Long John Silver’s Restaurants Inc.

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Long John Silver’s Restaurants Inc.

101 Jerrico Drive
Lexington, Kentucky 40509
U.S.A.
(606) 263-6000
Fax: (606) 263-6680

Private Company
Incorporated: 1946 as Jerrico Inc.
Employees: 26,000
Sales: $923 million
SICs: 5812 Eating Places; 6794 Patent Owners and Lessors

Long John Silver’s Restaurants Inc. is the country’s largest quick-service seafood restaurant chain, with around 71 percent of the estimated $1.3 billion market. With headquarters in Kentucky and divisional offices Atlanta, Dallas, and Kansas City, the company oversees a network of over 1,400 restaurants, 480 of which are franchises, in the United States, Canada, Saudi Arabia, and Singapore. Until the late 1980s, Long John Silver’s was one of a group of restaurants held by Jerrico Inc., a food service group that included Jerry’s Restaurants and the Fazoli’s pasta chains. Jerry’s and Fazoli’s were divested, however, and the company’s focus shifted to its seafood establishment, Long John Silver’s.

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 due to 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 weren’t 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 food service 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 food service 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).

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 convinced 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-n-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 & 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, frenen fries, and hushpuppies. 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 established.

However, national economic recession and the high price offish 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 buy out 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.

Clinton A. Clark, a partner at Castle Harlan, joined the board of LJS during the buy out 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, and 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 & 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. Gulp, 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 food service 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 & 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.”

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 store front 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.”

Also during this time, Triare Cos., 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. However, in December, with rising interest rates and unfavorable capital markets looming, Triare declared that it was canceling the debt-heavy deal. Both companies, however, said they would continue to pursue the possibility of joint housing.

LJS continued to enhance its menu, presenting its Flavorbaked line in the fall of 1994. This line included 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.

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. The company had 70 participating franchise groups ranging in size from 1 to 89 units. The company saw record sales in early 1995 and also experienced record annual franchise growth, as the new franchise projects in development at the time outnumbered those of fiscal years 1993 and 1994 combined. Although Long John Silver’s remained $292.6 million in debt, incurred during the 1989 buyout, the company appeared prepared for continued growth and success, planning to add 100 franchise units and 50 company-owned units annually through the 1990s.