Long John Silver’s

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Long John Silver’s

101 Yorkshire Blvd.
Lexington, Kentucky 40509-1988
U.S.A.
Telephone: (859) 543-6000
Fax: (859) 543-6644
Web site: http://www.ljsilvers.com

Unit of YUM! Brands, Inc.
Incorporated: 1946 as Jerrico Inc.
Employees: 14,000
Sales: $300 million (2002 est.)
NAIC: 722211 Limited-Service Restaurants; 533110 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)

Long John Silver’s is the largest quick-service seafood restaurant chain in the United States, with about one-third of the estimated $1.24 billion market. The chain’s more than 1,200 units, located in 36 states, feature a nautical theme and a menu that includes, in addition to Long John Silver’s trademark batter-dipped fish, chicken, and seafood, breaded fish, sandwiches, french fries, coleslaw, hush puppies, corn, and desserts. About 60 percent of the U.S. units are owned and operated by the company; the remainder, along with all of the 28 overseas outlets, are franchises. More than 120 of the U.S. units are cobranded sites also featuring an A&W All-American Food outlet.

The history of Long John Silver’s is rife with ownership changes. The first Long John Silver’s opened in 1969 as part of a multibrand, publicly traded restaurant group called Jerrico Inc. Jerrico was taken private in 1989 through a highly leveraged management buyout, and one year later the other restaurant concepts were divested in order to focus on Long John Silver’s. After struggling for the next several years under its heavy debt load, the company was finally forced to file for bankruptcy in 1998. The following year, the owner of the A&W chain acquired Long John Silver’s, creating a new restaurant firm called Yorkshire Global Restaurants, Inc. Finally in May 2002 Tricon Global Restaurants, Inc. (soon renamed YUM! Brands, Inc.), owner of the Taco Bell, Pizza Hut, and KFC chains, acquired Yorkshire and its Long John Silver’s and A&W chains.

Pre-LJS History of Jerrico

The history of Long John Silver’s (LJS) can be traced to 1929, when Jerome Lederer, the company founder, opened a six-seat hamburger stand he called the White Tavern Shoppe in Shelby-ville, Kentucky. The concept proved popular and thrived throughout the Great Depression. Altogether, 13 White Tavern Shoppes were in existence when World War II came along and claimed ten of them because of shortages of meat, sugar, and manpower.

Lederer regrouped in 1946, establishing his company as Jerrico Inc. and introducing a new restaurant in Lexington, called Jerry’s Five and Dime, reflecting the new establishment’s focus on promoting 15-cent roast beef sandwiches. In 1947, realizing that people were not willing to pay that much for a roast beef sandwich, Lederer converted Jerry’s menu to focus on hamburgers.

As he rebuilt his company, Lederer hired Warren W. Rosenthal to manage his restaurants in 1948. The two men reportedly met when Rosenthal rented a room from Lederer while attending the University of Kentucky. Although Rosenthal initially considered careers in retailing and in life insurance, he eventually accepted Lederer’s invitation to join him in the restaurant business. Soon the two men were looking for a restaurant concept they could duplicate across the country. They tried new menu concepts at Jerry’s by adapting foodservice ideas borrowed from restaurants in other locations.

The popularity of eating away from home and the growth of the restaurant business in general was just beginning; Jerrico’s timing was perfect. By 1957, Jerrico was operating seven Jerry’s Restaurants and was one of the first companies to use the franchise concept as a means of stimulating growth. Rosenthal, who had been made chief executive officer of Jerrico, eventually served as president and gained ownership of the company as well when Lederer died in 1963.

Jerrico’s success in the foodservice industry has been credited to the company’s willingness to generate ideas and take risks. Indeed, the company tested a variety of restaurant concepts during the 1960s, including: Lott’s (roast beef and other sandwiches); Davy’s Dock (full-service seafood); Don Q’s (Spanish food); and The Governor’s Table (full-service dining).

