Rainforest Café, Inc.

views updated May 18 2018

Rainforest Café, Inc.

1510 West Loop South
Houston, Texas 77027
U.S.A.
Telephone: (713) 850-1010
Toll Free: (800) 552-6379
Fax: (713) 850-7205
Web site: http://www.rainforestcafe.com

Wholly Owned Subsidiary of Landry’s Restaurants, Inc.
Incorporated: 1994 as Rainforest Café
Employees: 6,800
Sales: $259 million (2004 est.)
NAIC: 339931 Doll and Stuffed Toy Manufacturing; 448140 Family Clothing Stores; 722110 Full-Service Restaurants

Rainforest Café, Inc., owns, operates, and licenses large, high-volume, themed restaurants/retail shops. The company has received industry recognition for its family-oriented restaurant and themed entertainment achievements. The expansive retail area included in each unit offers items ranging from cooking sauces and personal accessories to children’s toys and clothing. A majority of the merchandise carries the Rainforest Café brand name. The restaurants are located mainly in the United States. After a massive expansion in the 1990s, Rainforest was acquired by Landry’s Restaurants, Inc., and refocused on tourist destinations instead of everyday shopping malls.

CREATIVE URGE DRIVES FOUNDING IN 1994

Steven Schussler demonstrated his marketing flair in a number of undertakings prior to the creation of the Rainforest Café. Boxed in a crate, he had himself delivered to the general manager of a Miami radio station in a successful ploy for a sales job. After a stint in electronic media marketing in his hometown of New York City, he established a vintage jukebox retail shop. The venture led to the development of JukeBox Saturday Night, a chain of eight restaurant/nightclubs, including one in Minneapolis. However, when interest in the 50s-style concept faded in the late 1980s, business fell off. Schussler was forced into bankruptcy in 1991.

The idea man already had another plan in the works. In 1989 Schussler transformed his suburban Minneapolis home into a prototype for a rain-forest motif restaurant. Erick Schonfeld wrote in a 1996
Fortune magazine article, “Steven Schussler was headed for either restaurant heaven or the psychiatric ward.”

Parrots, 150-pound tortoises and a baboon were among the animals that at one time or another lived among the artificial waterfalls, greenery, and huge fish tanks that filled his home. That was not the half of it, though; he spent more than half a million dollars in developing a simulation of the sensory experience of the rain forest.

Schussler pitched the concept to a stream of potential investors, including Lyle Berman, a successful casino developer and former leather retailer. Although he repeatedly declined to invest, Berman eventually hired Schussler to develop a restaurant for Grand Casinos, Inc. Backers gained during his work with Grand Casinos plus a favorable lease with the Mall of America in Bloomington, Minnesota, finally brought Berman aboard.

The Rainforest Café was incorporated in February 1994; Berman led the private stock placement that allowed Schussler to bring his dream into reality. The original Mall of America restaurant opened for business in October 1994. Within a week the wait for a table was as long as three hours.

GOING PUBLIC: 1995

Just six months later the Rainforest Café made its initial public offering (IPO). The newly issued stock climbed from its asking price of $6 to the mid-teens by October, when a second, larger restaurant opened in the Wood-field Mall in suburban Chicago.

Martin O’Dowd came on board in May 1995 to guide the store expansion. The new president and chief operating officer was a veteran of the industry, having served as director of food and beverage services with Holiday Inn Worldwide and as store manager for the Hard Rock Café. Berman continued in his capacity as chairman and CEO. Schussler held a position as executive vice-president.

The Mall of America unit earned $10 million in 1995; operating margins were 23 percent for the second half of the year. The restaurant, expanded three times since opening, seated 295 customers. According to Lee Schafer in an October 1995 Corporate Report Minnesota article, “The appeal is really in the space, which was designed to wow children and those adults with a childlike worldview. It has live birds, bright fish tanks, and mechanical animals. Every 25 minutes, the lights dim, and a rain storm sweeps through the place. Nothing on the menu is particularly noteworthy (the most popular dish is called Rasta Pasta, a white-sauce dish with chicken and spinach), but the plates are full and the service is brisk.”

