Food Service & Agriculture and Retail

Downtown is right in its Wheelhouse

Meritage had long coveted a central city eatery, but parking was always an issue.

May 27, 2016
| By Pat Evans |
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Meritage Hospitality Group opened Wheelhouse Kitchen & Bar last week as part of a plan to open another 121 restaurants over the next five years. Courtesy Michael Buck

Meritage Hospitality Group is increasing its efforts in downtown Grand Rapids while also looking to grow its national footprint.

Meritage opened its first downtown restaurant last week with Wheelhouse Kitchen & Bar on the south end of Arena Place, an $85 million development that also will house the company’s new headquarters.

Meritage Hospitality Group is publicly traded and currently operates 165 restaurants, mostly Wendy’s franchises, in seven states.

A restaurant in downtown Grand Rapids has long been in the plans, according to company CEO Robert Schermer, who said there’s always been one problem preventing it, until the Arena Place development: parking. In Meritage’s “chef-casual” concepts, Schermer said while food and beverage is key, so too is adequate and convenient parking to ensure a positive guest experience.

“We’ve been looking at this for a long time — many years, but we’ve avoided it because of the parking situation,” Schermer said. “With this building, we have four levels of parking, public parking lots around us, and we can have valet (parking). Until now, it just proved to be too much of a customer convenience issue.”

The opening of Wheehouse comes on the heels of the company’s annual shareholder meeting when the next five-year plan was announced in what is likely to be a continuation of the past five years of growth. The first quarter of 2016 saw a 16.3 percent increase in sales from the same period in 2015, but net income dropped from $1.1 million to $541,000 for the company, which is traded as MHGU.

Schermer said 2016 will act as a transition year to allow the company to gather and ready itself for another leap in growth beginning in 2017.

Slightly more than five years ago, Meritage set a goal to reach 150 restaurants by the end of 2015, and Schermer watched as the company catapulted from 74 restaurants to 165 with the opening of Wheelhouse.

The new company goal is to open an additional 121 locations and reach a total of 285 by the end of 2021. Schermer said the mix of new restaurants will likely be 90 percent Wendy’s locations and 10 percent chef-inspired, original concept restaurants.

As the growth of the company largely will be led by acquisitions of Wendy’s franchises, Schermer said Meritage will continue to seek existing Wendy’s franchisees ready to exit the business.

Wendy’s currently has more than 300 franchisees and would like to get that number down to 30, according to Schermer. Many of the existing franchisees are original owners and are ready to exit the business after more than 30 years.

A new opportunity in the near future may take the company west of the Mississippi River for the first time, as Meritage looks to grow beyond its current borders of Michigan, Ohio, Florida, Georgia, North Carolina, South Carolina and Virginia.

As the company continues to acquire more Wendy’s, the first step is to assess existing locations in an acquired territory, many of which date back 30 or 40 years. If the restaurants are operating well, the company will tear down the old buildings and put up the new concept Wendy’s, similar to the one Meritage recently reopened on Michigan Street NE in Grand Rapids.

Schermer said the company also continues to close underperforming locations, usually the bottom 10 percent.

“Just like we like to take care and grow the top end, we need to cull the bottom of the herd,” he said.

Once a new territory is assessed, Schermer said Meritage will look at developing new restaurants in underserved areas there. It generally has between six and 12 new restaurants in the pipeline, he said.

“We have a very vibrant pipeline, particularly when we go into a market for the first time. But it’s a long process — it can take 24 to 36 months to acquire a property and build and open it.”

Growth for Meritage outside of Michigan likely will continue to be Wendy’s restaurants, as chef-casual are more time consuming and often are taken on one at a time.

As Wheelhouse is up and running, the company will turn its attention to its future restaurant at Gateway at Belknap, which, like Arena Place, is being developed by Orion Construction. Currently, the restaurant space is pretty much a blank slate.

“All of these chef-inspired restaurants are one-off restaurants — custom restaurants,” Schermer said. “They require a lot more attention to detail and effort than building a franchise restaurant would.

“Consumers now want a unique experience with chef-inspired foods, good beers, good wines. We’re trying to accommodate that.”

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