1969 Launch of Long John Silver’s

Then, in 1969, Rosenthal was inspired to try out a new market for quick-service seafood as competition for the standard American favorites of hamburger, pizza, and fried chicken. Rosenthal studied the competition, particularly the menu at the H. Salt Fish and Chips chain, and then persuaded James Patterson, a Jerry’s Restaurant franchisee, to join him at Jerrico to help develop the notion of an expanded version of fast food fish-and-chips. Patterson became the first president of Long John Silver’s.

Shortly after taking Jerrico public in 1969, Rosenthal launched Long John Silver’s Fish ‘n’ Chips, a name inspired by Robert Louis Stevenson’s novel Treasure Island. Located on Southland Drive in Lexington, the first restaurant was a success; LJS developed into a chain and soon became Jerrico’s most successful endeavor. By the end of 1971, there were more than 200 LJS units in operation.

Designed to provide the atmosphere of a seafood establishment along a wharf, the outlets’ interiors were decked out with brass lanterns, signal flags, and boat oars. The original menu featured battered fish, chicken, french fries, and hush puppies. However, noting that competitor H. Salt had a relatively limited menu and was experiencing financial difficulties, Rosenthal quickly moved to expand LJS’s offerings, implementing a more comprehensive line of seafood to augment its batter-dipped fillets. By 1973, the chain’s name was changed to Long John Silver’s Seafood Shoppes to reflect this expanded menu. During this time, Ernest E. Renaud, Jerrico’s executive vice-president since 1971, became the second president in LJS history.

By June 1976, there were 621 LJS restaurants in operation. Of these, 262 were owned directly by Jerrico and another 359 were franchised to independent operators, who paid a fee to Jerrico for the concept and covered construction and business costs themselves. Within two years, the total number of shops had grown to 1,000, of which 464 were company-owned. In May 1978, Jerrico consolidated its operations from four buildings scattered around Lexington to a new $7 million headquarters.

Changes in LJS leadership took place in the early and mid-1980s. In 1982, Renaud was named president of parent company Jerrico in addition to his duties as LJS president, while Rosenthal retained a role as chairman of the board. In 1984, John E. Tobe, who had been LJS’s chief financial officer since the early 1970s, succeeded Renaud.

Growth at LJS continued apace in the 1980s, as company-owned development increased significantly. By 1984, Jerrico owned 812 of a total 1,355 LJS restaurants, and by 1987 LJS accounted for approximately 75 percent of Jerrico’s total revenues and 80 percent of its operating profits. That year, the chain boasted 1,421 outlets with reported sales of $451 million, roughly 65 percent of the “fast fish” category. Although LJS was not considered a truly national chain at the time, it was gaining enough ground to warrant an investment in regional network television advertising time. Jerrico’s intent was to have stores in all areas of the country by 1990, and to have LJS become a full network television advertiser.

During this time, Jerrico’s other business interests included a chain of Jerry’s Restaurants and other new restaurant concepts the company was testing, including a full service Italian restaurant called Florenz, established in Ohio. Jerrico also opened its first fast-food Italian restaurant—called Gratzi’s—in 1988. Such diversification was prompted in part by the continually rising prices of Icelandic cod, LJS’s staple menu item; hoping not to become overly dependent on the LJS chain, with its rising operating costs, Jerrico continued to expand its holdings. Moreover, LJS was facing increasing competition from outside the industry, particularly from grocers and their suppliers, who were quick to take advantage of market demand for fast food that could be microwaved at home. In 1989, Jerrico premiered Fazoli’s, a quick-service Italian pasta restaurant modeled after the Florenz establishment.

Management-Led Buyout of Jerrico: 1989

National economic recession and the high price of fish, however, brought some problems for Jerrico in the late 1980s, and the company would soon undergo dramatic changes. When the company’s stock value began to waver as investors grew concerned over reduced profits, talk of taking the company private through a management-led buyout surfaced. In September 1989, Jerrico was acquired for $620 million in a leveraged buyout by a company called Pisces Inc., made up of a group of senior Jerrico executives and a joint force of Castle Harlan and DJS-Inverness, both New York-based investment firms. Warren Rosenthal, having been with the company 41 years, retired as chairman of the board at the age of 67. He was reportedly well compensated for his role in developing the company, receiving an executive severance payment of $1.275 million in addition to the $57.4 million he received from cashing in related stock interests. LJS, which reported sales of $826 million in 1989, became a subsidiary of Pisces Inc.

