Restaurant Chain Stresses Training : Rusty Pelican Works to Correct Its Course

There is a nickname that employees have for management hopefuls who are slow to finish the rigid training course at Rusty Pelican Restaurants Inc.

Rusty pupils.

But few who make it as far as the nine-week management course are ever stamped with that label. Industry analysts say Rusty Pelican workers are among the best trained in the business. The company spends five times more on employee training each year than it does on advertising.

Company officials credit that kind of training for the Irvine seafood chain’s growth over the last 18 years and its ability to quickly rebound from a weak first-quarter earnings report.

On Monday, the company reported that, for the second quarter ended Jan. 12, net income was ahead by 2.9% to $141,000 from $137,000. Sales jumped 20% to $12.9 million from $10.9 million a year earlier.

The results were different three months ago when Rusty Pelican reported a quarterly drop in net income, unusual for the company that has seen revenue increase to nearly $54 million in fiscal 1985, compared to just $421,000 in 1967, its first year of operation.

Back to Basics

But in October, when Rusty Pelican posted its second quarterly decline in profit since going public three years ago, Chairman Louis (Pete) Siracusa plopped himself and the rest of Rusty Pelican’s senior executives back into trainees’ seats.

Siracusa, a former Newport Beach lifeguard who founded the company when he was 30, President T. Randolph Howatt and nearly a dozen other executives marched back into the best classroom of all--their restaurants.

Never mind that, in 1985, Rusty Pelican posted the highest average annual sales per unit of any chain restaurant in the United States--$3.68 million. Forget that, in the next four years, the 18-restaurant chain expects to more than quadruple annual revenue to $250 million while doubling its size with units planned for Tucson, Denver, Chicago and Dallas as well as several locations in Los Angeles and San Diego counties.

In the first fiscal quarter ended Oct. 21, Rusty Pelican reported a 13% drop in net income despite a 35% jump in sales.

Look Inside Outlets

Examining why their company’s income dropped in the first quarter, the executive team first focused on the high cost of recent and rapid expansion. In the 14 months from June, 1984, to August, 1985, Rusty Pelican spent nearly $20 million to open seven restaurants.

But with the construction over, the team turned to what was going on inside the restaurants. “Our first step was to go into the restaurants and see what the customers are seeing,� Siracusa said.

The chairman and other executives looked, but they also sent in a team to observe everything from food service to the items that customers were leaving on their plates. The team sent its recommendations to the senior executives, who used them to formulate a 40-point program that Siracusa said already has helped improve the company’s bottom line.

“After all,� he said, “profit is a byproduct of customer satisfaction.�

Improvements were made in the way food is prepared and served. Executives also decided to combine the food purchasing power of all the restaurants instead of letting each buy separately. A special campaign tripled the sale of holiday gift certificates. And Rusty Pelican began a successful catering service featuring fresh seafood trays.

Rusty Pelican’s two-decade success story is based on keeping close tabs on industry trends. “The trick,� Siracusa says, “is to follow people’s life styles.�

Ten years ago, for example, Rusty Pelican was primarily a steak house. Nearly 80% of its food sales were beef. “Today, those figures have flip-flopped,� said Howatt, the company’s 40-year-old president and chief operating officer.

“Thankfully, tastes don’t change suddenly,� Siracusa said. “We’ve had a decade to change into a seafood restaurant.� At some Rusty Pelican restaurants, beef sales are now only 4% of total food sales, he said.

Still, the chain remains virtually alone in its niche. Few chains have ventured into the upscale end of the seafood market.

“It takes years of practice to handle seafood on that kind of scale,� said Steve Rockwell, analyst at Alex. Brown & Sons in Baltimore. “And the investment per unit scares just about everyone else off.�

Restaurant industry analysts say they are hard-pressed to name more than a few direct competitors.

“Rusty Pelican is able to do on a chainwide basis the types of things usually limited to independent restaurants,� said Barbara Dawson, West Coast editor of Restaurants & Institutions magazine. “They are especially good at marketing through their employees.� Employees have a strong say in how the company is run, right down to the stylish, Hawaiian-print outfits designed by the company’s waitresses.

Siracusa--who still carries the physique but less of the sun-bleached hair of the lifeguard that he once was--has never fully taken to the rituals of his chief executive role. He refuses to wear a tie to work “unless I’m meeting with an investor group.� One of his first executive hires was Howatt, whom he met on the beach, not in the board room. And both Siracusa and Howatt eventually married waitresses they met in their own restaurant--an establishment that Siracusa named after a brown pelican he once saw at the beach.

Despite Rusty Pelican’s success, Siracusa may be better known for his role in the 1984 Summer Olympics in Los Angeles. Peter Ueberroth, an old college friend, hired him as bicycle racing commissioner. Siracusa freely admits that he knew virtually nothing about bicycle racing before accepting the post. But then, he knew little about the restaurant business when he bought into it two decades ago.

His company, which now has restaurants in Orange County, Long Beach, Palm Desert, Sacramento and Alameda as well as units in Tucson, Chicago, Dallas, Houston, Portland, Ore., and Kansas City, Mo., grew at a snail’s pace over its first five years. It added only one restaurant during that period. But in the next five years, Rusty Pelican added six more units for a total of eight stores in 1977.

Siracusa now is eyeing a major expansion into the Los Angeles market, which will begin this year with a new restaurant in Glendale, followed by one in Santa Monica.

The entrepreneurial company didn’t even have a board of directors for its first 16 years, finally forming one in 1982, a year before it went public. After going public, Rusty Pelican’s first annual report was dedicated to the chain’s 2,500 workers. Employees’ pictures and comments appeared on almost every page.

“Rusty Pelican is a real leader in the industry,� said Patrick Goddard, senior vice president of rival Chart House Restaurants of Solano Beach--a 52-unit, privately held seafood chain with annual revenue of about $100 million.

Goddard knows Rusty Pelican’s style quite well. When the executive joined Chart House as a waiter trainee in Newport Beach more than two decades ago, his boss was Siracusa. Siracusa purchased Chart House’s second restaurant, its first in California, in 1963. He sold his interest to start Rusty Pelican.

While there are close links between the two chains, there also are differences. One is the stronger reliance on liquor sales at Rusty Pelican--which caters to a younger, singles-oriented crowd in the late evenings.

Still, it is fish--not liquor--that attracts most Rusty Pelican patrons, even though the chain’s dinner entree prices are among the highest in the seafood restaurant industry. The average customer spends $16.25 on food alone at Rusty Pelican, where menus commonly have 10 or more fish entrees at or near $17.

“But we must not be that far off base,� Howatt said, “because our best sellers are our most expensive items.