Restaurant Hospitality - March 2001
What's Next for Landry's?
...continued from Published News
Red Lobster controls a bigger piece of that pie, but that's all right with Tilman Fertitta. "We probably couldn't catch up to Darden if we wanted to, which we don't even think about," the 43-year old president, chairman and C.E.O. says. However, he points out, "When we went public, there were more than 700 Red Lobsters and 10 of our restaurants. Today, there are about 634 Red Lobsters and we have 175 restaurants, so we did get a piece of their market share, which is fine."
Graciously, Fertitta, whose company operates casual seafood restaurants under half a dozen brand names, goes on to say that he couldn't be happier for his rival's success. "you know, when one of us does well, we all do well," he says, in a measured Texas drawl that belies the intense and much-publicized drive that has made Landry's a powerhouse in the industry. And, anyway, he points out, being second in this business is nothing to balk at. "in 1993, when I went public, we were doing $30 million in sales, "Fertitta says. "This year, we'll have $750 million in sales, and that's just with 200 restaurants. That's almost $4 million per unit. I'd say we are doing pretty well."
Anyway, Fertitta is too busy with multiple projects to spend much time looking over his shoulder: One such concern is the brisk growth of his core chains - to which he'll add up to 20 units this year - most of them Joe's Crab Shack. Moreover, he's focusing on the challenges recent diversification measures have wrought. This brings us to Landry's most interesting move of late, which came at the end of last year when Fertitta added the struggling 38-unit Rainforest Café company to Landry's portfolio.
The Rainforest acquisition was move that was more than a year in execution. In early 2000, Fertitta had made a bid valued at about $125 million for the themed chain. The deal was nixed, however, when the State of Wisconsin Investment Board, which invests pension money for that state's public employees and was then a big Rainforest shareholder, blocked Landry's effort to acquire the company, saying the offer was too low. A second attempt last fall proved more fruitful, but by that time, Rainforest was struggling so badly that Fertitta was able to snatch it up for a bargain-basement price relative to his previous bid: An offer worth about $75 million. So Fertitta, known for getting what he wants, is pushing forward with big plans for Rainforest.
Fertitta just debuted the first Rainforest Café under the Landry's flag - a $22 million, 30,000 sq. ft, 500-seat mega-unit at the new Downtown Disney in Anaheim, Calif. With a check average of $16, Fertitta expects the high-profile location to eventually generate about $20 million in annual sales. Its strategy will serve as a model for future Rainforest expansion under Fertitta.
"Our approach has always been simple. Put good concepts in good locations," he explains. Rainforest's previous management, according to Fertitta, accomplished only half of this ideal. "Rainforest is a strong concept. The problem wasn't with sales," he says. "The worst stores do $5 million a year. That's very different from other entertainment chains. The problem at Rainforest was that quick lease deals were signed - that was done for Wall Street - so despite the fact that they had high volumes, they weren't (profitable) because of the bad deals they entered." Another problem: Strategically poor locations, defined by Fertitta as shopping centers, didn't allow some units to fulfill their potential. But there's nothing but blue skies ahead in this Rainforest, according to its proud new commander.
"We bought a core base of restaurants and a strong concept. We knew when we bought it we would have to close a bunch of poor locations, mainly mall units," he says. "Starting next year, we'll open one or two a year in special locations. We're looking for very high tourism and convention traffic - locations that provide you with new customers every day, because it's not the kind of place you're going to go every week or two. That's why malls don't work."
Slight changes were also executed in the Rainforest menu. Kathy Ruiz, Landry's corporate chef since 1994, replaced half the menu and tweaked the presentation of the other half. She added more appetizers, salads and of course, seafood to the mix. Fertitta says, "There's better variety, and we raised the food level. It caters to the masses, and we've received great feedback on it."
The Man Behind the Plan Was Tilman Fertitta born to be a seafood restaurant entrepreneur? Maybe. He grew up peeling shrimp at his father's surfside eatery in Galveston, Texas. Later, he showed entrepreneurial tendencies of his own, opening his own sales and marketing business while attending The University of Houston.
After college, Fertitta enjoyed a successful stint as a residential and retail real estate developer. As happened to many of his peers, things went south for Fertitta in the mid-1980s when the Texas oil boom turned into a bust, and Fertitta was saddled with $10 million in debt. Not one to throw in the towel - and in a move that didn't come as much surprise, given his restaurant pedigree - Fertitta secured $1 million in promissory notes and used the remainder of his cash reserves to buy controlling stakes in the original Landry's restaurant and the more upscale Willie G's Seafood & Steak House concept.
