McCormick & Schmick's Seafood Restaurants, Inc.

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McCormick & Schmick's Seafood Restaurants, Inc.

720 SW Washington Street, Suite 550
Portland, Oregon 97205
U.S.A.
Telephone: (503) 226-3440
Fax: (503) 228-5074
Web site: http://www.mccormickandschmicks.com

Public Company
Incorporated: 1979
Employees: 4,600
Sales: $238.8 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: MSSR
NAIC: 722110 Full-Service Restaurants; 722310 Food Service Contractors

McCormick & Schmick's Seafood Restaurants, Inc. has more than 50 affordable upscale casual dining restaurants that specialize in fish and other seafood dishes in 21 states and the District of Columbia. Half of these restaurants are located in buildings included in the National Register of Historic Places. Each restaurant's menu is printed daily and contains between 85 and 100 made-to-order dishes that incorporate local, regional, national, and international species of seafood and 30 to 40 varieties of fresh fish. The company operates primarily under the McCormick & Schmick brand. Its other names include M & S Grill, McCormick's Fish House & Bar, and Spenger's Fresh Fish Grotto.

1972–80s: Expanding upon an Established Tradition

McCormick & Schmick's began in 1972 when Bill McCormick, who had been a partner in the rapidly expanding Refectory Steak House chain, purchased Jake's Famous Crawfish Restaurant of Portland, Oregon, for $55,000. McCormick, who was proud of his Irish heritage, had grown up in Rhode Island and had earlier worked for Connecticut General. He moved to Portland, Oregon, from San Francisco in 1968 and fell in love with Jake's, an old-time Portland establishment.

Jake's had been founded almost a hundred years earlier, in 1892, as Mueller and Meyer's, a bar restaurant. Portland's citizens at that time had numbered 90,000, and the city's downtown had not yet been built. Ten years later, the restaurant moved to a new location where it still remained at the time of McCormick's purchase, SW 12th and Stark. In 1920, John Romeltsch purchased the establishment and turned it into a soft-drink parlor to survive Prohibition. A year later, Jacob (Jake) Freiman came on board. Jake was experienced in preparing seafood, especially freshwater crustaceans indigenous to the Pacific Northwest. To be able to serve his crawfish fresh, Jake dug ponds in the restaurant's basement to hold them.

By its 35th birthday in 1927, Jake's Famous Crawfish Restaurant was attracting diners and show people from up and down the West Coast. After dances at the nearby Multnomah Hotel, the restaurant often served a thousand customers before it closed at dawn. By the early 1970s, when McCormick bought the restaurant, Jake's Famous Crawfish was about to close. McCormick, determined to ensure the restaurant's future, read the Joy of Cooking, consulted with his restaurant's chefs, and began hanging out at Jake's Bar. According to company literature, within a month, people were lining up at Jake's front door, and McCormick had made the decision to focus on serving seafood.

In 1974, Doug Schmick joined Bill McCormick. McCormick and Schmick founded Traditional Concepts, a restaurant management organization. Schmick, who was of German stock, had grown up in Colfax, Washington. After graduating from Idaho University, he became experienced in restaurant management. Although Schmick had dreamed of becoming an author, he abandoned that dream when fatherhood beckoned. The two men met when Schmick walked into Jake's, and soon thereafter, they opened the first McCormick & Schmick's restaurant in downtown Portland.

McCormick & Schmick's built on Jake's successful formula. Most of McCormick & Schmick's customers were 30 to 60 years old, college educated, and in the middle to upper middle class income bracket. A significant portion of customers were in the postwar baby boomer generation. Jake's enhanced its dining room business by creating a social venue that would appeal to its customers and built a regular clientele through its bar operation. The new restaurant also had a bar and positioned itself to stand out from both independent local seafood restaurants and national and regional chains by including 30 to 40 fresh seafood items from throughout the United States and select international locations. It printed its menu daily.

Building upon McCormick & Schmick's successful bar operations, Doug Schmick hit upon the idea of creating a cheap after-work menu. "In the '70s and '80s, it was fried food heaven," Schmick said, looking back in a Willamette Week Online article. Wanting to restore the product quality served at the bar during the dinner hour, Schmick decided not only to offer good food, but also to offer it a discount. At the Harborside Restaurant and Pilsner Room, which became McCormick & Schmick's Harborside at the Marina, "[w]e practically gave [food] away," Schmick told Willamette Week Online. Then, realizing that people associated the idea of free food with not-so-good food, McCormick & Schmick's decided to "just charge $1.95" and to see what happened next. The trend caught on, and all of the McCormick & Schmick's restaurants began to offer some kind of low-cost food.

