Landry's Restaurants, Inc.
Landry's Restaurants, Inc.
Incorporated: 1993 as Landry's Seafood Restaurants, Inc.
Sales: $1.11 billion (2003)
Stock Exchanges: New York
Ticker Symbol: LNY
NAIC: 722110 Full-Service Restaurants; 712130 Zoos and Botanical Gardens; 721110 Hotels (Except Casino Hotels) and Motels
Landry's Restaurants, Inc. is a major operator of full-service, casual-dining restaurants in the United States. The several chains run by the company mainly specialize in seafood and steaks, and Landry's ranks as the nation's second largest operator of seafood restaurants, trailing only Darden Restaurants, Inc., owner of the Red Lobster chain. By the end of 2003, the company was operating nearly 300 full-service restaurants in 36 states, including the flagship Landry's Seafood House and Willie G's Seafood and Steakhouse (a combined 41 units), Joe's Crab Shack (138 units), the Texas-Western-themed Saltgrass Steak House (29 units), the more upscale Chart House (26 units), the Amazon-themed Rainforest Café (26 units), Charley's Crab (15 units), and Crab House (11 units). Landry's Specialty Growth Division owns a number of additional properties. The largest of these is Kemah Boardwalk in Kemah, Texas (Galveston County), a 40-acre entertainment complex consisting of seven company-owned restaurants, retail shops, a hotel, amusement rides, and a marina. Landry's also owns and operates aquariums in Houston and Denver, hotels in Houston and Galveston, and the Galveston Island Convention Center. The extraordinary growth of Landry's since going public in 1993, when it had only 11 restaurants, has been fueled mainly by acquisitions.
Launched by Landry Brothers in Early 1980s
The first Landry's restaurant, called Landry's Seafood Inn and Oyster Bar, was opened in 1980 in Katy, Texas, by brothers Bill and Floyd Landry. Bill and Floyd were sustaining a decades-old Landry family legacy of success in the restaurant business. In fact, Landry's was just one of several of the brothers' restaurant interests. They had started out working in Cajun-style restaurants that their father and two uncles operated. In 1976, when Bill was 38 and Floyd was 36, they opened their own restaurant, a seafood place dubbed "Don's." By the mid-1980s they would be hands-on investors in five different restaurants, including The Magnolia Bar, Jimmy G's, Don's, and Willie G's. All of the outlets were located in east Texas and Louisiana, and sported seafood and Cajun fare. Furthermore, other Landry family members were operating more than 15 additional restaurants throughout the Southwest.
The Landry brothers profited from their restaurants primarily by offering excellent food, but also through economies of scale created by owning five seafood digs. They conducted most of the initial food preparation—cleaning, fileting, and shelling, for example—for all five establishments at a company-owned commissary operation called Creole Foods. Work at that center started at midnight and ended at eight in the morning, at which time the food was loaded onto trucks and delivered fresh to each kitchen. The brothers and other principal investors in the restaurant consortium kept food quality high by taking turns cooking at the different eateries.
Landry's Seafood Inn and Oyster Bar was among the smaller of the Landry restaurants by sales volume. Still, it was profitable. The average check was $12 to $16 per person, the 4,400-square-foot restaurant seated a maximum of 190, and the rent was only $3,500 monthly. The Landrys had created the eatery by purchasing an existing Cajun restaurant with only 85 seats, expanding it, and improving the menu. Landrys Seafood Inn offered a very casual dining atmosphere with a horseshoe bar, country-and-western music jukebox, and crayons for the kids. But it sported a somewhat upscale 101-item, dinner-only menu. Featured were catches from the Gulf of Mexico and the Louisiana coastal region, including various appetizers and seafood salads and soups. Main entrees, which ranged in price from about $5 to $15, included specialties such as snapper, broiled speckled trout, frog legs, and crab. The menu also featured steaks, chicken, sandwiches, and desserts such as ice cream and fresh fruit.
