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The first publicly traded restaurant-brewery company in the United States, Rock Bottom Restaurants, Inc. operates more than 60 casual restaurants underpinned by either an extensive collection of domestic and imported bottled beers or on-site breweries. Predominately located in Colorado, Rock Bottom's restaurants are operated under three banners: Old Chicago, Rock Bottom Brewery, and ChopHouse & Brewery. The company's 42 Old Chicago restaurants feature deep-dish pizza and a trademark 110-brand beer list. The more than 20 Rock Bottom Brewery units feature an eclectic menu and microbeers brewed on the premises. The company's upscale dining and beverage concept is its ChopHouse & Brewery formula, comprising two restaurant-breweries located in Denver and Washington, D.C.
Origins
The central personalities responsible for Rock Bottom's rapid expansion during the 1990s first met in 1973, roughly 20 years before they joined forces to create a chain of combination restaurant-breweries. One of the pair, and the junior of the two, was Thomas A. Moxcey, who was working in Boulder, Colorado as a waiter at a restaurant named Cork & Keg during the early 1970s. Moxcey proved to be in the right place at the right time because in 1973 he was recruited by a restaurateur named Frank Day, who was putting his academic training as a Harvard M.B.A. to the test. Day was opening his first restaurant, an establishment called The Walrus, and hired Moxcey to help him run the Boulder-based business. Day and Moxcey spent two years working together, then went their separate ways, beginning a 15-year period that saw Day continue as an entrepreneur and Moxcey embark on a career in restaurant management. Day opened a restaurant named Old Chicago in 1976 and developed it into a small chain, while Moxcey climbed the managerial ranks at two restaurant chains, Cork & Cleaver and Village Inn. When Day and Moxcey reunited in 1990, they brought together their experience to launch a new concept in the food service industry, one designed to appeal to the interest in microbrewed beer. The result of their efforts would become known as Rock Bottom Restaurants, Inc.
The idea behind the new establishment was a restaurant that featured an open kitchen and a prominently displayed brewing operation, complete with shining steel vats in which premium beers were produced. Specialty beers as an instrument to lure dining patrons was not a new idea for Day. His Old Chicago restaurants featured more than 100 different types of imported beers and used bottled beers and keg taps as an integral part of their décor. What Day and Moxcey had in mind with the new concept, however, was distinctly different from Day's Old Chicago units. The brewery-restaurant they opened in 1990, named Walnut Brewery, was slightly more upscale than Old Chicago, and the new concept was underpinned by the on-site brewing facilities. The ability to brew their own beer enabled them to realize hefty profit margins, as much as 94 percent of the $3 per pint price they charged, giving the two entrepreneurs much to hope for with their new concept.
When Moxcey and Day opened their second brewery, they struck upon the name for the holding company that would be created to superintend the operation of the restaurant-breweries and Day's chain of Old Chicago restaurants. The second restaurant-brewery was opened in Denver in the Prudential Plaza, which was owned by the giant insurance company of the same name. Day and Moxcey came up with a twist on Prudential's long-standing advertising theme of "A Piece of the Rock" and dubbed their new restaurant-brewery "Rock Bottom Brewery," thereby lending a permanent name to their enterprise. After the opening of the second restaurant-brewery, Day and Moxcey opened another, with the idea of expanding the concept into other regions set in their minds. At the time it was an unusual strategic objective to pursue: There were many independently owned brewery restaurants scattered throughout the country, but there were only a limited few companies operating multiple, full-service restaurant-breweries. The number of companies operating multiple, full-service restaurants in multiple states&mdash Day and Moxcey would do--was lower still. Day and Moxcey's limited number of compatriots would be wiped away completely once they executed their next strategic move. They were going to take their business public, something no other restaurant-brewery operator had ever done before.
1994 Initial Public Offering
Before converting to public ownership, Day and Moxcey needed a single corporate entity to offer to Wall Street. Rock Bottom Restaurants, Inc. was formed in April 1994 to serve such a purpose, combining what previously had been a number of "S" corporations under the umbrella of a holding company. From its first day of existence, Rock Bottom comprised the three restaurant-breweries operating under the names Rock Bottom Brewery and Walnut Brewery and eight Old Chicago restaurants. A majority of the restaurants were located in Colorado, but the geographic scope of the company was expected to broaden after its initial public offering (IPO), which was completed in July 1994. The IPO netted Day and Moxcey nearly $16 million, a total drawn from the two million shares of stock that debuted at $8 per share, giving them the financial wherewithal to move forward with their expansion plans. Rock Bottom's development program, funded by the slightly more than $10 million set aside from the IPO, called for the establishment of five Rock Bottom Brewery units and 14 Old Chicago restaurants by the end of 1994. Expansion plans for 1995 projected the establishment of three or four Rock Bottom Breweries and eight Old Chicago restaurants.
By February 1995 Day and Moxcey had opened eight new restaurants during the previous 12 months, giving them a total of five Rock Bottom Breweries and 16 Old Chicago restaurants. On the heels of this ambitious effort, they continued to stick to their plans for opening four Rock Bottom Breweries and eight Old Chicago restaurants in the coming year. To finance the expansion, the company needed additional capital, having essentially exhausted the funds gained from the July 1994 IPO. Once again, Day and Moxcey turned to Wall Street for financial help, announcing a second public offering in February 1995 that found a receptive audience more than willing to invest its cash in the fortunes of an aggressive restaurant-brewery operator. Investors' interest was piqued by Rock Bottom's sound management, its attention to food quality and service, and by the profit margins the company was realizing from the sale of its microbrewed beers. When the second public offering was completed in March 1995, 2.1 million shares had been purchased at $18 per share, grossing $37.8 million for Rock Bottom's future expansion efforts. With this cash, Rock Bottom pushed ahead into new geographic areas, building on its presence in Colorado, Minnesota, Texas, and Oregon.