Company Perspectives

The first Long John Silver’s Fish n Chips opened in 1969 in response to growing consumer demand for quick-service seafood. This new approach gained overwhelming acceptance and has led to bold modern restaurants and a menu that meets the taste of today’s consumers.

Our promise, to provide each guest great tasting, reasonably priced fish, chicken and seafood in a fast and friendly manner on every visit ensures Long John Silver’s position in American Culture.

Clinton A. Clark, a partner at Castle Harlan, joined the board of LJS during the buyout and became the company’s president in 1990. Clark was charged with bringing the company safely through the immediate post-buyout, debt-laden years. During his tenure, Clark began an effective turnaround of the company. He created an LJS mission statement centered on providing superior products, guest satisfaction, mutual respect among team members, and “a vision of excellence” for the future.

As part of Clark’s refocusing efforts, the new parent company decided to dedicate all of its resources to the operations of LJS in 1990. Toward that end, the company’s other three restaurant concepts—Jerry’s, Fazoli’s, and Florenz—were put on the block. The 46 Jerry’s restaurants were purchased by Atlanta-based Great American Restaurants, the country’s largest franchisee of Denny’s Family Restaurants. Fazoli’s, a particularly promising start-up, was bought by the Japanese-owned firm Seed Restaurant Group Inc. Jerrico attempted to sell its seven Florenz restaurants as a chain, but was unsuccessful; by 1991, all seven sites were closed. Jerrico Inc., as it was, ceased to function, and the company that emerged was known by a more recognized name, Long John Silver’s Restaurants Inc.

In the early 1990s, LJS began to tailor its menu to answer the growing nutrition concerns of its health-conscious customers. Broiled and grilled items were introduced and represented the fastest-growing of the restaurant’s product lines. In 1991, the company introduced three hot meals, baked rather than fried and all priced at around $4, during Lent season. According to a February 1992 article in Restaurants and Institutions, Mary Roseman, director of nutrition and consumer information at LJS, asserted that “the baked program provides good sales when we can support it with marketing. Unfortunately, though, when you’re not on TV or not really pounding the message, it’s hard to keep the interest there.” Advertising on a national scale was still two years away for LJS.

Market trends were not favorable for LJS during this time. According to one Illinois-based market research firm, the share of industry traffic at fish and seafood specialty restaurants slipped from 2.8 percent in 1986 to 2.5 percent in 1991. The quick service growth area in 1991 came from other nonseafood chains, which were adding some seafood items to their menus.

This additional competition as well as increased prices of some staple menu items put seafood restaurants at a disadvantage in the quick-service industry. Value had to be improved if consumers were expected to eat a seafood dinner instead of a lower priced hamburger and fries meal. In October, LJS revealed a new value menu chainwide. The Add-a-Piece menu enabled the purchase of any basic meal with additional individual pieces of fried fish, shrimp, or chicken for 69 cents or less. With the price of a basic meal at around $1.99, the new menu allowed increased flexibility for the customer and the elimination of redundant items from the menu.

After guiding the company successfully through its move from public to private status, Clark, who had become chairman in February 1992, announced his resignation in July 1993. In October 1993, Clyde E. Culp, a member of the company’s board, was named president and chief executive officer. Culp’s vision for the company was to “reinvigorate the quick-service seafood category” through LJS’s dominant position within the segment.

In the spring of 1993, the company’s first kiosk was opened at the Louisville General Electric plant in Louisville, Kentucky. The kiosk, called Long John Silver’s Express, was a smaller version of the restaurant and was franchised by Canteen Corp., a large contract foodservice provider owned by TW Services. The kiosk offered a limited menu with four meal choices. During the first three weeks of operation, Canteen’s lunch participation increased by approximately 1,200 customers.