Late 1980s and Early 1990s: Beginning of the Fertitta Era
The most successful Landry operation was Willie G's, which had opened in 1981 and was bringing in $5 million annually by 1985. By that time, Landry's Seafood Inn was generating about $1.4 million in sales annually, while the family's other units were capturing about $3 million to $4 million per year. It was around this time that Tilman J. Fertitta became involved as one of several investors in the Landry brothers' restaurants. Fertitta was in his late 20s at the time, but had already made his mark as a successful developer during the Houston commercial real estate boom of the early 1980s. When real estate foundered in the mid-1980s, Fertitta began looking elsewhere for a challenge.
Fertitta had grown up in his father's seafood restaurant in Galveston, Texas, so he was not a complete newcomer to the industry. He was impressed with Landry's Seafood and believed that it had a lot of potential. A good restaurant concept coupled with his dealmaking skills, Fertitta reasoned, could be a powerful combination. "The original Landry's was a hole in the wall but it had great food," Fertitta recalled in the August 1994 issue of Restaurant Hospitality. "The basics were there, though, and I knew I could tweak it into a concept." In 1986 Fertitta purchased majority control of both Landry's and Houston-based Willie G's and then two years later became sole owner, buying out the Landry brothers and several other investment partners.
Fertitta's goal from the start was to transform the Landry's and Willie G's restaurants into regional, and eventually national, chains. That strategy sprang from observations that he had made about trends in the national restaurant industry. He noticed that the mom-and-pop restaurants were being phased out and that well-capitalized chains were increasingly dominating the business. He also saw that within the chain restaurant industry, seafood was poorly represented in comparison to burger, chicken, steak, and ethnic fare. With the exception of Red Lobster and a handful of regional operators, there were no major seafood restaurant operators. Furthermore, Americans' consumption of seafood was rising faster than any other food segment.
To ply the full potential of Landry's and Willie G's, Fertitta scrutinized every aspect of the operations and hired a crack management team to help him start building a chain. Throughout the late 1980s and the early 1990s he added a few new outlets to the chain each year. The restaurants were geared for relatively casual dining, although the atmosphere was more polished than the original Landry's; for example, the waiters and waitresses wore white shirts, ties, and formal black pants. The menu offered similar fare with the average check running between $12 and $14. Fertitta wanted his restaurants to convey the feel of an old seafood house from the 1930s and 1940s, but with a more festive, brighter atmosphere. He also positioned most of the restaurants close to water to project a fresh seafood image, and typically shunned the overbuilt suburban sites pursued by other big chains.
Fertitta wanted to keep his outlets distinctive in order to avoid a repetitive, commercial look. Thus each restaurant was given a unique feel by the company's design team. Some of the units were converted from old family-owned seafood places that Fertitta's purchased and made into a Landry's. For example, Landry's put one of its restaurants in an old barge that had formerly housed a family-owned seafood place. The previous place had generated sales of more than $1 million per year, but still went belly-up. Landry's moved in and was able to make a healthy profit with its superior concept and operating strategy. Although each restaurant had its own unique flair, all of the outlets were similar in that they wore the same neon, movie-like marquee, which was designed to let people know that the restaurants were fun and entertaining.
By boosting per-unit sales and adding a few new units, Fertitta's venture managed to squeak out about $11.5 million in sales in both 1988 and 1989. The company posted losses in both years, however, as management invested for growth. Despite ongoing investments, Landry's managed to post a positive net income in 1990 of $419,000 from sales of about $15.5 million. Revenues bobbed up to $19.5 million in 1991 and then to roughly $22.5 million in 1992, as net income surged to a healthy $3 million. Improved profitability reflected the wisdom of Fertitta's operating strategy. Indeed, the Landry's restaurants were among the top in the industry with profit margins averaging more than 20 percent. High-margin menu items boosted that percentage. For example, more than 30 percent of the chain's orders were shrimp, which generated fat profits in comparison to most of the fare pushed in non-seafood restaurants. In 1993 Fertitta incorporated the venture as Landry's Seafood Restaurants, Inc.
