Barbeques Galore Ltd. is no shrimp when it comes to the barbecue market Down Under. But now the Australia-based chain of barbecue superstores is cooking up big plans for the U.S. market from its Orange County beachhead.
The specialty retailer, whose Barbeques Galore USA unit is based in the Irvine Spectrum, sells everything from talking spatulas to fancy built-in barbecues at its chain of 68 U.S. stores.
“People buy our product to have fun with it,” said Sydney Selati, president of Barbeques Galore USA.
Since its U.S. debut in 1980, Barbeques Galore has grown from a single site in Los Angeles to company-owned and franchised stores in 10 states, including five in OC, from Brea to Rancho Santa Margarita. The U.S. made up half of the company’s $169 million in annual sales last year, and, in the first few months of this year, surpassed those of Australia for the first time.
But Barbeques Galore is just getting warmed up, according to Selati. The goal is to grow the U.S. operation nearly sixfold to some 400 stores over the next few years. At that size, the U.S. operation would tower over Barbeques Galore’s retail base in Australia.
Of course, a lot has to fall in place between now and then. Much depends on continued economic growth here in the U.S., where an unprecedented expansion has meant people have more to spend on luxury items like fancy backyard grills.
For its part, Barbeques Galore is putting pieces of its strategy in place. In April, the retailer opened three new California stores in Studio City, Dublin and Santa Rosa. It recently expanded its Irvine distribution facilities by a third to 57,000 square feet and is growing in other states. In February, it opened a new 27,000-square-foot distribution center in Charlotte, N.C.
One-Stop Shop
The retailer already is a favorite among many backyard chefs. Its stores are stocked with thousands of items, from private label and brand-name grills that fetch up to $5,000 apiece to bug zappers, oven mitts, Omaha Steaks, sauces and cookbooks.
“Barbeques Galore came up with the whole concept of carrying everything that has to do with barbecues in one store,” said Donna Myers, a spokeswoman for the Naperville, Ill.-based Barbecue Industry Association. “They definitely were the first for one-stop shopping.”
From 1997 to 1999, overall U.S. grill sales grew 28% to 14.9 million units, the association said. Consumers also are buying more expensive and fancier products, as well as more bells and whistles such as side burners, according to the association.
Sales also are shifting from grills to gas-powered units, a Barbeques Galore staple. Back in 1988, only about a third, or 3.8 million, of the 12 million barbecues sold in the U.S. were gas. Charcoal grills made up the bulk of the market.
By 1997, 8 million of the 13.2 million grills sold here were gas.
While overall growth in barbecue sales is slow compared with other industries, the country’s interest in barbecuing has grown in recent years, Myers contends.
“People save to buy a grill like they would have once saved to buy a car,” she said.
High-End Grills in Demand
The key for Barbeques Galore is that sales of higher-end grills are on the rise, according to the association.
“What is significant is people have traded up to buy better quality grills because they are tired of having to replace grills every few years,” Myers said. “They want to buy a higher-quality grill that will last longer because people are keeping their grills longer.”
Barbeques Galore’s top-selling brands include Weber-Stephen Products Co., Dynamic Cooking Systems, Onward Multi-Corp and Fiesta Gas Grills Inc., which together total about a quarter of the Barbeques Galore’s merchandise sales. Private-label brands such as Barbeques Galore, Turbo, Capt N Cook, Cook-On and Bar-B-Chef total about a third of sales.
The bulk of Barbeques Galore’s U.S. business is in Southern California, where it has 21 stores. There are another eight in Northern California. The company’s top-performing store is in OC, but Selati said he doesn’t want to call attention to its location for competitive reasons. Barbecues Galore has a company-run store in Brea and four franchisees here.
U.S. sales are growing fast, and in Barbeques Galore’s first quarter ended April 30, they actually surpassed those of the retailer’s more mature Australian business. Sales here surged 25.9 % to $19.7 million in the quarter, while sales Down Under expanded by a slower 6% to $14.8 million. Barbeques Galore’s total quarterly sales were up 16.5% to $34.5 million.
A typical Barbeques Galore store in the U.S. does about $1.6 million in sales a year, or $420 per square foot. On average, U.S. shoppers spent $130 per transaction last year.
Double-Digit Growth
And even as Barbeques Galore seeks growth through new locations, the company’s older stores are holding their own. Same-store sales have shown double-digit growth for the past eight quarters. In the most recent three-month period, they increased 12.7%. For fiscal 2000 ended Jan. 31, same-store sales were up 14.6% in the U.S. and 3.9% in Australia.