By 1988 he knew he wanted to grow this new business and bought out those restaurant's original owners. As the success of those restaurants gave birth to more ambitious plans for Fertitta, he began looking for faltering independents with good waterfront locations in which he could expand his Landry's chain. With Red Lobster the only major national seafood player at the time, the U.S. market, Fertitta intuited, was ready for another seafood chain. As he crafted his place in the market, he decided that his outlets, however, would have the differentiating "Gulf-flavored" angle and feature a "casual, festive atmosphere" and plenty of family-friendliness.
His concepts' laid-back approach has reaped rich rewards for Fertitta, as it has for his casual dining contemporaries - the other pioneers of this segment who saw casual dining for the gold mine it has become. If you were looking for growth, Fertitta mused back in the mid-'80s, forget trendy, upscale vehicles. Provide high quality food that's fresh and tasty - if not terribly inventive or complex - and do it at an affordable price, and you'll find the critical mass to build yourself a fine little empire. Though he's continually rebuffed the "chain" label, preferring to think of Landry's as a group of operations that felt more like casual independents, Fertitta is fond of saying that it's all about feeding the masses, not the classes. Within five years, Fertitta was operating 11 restaurants (mostly under the Landry's brand) in locations throughout the Lone Star State, including Houston, San Antonio, Corpus Christi, Austin and Dallas.
So with nearly a dozen units by 1993, he took the company public, raising more than $60 million with two initial stock offerings. Less than a year later, Fertitta purchased what would become Landry's largest growth vehicle, Joe's Crab Shack, and in that same year, the company was named #5 on Forbes' list of "The 200 Best Small Companies in the United States," as well as one of Business Week's "Top 100 Companies for Growth." And grow it did. By the end of 1995, Landry's had 40 restaurants in 15 states. 1997 saw the opening of the company's 100th restaurant, and Fertitta secured a $125 million line of credit, closing 1997 with 116 units, most of them belonging to its rapidly growing Joe's Crab Shack chain. Yet another concept was brought into the fold with Fertitta's "underwater adventure" concept, Aquarium, launched at the Kemah Boardwalk in 1998. By the end of that year, there were 138 restaurants in the portfolio. In 1999, Fertitta finished the remainder of his Kemah Boardwalk project - 40 acres of nine restaurants, entertainment venues, a hotel and retail shops overlooking Galveston Bay - all owned and operated by Landry's. Landry's closed out that year with 149 restaurants in the fold.
Last June, Landry's opened its 100th Joe's Crab Shack, in Redondo Beach, Calif., and announced that a second Aquarium location would take up residence In a five-acre entertainment complex, owned and operated by Landry's, in downtown Houston. It will open in 2002. Today, there are Landry's restaurants in a total of 35 states, and Fertitta holds that all future units, like all existing units, will be company owned. There will be no franchises sold, which is not surprising for the executive known for his hands-on control of his operations.
Looking ahead, Fertitta, who owns 23 percent of Landry's says the company will produce $100 million in 2001 EBITDA. Though Fertitta says Landry's growth will be funded "mainly internally," the company secured a $200 million line of credit last summer for expansion, investment, working capital, acquisitions and common stock repurchases. Many have posed the question: Why so many concepts under one portfolio?
Isn't it easier, more certain and cost-effective, once you've developed a formula that clearly works, to run with it and just clone a thousand or two? Well, many roads can lead to the same place, and while a narrowly focused strategy is valid - many analysts say it's preferred - Fertitta's always marched to his own beat. To get to that $100 million mark, he says, his multi-pronged approach - the bevy of diverse seafood concepts, plus Rainforest, that make up the Landry's portfolio - is strategically crucial in that it provides a broader reach than Landry's would have with just a single concept. Again it's all about the masses.
Different vehicles, from the very, very casual to the more elegant, deliver different customers. Plus he says, "I think it's good to be in other businesses, too. When the right opportunity presents itself, like the Rainforest situation," says Fertitta, "we take advantage of those opportunities."
Despite the diversification, the bulk of 2001's millions will be earned in the kitschy kitchens and dining rooms of Joe's Crab Shack, the chain that will make up the largest chunk of the corporation's portfolio. The ultra-casual "fish camp" has a $15 check average and yields about $3 million per unit in sales. Eighteen Joe's Crab Shacks will open across the U.S. this year. So why is Joe's the growth vehicle of choice? Fertitta says, "It has a lot of appeal to all age groups, and we're able to reach a lot of people with the price point, because most people are very price-conscious."
