Nation's Restaurant News - January 1997
The NRN Fifty: The New Players; Landry's top executive wants to be nothing less than the 'king of seafood'
...continued from Published News
On a rainy morning in the nation's capital just before Christmas, Tilman Fertitta is directed to the restaurant off the lobby at the ornately decorated Sheraton as he tries to find a comfortable place for breakfast.
Although his company is based in Houston, he is in Washington on this dreary morning following a dinner the evening before at the White House, where he and Paige, his wife of five years, were invited to one of three Christmas dinners hosted by the Clintons.
Upon learning from a bartender that the restaurant is closed, Fertitta turns around, walks back past the concierge and, without missing a step, points a finger at the attendant on the phone and says in a heavily accented Texas drawl: "That restaurant is closed. You don't send anyone else down there."
It is easy to understand how this man might be perceived as arrogant. But Fertitta really is just a down-home Texan with a matter-of-fact flair who rarely cushions his thoughts.
In blue jeans and white turtleneck covered by a blue sweatshirt, the only visible marking of money and success is the diamond-studded gold Houston Rockets championship ring that gleams on his right hand. Just like everyone else sitting in the Hyatt, he stargazes as flamboyant boxing promoter Don King walks through the restaurant. Fertitta's reaction seems somewhat ironic when one considers that he maintains a net worth of more than $150 million, dines with the First Family and has his own chauffeur and pilot awaiting his return just a few blocks away.
At 39 years of age, Tilman J. Fertitta is the founder, chairman and chief executive of Landry's Seafood Restaurants, which owns and operates Landry's Seafood House, Joe's Crab Shack and The Crab House, a 17-unit operation that was acquired from Florida-based Bayport Restaurant Group almost a year ago.
He also is partner in the Houston Rockets and a personal friend of President Clinton, for whom he hosted a gala barbecue fund-raiser just two months before the president's re-election. Fertitta's company, which operates some 71 restaurants throughout 26 states, has been a consistent performer and a darling of Wall Street for several years. For the nine-month period of fiscal 1996, Landry's stock was trading at 26 times its per-share earnings and featured a virtually debt-free balance sheet.
For the nine months ended Sept. 31, Landry's posted a 59-percent increase in profits, to $14.5 million, excluding a one-time charge for the Bayport acquisition.
"I could be in any business; I'm not a restaurateur," says the man who early in life established two goals that, by some people's standards, might mark lifetime accomplishments. Fertitta wanted to own a Cadillac by the time he was 21 and a jet by the time he was 35. He achieved both goals. He clearly is a man who accomplishes what he sets out to do.
By the time he was 25 years old he maintained $10 million to $12 million in commercial real estate holdings. When the market began to get shaky in 1986, Fertitta invested money in two Houston restaurant operations, Willie G's and the initial unit of Landry's.
By 1988 he had bought out his partners in the restaurants and set his sights on creating a publicly traded seafood company. Three years later Landry's issued an IPO.
"We want to be the king of seafood," he says of the goal he set in 1990. "We have realized we can dominate the seafood industry with different price-point concepts. We understand the business and know there is not a supply problem out there. There are so many different species of fish and means of transportation and importation that there is no supply problem. Let's put it this way-70 percent of the world is ocean; there is no shortage."
The middle child of three boys, Fertitta didn't know, nor did he care, what kind of business he would get into; he just knew that he would have his own business.
"When we were out playing as young kids, he would take stuff from my grandfather, who was in the oil business, and pretend he was in business, too," says his brother, Jay Fertitta, who is general manager of Joe's Crab Shack in Richmond, Texas. The youngest brother, Todd, manages Willie G's in Galveston, Texas.
"[Tilman's] business mind never stops working; it is always in the forefront of his thoughts," Jay Fertitta says. "He is very goal-driven and oriented. We all do that from time to time, but that is what separates us from those who can achieve those goals and have the fortitude to go forward."
That drive stems from a long line of highly motivated family members. "In my family a lot of people have done well," Fertitta explains. "Everyone in my family has been self-employed. My father is in the business and opened the first La Quinta motel in Texas. He was 100-percent self-made."
But Fertitta attributes his success in business to more than genetics. He recognizes talent such as his is not inborn to every aspiring 8-year-old.