The second public offering resolved the financing problems for Rock Bottom's immediate expansion, but there was another nagging issue with which Day and Moxcey had to contend in the early months of 1995. Both of the executives knew there was a finite number of urban markets capable of supporting a Rock Bottom Brewery and that they could not expect to rely heavily on the Rock Bottom Brewery concept as a vehicle for expansion. More Rock Bottom Breweries could be established in new markets, to be sure, but for greater market penetration the pair felt a need for a third concept to drive future sales and earnings growth. In March 1995, the same month the second public offering was completed, they celebrated the debut of their new, third concept, the Denver ChopHouse & Brewery. Expected to generate $4 million a year in sales, the Denver ChopHouse provided Rock Bottom with an entry into the top tier of the restaurant-brewery industry, giving Day and Moxcey a more upscale concept to flesh out their restaurant business. As the company moved forward from this point it could wage a three-pronged attack, with Old Chicago units competing for business in the low-end segment of what insiders referred to as the "brew and chew" market, while Rock Bottom Breweries competed in the middle tier and the new ChopHouse formula competed in the upper tier.
Troubles Arise in 1996
By the beginning of 1996 Rock Bottom was a $70-million-in-sales company deriving nearly half of its revenue volume from the sale of its high-profit-margin beverages. Scattered throughout the country were 28 Old Chicago restaurants, ten Rock Bottom Breweries, and the company's lone ChopHouse & Brewery in Denver, with more restaurant openings in the offing. Much had been achieved since Day and Moxcey began developing new restaurant-breweries in earnest in 1994, but by the beginning of 1996 problems began to surface that were related directly to the ambitious efforts of the two long-time partners. The aggressive expansion undertaken by Day and Moxcey had produced prodigious leaps in sales, driving the company's revenue volume upward as more and more restaurant-breweries joined Rock Bottom's operational fold. Consistently rising sales, however, did not represent the only ingredient for a company's success. Profitability, important to any company's vitality, was particularly important for a publicly traded company such as Rock Bottom, which had made a tacit agreement with investors to give them a meaningful return on their investments. In this area, Rock Bottom was suffering. Sales for the first fiscal quarter of 1996 jumped more than 60 percent, but the increasing cost of opening new restaurants began to hobble earnings growth, engendering a nearly six percent decline in profits for the quarter. Although the decline in earnings did not represent a staggering loss, it was sufficient to set off alarms both inside the company and in the minds of industry observers. An analyst from the underwriting firm for Rock Bottom's public offerings offered his riposte to the company's anemic earnings growth, remarking, "The company committed one of those rookie mistakes--they got a little ahead of themselves." Moxcey admitted as much, saying, "The development side became distracting." The ensuing months were spent trying to lessen the sting delivered by Rock Bottom's growing pains.
Despite the financial ills stemming from the company's rapid expansion, Rock Bottom officials reiterated their intention to move forward with the expansion of the ChopHouse concept, although no particulars were offered. Moxcey, whose promotion to chief executive officer in 1995 conferred upon him the responsibilities of curing the problems Rock Bottom faced, handled the more pressing concerns regarding slipping earnings. As president of the company, Moxcey had earned the reputation of a "hands-on" leader, devoting considerable time to visiting each restaurant-brewery, meeting with employees and managers, and overseeing day-to-day issues. In 1996, as Rock Bottom began to reel from fundamental problems, Moxcey had to check his desire to know everyone and everything on an operational level and blossom into a genuine chief executive officer, that is, less of an in-the-field leader and more of a tactician in the realm of strategic planning. Along these lines, Moxcey realigned Rock Bottom's businesses into two divisions in late 1996, organizing a Brewery Restaurant Division and an Old Chicago Restaurant Division.
Despite the menacing cloud that loomed in Rock Bottom's future, the company opened 16 new restaurants in nine new markets in 1996, exceeding its own projections for the year by two units. In 1997 the company opened its second ChopHouse in Washington, D.C., at last moving forward with its expansion plans for its third dining concept, but optimism at Rock Bottom's headquarters did not eliminate the problems that arose in early 1996. Financial losses continued to pile up, particularly in the company's fourth fiscal quarter when it registered a numbing $4.25 million loss as it shuttered unprofitable units. For the year, sales were up because of continued expansion, swelling from $109 million to $150 million, but $4.7 million in losses were racked up, intensifying the need for righting the floundering company. Rock Bottom's precarious but not fatal financial position was compounded in December 1997 when the company lost its primary caretaker. Moxcey resigned from the company in December 1997, leaving to pursue other business interests. His departure left Day in charge and as the holder of Rock Bottom's three top executive positions of president, chief executive officer, and chairman.
By 1998 several strategic options had been explored, including the possible sale of Rock Bottom in its entirety or in parts, but as the company looked to its future from the vantage point of early 1998 it was pressing ahead with the pace of expansion that had characterized its growth throughout the mid-1990s. With Day at the helm, Rock Bottom planned to open five Rock Bottom Brewery units, a third ChopHouse, and three restaurants through Trolley Barn Brewery Inc., a joint venture partner. Whether the financial troubles resulting from the company's mid-1990s expansion were temporary or indicative of a more serious flaw was a question to be answered by the future progress of Rock Bottom. To Day fell the responsibility for making his creation an unequivocal success.
Principal Subsidiaries: Trolley Barn Brewery Inc. (50%).
Principal Divisions: Brewing Restaurant Division; Old Chicago Restaurant Division.
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