain's traditional fast-casual positioning, it will be testing how its barbecue recipe will fare in a format more akin to quick service. The company this summer is planning to open in Gilroy. Calf., a drive-thru eatery that will serve as a prototype for the new type of unit.

The idea for the original Armadillo Willy's, which opened in 1983, sprang from an earlier eatery, St. John's Bar and Grill, that Berwald and a partner founded in 1977. Bob Deagen, Armadillo Willy's president and chief operating officer, was the busboy at that restaurant, and he rose to become manager.

"We were doing fast-casual before there was fast-casual," Deagen says of St. Johns, which featured freshly made burgers and beer in a restaurant without table service but with attractive decor.

"It was the "70s, but it was a fast-casual restaurant," Berwald says, adding that the restaurant boasted wood floors, lots of stained glass and woodwork.

St. John's taught Berwald about the strong appeal of barbecue and how to create an appealing fast-casual environment. When St. John's developed theme nights, "barbecue was the biggest hit of them all," Berwald recalls.

When Berwald decided to open a barbecue place after his trip to Texas, he says it only was natural that he start a fast-casual eatery.

"'I'm just following what I know," he says.

The first Armadillo Willy's, which opened in Cupertino, Calif., was only 1,200 square feet with seven tables inside and five tables outside. Sales grew to $1 million. Today the typical unit has grown to 4,000 square feet, with the smallest being 2,400 square feet and the largest being 6,800 square feet. The number of tables ranges from 40 to 60, depending on store size. Operating hours are 11 a.m. to 10 p.m. In 2004 the company posted total sales of $18 million, according to Matthew Granville, the company's controller.

"Back then it was unusual" to have a self-service eatery that featured food on par with that of casual restaurants, Berwald explains.

A second trip to Texas led to a popular menu addition: fajitas. In the early 1980s they were relatively unknown in California, but Berwald added them along with margaritas when he opened his second unit in Los Altos. From there the company opened seven additional units.

The latest restaurant opened in 2002 in Dublin, Calif. The front-of-the-house--which boasts wood floors, red-and-white checkered tablecloths and photos of barbecue cook-offs--allows customers to view the barbecue pit while they pick up their food.

"This is our prototype" for the fast-casual Armadillo Willy's going forward, Berwald says of the Dublin store. The per-person average check in 2004 was $10.90, according to Granville.

Officials say the secret to Armadillo Willy's fast-casual success is its top-quality food.

"We can put the dollars in food where [casual restaurants] have to put it in bodies," Berwald says. And Deagen adds that although decor is important, "we want it to be about the food."

The company uses wood-burning smokers to create its signature ribs, briskets, turkeys and other smoked meats. It takes years to become the kind of pitman who can create great ribs, officials note. All food is cooked on site, and most catering originates from individual units.

"There is a big learning curve," Berwald explains, adding, "You have to learn the feel of the wood." It can take as much as a year for a cook to become proficient, he notes.

Brisket is cooked overnight, and the ribs are cooked continuously in staggered shifts in order to produce "the freshest product possible," says Anthony Phillips, general manager of the Los Altos location. A general manager, an assistant general manager and a manager oversee each store.

Right now competition is muted, but "we're sure we'll see more barbecue restaurants move in," says Deagen, who also pinpoints Fuddruckers and Baja Fresh Mexican Grill as two competitors in their market.

Though the barbecue chain attracts families, men, in particular, tend to favor its hardy fare.

"Father's Day is a big day for us," Deagen says, while Mother's Day draws a smaller crowd.

Another key factor in the success of the chain is its involvement in the local community. Armadillo Willy's Dining for Dollars program, through which the company donates 20 percent of the proceeds from groups dining in or out of the restaurant to local PTAs, education foundations or other nonprofit groups, creates bonds with customers and drives sales, Berwald and Deagen say.

The introduction of the service host roughly four years ago also has paid off, they note. The service host is responsible for ensuring that customers are licking sauce off their fingers with big grins on their faces. That person greets customers, suggests specials and trouble shoots. In short, he oversees "the total dining experience," Phillips explains.

Also contributing to quality service at the 273-employee company is its family atmosphere, employees say.

"I have John's [Berwald's] home number, "comments Phillips, who has been with the company for 13 years and who met his wife there. "It's like one big family," he says, adding, "Everyone knows everyone."

Roughly 15 percent to 20 percent of the chain's sales are derived from catering. During the tech boom Armadillo Willy's did a brisk sit-down and corporate-catering business, Granville says. But after the tech bubble burst, both in-house and the catering business slackened. Sales dropped off in 2002 and 2003, falling from $16.5 million in 2000 to $15.4 in 2002. But total sales rebounded to $17.3 million in 2003 and then increased to $18 million in 2004.

The improving economy, efforts to keep prices level and better marketing strategies have helped to boost the performance of the company, Granville says. Same-store sales declined more than 2.3 percent in 2003 but increased more than 4 percent in 2004, he adds.

And the company once again is doing a brisk catering business. Clients include the San Francisco 49ers, high-school football fans, wedding parties and corporations.

Still, food and fuel costs are a continuing concern, Granville says. Food costs as a percentage of food sales rose from 28.4 percent in 2002 to 31.2 percent in 2004. Granville blames rising beef prices and the unusually active hurricane season that decimated tomato and lettuce crops in 2004.

Now "fuel costs are driving everything," Granville explains, adding that 65 percent of the chain's food costs are from meat and poultry, and "vendors are adding fuel charges to the bill."

In addition, labor costs are skyrocketing, with workman's compensation a large part of the equation, Berwald says.

Costs--labor and real estate--are key reasons that the company is moving beyond its core market in the South Bay Area and scouting new locations, like Sacramento, Calif., in the Central Valley. The first unit will be the new drive-thru eatery in Gilroy, which is south of San Jose, Calif.

The new eateries will cut the current 10-minute ordering time in half, Granville explains. Unlike the fast-casual concept, the person taking the order will cook the food. The number of employees in each location will drop from the standard 25 in traditional units to about half that number in the new format, Berwald says.

Berwald also says that although the new 50-seat eatery will provide a speedier execution, no compromise on food quality will be made. The menu, which still is under development, will feature chopped rather than sliced barbecue sandwiches; ribs in a basket with fries; sausages; hot dogs; and milk shakes. And the company will use premium pork products

But Technomic's Paul questions the new direction. He praises the chain's "smart strategy" of sticking within a small radius of its core market but questions why it "would want to go downscale."

"There's a lot more competition" in quick service, he says.

But Berwald counters that the new drive-thrus, which will be rebranded to distinguish them from the company's fast-casual units, won't skimp on quality.

"It's streamlined but not really fast food," he says. What's more, says Berwald, "everyone loves barbecue."

AT A GLANCE

CONCEPT NAME: Armadillo Willy's BBQ

OWNER: Texas Turkeys Inc.

HEADQUARTERS: Los Altos, Calif.

YEAR FOUNDED: 1983

NUMBER OF UNITS: 9

CHAIN'S ANNUAL SALES: more than $18 million

AVERAGE ANNUAL SALES PER UNIT: more than $2 million

PER-PERSON CHECK AVERAGE: $10.90

TARGET DEMOGRAPHICS: families, businesspeople, men

WHERE IT TRADES: California

NEW MARKET TARGETS: Sacramento, Calif., area

TOP EXECUTIVES: John Berwald, president and chief executive; Bob Deagen, president and chief operating officer; Matthew Granville, controller; Matt Berwald, human-resources director

COPYRIGHT 2005 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2005 Gale Group