That summer, LJS reported that drive-through service, among those LJS outlets that had it, was increasing sales by almost 30 percent. Recognizing the needs of an expanded customer base, Bruce Cotton, LJS vice-president of public relations, explained in a July 1993 Restaurants and Institutions article that “at first, we didn’t feel fish would transport very well, so we worked on better carryout containers and holding times for fish. We also changed our french fries to an extra-crispy type that holds heat really well.” By early 1996, 85 percent of LJS outlets had drive-throughs.

Key Dates

1929:: Jerome Lederer opens a hamburger stand called White Tavern Shoppe in Shelby ville, Kentucky.
World War II Years:: Lederer is forced to close ten of his 13 White Tavern Shoppes because of shortages.
1946:: Lederer regroups, establishing Jerrico Inc. and launching a new restaurant called Jerry’s Five and Dime.
1947:: Jerry’s menu shifts from roast beef sandwiches to hamburgers.
1948:: Lederer hires Warren W. Rosenthal to manage his restaurants.
1963:: Rosenthal gains ownership of Jerrico when Lederer dies.
1969:: Jerrico is taken public; company opens first Long John Silver’s Fish ‘n’ Chips, located in Lexington, Kentucky.
1971:: Having become Jerrico’s most successful chain, Long John Silver’s (LJS) has expanded to more than 200 units.
1973:: With the menu expanded to include a wider line of seafood, the chain is renamed Long John Silver’s Seafood Shoppes.
1989:: Jerrico is taken private through a highly leveraged management-led buyout.
1990:: To focus full attention on LJS, the company divests its other restaurant concepts, including Jerry’s and Fazoli’s; Long John Silver’s Restaurants Inc. becomes the successor firm to Jerrico.
1994:: Triare Companies, owner of the Arby’s chain, announces plans to acquire LJS, but the deal later falls through.
1998:: Weight of huge debt load forces LJS to seek Chapter 11 bankruptcy protection.
1999:: The owner of A&W Restaurants Inc. purchases LJS out of bankruptcy and creates Yorkshire Global Restaurants Inc. as the parent company of the two chains.
2000:: Yorkshire begins dual-brand tests pairing Long John Silver’s with A&W, KFC, and Taco Bell.
2002:: Tricon Global Restaurants, Inc. acquires Yorkshire; LJS becomes an operating unit of Tricon, which soon changes its name to YUM! Brands, Inc.

In August 1994, in a rare advertising move, LJS unveiled its “America’s Favorite Shrimp Game” tie-in with the premier of the Universal Pictures film Little Rascals. Jobie Dixon, LJS vice-president of marketing and creative media explained in the August 1994 Nation’s Restaurant News that the company was aware of movie/fast-food promotions being run by McDonald’s and Burger King, and that “research shows that if you get a good, interesting tie-in, it can add some magic for the consumer that translates into extra visits.” Scheduled to run through mid-September, both the movie and “America’s Favorite Shrimp Game” exceeded expectations.

Because of its earlier success with kiosks, LJS continued to add these nontraditional sites, expanding primarily on university campuses. In September 1994, the company opened a storefront unit at California Polytechnic State University, its first West Coast kiosk. John Ramsey, vice-president of franchise development, stated in a September 1994 Nation’s Restaurant News that the company believed college students would “look for branded food names that they recognize from home…. Students know our food will taste the same at Cal-Poly as it does in their home towns.” LJS reported systemwide sales of $923 million for fiscal 1994 from its 1,456 company-owned and franchised locations in 38 states, Canada, Singapore, and Saudi Arabia; company revenues totaled $643 million.

