Grill Concepts, Inc.

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Grill Concepts, Inc.

11661 San Vincente Boulevard, Suite 404
Los Angeles, California 90049
U.S.A.
Telephone: (310) 820-5559
Fax: (310) 820-6530
Web site: http://www.dailygrill.com

Public Company
Incorporated: 1985
Employees: 1,569
Sales: $47.57 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: GRILE
NAIC: 722110 Full-Service Restaurants

Grill Concepts, Inc., operates two restaurant concepts, or formats, each with "Grill" in its name. Grill on the Alley is the more expensive of the two restaurant brands, offering more than 50 entrées of prime steak and fresh seafood. Daily Grill offers many of the same selections as its more expensive counterpart but in smaller portions and with less-expensive ingredients. The average dinner check at Grill on the Alley restaurants is $45 compared to an average of $22 at Daily Grill units. Grill on the Alley restaurants operate in Beverly Hills, Hollywood, San Jose, and Chicago. The San Jose and Chicago restaurants operate inside hotels, the Fairmont Hotel and the Westin Hotel, respectively. A number of the company's 20 Daily Grill restaurants operate inside hotels as well. One Daily Grill is located in the Tom Bradley International Terminal at Los Angeles International Airport. Daily Grill restaurants operate in California, Oregon, Texas, Illinois, and the greater Washington, D.C., area. Grill Concepts has an agreement with Starwood Hotels & Resorts Worldwide, Inc., one of the largest hotel and leisure companies in the world, to jointly develop restaurant properties within Starwood hotels. Starwood owns approximately 22 percent of Grill Concepts.

Origins

The dining format that spawned a chain of restaurants was created by three partners, Robert Spivak, Michael Weinstock, and Richard Shapiro. During the early 1980s, the founders, led by Spivak, began working on plans for a restaurant modeled after the traditional grill rooms found in San Francisco, Chicago, and New York during the 1930s and 1940s. The trio formed a limited partnership and opened their creation, Grill on the Alley, a fine-dining restaurant with black-and-white marbled floors, polished wooden booths, and dark-green upholstery that opened in Beverly Hills in 1984.

Offering entrées of prime steak and fresh seafood, Grill on the Alley was an upscale restaurant located between Wilshire Boulevard and Rodeo Drive, a perfect match for the community it served. For its chef, the Spivak-led team turned to John Sola, who played a prominent role in Grill Concepts' development for decades after being hired as opening chef. Originally, Sola wanted to be a blackjack dealer in Lake Tahoe, Southern California's haven of gambling and skiing, but Harrah's Hotel & Casino hired him to be a cook instead of a dealer. Sola distinguished himself quickly, becoming head saucier at Harrah's French restaurant. Next, he was hired as executive chef at a ski resort in the area, where he demonstrated sufficient skill and flair to attract the attention of Chef Rolph Nonnast at the Chronicle Restaurant in Santa Monica, California. Sola worked under Chef Nonnast for three years beginning in 1979, learning "many valuable lessons," according to his interview with Chain Leader in August 2002. "Most importantly," Sola remembered, "he taught me to keep it simple, to let the main part of the dish speak for itself." Spivak's dining concept, which was later described on the company's Web site as "a bastion of straightforward, classic American cuisine," was suited ideally to Sola's culinary skills. The restaurant proved to be a highly popular dining choice, known "for its power-dining clientele of entertainment industry movers and shakers," according to the May 22, 2000 issue of Nation's Restaurant News, which inducted the Grill on the Alley into its Fine Dining Hall of Fame in 1995.

After several successful years, Spivak and his partners began to think of expanding. The idea behind expanding was to create a scaled-down version of Grill on the Alley, one that would be more suitable for building into a chain of restaurants. The partners formed a company separate from the limited partnership that oversaw Grill on the Alley and developed a format that offered many of the same menu items as Grill on the Alley but at lower prices. The format debuted in September 1988, when the first Daily Grill opened in Brentwood, California. Sola, who was named executive chef of Grill Concepts in 1988, created a menu that borrowed heavily from the offerings at Grill on the Alley, but he reduced the size of portions and substituted some ingredients to keep food prices down, resulting in an average Daily Grill check that was roughly half the price of a Grill on the Alley check. The shrimp cocktail recipe was identical at both restaurants, but Grill on the Alley used larger shrimp than Daily Grill, 16- to 20-count compared with 13- to 15-count. A New York steak at Grill on the Alley was a prime 16-ounce cut, while Daily Grill offered a 12-ounce Angus strip. In his August 2002 interview with Chain Leader, Sola explained some of the differences between the two formats, saying, "We've got to be a lot more basic with Daily Grill but have more leeway at Grill on the Alley. At Grill on the Alley, servers are careerists and very professional, and clientele is a bit more adventuresome. At Daily Grill, we have a much younger, more transient staff, and customers stick with what's familiar. If it's too exotic, they won't buy it."

