Houston Business Journal - Week of April 12-18, 1996
Laura Elizabeth Elder
Making a splash on the seafood scene: Tilman Fertitta created waves by going public and building Landry's Seafood Restaurants into the nation's second-largest seafare chain. Now he's added a major hotel renovation to his crowded business plate.
...continued from Published News
Not long ago, Tilman Fertitta made a resolution to stop giving himself outrageous deadlines. But so far, the 38-year-old president of Landry's Seafood Restaurants Inc. admits that patience has yet to become one of his virtues.
Not slowing down long enough for lunch, Fertitta munches carrot sticks in his plush Post Oak office as he talks about his latest project.
He speaks rapidly and with a distinct Texas twang.
"I probably should not be so impatient," he says. "I bought that hotel, and I want it finished by June 1. I'm doing a one-year-renovation in four months."
"That hotel" is the 243-room San Luis on Seawall Boulevard in Galveston, which he built in 1983 and purchased back from the Woodlands Corp. earlier this year-reportedly for a bargain price.
Despite the pressure of the deadline and the weekend hours he spends working on the project, he insists the hotel is mostly a diversion and a means to relax. After all, building a restaurant empire can get monotonous, he points out.
"This is the same thing every day. We're building restaurants all over the country." The company opened its 51st restaurant last week.
Married with two young children, Fertitta appears to have a strange idea of what it means to relax.
"Why am I jacking with that 20-acre project in Galveston when I'm building 20 restaurants a year? Business is a hobby to me. I think the hotel is almost a diversion - something to do on the weekends and relax rather than hunt or go golfing," he says.
But the image of Fertitta relaxing at the hotel is difficult to conjure. He's at his office sometimes until 10 p.m. Local lore has it that he is extremely hands-on. His employees say he's obsessed with minutia. Restaurant trade magazines are full of anecdotes in which Fertitta sternly reprimands one Landry's general manager or another for something as seemingly innocuous as the way the lunch menus are presented to the customers.
"He's very demanding," says Steve Scheinthal, Landry's vice president and general counsel. "He believes you have to take care of all the little things in order for the big things to fall into place."
"But I never go into a restaurant and throw a fit," says Fertitta
His "hobby"-and his attention to detail-are costing him $6 million in Galveston.
Plans for the San Luis Hotel and Conference Center include upgrading the hotel's guest rooms, meeting rooms, lobby and restaurants. Fertitta built the 16-story hotel in 1983, when he was 25 years old, and later sold it to The Woodlands Corp. He says he bought it back this year for much less than the building price.
Fertitta says money is not all that drives him-he has plenty.
He flies his own private jet and recently sold his interest in the Houston Rockets. He leads a public seafood chain that posted $104 million in revenues last year and, analysts estimate, will hit $160 million in revenues this year. The company's line of restaurants include Landry's, Willie G's and Joe's Crab Shack.
"You know, I'm sure that money is one of the things that drives me, but if most people saw what I had today, they would ask me why I'm driving so hard."
In a rare moment, he slows down to censor that statement, worried that it might sound a bit crass.
"Does that sound bad?" he asks.
Fertitta grew up in his father's seafood restaurant in Galveston, Pier 23. There, he helped out in almost every aspect of the business, from waiting tables to peeling shrimp.
He began cultivating his business acumen at an early age, playing the stock market as a teenager. But he says he can't really point to a mentor or any particular person who showed him the business ropes or the art of deal-making. He sums it all up as natural talent. "I can't draw or play an instrument," he says. "God gave me the ability to understand business."
In 1980, he graduated from the University of Houston with a degree in hotel restaurant management.
At age 20, he was already hitting the big time in real estate. He made a bundle as a developer doing hotel deals in Houston's heyday. Developing the Key Largo (now part of the San Luis complex) was his first big business deal.
Restaurant Hospitality magazine once quoted Fertitta as saying that he got into real estate "when anyone with a good line of bullshit could get a bank loan and do deals." In the mid-1980s, he bailed out of developing real estate when Houston's economy went bust. He says he walked away unscathed.
It was then that Fertitta hooked up with some partners who owned the original Landry's Seafood House in Katy and Willie G's on Post Oak. He bought an interest in the restaurants.
Fertitta says the partners began fighting among themselves and he agreed to buy them all out. Landry's was almost an afterthought, he says, as his main interest was Willie G's.
"They planned to close the Landry's restaurant, so I went ahead and bought that, too," he says.
Fertitta says he liked Landry's food, although the restaurant was a "hole in the wall." But he also decided the basics were there and began building the concept that would vault him into the big leagues.
He was spurred on by the success of rival General Mills Inc.'s Red Lobster chain. In fact, behind Red Lobster, Landry's today is the second-largest seafood chain in the country. At a time when everyone was building steakhouses and Italian food restaurants, Fertitta says opening a seafood chain was the way to go. Other than the common seafood link, his chain is completely different from Red Lobster.
When he bought out his partners, Fertitta set out to make the chain unique. Where Red Lobster restaurants are uniform in appearance, Landry's bases its identity on the old seafood houses of 1930s and '40s - often located at waterfront sites.
