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PRIME TIME FOR FLEMINGS

Concepts of Tomorrow
Growth Strategies For Emerging Full-Service Restaurants

Fleming’s Prime Steakhouse & Wine Bar
is the new cut in steakhouse dining.

PRIME TIME FOR FLEMING’S

Steak. We love it! According to the U.S. Dept. of Agriculture, the average American ate 62 pounds of beef in 2003, and it’s clear that the stampede for steak won’t end soon. Steakhouses, from family-style to posh independents, are thriving, so it’s hardly surprising that Fleming’s Prime Steakhouse & Wine Bar owns the number seven slot in Restaurant Hospitality’s list of the Top 50 Powerhouse Growth Chains. With $51 million in sales in 2002, up 75% over 2001, the chain’s 16 units left competitors in the dust. The surprise is this: Fleming’s did it by re-creating the steakhouse concept.

The word "steakhouse" conjures images of either a dark, smoke-filled men’s club or kitschy chuck wagon chic. Fleming’s is neither.

Fleming’s founders and partners William "Bill" Allen, III and Paul Fleming offer a fine-dining experience with an extensive wine list, available by the glass, and ambiance and a check average that are catnip to couples, females, expense-account diners, and families.

Fleming, founder of P.F. Chang’s China Bistro and formerly with Ruth’s Chris, and Allen, a former Marriott star whose innovations in branding led to his appointment as c.e.o. of la Madeleine French Bakery and Café and Koo Koo Roo, became friends while meeting with sources of business capital that they held in common. The opportunity to work together arose. Allen was ending his commitment to la Madeleine, intending to move back to California. Fleming invited him to help drive the steakhouse concept in a new direction.

After a grueling three-month tour of forks-on research at steakhouses across the U.S., Allen agreed that the concept was ripe for evolution.

Fleming and Allen categorized steakhouse concepts according to check averages. Research showed heavy competition in the $12 to $14 budget steakhouse arena. Casual dining (average check: $20) was dominated by Outback Steakhouse. Check averages in the traditional fine dining concepts epitomized by Ruth’s Chris, Morton’s, and elegant independents jumped to $55 to $100. "It’s an interesting category. Sixty to 70% of your menu is dictated to you," Allen chuckles, and illustrates his point by reciting: "A veal chop, a lamb chop, a lobster tail, two filets, a strip steak, a baked potato, Caesar salad, shrimp cocktail…. At the high end, people either offer great product at a fair value and execute well or they don’t."

Bull Markets Eye

The gap between casual and traditional steakhouses intrigued the partners, and they set out to own that zone with a fresh take on steak. "We wanted to create something with great variety that made a distinctive statement,"
recalls Allen. "We thought of wine.

"Traditional steakhouses focus on wines by the bottle. We wanted a steakhouse that was more affordable and had great variety in wines by the glass — which contribute to a lower check and greater guest frequency — and design it so women would find it appealing."

Allen and Fleming had noticed that traditional steakhouses attract few women. "They’re a sea of suits," Allen says. The growing numbers of women involved in business travel and entertaining, heading households, and dining out alone marked an unmet need. "Paul asked me how we’d know if our concept worked, and I told him that if we could walk into a Fleming’s dining room on a Wednesday night and find 40% of the tables occupied by women, we could claim victory," Allen says lightly, then adds, "If you walk into a Fleming’s on a Wednesday night, 70 to 80% of the tables will have women -– with older children, with other women, as part of a couple –- at them.

Some of that has to do with where the restaurants are located, but it’s more to do with women’s receptivity to the concept."

Serving aged USDA prime corn-fed beef in an array of sizes and cuts, an international wine list sold by the glass, affordable pricing, a fresh, open environment, and experienced, skilled servers, the first Fleming’s Prime Steakhouse & Wine Bar opened in Newport Beach, Calif. in December 1998. Its was so successful that a second unit opened in Scottsdale, Az. four months later, and steady growth ensued.

N OT EVEN A STUMBLING economy nor atrophied business travel after September 2001 fazed the fledgling chain. Allen proudly observes, "Fleming’s was perfectly positioned to get through that storm. When other concepts that had targeted the business traveling population almost exclusively were hurt, we actually had positive comps of 81Ú2% in 2002 with 16 units. In 2003, on top of that, we’ll probably finish above 13%." Annual sales for 2002 were $51 million, up 75% from the previous year. "In 2004, we expect to be a $100 million company," Allen says. "I raised the capital to build the first six units before the first door opened," Allen explains. "We intended to grow the concept from the get-go."

The muscle in Fleming’s isn’t all protein. Its organizational structure is based on Outback Steakhouses’, and long before they opened their Fleming’s, Allen and Fleming met with Outback’s c.e.o., Chris Sullivan, to discuss the new concept and its prospects for growth.