Our objective is to develop and operate a nationwide system of restaurants that offers customers a fun dining experience, creates a loyal customer base that generates a high level of repeat business and provides superior returns to our investors. By focusing on the food, value, service, and ambiance of a restaurant, we strive to create an environment that fosters repeat patronage and encourages word-of-mouth recommendations.
Mid- to Late 1990s: Going Public, Acquiring Joe's Crab Shack, Developing Kemah Boardwalk
By late 1993 Landry's Seafood Restaurants was operating 11 units in Texas and Louisiana. The company was focusing on developing family-oriented Landry's Seafood Grill restaurants, but was still operating a few Willie G's, which were targeted more toward business patrons. Until 1993, Fertitta had been satisfied to grow slowly by funding expansion largely out of earnings. "I had the chance to go public several years ago," Fertitta explained in the November 8, 1993, Nation's Restaurant News, "but I wanted to get my management team in place before I did that." Fertitta finally decided to go public with a September 1993 initial public offering of stock on the NASDAQ that brought $24 million into the company's war chest. The success of the offering was not surprising, given that Landry's sales per unit ($3.2 million in 1993) and cash flow were among the highest in the restaurant industry. Within two months the stock was trading at nearly 1.5 times the initial offering price.
A second stock offering captured $37 million more for Landry's, which Fertitta used to intensify expansion efforts. Rather than build new establishments, he preferred to purchase independent seafood places and convert them into Landry's. For instance, early in 1994 Landry's purchased two units operating under the Atchafalaya River Café banner in Dallas, and another in Memphis, Tennessee, named Captain Bilbo's. The basic goal was to purchase independents that were operating below their potential and convert them into 215-seat, 8,000-square-foot Landry's Seafood Grills. By mid-1994 the company was running 18 restaurants in Texas, Arkansas, Florida, and Louisiana, and was planning to expand into several other states including Tennessee, Georgia, Mississippi, North Carolina, Nevada, Arizona, and Colorado.
By the end of 1994 Landry's was operating about 25 restaurants. Forbes ranked the chain fifth on its list of the 200 best small companies in the United States in that year. Landry's store number increased to 35 units in 12 states by August 1995, helping to earn it a spot on Business Week 's Top 100 Growth Companies list for the second consecutive year. Landry's sales rose to $34 million in 1993 and then to $66 million in 1994. Net income, moreover, surged nearly 100 percent between 1992 and 1994 to about $5.8 million. Fueling profit growth was an increased emphasis on a trend sweeping the restaurant business in the early and mid-1990s: value. As Jeff Price, senior director of the National Restaurant Association, said in reference to Landry's in the August 22, 1995, Knight-Ridder/Tribune Business News, "When you have a meal sold at a good price and add a theme, you get traffic."
Landry's continued to rapidly expand its chain during 1995. Furthermore, the company was moving ahead with plans to diversify into the more casual spectrum of the seafood restaurant market. Early in 1994 Landry's had purchased Joe's Crab Shack, a Houston-based chain of three seafood restaurants. Fertitta had planned to convert them into Landry's Seafood Grills. Instead, Landry's managers tweaked the Joe's Crab Shack concept and came up with what they hoped would be a successful entry into the low-priced seafood eatery market. After the makeover, sales at the three units jumped 30 percent to average $3.2 million per unit. In 1995 Landry's opened a fourth Joe's in Dallas that achieved similar results.
While organic growth, particularly of the Joe's Crab Shack chain, continued in 1996, Landry's landed its second acquisition in August of that year, spending about $65 million for Hollywood, Florida-based Bayport Restaurant Group, operator of 17 Crab House restaurants on the East Coast. The Crab Houses, which averaged about $3.7 million in business per year and were described by Bayport management as having a "clean nautical motif," generated a collective $53.7 million in 1995 and net income of $1.5 million. The average check at a Crab House was $21, slightly higher than the $17 at Landry's and much higher than that of Joe's Crab Shack, $14. By the end of 1996 Landry's Seafood Restaurants owned more than 70 restaurants in 26 states, and its revenues had reached $232.6 million, more than double the year-earlier figure. Profits for the year, however, amounted to just $1.5 million because of $16.7 million in charges related to the acquisition of the Crab House chain.