A secondary common stock offering brought in $73.7 million in January 1996 to fuel expansion. Rainforest stock was trading in the $45 to $50 range in June of 1996, about the time a third store, again in suburban Chicago, began operation. Jennifer Waters, in June 1996
Minneapolis/St. Paul CityBusiness wrote, “To be sure, the pricey stock is based on some pretty high expectations, many analysts said.”

EXPANSION ACCELERATES: 1996

The sites for new restaurants elevated expectations for Rainforest Café. A new unit was set to open at Walt Disney World Resort in Orlando, Florida, and a second 500-seat unit was being planned for the new Animal Kingdom opening in Epcot Center in 1998. Both were expected to do well in the high-profile areas. Other heavy-traffic sites on tap included the Trump Taj Mahal Casino and Hotel in Atlantic City and the Stratosphere in Las Vegas. More regional mall sites also were staged to open.

Some analysts thought an even greater earnings potential lay on the retail side of the store. About a quarter of sales already came from the cafés’ adjacent retail areas. A line of proprietary animal characters was in the works to help heighten brand identification. Analyst Rob Nicoski said in the Waters article, “The Rainforest theme is a good one for kids, and once they start developing Disney-like characters for that side of the business, there will be opportunity.”

The family-oriented Rainforest Café operated in a restaurant industry segment dominated by businesses catering to adults, such as the Hard Rock Café, which reached the quarter-century mark in 1996. Rainforest Café liquor sales, for example, were comparatively low. Passersby in the malls could watch the daily onsite educational presentations, which included resident parrots, and an outreach program conducted in schools and for other community groups focused on vanishing habitats and wildlife.

Rainforest Café, like the other theme restaurants, drew a horde of customers with the promise of entertainment. Planet Hollywood’s Disney store was pulling in more than $40 million a year. Altogether, the restaurant niche reported an estimated half-billion dollars a year in sales and was expected to climb to $5 billion by the year 2000, according to a 1996 Star Tribune article by Ann Merrill.

COMPANY PERSPECTIVES

A beast of a feast! No other dining experience is quite as wild as Rainforest Café. With state-of-the-art décor and animatronics, it’s a real jungle in here! A life-sized gorilla pounds his chest in the bushes. A trumpeting elephant rears its head. Exotic birds sing and butterflies float under a lush canopy of banyan trees and flowering vines. Cool mists float through the air, amid sounds of far-off thunder and cascading waterfalls. Huge aquariums of tropical fish add a live element.

Capitalizing on the strength of the market, the Rainforest Café made another secondary stock offering, in September 1996, and raised an additional $96 million. Four new restaurants opened during the year, including the Disney unit. Two sites were scratched, however. One of them was in the struggling Stratosphere Tower; Berman held a 42 percent interest in the Las Vegas casino-hotel complex.

The first stand-alone site was planned for downtown Chicago in an entertainment district already home to Planet Hollywood, the Hard Rock Café, and Rock ’n Roll McDonald’s, and the locale would comprise a sort of litmus test for the company. The Rainforest Café had previously relied on a “tag-and-release” system that allowed customers to shop or sight-see to ameliorate long waits for tables. This new downtown location, however, with only other restaurants nearby, did not offer such diversions for waiting Rainforest patrons. The food and atmosphere at Rainforest, however, proved popular enough that crowds queued up for tables at the downtown Chicago location.

Revenue for 1996 was $48.7 million, more than triple the previous year. Net income was $5.9 million. In addition to racking up earnings and profits the company brought in awards from various industry groups: Retailer of the Year Award from the National Retailer Federation, an Outstanding Achievement award from the Themed Entertainment Association, and a winner of Nation’s Restaurant News 1997 Hot Concepts.

GROWING PAINS: 1997

Although the Rainforest Café began the year with strong sales and operating margins, some glitches had appeared on the screen. Another large project stalled, this time the Trump Taj Mahal. A $1.9 million write-off was taken to cover that development and the previously scratched Stratosphere unit. In May, President and Chief Operating Officer Martin O’Dowd resigned, citing personal reasons. When he came on board analysts had touted his arrival as crucial to the future growth of the business, and his decision left investors questioning the company’s stability. Two months later, in July, the company’s largest institutional investor, Putnam Investments Inc. of Boston, dropped its holdings from nearly 13 percent to just less than 2 percent.

