Restaurant Hospitality - August 1994
The Man Who Would be King Fish: Who says there isn't room for another seafood dinner-house chain with national ambitions? Tilman Fertitta is planning to cover the country with Landry's.
...continued from Published News
It's not a pretty sound when a full tray of food crashes to the floor. Yet, during this lunch hour at Landry's Seafood House in Houston, Tilman Fertitta does not blink when disaster hits.
Nonetheless, this is a bad time for breakage, president and chief executive of this full-service, 21-unit chain, is already ticked off over a seemingly innocuous occurrence. When he and his three lunch companions are given menus, they find the smaller lunch menu tucked inside. The sight of it makes him grit his teeth. The general manager will be sternly pulled aside and set straight later.
"I didn't get mad when the waitress dropped that tray because it was an accident and accidents happen," says Fertitta back at his plush office n Houston's stylish Galleria area. "But I really get mad when my people don't follow policy."
"Policy" is Landry's bible, and the first commandment of lunch service is that everyone be given a dinner menu. Lunch menus should be placed on the table, and only two of them per four-top. Quite simply, Fertitta wants people to order from the more costly menu. The Policy was created for one reason, and one reason only: to make money, lots of money. Fertitta is a wildly ambitious man, and he's convinced Landry's is the high octane vehicle that will carry him to riches even he can't comprehend. "The possibilities out there are mind boggling," he marvels.
"Fred Astaire made dancing look so easy because he worked at it 24 hours a day, and that's the way Tilman Fertitta operates," says Alen Smith, president of Allen Ewing & Co., a Tampa-based investment firm. "He's a driven man who has every detail in his restaurants orchestrated to the last letter. To say he's a hands-on executive is like saying Marilyn Monroe was cute."
Monroe never looked this good, not on Wall Street, anyway, where Landry's stock has captured the hearts and minds of investors. Landry's average annual per-unit sales is $3.2 million (84% food, 16% liquor), which is considerably higher than some other Wall Street darlings, including Applebees ($2 million), Chili's ($2.3 million), Lone Star ($2.7 million), and Red Lobster ($2.8 million). Unit sales produce an average operating cash flow of $733,000, which is a 70 percent cash return on investment. Business Weekly recently ranked Landry's 26th on its "100 Best Small Companies" list.
The original Landry's Seafood House began humbly in 1980 in the small Texas town of Katy. It was created by the Landry family of Louisiana. Fertitta, who grew up in his father's seafood restaurant in Galveston, Texas, was friends with the Landry's and in 1986 acquired an interest in the restaurant and their slightly more upscale restaurant called Willie G's Seafood and Steakhouse.
Years earlier, Fertitta had made a bundle as a developer during Houston's heyday "when anyone with a good line of bullshit could get a bank loan and do deals," he says. Fertitta, with his disarming good-old-boy twang and hard-ball business acumen, did hotel deals. When Houston went bust in the mid '80s, Fertitta (still in his 20s) bailed out of development.
He came to foodservice knowing a thing or two about deal-making. Within two years of hooking up with the Landry's, he bought out all seven partners. "The original Landry's was a hole in the wall but it had great food," says Fertitta, now 37. "The basics were there, though, and I knew I could tweak it into a concept."
Tweak? Please. Fertitta practically started from scratch, hiring a cracker-jack management team (including Paul West, chief financial officer, Richard Ervin, vp of operations; and Al Jaksa, executive vp) that helped devise operating systems capable of running a chain on the move. He then slowly began adding units (a couple per year) until taking the chain public last year. Two offerings raised $24 million and $37 million, respectively. He came away from that deal with $25 million in his pocket, $70 million in stock, and a war chest that will allow him to expand Landry's from coast to coast.
By the end of the year there will be 25 Landry's restaurants, he says. A year after that the number will jump to 40 units in 20 states (including Texas, Louisiana, Mississippi, Tennessee, Arkansas, Georgia, North Carolina, Florida, Nevada, Arizona and Colorado.) "We're sitting in the cat-bird seat because everyone around us is either trying to open a steakhouse, an Italian concept, or a Mexican concept. We're doing seafood and being welcomed with open arms," says Fertitta, who is also a minority owner of the Houston Rockets basketball team, this year's NBA champions.
Analysts agree. "Landry's development seems right on track and its management appears to have solid control over its growth," says David Adelman, first vice president of Dean Witter Reynolds in New York City. "There are no signs that it's moving too fast in its development." Landry's only major national competition is Red Lobster, which did two billion dollars in business last year with its 600-plus units. Fertitta is inspired, not intimidated by Red Lobster, which has shown the way in terms of the opportunities in seafood. Someday Landry's will be as big a player, he boasts, "because everything about us is better."
Landry's broils, grills and fries seafood that Fertitta admits is prepared for the "masses not the classes." Nonetheless the seafood, which is served by waiters in tuxedo shirts, is tasty and looks great. Checks average around $12.
Unlike Red Lobster, with it's mostly cookie-cutter buildings, all of the Landry's restaurants base their identity loosely on the old seafood houses of the '30s and '40s. The one unifying architectural design is a movie-style marquee. The marquee, says Fertitta, signals the public that Landry's is a high-energy restaurant that's fun and entertaining. "You know, I can be driving down the street toward a Landry's and spot a burned-out bulb on the marquee a half-mile away," Fertitta declares.
In fact, at the Galveston store he spots a stretch of burned out neon soon thereafter, which clearly annoys him. This causes him to rush off for a private discussion with the g.m. Worse yet, there's been some sort of seating snafu in violation of the Policy, and he'll be pulled aside for another unpleasant discussion. Mark this night in the loss column.
The Galveston store is the newest jewel in Landry's neon-lit necklace. Landry's own in-house design and architecture team gave it its look. The company also has two construction teams, one that builds restaurants from the ground up (at an average cost of $2 million) and one that converts old restaurant buildings (at an average cost of $750,000).
Many of the Landry's conversions were once family-owned seafood restaurants that failed after years of success. Fertitta targets these restaurants because many of the sites are increasingly offbeat and have demonstrated they can succeed. "We're having an easy time finding interesting properties because 'Chain America' is going after suburban locations," Fertitta says. "We look for unique sites where you can attract tourists, conventioneers, local residents, business travelers and the local business lunch crowd. These sort of places aren't on the 'A' list of the big chains."
Take the Landry's in Corpus Christi, Texas. It's located in an old barge that was converted years ago to a family-owned seafood restaurant. The restaurant did well, pulling in $1 million a year, but eventually failed. Fertitta then moved in, marquee and all. It's now doing considerably better than the chain's annual sales average. At least half of Landry's units sit near water to evoke the image of fresh seafood.
Fertitta's expansion plan goes well beyond targeting unusual sites. His goal is to establish name recognition at the high-profile spots. Then he intends to build Landry's in nearby suburbs from the ground up. He figures that if given a choice, suburban mall developers will choose to have his restaurant on site instead of a Red Lobster.
Landry's could easily become a 150-unit, $500 million company in the next five years. The company's other restaurant, Willie G's, plays a minor role in his growth plans. If an area can't sustain two Landry's, then a nearby Willie G's is an option-a tactic the company employed in Galveston.
With expansion comes a need for qualified people to manage the units. Fertitta says he's having no trouble finding the skill level he demands. In fact, the talent is knocking on Landry's door, he says, because good managers are disillusioned with bigger chains and their foot-dragging bureaucracies. That fact and $60,000 to $70,000 salaries with stock options are bound to help.
Fertitta displays the classic signs of an empire builder, immortality foremost among them. "My goal now," he declares, "is to leave something behind to let people know I was here." A fish house will do just fine.