Stumbling into Bankruptcy: Mid- to Late 1990s

Meantime, Triare Companies, Inc., a diversified holding company and the parent of Arby’s Inc., announced plans to acquire LJS for $75 million in cash and $450 million in assumed debt. Triare’s plan was to dual-brand its stores, housing its lunch-oriented Arby’s restaurants under the same roofs as dinner-oriented LJS restaurants. In December, however, with rising interest rates and unfavorable capital markets looming, Triarc declared that it was canceling the debt-heavy deal. Both companies, however, said they would continue to pursue the possibility of dual-branding.

In the wake of the deal’s collapse, Crédit Suisse First Boston (CSFB), LJS’s principal debtholder, as well as a major shareholder, decided to transfer some of the debt into additional equity. CSFB ended up owning about 80 percent of the company. While occasionally entering negotiations on a sale of the company, most notably with CKE Restaurants, Inc., owner of the Carl’s Jr. hamburger chain, CSFB focused on improving LJS’s financial performance and its balance sheet in advance of a possible public offering by the year 2000. Unfortunately, missteps continued to be made during the CSFB era.

In the fall of 1994, for example, LJS made the latest change to its menu, introducing the Flavorbaked line of chicken breast and fish sandwiches, light-portion items, meals, and combination deals. LJS promoted the introduction with a $5.5 million marketing campaign, using network/cable television advertisements and couponing to support the new products. The nonfried line never caught on with customers, however, and by early 1996 it made up only 1 percent of total sales. Next came Mr. Norman Bigfish, a goofy “spokesfish” that headed up a new advertising campaign that began running prior to the 1995 Lent season. Poorly received, the campaign was quickly scuttled following complaints from franchisees that the ads were turning off customers.

Following these disasters, LJS underwent yet another change in top management. Culp resigned in June 1995, and Rolf Towe, who had been installed as chairman by CSFB, was named acting president and CEO. After a prolonged six-month search, John M. Cranor III was hired as president and CEO in January 1996. Cranor brought with him his experience as head of KFC Corporation, the fried chicken chain, from 1989 to 1994.

In July 1996 LJS announced a streamlining that involved the elimination of 160 corporate positions and the shuttering of three divisional offices in Atlanta, Dallas, and Kansas City, Kansas. The firm also brought expansion to a near halt and placed a hold on further cobranding efforts; in regard to the latter, LJS had found some success with units that shared space with either an Arby’s or a Carl’s Jr., but a dual-branding experiment with Taco Time International was an outright failure and was soon abandoned.

In November 1996 new product development efforts yielded the introduction of Wraps, a line of handheld wrap sandwiches featuring shrimp, fish, or chicken fillings and five different sauces. Selling for $1.99 for a regular size and $2.99 for a large, the sandwiches represented Long John Silver’s latest attempt to compete head-on with the purveyors of cheap burgers who dominated the fast-food scene as well as to offer a more healthful alternative to LJS’s staple fried foods. Although the new items seemed to get off to a good start, a number of operators and franchisees were soon complaining that the new line had muddled the chain’s focus and slowed service. Some operators were also critical of the attempt to woo fast-food customers to the neglect of LJS’s core demographic, who tended to skew slightly older and who supported the chain’s traditional emphasis on more expensive dinner platters. Late in 1997 a group of disgruntled operators formed a franchisee association in an attempt to gain more influence over the company’s operation.

The additions to the menu and the other efforts of the new management team failed to halt a steady decline in sales. Systemwide sales plunged from $902 million in 1996 to about $789 million for fiscal 1998. During the same period, corporate revenues dropped from $622 million to $565 million. The company continued to be hampered by the huge debt load, some of which carried interest payments as high as 18 percent; as a result, the firm had to make debt payments rather than invest in company operations. Short on cash, LJS was finally forced to file for Chapter 11 bankruptcy protection in June 1998. At the time the company had $457.3 million in liabilities and $329.1 million in assets. LJS also announced that it would close 72 of its poorest-performing outlets and identified another 80 for possible closure.