Rainforest stock dropped 40 percent when the company announced in early 1998 that fourth-quarter earnings would fall short of expectations. The three units that had been open more than 18 months were down by 11 percent compared with the previous year’s fourth-quarter earnings. A number of class-action lawsuits were filed against the company, claiming management had known of but not reported in a timely manner a declining trend in sales figures while selling their own stock at the higher price. The company withdrew plans for a proposed public offering of convertible subordinated stock.

Nevertheless, overall net income and revenue doubled in 1997. Revenues were $108 million and net income amounted to $12 million. The original Mall of America store increased sales by 3 percent on the year. The Disney World unit was among one of the nation’s busiest restaurants, with sales of $33 million, according to a January 1998 Twin Cities Business Monthly article. The company expected to proceed with its plans for 13 to 15 new restaurants in 1998. Costs ranged from $7 million for a mall-based unit to $16.5 million for a major tourist site.

Rainforest Café was not alone in its earnings woes in late 1997. Publicly traded Planet Hollywood stock nose-dived when they reported fourth-quarter losses of $44 million. The company had opened more than 30 outlets during the year. “Fueled by the faddish success of just a handful of outlets, theme restaurant chains have a history of pursuing breakneck expansion plans. For a while, all the new openings create strong earnings momentum. In most cases, though, customer fascination wears off, repeat business disappears, and market saturation dooms further growth,” wrote Nelson D. Schwartz in a March 1998 Fortune magazine article. With only 16 outlets, the Rainforest Café still had room to grow, however.

KEY DATES

1994:: The first Rainforest Café opens at the Mall of America in Minneapolis.
1995:: Company goes public.
1997:: Revenues double to $108 million.
1999:: Revenues are $262 million.
2000:: Landry’s Restaurants, Inc., acquires Rainforest Café.
2007:: Build-A-Bear Workshop stations added to select locations.

In May 1998, Kenneth Brimmer, involved in the financial aspects of the business since the development stage, was named president. He had served in that capacity on an interim basis since O’Dowd’s departure. Stock price continued to remain well off its peak. “It has yet to rebound much, despite a generally strong financial performance. Rainforest’s stock price likely is being influenced by negative news from others in the segment, too,” Ann Merrill wrote in a June 1998 Star Tribune article.

PROSPECTS FOR THE FUTURE

The Rainforest Café competed on an increasingly crowded field. Although “eatertainment” ventures held only a single-digit percent of the overall restaurant market, the segment was growing 20 percent per year or more, twice the pace of the industry in general. Established theme restaurants were trying to pull in crucial repeat business by revising menus, accepting reservations, and promoting group sales. With nearly 90 outlets in the marketplace, Planet Hollywood began experimenting with other concepts and joint ventures.

The Rainforest Café hoped to build future revenue from its growing children’s retail line as well as from added restaurants. Small units outside major tourist areas were being considered for the domestic front, while the company continued to search for high traffic locations overseas. Five exclusive international licensing agreements allowing a total of 24 units were already in place in the United Kingdom and Ireland, Mexico, Canada, and Asia. However, these did not account for a significant portion of sales.

A NEED FOR FOCUS

By the end of the 1990s, the theme restaurant business appeared to be running out of steam. Planet Hollywood, one of the highest-profile of the chains, was plowing through bankruptcy proceedings. Rainforest decided to concentrate on tourist areas where the concept made the most sense, while expanding its target audience beyond families to convention goers and similar customers.

Taking a page out of the Disney playbook, in early 2000 Rainforest introduced a line of stuffed animals based on the animal characters that employees dressed as. In keeping with the decidedly tropical yet geographically ambiguous theme, the lineup included primates, iguanas, baby elephants, jungle cats, and the main character, a tree frog named Cha! Cha! In 2007, Rainforest began adding specialized Build-A-Bear Workshop stations at select restaurants.