In early 1997 Landry's bought every restaurant on the waterfront of Kemah, Texas, it did not already own. The company already operated Landry's Seafood House and Joe's Crab Shack units in Kemah, a small town on Galveston Bay about 20 miles from Houston. Landry's subsequently developed the extensive property it owned in the town into Kemah Boardwalk, which Fertitta hoped to expand into a major tourist attraction. Officially opened in January 1999, the Kemah Boardwalk, in addition to several company owned and operated restaurants, also featured retail and specialty shops, amusement rides, and the Boardwalk Inn hotel.
- Brothers Bill and Floyd Landry open the first Landry's Seafood Inn and Oyster Bar in Katy, Texas.
- Landry brothers open the first Willie G's.
- Tilman J. Fertitta gains majority control of the Landry brothers' restaurants.
- Fertitta becomes sole owner of Landry's Seafood and Willie G's.
- The venture is incorporated as Landry's Seafood Restaurants, Inc.; company goes public.
- The Houston-based Joe's Crab Shack chain of three seafood restaurants is acquired.
- Bayport Restaurant Group, operator of 17 Crab House restaurants on the East Coast, is acquired.
- The Kemah Boardwalk officially opens in Kemah, Texas; a deal to acquire Consolidated Restaurant Cos., operator of several non-seafood chains, is scuttled.
- Landry's acquires Rainforest Café, Inc.
- Company shortens its name to Landry's Restaurants, Inc.
- Landry's acquires C.A. Muer Corporation and the Chart House and Saltgrass Steak House chains.
- Company opens its Downtown Aquarium in Houston; revenues surpass $1 billion.
Although revenues were up 28 percent in 1998, falling just short of $400 million, Landry's suffered from declining same-store sales and sliding profits. Compounding matters were a succession of tropical storms that hit Landry's territory from May through October, temporarily closing some locations and cutting into sales at others. Many of Landry's restaurants were located on the waterfront, making the company unusually vulnerable to the vicissitudes of the weather. Investors lost faith in the company's stock for the first time since its initial public offering, sending it down nearly 70 percent for the year. By early 1999 Landry's halted a slide in sales by lowering the menu prices at its restaurants, and in March announced the closure of eight of its 122 restaurants and plans to close an additional three restaurants and to abandon more than 20 development sites. Associated with this restructuring, the company took a $37 million charge against 1998 earnings, resulting in a net loss for the year of $300,000.
Also in March 1999 Fertitta reached an agreement to acquire Consolidated Restaurant Cos., a privately held Dallas-based firm that owned the El Chico, Spaghetti Warehouse, and Good Eats chains. This $164 million deal to acquire Consolidated, which owned or franchised more than 150 restaurants in 21 states and Canada, represented a major move outside of seafood for Landry's. It was also structured as a reverse buyout, whereby Landry's would take over Consolidated but the executives of Consolidated would take over management of the combined company. Fertitta was slated to serve as chairman of the new firm, but in making the deal he had largely committed himself to turning over control of a business for which he had been the chief architect—if not the true founder. But Fertitta quickly developed second thoughts about giving up control, and less than a week after the deal was announced he scuttled it. In the aftermath of the aborted deal, Fertitta also took Landry's on a different path. Plans to open as many as 50 new restaurants per year were scaled back, and Fertitta began to take a more aggressive approach to acquisitions. Landry's ended 1999 with about 140 restaurants and revenues of $439 million. In December of that year the company's stock began trading on the New York Stock Exchange.