But all the Landry's restaurants are characterized by neon movie-style marquees. Fertitta says the marquees signal that the restaurants are high-energy and entertaining.
He says Landry's tries to distinguish itself by offering good seafood fare at reasonable prices. The average dinner check at the restaurants is $14 per person, and lunch averages $8. Fertitta declines to discuss the feud that ensued among his former partners soon after he bought them out. One of the former partners is Denis Wilson, who now runs Denis' Seafood Restaurant in west Houston. Wilson could not be reached for comment.
But according to past reports, Wilson claimed Fertitta took advantage of the partners and even made business decisions that hurt the company before he bought them out.
The Landry's chain was started by a few family members and friends who moved to Houston from Louisiana. The main partners included brothers Billy and Floyd Landry, Nat Peck, Jim Gossen and Wilson.
One of Wilson's accusations was that Fertitta bullied co-workers and suppliers and refused to pay some kitchen workers overtime for working extra hours.
The U.S. Labor Department did in fact sue Landry's, claiming the restaurant failed to pay workers $375,000 worth of overtime in the late 1980s. The two sides settled, with Landry's agreeing to repay a portion of the money the government said it owed. Fertitta calls the Labor Department suit a "non-event."
"That was way back when I only had four restaurants," he says. "The workers were Salvadoran, and they all wanted to work 80 hours a week. They were working at the Landry's on Westheimer and Willie G's on Post Oak. But because the restaurants were under the same corporation, the suit was filed and they said we had to pay overtime. It's ridiculous, because now the employees have to work at other restaurants."
None of the problems or fighting appeared to slow Fertitta down.
After buying the restaurants outright, Fertitta assembled a management team and began devising an operating system capable of running a growing chain. Initially, they purchased languishing, family-owned seafood restaurants in offbeat locations and remodeled them after the Landry's concept.
At first, Fertitta began slowly adding units-about two a year. In 1993, he hit the jackpot when he decided to take the chain public. After two offerings, which raised $24 million and $37 million respectively, Fertitta came away with $25 million in cash and $70 million in stock. He then set out to expand Landry's from coast to coast. The chain is opening new restaurants at the rate of 20 per year.
Landry's stock prices have been buoyant but also volatile. In the summer of 1994, the stock slid from around $30 into the teens, when the market and the restaurant industry as a whole slipped.
Last year, there were mutterings on Wall Street that Landry's stock is over-valued, and some traders took short positions on the stock-a form of trading that bets a stock price will fall. Characteristically bold, Fertitta went to an equity research conference in Nashville that year and challenged anyone to short his stock. Afterward, Landry's stock climbed more than 8 points in just three weeks.
Today, after a two-for-one split, Landry's stock is trading around $17 to $19 a share. "We always deliver the numbers," claims Fertitta.
Analyst David J. Adelman of New York-based Dean Witter Reynolds says he's giving Landry's stock a neutral rating at this time. But he says, "The company is doing well." George Mitchell, chairman of Mitchell Energy & Development Corp., says Fertitta is extremely ambitious.
"He's smart, hard-working and dynamic," says Mitchell. "He's doing an outstanding job with the hotel."
There are murmurs that Landry's is considering a major acquisition. But Fertitta can't comment.
His plans are to continue growing Landry's and find other business ventures. And he says he won't lose his drive.
"It's really a game to kind of see what you can do next," he says.
Tilman J. Fertitta
Position: Chairman, president and chief executive officer of Landry's Seafood Restaurants Inc. The expanding publicly held company operates 51 restaurants in 20 states under the names Landry's Seafood House, Joe's Crab Shack and Willie G's.
Other Businesses: Owner and president of Fertitta Hospitality Inc., whose properties include The San Luis Resort and Conference Center and the Galveston Hilton in Galveston. Fertitta bought the properties early this year from The Woodlands Corp. The purchase included the 243-room San Luis Hotel on Seawall Boulevard; the 150-room Inn at San Luis; the 21-unit Sweetwater Apartments; the vacant Sealy Mansion; a 10,000 square-foot building occupied by a Landry's restaurant on the Seawall; and a small amount of other land and properties.
Company Philosophy: "There are no spare customers. If you pay attention to the little things, then the big things fall into place. Also, you want to surround yourself with the very best people you can find."
Board Memberships: Fertitta serves on the board of directors of The Crohns and Colitis Foundation of America, The Variety Club, The Better Business Bureau, The Ray Childress Foundation, the Mobile Cotton Bowl Board and the Houston Livestock Show and Rodeo.
Other Interests: In addition to flying his jet and snow skiing, Fertitta is an avid sports fan. In fact, he is an advisory director of the Houston Rockets who recently sold his ownership interest in the NBA championship team. Before that, Fertitta was immersed in a legal battle with former Rockets owner Charlie Thomas, after Thomas informed him and the other limited partners they no longer had a chance to buy the club because eventual buyer Les Alexander made a more lucrative offer. Fertitta and Gary Bradley tried to block the sale to Alexander so they could attempt to purchase the team. Both Bradley and Fertitta were able to remain as limited partners. Fertitta was the last to hold out but sold his interest to Alexander six months ago.