John Zolidis, an analyst at Sidoti & Co., in New York, started coverage of the retailer’s stock in March with a buy rating. His target share price is 15, up from about 9 now. A key factor, he said, is the company’s ownership of its own manufacturing and enameling plants in Australia.
While internal manufacturing can be a competitive disadvantage in other industries, the plants let Barbeques Galore make its own specialty products and then turn around and sell them at premium prices in its own stores without a middleman. The company also benefits from a favorable exchange between the Australian and U.S dollars.
“Barbeques Galore is the only retailer of barbecue grills that owns its own manufacturing facilities,” Zolidis said. “None of its competitors have that advantage.”
Barbeques Galore has others things going for it too, Zolidis said. U.S. sales of barbecues have grown 25% in the past two years. And a pending reduction in Australian taxes on corporate profits from 36% to 30% in two years will be a windfall for the company.
Challenges Remain
But Barbeques Galore is cooking with fire. Its U.S. growth has come in tandem with a booming economy and an increase in home ownership. The company is turning up the heat just as interest rates have risen and home sales have slowed a bit. And the stock market, which has generated much of the wealth of barbecuing suburbanites, is in a holding pattern for now.
Barbeques Galore also has to be careful not to get burned by rivals who’ve taken notice of its growth. The barbecue market is fragmented with sales stemming everywhere from supermarkets and discount stores to the do-it-yourself segment. But some big retailers such as Sears, Roebuck and Co. and Home Depot Inc. are edging in on Barbeques Galore’s turf. Another competitor took the Barbeques Galore name and launched a store in Canada.
The retailer’s focus is key, Selati said.
“There are a lot of little guys who have copied us too, but nobody does a barbecue chain store,” he said.
Online Competition
Like any retailer, Barbeques Galore also faces competition from the Web. Just two months after Barbeques Galore launched its own e-commerce site, San Francisco-based BBQ.com Inc. debuted an Internet store in August after landing nearly $2 million in venture capital funds.
BBQ.com sells many of the same grills as Barbeques Galore, as well as sauces from around the world, tools and accessories. The site also offers cooking tips. BBQ.com splits its product mix between grills and food products, including Omaha Steaks, a product also sold in Barbeques Galore stores.
But, like other online retailers, BBQ.com is burning cash. It recently laid off nearly all of its 14 employees and is in search of new funding to keep going. Barbeques Galore is a threat to be reckoned with because it has the stores, distribution and cash in place to grow, said Anthony Johndrow, chief executive of BBQ.com.
“They’ve done an OK job with their Web site and they recently redesigned it,” Johndrow said of Barbeques Galore. “The tech part is a hard thing to do and they are not a technology company. It is comparable to our site, but they have more bells and whistles than our current site offers.”
Barbeques Galore says its own online sales are making a steady climb. The retailer’s Web site generates sales equal to about 60% of sales at an average store.
But Barbeques Galore’s main focus is on bricks-and-mortar shops. It plans to grow internally and pull back on its franchise growth, Selati said. In the U.S., Barbeques Galore owns and operates 57 stores, or all but 11 sites in its chain here. In Australia, that number is 35 out of 84 stores.
“Franchising is a partnership and you don’t know who you are getting into bed with,” Selati said. “You have to live with someone to know them.”
Stock Still Lukewarm
On Wall Street, Barbeques Galore still lacks sizzle. The stock is up for the year, but for the most part the retailer’s shares have languished. Its market capitalization stands at about $35 million. Some analysts who cover the company assert the stock is undervalued.
“Barbeques Galore is grossly undervalued in terms of its assets and sales growth and the potential for the company,” said Charles Rinaldi, portfolio manager of Strong Investment Inc.’s Strong Small Cap Value Fund, which includes Barbeques Galore shares. “Sales were $170 million this year and we think they can grow by 20% as they increase their store base. They are just scratching the surface in the U.S.”
Wall Street’s lack of enthusiasm for Barbeques Galore could stem from the company’s conservative style. Managers whose philosophy is to grow the business slowly using internally generated cash own about 38% of the company. About 17 institutional investors own a collective 21% of the company.
“We have a stake in this business and we believe in visible management,” said Selati, whose ownership stake is 4%.
Selati believes the key to making money in the barbecue retail business is having the right location, selection of products, prices and people. The company’s stores are designed to be modular and allow managers to quickly move displays and reconfigure the merchandise, he said. n
