Published News

Cooking for Profit - February 15, 1999

Eric Johnson
Back of The House with Landry's Tilman Fertitta

...continued from Published News

An Entrepreneurial Spirit, Attention to Details, and a Reliance on Natural Gas Fuel the Fast Rise of Tilman Fertitta's Seafood Empire.

Hearing kudos like "Hottest Seafood Chain" and "America's Best Seafood Company," you can understand why Houston-based Landry's Seafood Restaurants, Inc. chairman and chief executive officer Tilman Fertitta has a smile as wide as the Lone Star State.

With intensity reminiscent of the power of a Gulf storm, the tireless, hard-charging 41-year-old Fertitta has parlayed Landry's, in just twelve short years, from two faltering Houston-area seafood restaurants into a 150 unit, 30-state coast-to-coast powerhouse chain employing 15,000.

With industry analysts projecting 30% growth over five years for NASDAQ-listed Landry's, Fertitta heads what has become Wall Street's restaurant darling. The company has enviable average annual per restaurant sales of $3.2 million (84% food, 16% liquor) and a 22% operating margin, a figure some 10% over the industry average.

"We set our goals quite high and then made it out business to surpass everyone's expectations," notes Fertitta of the chain's rapid expansion to become the nation's second largest casual dining, full-service seafood restaurant chain.

"Landry's now owns and operates four of the very top proven restaurant concepts in America-Landry's Seafood House, Joe's Crab Shack, The Crab House and Willie G's. I realized you could take good seafood and put it in a beautiful building and it would work...We have always worked to serve the best seafood and provide our guests with a great entertainment value, too...We try to do everything perfectly."

Fertitta's success in the business isn't surprising-the Galveston native comes from a long line of hospitality entrepreneurs. Grandfather Victor Fertitta long ran Galveston's Balinese Room, a legendary illegal pier-side gambling house 40 miles from Houston. In its 1940's heyday, the Balinese hosted stars like Frank Sinatra and Bob Hope. Fertitta's father, meanwhile, opened Galveston's first La Quinta and Holiday Inn in addition to operating a Galveston seafood restaurant where son Tilman learned the ropes of successful restauranteuring after school beginning at the age of 12.

Characterizing himself as "a businessman first, a restaurateur second," Fertitta's entrepreneurial drive began in college where he paid for his education at the University of Houston by starting his own sales and marketing firm.

The young Fertitta left the University at 20 to open a women's clothing store. Shortly thereafter, he found success as an award-winning builder and developer during the high-flying Gulf coast oil boom of the 1980's. Fertitta spent his 20's building multimillion-dollar homes on speculation and developing restaurants and hotels, including a 160-room hotel in Galveston.

Fertitta even expanded his scope of interest into the world of finance with an investment in a Texas bank and stints of service on numerous bank committees.

When the oil boom went bust in the mid-1980s, Fertitta suddenly found himself $10 million in debt; negotiating with creditors by day while spending his nights in a $1 million dollar home he had built but couldn't sell.

Searching for a new direction in 1986, Fertitta went back to his seafood restaurants roots, using $1 million in promissory notes and his last cash on hand to buy a controlling 60% interest in two faltering Houston restaurants - a Willie G's Oyster Bar, Seafood & Steak House and a shopping center-based Landry's Seafood House.

After undertaking disastrous attempts at redesigning and expanding the concepts, Fertitta hit the proverbial jackpot with a successful restaurant strategy. In 1988, he bought out his partners and began implementing his plan to turn the more casual Landry's concept into an "un-chain" where customers wouldn't feel like they were dining in a chain restaurant. His expansion strategy was deceptively simple, a combination of new construction and a savvy policy of buying and totally transforming old-line independents with superior locations.

In 1993, he took the company public when it had just ten restaurants, raising over $60 million in two initial stock offerings. Since its NASDAQ debut, Landry's Seafood Restaurants, Inc. has become on of the best performing restaurant stocks on Wall Street. With the influx of capital, Fertitta has boosted the count to 150 units. Such a rapid pace of growth is all the more amazing given the fact Fertitta eschews franchising for an exclusive focus on developing company-owned restaurants.