"We thought it was an excellent complement to Outback," Allen says. Sullivan agreed, and by September 1999, they formed a joint venture. The pairing gives Fleming’s access to powerful capabilities: 50% of its capital for growth comes from Outback; the rest is internally generated. Fleming’s has access to Outback’s infrastructure and talent resources, including marketing and advertising and real estate. At some point, Allen acknowledges, Outback’s share in Fleming’s future may increase, but the current 50:50 balance is unlikely to change soon.

Will Fleming’s go public? Allen is blunt: "Restaurant growth companies don’t belong in the public market. You need to have not only a great operating history, but also scale to weather that storm.Most smaller concepts and companies who accessed public markets to get capital ran into problems and aren’t with us any longer, or have gone private.

"The better model may be to do what we did: Find a great complementary partner who shares not only your desire to grow your business, but similar vision, beliefs and culture. For us, it was Outback. It’s a great partner. Without the additional expense, disruption and pressure of delivering for the public market, we’re actually freer to grow our business and stay focused on it."

The Outback connection sweetens the allure of Fleming’s healthy balance sheet and access to development capital. "We have the luxury of being able to do almost any sort of deal," Allen says frankly. "We can lease space, buy land, buy existing restaurants, or buy people out of them. We don’t need landlords, we don’t require their capital, and we don’t require large amounts of TI (shared investment from developers). Most times, we won’t even take their money."

Another attraction for developers is that Fleming’s target demographics – highly educated, sophisticated men and women between 35 and 55 – and its concept are as suitable for major cities as for secondary markets. In large cities, the concept’s emphasis on premium value at a moderate price allows it to compete with high-end chains and independents. In secondary markets where the higher-ticket competitors won’t go, Fleming’s fills the void in upscale dining.

A Cut Above

The menu at Fleming’s is built around USDA prime beef, veal, lamb and pork, cut and trimmed on premises, balanced with seafood appetizers and entrées. Entrées and sides are seasoned simply, cooked to order, and presented without embellishment.

All items are à la carte.

Corporate chef Russell Skall oversees menu development. "Every year, we strip the menu down to items we believe you can’t take off if you want to be in this category," says Allen. "The next cut is what sells at Fleming’s. The third cut is those flavors that make people say, ‘I have GOT to get back to Fleming’s to have that!’"

Fleming’s management dines out regularly at restaurants in- and outside of the category. Skall also brings in culinarians to review and update the menu.

"We treat wine the same way as we treat food," says Allen, who estimates that wine comprises 33% to 34% of the concept’s beverage mix.

Under the direction of wine manager Marian Jansen op de Haar, the list is reviewed annually, starting with wine country tastings. About 65% of the core list is represented in all units; the balance is selected by wine managers for their respective units, and may change during the year. "We aren’t looking for the biggest names. We want wines you may have trouble finding or that you may not have heard of, such as the small boutique wineries," Allen says.

Unit wine managers receive comprehensive training from Jansen op de Haar, who assists them in managing their lists and works with unit staffs at openings.

Fleming’s wine list is progressive to aid diners and servers in pairing wine and food. Wines are listed by varietal, by complexity, and by fullness of taste. By asking a few questions, servers can zero in on diners’ preferences and suggest appropriate choices. Guests can explore the recommendations with 2 oz. samplers at 1Ú3 the price of a full glass before making their choice.

The same attention Fleming’s pays to its menu and wine list is invested in server selection and training. Training manager Jennifer Clark deploys an array of training modalities to keep the process fresh and interesting and to engage diverse learning styles. Allen observes, "Servers at this level make considerable income, so they really care about their jobs. They’ve generally got a lot of experience and they’re fairly mature, which contributes to low turnover. That’s great because, like wine, they get better and better with time."

Fleming’s décor rejects the clubby steakhouse look: The bar opens into the 230-seat dining room, which is built around an exhibition kitchen. Ceilings are high, lighting is amber, and light walls are accented by cherry woodwork. On the tabletops, rugged steak knives are balanced by sleek stemware and white tablecloths.

All Fleming’s units are smoke-free, even in the South. "When we expanded into Nashville, people told me that it was a mistake to not allow smoking," Allen recalls. "I gave it a lot of thought and talked to the team, but we decided that the policy was who we are, and we were not going to change. We will operate the same way everywhere."

Allen’s expertise in brand-building is a boon for growth. He modestly claims that he’s still learning how to best develop and roll out brands, and acknowledges his debt to his mentors and his partners at Outback. "When you have a powerful brand, you can open it in a new locale, and if the brand-building has been done properly, you just open the door and people clamor for it."

Fleming’s marketing strategy is to build brand identity nationally, creating anticipation for new units, while investing heavily in local marketing opportunities and building relationships with local charities and connecting with desirable demographic groups to attract them to the restaurant. Marketing capabilities are provided by Outback.

"Advertising draws them in, but unless you have compelling food, beverage and service that equates to a great restaurant brand, people won’t come back," Allen says. "If we do a great job, we’ll benefit for a long time and won’t be dependent on continual spending, deal-making and offering.

"We have a great brand in Fleming’s. If we do it right, stay true to our knitting, and continue to learn, we should do well. There’s a lot to be said for the power of a brand."

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