Landry’s Seafood Restaurants, Inc.
Landry’s Seafood Restaurants, Inc.
Sales: $84 million (1995)
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places
Landry’s Seafood Restaurants, Inc. operates a chain of fullservice, casual-dining seafood restaurants. In mid-1995 the chain consisted of about 25 units in nine states. In addition, the company operated three eateries under the Joe’s Crab Shack banner. Landry’s was planning to expand its profitable chain rapidly during the mid-1990s.
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 like snapper, broiled speckled trout, frog legs, and crab. The menu also featured steaks, chicken, sandwiches, and desserts like ice cream and fresh fruit.
The most successful Landry operation was Willie G’s, which had opened in 1981 and was bringing in a whopping $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 about that time that Tilman J. Fertitta became involved as one of several investors in the Landry brothers’ restaurants. Fertitta was in his late twenties 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 wasn’t 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 1988 Fertitta purchased both Landry’s and Houston-based Willie G’s from 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 weren’t any major seafood restaurant operators. Furthermore, Americans’ consumption of seafood was rising faster than for 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. So each restaurant was given a unique feel by the company’s design team. And 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.
By late 1993 Landry’s Seafood Restaurants were 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 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 one-and-one-half 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 Cafe 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 America in that year. Landry’s store number increased to 35 units in 12 states by August of 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 a big $3.2 million per unit. In 1995 Landry’s opened a fourth Joe’s in Dallas that achieved similar results.
Landry’s planned to sustain the rapid growth of both its Landry’s and Joe’s Crab Shack restaurants into the mid- and late 1990s. The company still operated two Willie G’s stores, as well. Fertitta believed that the Landry’s chain alone could grow to as many as 150 or more restaurants. “There’s no shortage of potential locations,” he said in the May 16, 1994, Nation’s Restaurant News. “We’re the only ones who can screw things up and stop the momentum. It’s just a matter of keeping that consistency and continuing to open in the right locations.”
Landry’s Seafood Grill; Joe’s Crab Shack; Willie G’s.
Carlino. Bill, “Landry’s Seafood: Not Just Another Fish in the Sea,” Nation ’s Restaurant News, May 16, 1994, p. 74.
Davis-Diaz, Pamela, “Landry’s Seafood House to Open Restaurant in Rocky Point,” Knight-Ridder/Trihune Business News, August 22, 1995.
Prewit, Milford, “Casual Dinner-House Chains Tap Secondary-brand Expansion (NRN Top 100),” Nation’s Restaurant News, August 7, 1995, p. 120.
Ruggless, Ron, “Landry’s Eyes Joe’s Crab Shack as Possible 2nd Growth Concept,” Nation’s Restaurant News, June 12, 1995, p. 3.
_____, “Landry’s in Swim after Stock Sale,” Nation’s Restaurant News, November 8, 1993, p. 3.
Sanson, Michael, “The Man Who Would Be King Fish,” Restaurant Hospitality, August 1994, p. 74.