The company was looking at strategic alternatives by the end of 1999. A proposed takeover offer from Minnesota casino operator Lakes Gaming Inc. collapsed, with some shareholders grumbling about apparent conflicts of interest; Lakes Gaming shared chairman Lyle Berman and a couple of directors with Rainforest. Berman contended that combining the two businesses would increase their overall worth, since small cap stocks tended to be more undervalued. A change in ownership was just around the corner, however.

In 1999, Rainforest’s last year as an independent company, revenues were $262.69 million; this was almost 20 times the figure for 1995 ($13.45 million). After peaking at about $20 million in the previous two years, net income slipped to $5.69 million in 1999.

ACQUIRED BY LANDRY’S IN 2000

Landry’s Seafood Restaurants, Inc., bought Rainforest in 2000. Landry’s was publicly traded, and best known for its 150 seafood restaurants under the Landry’s, Joe’s Crab Shack, and other names. It originally made an offer of $125 million for Rainforest in the spring of the year. This was blocked by one of Rainforest’s largest shareholders, the State of Wisconsin Investment Board. Rainforest’s share price fell, though, as it announced quarterly losses, and in the end Landry’s paid just $75 million in an all-cash deal that was completed by year-end.

Rainforest’s headquarters were moved to Landry’s home base of Houston following the acquisition, while Landry’s head Tilman J. Fertitta was designated Rainforest’s new chairman, CEO, and president. There were a number of changes to the product: Landry’s revamped the menu, lowered prices, and improved service. It also tweaked the interior design and seating arrangements at some units.

Rainforest had 28 U.S. restaurants and Fertitta was looking to halve that number, he told Restaurant Business. The company’s high lease costs at malls were a prime target for cutbacks. Rainforest founder Steve Schussler attributed some of Rainforest’s problems to noncore activities like manufacturing its own T-shirts.

In 2006, Schussler was rolling out a new restaurant concept, and again thinking big, with T-Rex: A Prehistoric Family Adventure. Landry’s was his 80 percent partner in the dinosaur-themed venture; the first location in Kansas City cost $15 million to build. Local government reportedly covered half the costs, however.

Kathleen Peippo
Updated, Frederick C. Ingram

PRINCIPAL COMPETITORS

Hard Rock Café International, Inc.; Planet Hollywood International, Inc.

Rainforest Cafe, Inc.

views updated May 14 2018

Rainforest Cafe, Inc.

720 South Fifth Street
Hopkins, Minnesota 55434
U.S.A.
(612) 945-5400
Fax: (612) 945-5492
Web site: http://www.rainforestcafe.com

Public Company
Incorporated: 1994
Employees: 5,000
Sales: $108.1 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: RAIN
SICs: 5812 Eating Places

Rainforest Cafe, Inc. owns, operates, and licenses large, high-volume, themed restaurants/retail shops under the name “Rainforest Cafe—A Wild Place To Shop and Eat.” The company has received industry recognition for its family-oriented restaurant and themed entertainment achievements. The retail area included in each unit offers items ranging from cooking sauces and personal accessories to children’s toys and clothing. A majority of the merchandise carries the Rainforest Cafe brand name. The restaurants are located in the United States and abroad.

Creative Urge Drives Founding in 1994

Steven Schussler demonstrated his marketing flare in a number of undertakings prior to the creation of the Rainforest Cafe. Boxed in a crate, he had himself delivered to the general manager of a Miami radio station in a successful ploy for a sales job. After a stint in electronic media marketing in his hometown of New York City, he established a vintage jukebox retail shop. The venture led to the development of JukeBox Saturday Night, a chain of eight restaurant/nightclubs, including one in Minneapolis. But when interest in the 50s-style concept faded in the late 1980s, business fell off. He was forced into bankruptcy in 1991.

But the idea man already had another plan in the works. In 1989 Schussler transformed his suburban Minneapolis home into a prototype for a rainforest motif restaurant. Erick Schonfeld wrote in a 1996 Fortune magazine article, “Three years ago, Steven Schussler was headed for either restaurant heaven or the psychiatric ward.”

Parrots, 150-pound tortoises, and a baboon were among the animals that at one time or another lived among the artificial waterfalls, greenery, and huge fish tanks that filled his home. But that was not the half of it—he spent more than half a million dollars in developing a simulation of the sensory experience of the rainforest.

