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When the 'Wow' wears off
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October 27, 1998: 10:17 p.m. ET
Repeat business and good food, not just stars, are what theme chains need
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LOS ANGELES (CNNfn) - Throughout much of the 1990s, all-star investors turned out for theme restaurant openings around the world.
Country Star, Fashion Cafe, Motown Cafe --and especially Planet Hollywood.
Then the sky began to fall.
From a high above $30 a share, Planet Hollywood (PHL) now hovers around $4 -- down 82 percent in the past year alone.
Country Star (KAFE) stock has fallen 50 percent since July.
Why so far so fast? Financial experts say the novelty of theme restaurants has worn off.
"The customer goes in for the first time and … he or she is wowed," says David Rose, senior vice president of equity research at Jefferies & Co. After the initial thrill, however, "it becomes that much more difficult for that customer to be wowed again."
And, not surprisingly, sales dipped when fans drawn to star-studded events didn't return.
"If everybody thought they'd see a celebrity each time you went to a Planet Hollywood, that person would be there on a consistent basis. But again, it's that one-time experience that's not renewed," Rose says.
Another missing ingredient: enticing food. Comedienne Roseanne has said of Planet Hollywood, "I love the desserts." But her preferences notwithstanding, Planet Hollywood's menu hasn't exactly earned rave reviews, nor has it proven itself to be a revenue haven.
Rather, merchandising has been its bread and butter, as it has at Country Star.
In fact, sales of T-shirts, jackets and the like account for 30 to 40 percent of profits at theme restaurants.
In this sense, the House of Blues distinguishes itself in that it has succeeded without relying heavily on merchandising. Music has been its calling card.
"Our economics aren't built upon selling 30, 40, 50 percent of our revenue on the retail side," says Greg Trojan, House of Blues Entertainment's president and CEO. "Really, the music is the star of the concept, and the great food might be the second."
In recognition of the fact that it can't prosper on the back of merchandise alone, Planet Hollywood says it expects to return to profitability soon after it revamps its menu and improves service.
Gone is the notion that merely associating stars with a restaurant would be a guaranteed recipe for success.
Says David Rose, "You're going to compete with several hundred thousand other restaurants day in and day out. And that's the challenge for Planet Hollywood or Rainforest (Café) (RAIN) or Hard Rock Cafe." 
-- by CNNfn staff writer Matthew Carey
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