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Charging Forward
By Sean Roth
Real Estate Editor
By the most obvious criteria, pure number of units, the LongHorn Steakhouse restaurant chain runs third in the battle for the steakhouse market. Outback Steakhouse is the leader with more than 1,000 restaurants (about 825 steakhouses), followed by Lone Star Steakhouse & Saloon Inc. with 286 (about 250 steakhouses) and lastly RARE Hospitality International Inc. with 264 total restaurants (about 214 LongHorns).
But bigger isnit necessarily better, and RAREis balance sheet shows it is one of those rare exceptions.
RAREis revenue growth and earnings growth outpaces its two main steakhouse competitors. In 2003, RARE recorded revenue growth of 16.5%, while Outback recorded 16.2% and Lone Star o 3.9%. In earnings growth, the difference was more dramatic, RARE, according to its public filings, recorded a 26.4% growth oa full 13% better than Outback.
RAREis profit margin is also higher. For the twelve months ended September 2004, RARE made 6.21% compared to 5.24% for Outback and 4.45% for Lone Star. It ran a close second to Outback in return on assets, 10.06% for RARE, compared to 10.94% for Outback and 5.83% for Lone Star.
For seven years Philip Hickey Jr., 50, CEO and chairman of RARE, has steered the itight shipi growth of the restaurant chain.
The onetime dishwasher began management training with Houlihanis Old Place in the i70s.
iI had two areas of specialty: opening new restaurants and fixing broken ones,i Hickey says. In addition to his on-the-job training, Hickey received a bacheloris degree in hotel and restaurant management from Michigan State University.
Hickey loved opening new stores for Houlihanis.
iYou are basically dealing with a blank slate for peopleis expectations,i he says, iYou have the ability to paint the experiences you would like from day one. You get to hand pick each staff member, and in many ways you get to pick your guests.i
Early on, Hickey recognized that most problems at Houlihanis underperforming restaurants were related to inconsistency of execution. iUsually it was a combination of inconsistent food and food delivery,i he says. iWhen you deliver inconsistent food you allow your guests to question why they should come back.i
In 1984, after departing Houlihanis, Hickey and fellow restaurant executive Gerry Hornbeck were trying to figure out how to fix several underperforming restaurants in Nashville when opportunity struck.
iWe thought maybe it would just be easier to create a whole new concept,i Hickey says. So they decided to build a new restaurant concept called Cooker Bar & Grille.
iThe idea was to create a restaurant that would attract people O that would have higher customer loyalty,i Hickey says. The chain featured typical home-cooked favorites such as meatloaf, chicken, burgers and pot roast.
The partners found the financial backing to purchase their first two restaurants.
iI joked at the time that if we had failed and defaulted on that original $3 million loan, they could have gotten $10,000 from me, because that was my entire net worth,i Hickey says. iAnd that was placing a pretty high value on my clothes.i
The chain grew steadily. iIn Nashville we won the best restaurant award a number of years in a row,i Hickey says. iWe had that type of loyalty.i
In 1989, Hickey and three partners took the chain public. Shortly after that, there was a falling out among the partners. Hickey left.
The next year, Hickey started Green Hills Grille restaurants in Nashville with Mike Hufler, a graduate of the Culinary Institute of America. In 1992, when the chain was acquired by Rio Bravo International, Hickey became president. Hickey and Rio Bravo founder, Ray Schoenbaum, sold the chain to Applebeeis International in 1995.
In October 1997, Hickey joined RARE and within a year he was CEO, replacing the companyis founder George McKerrow Jr.
During the past seven years, Hickey and his team have grown annual revenues almost fourfold to about $800 million.
RARE is the mixture of three restaurant brands: its driving revenue generator LongHorn, the Canadian Rocky Mountain-themed Bugaboo Creek Steak House Restaurants and the upscale Capital Grille Restaurants. There are 28 Bugaboo Creek Steak Houses in the northeast and southeast. The 20 Capital Grilles are in major metropolitan areas across the country. The chain targets the upscale steakhouse market.
Asked about his success, Hickey says. iThe key is driving guest loyalty in each separate business unit. We develop managers and try to provide all the support we can to allow them to stay very top-line focused o sales first, not profit first.i
iThe share price today (Jan. 6) is over $30, and the original price when I got here was $4. Itis a credit to Gene Lee (chief operating officer) and Doug Benn (chief financial officer), and their ability to assemble a team of high achievers. Weive been lucky; itis a good time to be in the steak business.i
Hickey attributes much of the growth in the industry to a changing culture.
iIt has almost become essential in providing relief from the pace of our lives,i Hickey says. iMany people lead a frenzied frantic life. People go to a restaurant because itis an escape from the stress of e-mails and voicemails O the running around. It gives them some time to relax and reconnect to the human race.i
There is also an advantage to being part of a chain, he says. Chains such as RARE are able buy food cheaper in quantity. Then it can charge prices comparable to homemade food.
Hickey was elected for the first time to the board of the National Restaurant Association in May. However, this is not his first trip to Sarasota.
iWe have two Long Horns there,i Hickey says. iWe have another six up in Tampa and we are opening one soon by the University of Tampa. We are always looking for good sites. Sarasota is one of the more beautiful places, and (the board meeting) will be a success if there is great communication, both learned and delivered. And being in Sarasota it should just be spectacular.i
Asked what so excites him about the restaurant industry, iItis really the joy inherent in the business,i Hickey says. iPeople choosing to come through our door. Theyire here to be taken care of, to be made happy. There is also the thrill of teamwork. I played a lot of sports and there are many similarities to running a good shift. You can derive a lot of satisfaction from happy guests and families.i
There is also the equality of opportunity.
iPart of what I think is wonderful about this business is that you can enter at pretty much any level, and succeed through your desire to improve,i Hickey says. iThere are really no set limits. My feeling is most of the CEOs of large restaurant companieso as well as owners of individual restaurants o began in the trenches. They may not have had the assets to bring to the table, but theyive done tremendously. This is an industry where someone with very little education or very little wealth can find great opportunity just by having a high level of dedication and a high level of energy.i
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