Spivak and his partners, through two separate companies, controlled two dining concepts by the late 1980s, but the partners relied almost exclusively on the Daily Grill concept as their expansion vehicle. A second Daily Grill opened in Los Angeles 18 months after the Brentwood restaurant opened, beginning an expansion period that would see Grill Concepts open at least one new Daily Grill in Southern California every year during the first half of the 1990s. Restaurants were opened in Encino, Newport Beach, Studio City, and in Palm Desert at the El Paseo shopping center, dubbed the "Rodeo Drive of the Desert." The El Paseo restaurant, the company's sixth unit, opened in January 1994, concluding expansion for a brief period while Spivak and his team pondered their boldest move to date.

Daily Grill represented Spivak's vehicle for expansion. Nevertheless, his desire to accelerate expansion and greatly broaden the geographic scope of his operations required an additional element, which Spivak found in a publicly traded, New Jersey-based company named Magellan Restaurants Systems. Magellan operated three Pizzeria Uno restaurants that Spivak believed would enable his company to expand on the East Coast. In 1995, Magellan was purchased by Spivak and merged into Grill Concepts. The acquisition, which put Grill Concepts on the NASDAQ Exchange, was coupled with an announcement for accelerated expansion, ushering in an era of aggressive growth for the company.

Expansion in the Late 1990s

As Grill Concepts prepared for a period of more rapid growth, Spivak brought his two restaurant brands under the control of a single entity. In April 1996, Grill Concepts offici-ally acquired the limited partnership that owned Grill on the Alley. Word of another acquisition soon followed, one that promised to enlarge the company's stature considerably. In July 1996, Grill Concepts announced it had agreed to buy a bankrupt chain of 19 restaurants operating under the Hamburger Hamlet name. Based in Sherman Oaks, California, Hamburger Hamlet was founded in 1950 by Harry and Marilyn Lewis. After several successful decades, the company struggled when it fell into the hands of an investment group in the late 1980s, embarking on an ill-fated expansion campaign that eventually caused its financial collapse. Spivak, who was about to triple the size of his company with the $10 million acquisition, was excited by the prospects of the deal, declaring in a July 10, 1996 interview with the Daily News, "Our plan is to bring Hamburger Hamlet back to the glory days that Harry and Marilyn enjoyed with it." By October 1996, however, the mood at Grill Concepts' headquarters had changed. The company was forced to terminate the acquisition, unable to secure the financing to complete the deal.

By the time the Hamburger Hamlet deal was scuttled, Spivak had turned his attention to expanding the Daily Grill chain, fulfilling his promise in 1995 to accelerate the company's growth. In September 1996, the seventh Daily Grill opened, debuting in Irvine, California. The eighth Daily Grill put Grill Concepts in the record books. In January 1997, the company opened a unit in the Tom Bradley International Terminal at Los Angeles International Airport, an 8,300-square-foot Daily Grill that ranked as the largest full-service airport restaurant in the United States. Next, the company made the greatest geographic leap in its history, opening a Daily Grill in Washington, D.C., in March 1997, the first of four restaurants to open in the Washington area.

In 1998, the tenth anniversary of the Daily Grill chain, the company acted on several important decisions. During the year, Spivak and fellow executives decided the three franchised Pizzeria Uno restaurants did not fit the company's strategic plans. Accordingly, an exit strategy was devised, leading to the closure of the first Pizzeria Uno unit, a restaurant located in Media, Pennsylvania, in July 2000. One year later, the company sold a restaurant in South Plainfield, New Jersey, for $700,000, followed by the sale of the third unit in Cherry Hill, New Jersey, for $325,000 in April 2002, ending its involvement in the Pizzeria Uno business. In August 1998, the company forged a partnership that opened a new avenue of growth for both its restaurant properties, signing an agreement with Hotel Restaurant Properties, Inc. for assistance in locating suitable hotel locations for Daily Grill and Grill on the Alley restaurants. The agreement followed Grill Concepts' first experience with operating a restaurant inside a hotel. In May 1998, 14 years after the first Grill on the Alley opened, the company opened a second restaurant in the Fairmont Hotel in San Jose, California.