Shopping Spree in the Early 2000s
The organic growth at Landry's at this time centered on the Joe's Crab Shack chain, which opened its 100th location in June 2000. On the acquisitions side, Landry's began 2000 by more than doubling the size of its Kemah Boardwalk property by buying the adjacent Lafayette's Landing Marina, which was soon renamed Kemah Boardwalk Marina. The company's property in Kemah now totaled about 40 acres. Landry's next set its sights on Rainforest Café, Inc. Founded in 1994 with its first restaurant in the Mall of America in suburban Minneapolis, Rainforest Café by early 2000 was running 28 restaurants in the United States and had partial ownership in another ten cafes located overseas. Part of the dining entertainment trend, sometimes dubbed "eatertainment," the Rainforest Cafés had a jungle theme complete with real and animatronic animals, tropical decor, and periodic "thunderstorms." Although the company had run into problems during the expansion of the chain, its best locations had high volumes, generating annual sales as high as $20 million. The $8 million average sales volume per Rainforest restaurant was the highest such figure among U.S. eateries in 1999. Net income that year totaled $5.7 million on revenues of $262.7 million.
In February 2000 Landry's reached a deal to acquire Rainforest for $125 million in stock and cash. Two months later, however, Rainforest shareholders failed to approve the deal after Landry's stock started to fall, causing the value of the deal to fall below $100 million. In the wake of the failed bid, Rainforest's stock fell, affording Landry's another opportunity. In September, Landry's offered to buy Rainforest for $75 million in cash, and with no competing bids in the offing, the deal was approved by Rainforest shareholders one month later.
By 2001 Landry's was operating more than 190 restaurants, and revenues had jumped to $746.6 million. Net income stood at $26.9 million. The expansion outside of the seafood niche prompted the shortening of the firm's name to Landry's Restaurants, Inc. Also during 2001 Landry's shifted its headquarters into a newly built, eight-story, company-owned building in Houston.
Three separate acquisitions highlighted developments during 2002. In February Landry's acquired Detroit-based C.A. Muer Corporation for about $28.5 million in stock. Muer, founded by Chuck Muer in 1964, had about $60 million in sales during 2001 through 21 restaurants, including nine Charley's Crab restaurants and four Big Fish Seafood Bistros. Operating in the Midwest and Florida, Muer also owned a number of finedining establishments located in historic buildings. These included the Gandy Dancer in Ann Arbor, Michigan; the Grand Concourse in Pittsburgh; and Engine House No. 5 in Columbus, Ohio. Several of the Muer restaurants were subsequently converted into other Landry's concepts, primarily Joe's Crab Shack.
A $45.5 million deal in August 2002 netted the Chart House chain of 39 restaurants. Acquired from Chart House Enterprises (subsequently renamed Angelo and Maxie's, Inc.), the Chart House chain was known for having prime waterfront locations on the both the East and West Coasts. With a history dating back to the early 1960s, the Chart Houses had started out as steakhouses but were eventually converted into seafood restaurants; they were positioned as more upscale than the Landry's Seafood House chain—as were the Muer restaurants—which provided Landry's Restaurants with an enlarged array of seafood concepts. As was the case with the Muer acquisition, Landry's converted about ten of the Chart Houses into Joe's Crab Shacks and also closed a handful of underperforming units.
Landry's landed its third catch of 2002 in October when it bought the Saltgrass Steak House chain in a stock deal valued at approximately $73 million. Founded in Houston in 1991, Saltgrass had grown to include 27 locations in Texas. Landry's bought it from MetroNational Corporation, a privately held investment company based in Houston. Saltgrass was slated to become Landry's second growth vehicle, along with Joe's Crab Shack, and as such was viewed as essential to the firm's goal of moving beyond the seafood niche. The three 2002 acquisitions helped boost the company's restaurant count to 275 (operating in 35 states), and revenues for the year surged ahead 20 percent, hitting $894.8 million.