The Yorkshire Era: 1999 to 2002

In September 1999 a new era began for Long John Silver’s when the chain was bought out of bankruptcy by the owner of A&W Restaurants Inc. in a $227.5 million deal. Sidney Felten-stein had led a group of investors who purchased the A&W chain in 1994; he spearheaded a turnaround at the longtime purveyor of hamburgers, hot dogs, and other fare, best-known for its famed draft root beer. Feltenstein set up a new company called Yorkshire Global Restaurants Inc. as the parent company of both A&W and LJS. Yorkshire did not inherit any of the debt that had troubled LJS for so long, leaving the chain in its strongest financial position in years. Yorkshire was initially based in Farmington Hills, Michigan, where A&W had been based, but the headquarters of both Yorkshire and A&W were soon consolidated with those of LJS in Lexington.

Under Feltenstein’s leadership, LJS embarked on a number of new initiatives. A new logo was designed for the chain, stores began to be remodeled, the quality of the food was improved, and new marketing strategies were launched. In a key decision, LJS returned to its traditional place in the restaurant industry, deemphasizing fast food and repositioning itself, according to Kevin W. Armstrong, senior vice-president of marketing, quoted in a November 1999 Nation’s Restaurant News, as a “quick-experience restaurant that focuses on full meals and dinners and ensuring that guests are satisfied.” Ad spending was increased to $40 million in 2000, compared to the little more than $22 million outlaid during 1998.

Another important action was a reemphasis on dual-branding opportunities. Feltenstein had been successful experimenting with dual A&W/KFC outlets, and one of the main reasons that LJS had interested him was the potential for dual A&W/Long John Silver’s units. The two restaurants were a good fit given that A&W was more of a lunch destination and LJS and its platters made for stronger dinner sales. Further potential came from customers eating a Long John Silver’s dinner and then having an A&W root beer float for dessert. The first dual A&W/LJS outlet opened in Chattanooga, Tennessee, in early 2000; by the end of the year there were about a dozen such units. Under a license agreement between Yorkshire and Tricon Global Restaurants, Inc., Long John Silver’s also began experimenting with outlets cobranded with two of Tricon’s chains, KFC and Taco Bell. Sales at stores that converted from a single brand to two brands typically increased by 30 percent or more. Yorkshire soon announced plans to open about 400 dual-brand stores during the early 2000s. By March 2003 Yorkshire’s two brands were involved in 121 cobranded restaurants.

Joining YUM! Brands: 2002

The success of these multibranding efforts led to another change in ownership for Long John Silver’s. When Tricon Global first entered into discussions with Yorkshire about a possible acquisition, Tricon executives made it clear that they were interested only in A&W, believing LJS to be a moribund chain. Yorkshire, however, refused to break up its two brands, nearly scuttling a deal. Tricon relented after learning about the increased profits that the dual-brand LJS outlets were raking in. In March 2002 Tricon announced that it would acquire Yorkshire for about $275 million in cash and $48 million in assumed debt. The deal was completed in May 2002, and soon thereafter Tricon changed its name to YUM! Brands, Inc.

The YUM! portfolio now included five major U.S.-based restaurant chains, the fifth being Pizza Hut. Long John Silver’s became an operating unit of YUM! Feltenstein continued to head up both LJS and A&W after the takeover, but in 2003 he left the company, and Aylwin Lewis took over management of the two chains. Plans were also in the works to close the Yorkshire headquarters in Lexington and transfer LJS and A&W to YUM!’s headquarters in Louisville, Kentucky. Under its new, more deeply pocketed owners, LJS was expected to accelerate its involvement in multibranded outlets. Eventually, the chain was also expected to significantly expand its rather feeble presence overseas. Given that Long John Silver’s was the most popular fast-food chain among Hispanic Americans, there appeared to be great potential for the chain in predominantly Catholic countries overseas. In September 2002, meantime, a new $30 million national television advertising campaign was launched featuring a new tag line, “This Is Seafood Country.”

Principal Competitors

McDonald’s Corporation; Doctor’s Associates Inc.; Burger King Corporation; Wendy’s International, Inc.; CKE Restaurants, Inc.; Triare Companies, Inc.; Captain D’s, LLC.