Upscale Steak Houses Essay, Research Paper

Running head: UPSCALE STEAK HOUSES

Upscale Steak-House Restaurants

(Trend or Fad?)

Denis Boucher

Dean West

November 30, 1999

Upscale Steak-House Restaurants (We found the Beef)

Where’s the beef? There is no lack of quantity or quality of product at upscale steak-house restaurants. Who would have ever thought that people would stand in line to pay an average of $65 for a steak? Not so long ago, beef was taboo for the young, upcoming, physically fit executive. Today, however, traffic and spending are on the increase at fine-dining steak houses. Currently, more than twelve companies have been successful in the “big beef, big check” concept. Many of these companies are looking to expand their product by co-branding with upscale hotels.

The return to steak started with visionary independent restaurant owners such as Arnie Morton, of Morton’s Steakhouse, Ruth’s purchase of Chris’ Steakhouse, and progressed to T.G.I. Friday’s former owner, Alan Stillman, introducing Smith & Wolensky steak house, and Don Shula’s decision to franchise his line of steak houses.

This segment of the restaurant industry is thriving by providing extremely high quality products for a generous price tag. For now, today’s diner has a voracious appetite for prime, well-aged beef. According to the National Cattleman’s Beef Association, fine-dining restaurants are in a growth period. Customer counts at up-scale steak houses in 1998 increased 7 percent over 1997 and 26 percent during the years 1993-1998. Customer spending at those restaurants rose 11 percent in 1998 and 59 percent over the same five-year span (Frumkin, 1999).

Even the casual steakhouse segment has experienced growth from 1993 through 1997 of about 43 percent. Many of these steak houses have added new menu items to lure the “no beef” crowd, but an overwhelming percentage of the sales continues to be tenderloin and top sirloin steaks.

Demographics seem to favor the growth of the up-scale steak market. The median age of the U.S. population is the highest it has ever been, 35.2 years, and older consumers are willing to pay more for a quality product. It does not hurt that the U.S. economy is enjoying one of the longest periods of prosperity, and disposable income is plentiful (Frumkin, 1999).

With all of the emphasis on healthy eating and physical fitness one might conclude that 32 ounce Porterhouse steaks had gone the way of liver and other entrails. On the contrary, “After years of avoiding red meat because of health concerns, more diners are aiming their knives at thick, juicy steaks — with less guilt, apparently. Today’s cuts of porterhouse, T-bone and filet mignon have 27 percent less fat than a decade ago, according to the National Restaurant Association” (Hardesty 1998).

What’s the reason for this trend? A combination of a strong economy, more disposable income, and recent diet fads which laud the consumption of high protein, are the ingredients of a great recipe for splurging on a quality steak.

Steak house chains such as Morton’s, Ruth’s Chris, Smith & Wolensky, the Palm, Capital Grille, Del Frisco’s, Sullivan’s Carvers and Don Shula’s are quickly growing in major markets. Morton’s, for example, plans to develop 80 additional units in the U.S and as many internationally.

Smith & Wolensky’s flagship restaurant, in New York City, is one of the highest grossing restaurants in the U.S., with sales of $24.7 million. They operate five other company- owned restaurants in city markets averaging about $7 million in sales per unit.

New York Restaurant Group (NYRG) recently filed for public stock offering, and Smith & Wolensky is key to this groups future growth. NYRG’s growth strategy involves clustering their restaurants in high-profile central business districts.

Different steak house companies have different growth strategies. Ruth’s Chris, the largest of the up-scale steak house chains, with 68 units, is getting ready to expand. They have been focusing on growth through company-owned outlets as opposed to franchising. Recently purchased by Madison Dearborn Partners, a private equity company, Ruth’s Chris will now have the resources to open four or five new company-owned steak houses a year for about 12 years. The company anticipates growth of 60 more units domestically and aggressive expansion internationally.

The publicly owned Morton’s Restaurant Group, located in New Hide Park, N.Y., also has plans for expansion: “We will have opened seven new restaurants by the end of the year,” says chief financial officer Thomas Baldwin, “and we plan to open at least as many next year.” (Frumkin 1999)

Morton’s Restaurant was a ’70’s brainchild of Arnie Morton in Chicago. As one of the first successful up-scale steak houses, Morton’s was the first to “chain” this concept. Now, MRG plans to open 80 new restaurants domestically and as many internationally in the future.