Not surprisingly, Landry's has was a bevy of industry awards and national recognitions including two consecutive years as one of Business Week's "Top 100 Companies for Growth" and three straight years among Forbes' "200 Best Small Companies in America." Reflects Fertitta on his formula for success in the highly competitive restaurant business, "I learned the fundamentals of the seafood business under my dad. One of the reasons we've been able to grow is that I not only understand the restaurant business, I also understanding how to develop properties."

Fertitta's historic flagship operation is the 41 unit Landry's Seafood House chain. Locations are recognized by their movie theater-style marquees on a brick-and-wood façade. The interiors feature large, open dining rooms and vintage signs designed to recreate the airy, energetic atmosphere of a 1940s Gulf coast seafood house.

Landry's offers diners a menu featuring fresh gulf seafood specialties topped with such signature sauces as mango peppercorn or roasted red pepper. It also offers chicken entrees certified Angus beef, fresh pastas and an array of tempting desserts.

With an average check of $16, Landry's compares favorably price-wise with Red Lobster, the largest seafood chain. The average Landry's does annual sales of some $3.2 million.

Ironically, however, the company's namesake operation isn't spearheading its expansion anymore. Fertitta's new growth engine is the inexpensive ($8.99 average meal cost) and hugely popular Joe's Crab Shack. Landry's Seafood Restaurants, Inc. acquired the first Joe's Crab Shack in 1994.

With 80 units to date, Joe's Crab Shacks are known for their casual, fun, energetic and rowdy 'well-orchestrated chaos." Waitstaff dance with guests in wild renditions of the latest dance craze amidst an eclectic décor that begins with a faux weather-beaten façade outside the continues inside with funky signs, rambling decks and mismatched tile-top tables and picnic benches. In true fish camp style, tables in the beer-and-crab joint are covered in newspaper and have a built-in bucket for discarding crab shells. Mallets serve as dining utensils.

At Joe's Crab Shack, crab is king with a menu offering soft-shell, stone, blue Alaskan king and dungeness crabs. Other offerings include shrimp, seafood combinations, chicken, steaks, salads, sandwiches, pasta and gumbo.

"The majority of our new locations will be Joe's Crab Shacks because the economics of Joe's are simply too attractive to ignore," Fertitta explains. The 8,000 to 8,500 square foot units have become the company's best performer with a 23% operating margin on average annual per stores sales of $3.2 million. "Joe's lower investment costs and higher margins are among the best unit economics in the industry today and have always generated a high return on investment."

Newest in the Landry's Seafood Restaurants, Inc. stable of operations is East Coast dining fixture The Crab House. In April 1996, Landry's acquired Miami-based Bayport Restaurant Group Inc. which operated 17 Crab House units, the nation's third-largest seafood chain behind Red Lobster and Landry's before the merger.

Averaging nearly 10,00 square feet, The Crab House is much largest than a Landry's or Joe's. It's also the most expensive and has the broadest menu. An inviting and lively nautical-themed dining ambience of knotty pine and brass is reminiscent of traditional East Coast seafood houses. Brightly colored fish suspect from the ceiling adding a whimsical feel to the dining room.

The full menu features fresh fish, live Maine lobsters, a half-dozen styles of crab such as Maryland steamed crabs, prime rib combinations, certified Angus beef, pasta dishes, a hot-and-cold salad bar and desserts including the house specialty, key lime pie. The average dinner tab is $21 per person, with each of the 14 Crab House locations average some $3.7 million in annual sales.

Landry's three upscale Willie G's locations in Galveston, Houston, and Denver offer diners a sumptuous atmosphere of dark wood paneling and furnishing accent with vibrantly-colored artwork and floor coverings. Like other Landry's operations, Willie G's also features fresh seafood. Signature entrees include citrus and almond rainbow trout, blackened snapper ponchartrain and grilled, broiled or fried regional catches.