In the wake of the agreement with Hotel Restaurant Properties, the preferred mode of the expansion was to open Daily Grill and Grill on the Alley restaurants in hotels. The first Daily Grill to appear in a hotel opened in January 1999, when a restaurant was opened in the Hilton Hotel in Burbank, California. A restaurant at the Georgetown Inn in Washington, D.C., followed, debuting in April 1999. The following month, the 12th Daily Grill opened at Universal Citywalk, located in the Universal Studios Hollywood complex.

Company Perspectives:

Daily Grills continue their founders' commitment to serve big portions of traditional grill recipes, at affordable prices.

As Grill Concepts entered the 21st century, the company strengthened its commitment to operating in hotel properties and turned to both its restaurant formats for growth. After waiting 14 years before it added a second Grill on the Alley, the company opened its third restaurant two years later, selecting the Westin Hotel in Chicago as the location to showcase its upscale format. The Chicago restaurant opened in June 2000 and featured a wrap-around mahogany bar, a 100-seat lounge with a pianist who performed nightly, and a windowed wall that offered a panoramic view of Michigan Avenue. The Chicago opening was followed by the debut of another equally opulent Grill on the Alley in Hollywood. The Hollywood restaurant, which opened in November 2001, was located in the Hollywood & Highland complex, a facility that housed cinemas, retail shops, and a Renaissance Hotel.

Agreement with Starwood in 2001

Grill Concepts' affiliation with hotels was taken a step further in mid-2001. In July, Starwood Hotels & Resorts Worldwide, Inc. acquired a 12 percent stake in Grill Concepts, forming an equity-and-expansion pact with the restaurant company. White Plains, New York-based Starwood ranked as one of the largest hotel and leisure companies in the world, controlling 725 hotels, including the Sheraton, St. Regis, Westin, and W brands. According to the terms of the agreement either party could propose the development of a restaurant in a Starwood property. These restaurants would be jointly developed and operated by Starwood and Grill Concepts. The two companies had worked together on the Chicago Grill on the Alley, cultivating a relationship that culminated in the 2001 agreement. Starwood later increased its ownership interest in Grill Concepts to approximately 22 percent, as the giant, $5 billion-in-sales hotel company helped Spivak and his team expand the chain and enter new markets.

The first half the 2000s saw Grill Concepts add to its chain of Daily Grill units. Through its agreement with Starwood, the company entered Texas for the first time with a Daily Grill in Houston that opened in July 2002. The Houston restaurant was located in the Westin Galleria Hotel. The following year, the company entered Oregon for the first time, its third Starwood venture. The restaurant opened in Portland's Westin Hotel, a Starwood property. For the first time in its collaboration with hotels, the company was selected to manage a hotel's banquet facilities, a responsibility given to the Daily Grill in the Portland Westin.

In the years ahead, Grill Concepts was expected to continue to expand through its agreement with Starwood and on its own with non-hotel-based restaurants. After opening a Daily Grill in the Hyatt Hotel in Bethesda, Maryland, in 2004, the company opened its 20th Daily Grill close to home. In April 2005, a restaurant opened in Santa Monica in a 15-acre complex known as the Colorado Center. Although the company offered no specific goal for future expansion, the continued growth of both chains seemed a certainty, with hotel-based expansion to occupy most of the company's attention.

Principal Subsidiaries

GCI Inc.; Grill Concepts Management, Inc.

Key Dates:

1984:: The first Grill on the Alley opens in Beverly Hills.
1988:: The first Daily Grill opens in Brentwood, California.
1995:: Grill Concepts acquires Magellan Restaurant Systems, the operator of three franchised Pizzeria Uno restaurants.
1998:: Grill Concepts signs a hotel development agreement with Hotel Restaurant Properties, Inc.
2001:: Starwood Hotels & Resorts takes an equity stake in Grill Concepts.
2002:: Grill Concepts enters Texas with the opening of a Daily Grill in Houston.
2003:: A Daily Grill opens in Portland, the first Grill Concepts unit in Oregon.
2005:: The 20th Daily Grill opens in Santa Monica, California.