During 2003 and 2004, it was Landry's Specialty Growth Division that grabbed headlines. This division was responsible for the company's developments outside of the restaurant sector. In January 2003 Landry's opened the Downtown Aquarium in Houston, a $38 million complex on six acres that in addition to a 500,000-gallon aquarium with about 200,000 fish and a train ride through a shark tank also featured two restaurants, a bar, and a miniature amusement park complete with a 90-foot-tall Ferris wheel and a 20-story observation tower. Landry's followed up just two months later with its $13.6 million acquisition of the bankrupt Colorado Ocean's Journey, a 17-acre aquarium complex in downtown Denver. Fertitta planned to redevelop the Denver aquarium into an entertainment destination similar to the one in Houston by adding a seafood restaurant and amusement rides. In January 2004 Landry's opened the Inn at the Ballpark in downtown Houston, a baseball-themed, 202-room boutique hotel adjacent to Minute Maid Park, home of Major League Baseball's Houston Astros. Landry's also developed a new beachfront convention center in Galveston, Texas, in partnership with the City of Galveston. The $32 million center, featuring 140,000 square feet of meeting and convention space, opened in May 2004 and was located adjacent to the high-end San Luis Resort, a property managed by Landry's. The Specialty Division was next looking at a site in downtown San Antonio for a proposed new entertainment complex that would feature an aquarium restaurant, a Rainforest Café, a boardwalk with a train ride, and a Ferris wheel.
Things were not entirely quiescent on the restaurant during this period. Landry's bought several well-known, upscale restaurants in Houston, including Pesce, Brenner's Steakhouse, Grotto, and La Griglia. The company also opened Vic and Anthony's, a steakhouse located adjacent to the Inn at the Ballpark in downtown Houston. These eateries, along with Willie G's, were placed within Landry's new Signature Group.
Now operating nearly 300 restaurants in 36 states as well as several other nonrestaurant ventures, Landry's Restaurants had its best year ever in 2003, achieving profits of $45.9 million on revenues of $1.11 billion. During 2004 the company planned to open approximately 20 new restaurants. About half of these would be Joe's Crab Shacks and three would be Saltgrass units. Other planned 2004 openings included a Rainforest Caféin Atlantic City, New Jersey, and Aquarium Nashville, an aquarium/restaurant at Opry Mills. The growth-oriented Fertitta was sure to also have his eye out for further acquisitions to add to his seafood-based but diversifying empire.
C.A. Muer Corporation.
Signature Group; Specialty Growth Division.
Principal Operating Units
Chart House; Crab House; Joe's Crab Shack; Landry's Seafood House; Rainforest Café; Saltgrass Steak House; Willie G's Seafood and Steakhouse.
Darden Restaurants, Inc.; Brinker International, Inc.; Outback Steakhouse, Inc.; Ruby Tuesday, Inc.; Applebee's International, Inc.; Carlson Restaurants Worldwide, Inc.; O'Charley's Inc.
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Davis, Michael, "Another Catch for Landry's," Houston Chronicle, April 20, 1996.
Davis-Diaz, Pamela, "Landry's Seafood House to Open Restaurant in Rocky Point," Knight-Ridder/Tribune Business News, August 22, 1995.
Elder, Laura Elizabeth, "Making a Splash on the Seafood Scene," Houston Business Journal, April 12, 1996, pp. 14A+.
Farkas, David, "Shopping Spree," Chain Leader, November 2002, pp. 54–56, 58, 60.
Hassell, Greg, "Landry's Led by Shrewd Big Fish," Houston Chronicle, April 16, 1995, p. E1.
——, "Tilman's Turnaround," Houston Chronicle, February 11, 2001.
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——, "Landry's Nets C.A. Muer, Plans to Expand Seafood Concepts into Midwest," Nation's Restaurant News, March 4, 2002, p. 4.
——, "Landry's Surfs for Turf, Nets Chart House Chain for $45M," Nation's Restaurant News, June 3, 2002, pp. 1, 57.
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—update: David E. Salamie