Willie G's also offers patrons a wide range of out-of-the-water options such as Angus steaks and a variety of poultry dishes like pecan-crusted chicken, charbroiled duck opelousas and torn-chicken pasta.

Seafood isn't the only unifying staple of these four hot concepts. Fueling the company's fast rise is Fertitta's heavy reliance on natural gas in the kitchen.

"Cooking with gas is by far the best way to cook," Fertitta observes. "Any cook will tell you that. For us it wasn't so much the economy of natural gas as much as it was simply a better way cook. If you want to produce a better product out of your kitchen, you use gas." Kathy Ruiz, executive corporate chef for Landry's Seafood Restaurants, Inc. agrees. She says staples of almost every unit include gas-fired cooktops, stoves, ovens, "low boys," deep fryers, broilers, griddles and steamers. Many locations also use gas-fired high temperature dishwashers.

"Gas is most definitely our cooking medium of choice," says Ruiz. "The control aspect of gas cooking is so wonderful. When you're in a hurry, you have high heat immediately. If you have a pot boiling over, you have instant heat shut-off. Gas also provides a nice even heat - there are no hot spots. Plus electricity is pretty expensive. Those are the real big advantages. Gas is great."

As a chef responsible for recipe and menu research and development, Ruiz says, "Perhaps natural gas' most important contribution is that it gives you the ability to present a nice product, whether it's getting an even color while sautéing a fish or being able to roast red peppers over an open flame."

Another key to Fertitta's award-winning success lies in his philosophy of constant change for a fresh edge with the consumer.

"We're always changing things," he says, "Even time you come, there's always something new - menu, décor, tabletop, carpeting, plate presentation. The smart people know you've got to do that. In the restaurant business, you can't get behind the curve. Change, change, change - that's our recipe for success."

A related Fertitta operational mantra is his insistence on a policy of "no deferred maintenance."

"So many chains suck the money out and don't take care of their properties," he observes of what he considers a common and eminently avoidable problem that plagues the industry.

"Customers don't want to see dead plants or a property littered with candy wrappers and toothpicks. And when the customer goes to the restroom and see a broken towel machine, broken knobs and a cracked sink, they wonder if the bathroom's that run down, how bad must the kitchen be. Those are the little things you've just got do as an operation - start paying attention from the customer's perspective. Our goal at Landry's is that a restaurant that opened five years ago looks just as fresh as the restaurant we opened six months ago."

And not just facilities have Fertitta's focused attention. So do his employees, thanks to his belief that poor service can ruin even the best food. His exacting company mission is "to be the best - anything less than 100% effort and adherence to our quality standards is unacceptable." This mandate "starts at the top and cascades down throughout our entire organization from headquarters in Houston to waitstaff in every location."

Indeed, before employees ever hit the restaurant floor, waitstaff personnel undertake a rigorous and extensive five to ten day training program. Management personnel, meanwhile, train between eight and twelve weeks.

"In new hires, we look for people who believe as we do that the minimum level of acceptability is unacceptable," notes Landry's Steve Scheinthal, vice president of administration and general counsel. "Individuals who strive for ever higher levels of work performance - they're the ones we want. They have a career path at Landry's."

Adds Richard Ervin, vice president of restaurant operations, "The only way for us to be a champion in our industry is by building teams and creating winners. Championship teams don't start out Number One. We work hard at developing a Number One, make-it-happen, winning attitude."

The most important of that winning attitude is keeping the customer happy. Fertitta says, "It's really basic - one, keep the hot food hot and cold food cold; two, the customers always get what they want. If it's in the kitchen, they can have it. If it's late and want scrambled eggs, if we have eggs, we'll scramble 'em. I don't want to hear 'it's not on the menu.' I've never thought that we've become too big for our britches. We treat the customer the same way with 150 locations as we did eight years ago with three."

Success from the restaurant floor to Wall Street hasn't dulled Fertitta's enthusiasm for the business. "It's a fun business," he explains of his upbeat demeanor. "It keeps you on your toes and it's a tough business, but it's always very exciting. I'm happy and enjoy what I'm doing."

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