The remainder of Landry's core seafood chains - Willie G's, Landry's, The Crab House and Aquarium - will add one to two units per year. Though each differs in its packaging, price points and menu, the philosophy for each restaurant is similar: Use a higher-than-average quality of seafood, and, in addition to offering a stable of popular broiled, grilled and fried items - lobster, scallops, shrimp snapper, oysters, salmon, flounder and tuna - adapt each chain's offerings to meet regional seafood preferences and specialties. Fertitta anticipates sticking with the proven menu and design formulas at each chain. "If it's working, you don't change it," he says. "We'll maintain a steady course with these chains."
New growth won't be confined to a particular region, but will happen across the U.S. The right spot dictates everything. "We're location-driven," says Fertitta. "We're concentrating on finding super locations right now. We think that's the right way to raise our average (sales per unit)." And a great location is defined as? "High traffic; not just plain old suburban America. We're opening in prime spots in San Francisco and Orlando this year. We look for a mix of locals, tourism, business people and conventioneers."
In other words, the strategy remains the same: Fertitta is still reaching out to the masses - casting a wide net, if you will - hoping, as always, that they will continue to bite.
In addition to 10 sundry solo operations, Landry's Restaurants consists of five restaurant chains. The company will add up to 20 new restaurants to its portfolio this year. Here's the rundown on the largest pieces of the pie.
Joe's Crab Shack:
Acquired by Landry's in 1994, there are 103 in operation today. It's Landry's primary growth vehicle and most "value-based" concept, with a check average of about $15. As the name indicates, crabs - blue, dungeness, stone, soft shell, Alaskan king - dominate the menu. The energetic "fish camp" atmosphere is enhanced by funky signs, rambling decks, mismatched tile-top tables. Mallets, used to bust open a crustacean or two, add to the fun.
Landry's Seafood House:
The company's 29-unit namesake is a chain of location-driven - mostly waterfront - casual dining restaurants. Other locales include parkside sites and locations in historic districts or other high-profile areas. Its 1940s Gulf seafood house feel and old-fashioned movie marquees are trademarks. The menu offers fresh Gulf seafood - snapper, lobster, trout, shrimp, salmon, catfish, flounder - all offered with a Landry's signature sauce such as mango peppercorn or roasted red pepper.
The Crab House:
Acquired in 1996, the 15-unit chain is more upscale than Landry's and features a nautical motif reminiscent of "traditional East Coast seafood houses." The menu features live Maine lobsters, a wide variety of fresh fish, shrimp dishes and a selection of crab specialties, including Maryland steamed crabs, Alaskan snow and king crabs, and Pacific dungeness crabs. There are prime rib combo offerings, Angus beef, pastas and a hot and cold salad bar. Bright fish hang in the dining room, which is decorated in knotty pine, brass and colorful foliage.
Willie G's Seafood & Steak House:
Landry's most upscale vehicle, the company's four-unit chain features dark wood and vibrant works of art. Willie G's offers items like pecan-crusted chicken and char-broiled duck Opelousas, as well as items like citrus and almond rainbow trout and blackened snapper Ponchartrain.
The Cadillac Bar:
Before the Rainforest acquisition, this was Landry's only non-seafood operation, though amid a raucous atmosphere, its four units serve up their share of Mexican and Tex-Mex seafood items like redfish served with Veracruz sauce and lobster stuffed with a seafood-chorizo mixture.
Landry's first underwater adventure opened in 1999 at Kemah Boardwalk, over the Galveston Bay. It features a 15,000 gallon, 35-foot cylindrical tank in the restaurant's entry and a 200-seat dining room surrounded by 36,000 gallons of water - all teeming with exotic underwater creatures and vegetation. Landry's actually owns the entire boardwalk: 40 acres of amusement rides, midway games, dancing fountains, a 424-slip marina and nine Landry's restaurants.
Purchased last fall, each Rainforest unit yields at least an annual $5 million in sales. Landry's will close many of Rainforest's 38 units - primarily shopping mall outlets - and open new units in high-profile tourism-driven sites. The first Rainforest under Landry's leadership, a $22-million unit at the new Downtown Disney in Anaheim, Calif., opened earlier this year.