"I recognize I'm on a totally different level," he says. "I was lucky to be born with entrepreneurial drive and business skills at the same time. I feel like I have the tools to take a concept, shape it and make it successful. Business has always come easy for me." Fertitta also understands related business topics-the dynamics, the politics, the people, the trends, the expectations and the opportunities.
"You have to know how to hit the numbers, but you also have to know how to manage expectations," he says of Wall Street projections. "You can't let an analyst stick a number out there that you can't hit."
With more than 13 analysts watching Landry's bottom line, the company is a closely monitored stock and one of Wall Street's sturdier restaurant issues in terms of performance.
Analysts estimate the company will have closed 1996 with earnings per share of 76 cents. Expectations for 1997 include earnings per share of 99 cents coupled with a 34-percent growth rate.
"Any time you can meet or exceed what you say you are going to do, the Street loves to hear that," says Steven Toomey, vice president of equity research at George K. Baum & Co. in Kansas City, MO. "Landry's has let the equity market build their concept by meeting and exceeding expectations. As long as they continue to meet goals, money will be available to help them expand. Landry's has done a great job of meeting or exceeding expectations."
Fertitta credits much of the bottom-line performance not only to sales and profits but to the company's ability to adhere to its projected opening schedule. And that, he says, is due to its in-house development group, which allows the company to serve as a general contractor on most of its sites. "If you keep contractors in-house, you have more control over your development," Toomey says.
Landry's success is driven as much by its popularity with consumers as by its financial performance in the eyes of Wall Street.
Although Fertitta reiterates he is not a restaurateur, hospitality is in his blood, and he can't help understanding that the customer is the essence of the business. "The single-most- important aspect of the business is the customer," he insists. "We have to please the customer. If we don't please the customer, the company isn't going to grow. If a customer is coming in and not coming back, we're dead in the water."
Fertitta says many business people, whether in the restaurant industry or not, fail because they create a concept they like but not necessarily one the customers like. "If people paid more attention to what people were liking they would be more successful," he adds.
But Fertitta's overall success does not hinge solely on listening to customers and understanding Wall Street. The other components of his success include listening to his executive team and keeping himself open-minded and forward-thinking about Landry's growth strategy and corporate structure.
Fertitta's inner circle consists of about 10 executives who meet with him on a weekly basis. "That's who runs the company," Fertitta says of the group, which is composed of directors, vice presidents and concept heads.
Meetings of the "inner circle" are not typical staff meetings. "There is a volatility and camaraderie that is unbelievable," Fertitta says. "People disagree, and it gets loud but I get mad if people don't disagree. It's important, and I expect my people to be vocal."
"Our whole company culture revolves around that kind of exchange," says Richard Ervin, vice president of restaurant operations. "That meeting is obviously an opportunity to stay on top of things. We make a lot of decisions in those meetings, and they are made because it's an open forum. Sometimes there's conflict, and we welcome that. You can't make good decisions if you don't hear both sides of the story."
"Tilman obviously is a man of tremendous energy who sets very high expectations for himself and those around him," says Robinson-Humphrey Co. analyst Bryan Elliot. "He has attracted in his senior management team people with similar levels of energy and high standards for themselves. They have created a corporate culture that so far has exceeded the expectations of just about everyone except themselves."
Building that team has helped Fertitta realize his goals and put the company on the fast track. Many of those on his executive team have been with him for more than 10 years and profess a loyalty to him that is rare.
"He is like a great coach," Ervin says. "He has the ability, number one, to get your respect, and number two, to drive you to reach your full potential. He doesn't know the meaning of the words, 'I can't.' He is very focused and very intense, and he has an ability to drive and motivate people to reach their potential where otherwise they might fall short."
Part of that skill lies in Fertitta's willingness to listen to people, Ervin says. "You've got to understand one thing about Tilman: He's objective, and he listens to what people say. You've got to be modest to do that. He listens to two stories and knows the answer is somewhere in between. A lot of guys at that level have big egos and don't listen.
"He's a man that does what he sets out to do. There's not a lot of people out there like that. Our goal is to be number one, but that doesn't happen just because you want it to." While Landry's 71 restaurants are aiming to go head-to-head with 1,200-unit Red Lobster, the organization has a long way to go before it reaches the magnitude of Darden Restaurant's seafood leviathan.
"I really don't think we have done that much," Fertitta says. "Everyone's got a different [standard], and I know we are going to do so much more."