Capital Grill has had to make some adjustments to its concept after admitting that some of its units were not managed well. RARE Hospitality International, the parent company to Capital Grill, anticipates new growth at a rate of one to three units a year.

Palm Management’s president, Fred Thimm, Jr., anticipates a modest growth pace of about two units a year. This privately owned and debt-free 18-unit company plans to use internal cash flow to fund its expansion to 30 units.

Del Frisco’s Double Eagle and Sullivan’s are owned by the publicly traded, Lone Star Steakhouse & Saloon, Inc. Del Frisco’s will be opening in New York’s Rockefeller Center in late 1999. Sullivan’s will be opening two units this year

Other companies are repositioning to enter the up-scaled steak house concept. Steakhouse Partners, a Paragon group, has been evaluating the change of some of its casual steak houses to the Carver concept, featuring dry-aged steaks, and premium wine programs. Gallagher’s Steakhouse has opened itself up to national franchising. Don Shula’s Steakhouse Inc. is also going the franchising way, but strictly to hotels.

As up-scale steak houses expand feverishly, they are looking at locations that might complement their product and market. Since these steak houses appeal to corporate executives, it seems logical that this concept would do well in quality business hotels. “In fact, hotel food-and-beverage executives in every corner of the nation are finding they can reclaim their lost share of fine-dining revenue by turning older tablecloth concepts into high-traffic luxury steak houses” (Hayes 1998). Steak house restaurants are simple in the setup, staffing, menu and kitchen operations, therefore, more cost efficient than the traditional fine-dining venues. This co-branding is a natural between the great steak houses and great hotels.

Another reason that steak houses and hotels are a good marriage is that: “When big deals are in the making, it’s a time for juicy steaks, not Chinese food. The fact is, it’s impossible for a business traveler to make a fool out of herself or himself by ordering an expensive piece of steak,” says veteran Philadelphia-based, menu-and-concept consultant Walter Staib, who has helped steer the 12-trait Don Shula’s Steak House group into a successful marriage with hotel operators from Tampa, Florida to Troy, Michigan. (Hayes 1998).

Several chains are aggressively pursuing the hotel linkup. The Palm steak house chain has already put 7 of their 15 units in hotels. They were the first to enter the hotel segment in Chicago in 1980’s. Don Shula’s is committed to a joint venture with Dallas-based Patriot American Hospitality to open 12 additional hotel steak houses in the next year and a half. Ruth’s Chris steak houses started using hotels as prime locations for their steak houses since 1993. They have even installed a private-party coordinator in some Embassy Suite location. Just beginning to break into the hotel market a year ago at the Sheraton Inner Harbor in Baltimore, Morton’s steak houses foresees more hotel openings in the near future.

As this relationship continues to grow, steak house operators are adding more seafood to their menus, being careful to maintain menu simplicity, a benchmark to their continued success.

Even with new steak house competitors entering the market daily, the future for the up-scale steak house business looks bright. Growth strategies such as hotel co-branding will enable this segment long-term survival. Through imaginative marketing, relatively low cost of operations and peoples’ love for a great steak, this segment appears to be here to stay.

References

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chains carve out a beefier share of urban markets.

Nation’s Restaurant News. Retrieved October 1, 1999 from the World Wide Web : (http://firstsearch.altip.oclc.org)

Hardesty, G. (March 19, 1998). Beef’s return to popularity

brings steakhouse chains to Orange County, Calif. Orange County Register (CA), Retrieved October 1, 1999 from the

World wide Web: (http://firstsearch.altip.oclc.org/FETCH)

Hayes, J. (October 28, 1998). Hotels ’steak’ claims on high-end

beef business. Nation’s Restaurant News, Retrieved September

26, 1999 from (http://firstsearch.altip.oclc.org)

Kramer, L. (July 13, 1998). Steak house rivals ready new round

of national ads. Advertising Age. Retieved October 1, 1999

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