Theme restaurant developers begin with a concept likely to have broad appeal and then design not only a restaurant space to embody that concept, but a marketing and merchandising strategy to enhance it and lay the groundwork for future expansion. Dave and Buster's, Inc., for example, has developed its restaurants around an arcade/carnival theme, offering interactive simulators and virtual reality systems, along with more traditional games, within a restaurant/pub setting.
From the initial concept/design phase to the initial public offering, a theme restaurant company faces many challenging legal issues. It is never too early to consider the legal and business issues that will be important to a theme restaurant company's ability to finance its start-up and roll-out stages, including bank or other debt financing, equity financing, and perhaps an initial public offering.
Perhaps the most critical phase is at the beginning, with the concept/design. A theme restaurant company has to recognize, as Planet Hollywood did, that what it ultimately will develop and sell is not so much food as a brand image -- a piece, or a collection of pieces, of intellectual property. And, from the start, a theme restaurant company should be proactive about protecting such intellectual property.
In this initial phase, a theme restaurant company is likely to engage the services of many creative talents -- from architects and interior designers, who are responsible for the overall "look and feel" of the restaurant, to restaurateurs, who design the menu and every detail of food preparation and presentation. During this phase, it is critical that the theme restaurant company structure its relationship with such creative talents in a way that ensures that the company owns and controls the rights to all design elements of its facilities and has the ability to prevent such creative talents from offering their services to potential direct competitors.
After the concept/design phase comes the initial site selection phase. In addition to having high visibility and heavy traffic, the initial location must have the potential to attract the attention of local, regional and, ideally, national media. New York City's theatre district has been an early destination for many theme restaurant companies.
But the site selection phase is critical to a theme restaurant company for more than just purposes of marketing exposure. Often a theme restaurant company has at this stage nothing more to show potential investors than a concept/design and a newly signed lease or two. How well the leases have been structured and negotiated may make the critical difference to such a potential investor, and to new investors down the road.
Following the initial site selection phase, the focus shifts to expansion. At this point, a theme restaurant company may have one or two "prototypes" up and running successfully. Now, the challenge becomes the replication of such successes, and financing the replication, which may mean taking the company public.
Typically, these phases in the development of a successful theme restaurant company have followed each other in rapid succession and the companies have reached the IPO phase with little operating history to disclose to the public investor. However, in the strong financial markets of the past few years, this has not proved to be an obstacle. Nonetheless, from a securities law liability standpoint a theme restaurant company at this stage needs to pay particular attention to what is disclosed to the public and how it is disclosed. In addition to disclosing the fact of a limited operating history, the company's prospectus should disclose in detail the risks to the company from competition, from expansion (both operationally and financially) and from rapidly changing public tastes, among many other risks.
Given certain demographic trends, which seem to benefit the restaurant and family-based entertainment industries, and American culture's seemingly endless store of "themes," we are likely to see many more theme restaurant companies develop and reach maturity as public companies in the near future. Each will face many, if not all, of the issues discussed above. When and how they face such issues will be critical to their long-term success.