1990s: Expansion Along the West Coast

Other restaurants followed. As the chain grew, each new McCormick & Schmick's showcased its bar while also aiming to be classic, timeless, and traditional in its approach toward food. Each restaurant had a high degree of operating autonomy, which it could use for developing some of its own dishes, and held responsibility for its own profits and losses.

Then, in 1994, Castle Harlan Inc., a private investment company known for partnering with existing management, bought McCormick & Schmick's for $24 million with plans of taking it public. By the late 1990s, the company's establishments numbered 16 and were located in four states—Oregon, Washington, California, and Colorado—and the District of Columbia. Restaurants ranged in size from approximately 6,000 to 14,000 square feet and were located in a variety of settings, including office towers, high-end retail, tourist-frequented areas, and the street-level portions of condominium complexes.

Under Castle Harlan direction, McCormick & Schmick's became a leader in the seafood dinner house niche. Success attracted attention, and in 1997, Apple South Inc. bought McCormick & Schmick's chain of about 20 restaurants for $53 million. Apple South had begun in 1978 as a Burger King franchise and in the 1980s developed Applebee's Neighborhood Bar & Grill. In 1998, Apple South changed its name to Avado Brands and, facing financial difficulties, began selling off its Applebee's franchises. By late 1998, it had sold 191, or 70 percent, of its Applebee's restaurants and had another 50 establishments under contract to sell.

McCormick & Schmick's continued to operate independently and retain its existing management under Avado Brands. It also expanded into East Coast states. With approximately 30 restaurants in 2000, the chain reached revenues of $162 million. Its restaurants operated under the names McCormick & Schmick's, Jake's Grill, McCormick's & Kuleto's, Spenger's Fresh Fish Grotto, and McCormick & Schmick's Harborside Restaurant and Pilsner Room.

Avado agreed to sell the McCormick & Schmick's to two buyout firms, one of which was Castle Harlan Inc., for $123.5 million in 2001. The other firm was Bruckman, Rosser, Sherrill & Co. At the time of the purchase, McCormick & Schmick's had 34 restaurants.

2000–05: Instituting Core Menu Items
to Facilitate Ongoing Expansion

McCormick & Schmick's grew steadily throughout the early years of the new century. In 2003, it reached revenues of $206 million. In 2004, it opened its sixth restaurant in the D.C. area and its total number of restaurants topped 50. The company held its first public offering on the NASDAQ in 2004 and sold six million newly issued shares for $72 million.

Throughout this evolution, McCormick & Schmick's faced the challenge of protecting the indigenous, local nature of its individual restaurants while taking advantage of the increased buying power and market identity of its growing chain and creating a core menu. "We needed to define specs for certain menu items and products," explained the company's director of culinary development and training, Bill King, in Seafood Business in 2005. "This is especially important in an area like fresh seafood, where you're dealing with price volatilities, and indigenous species as well as seafood from all over the world." Many of these core items came up "through the field," having been developed first as a local specialty and then chosen by the chain's culinary management team of eight regional chefs.

Company Perspectives:

The McCormick & Schmick's mission: Offer excellent, fresh regional seafood served in a traditional manner and a "customer is always right" attitude. Empower managers to create initiative and autonomy. Have tremendous faith in your employees. Believe in flexibility and evolve in the markets you're in in order to allow adjusting styles and culinary trends to customers' preferences. Keep consistent parameters along with individuality. Give back to the communities that support you.

Key Dates:

1972:: Bill McCormick buys Jake's Famous Crawfish Restaurant.
1974:: Doug Schmick joins McCormick.
1994:: Castle Harlan purchases McCormick & Schmick's.
1997:: Castle Harlan sells McCormick & Schmick's to Apple South.
2001:: Avado sells McCormick & Schmick's to Castle Harlan and Bruckman, Rosser, Sherrill & Co.
2004:: The company goes public.

As it looked to the future, McCormick & Schmick's leadership felt reason for optimism. Americans had consumed 4.7 billion points of seafood in 2003, an increase of almost 5 percent from the previous year. The National Restaurant Association's forecasts predicted rising industry sales through the year 2005. McCormick & Schmick's opened ten new restaurants in 2004 and planned to open another 20 to 25 new establishments in affluent suburban areas from 2005 through 2008. One of these would be its first new restaurant in the Portland area since 1994 and would be located in a "lifestyle center" called Bridgeport Village that would eventually house about 100 stores, ten of them restaurants, in a former abandoned rock quarry. In setting its course for the future, McCormick & Schmick's expected to continue to appeal to casual diners, families, tourists, and business travelers with its diverse menu offerings and reasonable prices.