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