Schussler pitched the concept to stream of potential investors, including Lyle Berman, a successful casino developer and former leather retailer. Although he repeatedly declined to invest, Berman eventually hired Schussler to develop a restaurant for Grand Casinos, Inc. Backers gained during his work with Grand Casinos plus a favorable lease with the Mall of America in Bloomington, Minnesota, finally brought Berman aboard.

The Rainforest Cafe was incorporated in February 1994; Berman led the private stock placement that allowed Schussler to bring his dream into reality. The doors opened for business in October 1994. Within a week the wait for a table was as much as three hours.

Going Public: 1995

Just six months later the Rainforest Cafe made its initial public offering (IPO). The IPO consisted of one share of common stock with a warrant to purchase one additional share. The company raised $9.5 million from the IPO and an additional $14.2 million from the warrants. The newly issued stock climbed from its asking price of $6 to the mid-teens by October, when a second, larger restaurant opened in the Woodfield Mall in suburban Chicago.

Martin O’Dowd came on board in May 1995 to guide the store expansion. The new president and chief operation officer was a veteran of the industry, having served as director of food and beverage services with Holiday Inn Worldwide and as store manager for the Hard Rock Cafe. Herman continued in his capacity as chairman and CEO. Schussler held a position as executive vice-president.

The Mall of America unit earned $10 million in 1995; operating margins were 23 percent for the second half of the year. The restaurant, expanded three times since opening, seated 295 customers. “The appeal is really in the space, which was designed to wow children and those adults with a child-like worldview. It has live birds, bright fish tanks, and mechanical animals. Every 25 minutes, the lights dim, and a rain storm sweeps through the place. Nothing on the menu is particularly noteworthy (the most popular dish is called Rasta Pasta, a white-sauce dish with chicken and spinach), but the plates are full and the service is brisk,” wrote Lee Schafer in an October 1995 Corporate Report Minnesota article.

A secondary common stock offering brought in $73.7 million in January 1996 to fuel expansion. Rainforest stock was trading in the $45 to $50 range in June of 1996, about the time a third store, again in suburban Chicago, began operation. Jennifer Waters, in June 1996 Minneapolis/St. Paul City Business wrote, “To be sure, the pricey stock is based on some pretty high expectations, many analysts said.”

Expansion Accelerates: 1996

Expectations for Rainforest Cafe were elevated by the sites for new restaurants. A new unit was set to open at Walt Disney World Resort in Orlando, Florida, and a second 500-seat unit was being planned for the new Animal Kingdom opening in Epcot Center in 1998. Both were expected to do well in the high-profile areas. Other heavy-traffic sites on tap included the Trump Taj Mahal Casino and Hotel in Atlantic City and the Stratosphere in Las Vegas. More regional mall sites also were staged to open.

Some analysts thought an even greater earnings potential lay on the retail side of the store. About a quarter of sales already came from the cafes’ adjacent retail areas. A line of proprietary animal characters was in the works to help heighten brand identification. Analyst Rob Nicoski said in the Waters article, “The Rainforest theme is a good one for kids, and once they start developing Disney-like characters for that side of the business, there will be opportunity.”

The family-oriented Rainforest Cafe operated in a restaurant industry segment dominated by businesses catering to adults, such as the Hard Rock Cafe, which reached the quarter century mark in 1996. Rainforest Cafe liquor sales, for example, were comparatively low. Passersby in the malls could watch the daily on-site educational presentations, which included resident parrots, and an outreach program conducted in schools and for other community groups focused on vanishing habitats and wildlife.

Rainforest Cafe, like the other theme restaurants, drew a horde of customers with the promise of entertainment. Planet Hollywood’s Disney store was pulling in more than $40 million a year. Altogether, the restaurant niche reported an estimated half billion dollars a year in sales and was expected to climb to $5 billion by the year 2000, according to a 1996 Star Tribune article by Ann Merrill.

Capitalizing on the strength of the market, the Rainforest Cafe made another secondary stock offering, in September 1996, and raised an additional $96 million. Four new restaurants opened during the year, including the Disney unit. But two sites were scratched. One of them was in the struggling Stratosphere Tower—Berman held a 42 percent interest in the Las Vegas casino-hotel complex.

The first stand-alone site was planned for downtown Chicago in an entertainment district already home to Planet Hollywood, the Hard Rock Cafe, and Rock ‘n’ Roll McDonald’s. But the locale presented the company with some new problems. The Rainforest Cafe had relied on a “tag-and-release” system that allowed customers to shop or sightsee to ameliorate long waits for a table. The system was less conducive for the downtown location.

Growing Pains: 1997

Although the Rainforest Cafe began the year with strong sales and operating margins, some glitches had appeared on the screen. Another large project stalled, this time the Trump Taj Mahal. A $1.9 million write-off was taken to cover that development and the previously scratched Stratosphere unit. In May, President and Chief Operating Officer Martin O’Dowd resigned, citing personal reasons. When he came on board analysts had touted his arrival as crucial to the future growth of the business. Two months later the company’s largest institutional investor, Putnam Investments Inc. of Boston, dropped its holdings from nearly 13 percent to just less than two percent.

Company Perspectives:

Rainforest Cafe, Wild Place to Shop and Eat, is a dynamic restaurant and retail environment which recreates a tropical rainforest. Imagine a tropical wonderland with cool mists that permeate through cascading waterfalls; crescendos of thunder and lighting; continuous tropical rain storms; huge mushroom canopies; animation featuring Tracy the Talking Tree, whimsical butterflies, crocodiles, snakes and frogs, trumpeting elephants and entertaining gorillas; all moving within the surroundings of larger than life banyan trees, with the sounds and aromas of a tropical rain forest.

In spite of the difficulties, expansion continued. By the end of the year 13 domestic restaurants were in operation. The company opened seven during the year, including one at the MGM Grand Hotel in Las Vegas. The first international sites also opened, one each in London, Cancun, and Mexico City. Rainforest stock dropped 40 percent when the company announced in early 1998 that fourth quarter earnings would fall short of expectations. The three units that had been open more than 18 months were down by 11 percent compared with the previous year’s fourth quarter earnings. A number of class action lawsuits were filed against the company, claiming management had known of but not reported in a timely manner a declining trend in sales figures while selling their own stock at the higher price. The company withdrew plans for a proposed public offering of convertible subordinated stock.

But overall net income and revenue doubled for the year. Revenues were $108 million and net income amounted to $12 million. The original Mall of America store increased sales by three percent on the year. And the Disney World unit was among one of the nation’s busiest restaurants, with sales of $33 million, according to a January 1998 Twin Cities Business Monthly article. The company expected to proceed with its plans for 13 to 15 new restaurants in 1998. Costs ranged from $7 million for a mall-based unit to $16.5 million for a major tourist site.

Rainforest Cafe was not alone in its earnings woes in 1997. Publicly traded Planet Hollywood stock nose-dived when they reported fourth quarter losses of $44 million. The company had opened more than 30 outlets during the year. “Fueled by the faddish success of just a handful of outlets, theme restaurant chains have a history of pursuing breakneck expansion plans. For a while, all the new openings create strong earnings momentum. In most cases, though, customer fascination wears off, repeat business disappears, and market saturation dooms further growth,” wrote Nelson D. Schwartz in a March 1998 Fortune magazine article. Unlike Planet Hollywood, with only 16 outlets, the Rainforest Cafe still had room to grow.

Prospects for the Future

The Rainforest Cafe competed on an increasingly crowded field. Although “eatertainment” ventures held only a singledigit percent of the overall restaurant market, the segment was growing 20 percent per year or more, twice the pace of the industry in general. Established theme restaurants were trying to pull in crucial repeat business by revising menus, accepting reservations, and promoting group sales. With nearly 90 outlets in the marketplace, Planet Hollywood began experimenting with other concepts and joint ventures.

The Rainforest Cafe hoped to build future revenue from its growing children’s retail line as well as from added restaurants. Small units outside major tourist areas were being considered for the domestic front, while the company continued to search for high traffic locations overseas. Five exclusive international licensing agreements allowing a total of 24 units were already in place in the United Kingdom and Ireland, Mexico, Canada, and Asia.