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« February 2009 Table of Contents

Vision on hold

Ruth's Chris struggles to realize Mitchell's vision to be a national brand

Say you're in Louisville, Ky., and suffering a serious fish craving. You'd soon be licking your chops and punching Summit Plaza into the GPS after spotting this from local About.com writer Jessica Elliot:

"We were very happy with the food and service at Mitchell's Fish Market. The prices were surprisingly reasonable considering the restaurant's location, especially for fresh fish, a rarity in this area. 
I'd definitely recommend any fish lover to try it out."

This particular blog is testament to how Mitchell's Fish Market has cultivated a solid reputation and loyal following during its growth from one to 19 restaurants in nine Eastern states over the past decade.
 In February 2008, founder Cameron Mitchell of the namesake Cameron Mitchell Restaurants based in Columbus, Ohio, sold the chain and three steakhouses for $92 million to Ruth's Chris Steak House, based in Heathrow, Fla.

The deal gave Ruth's entry into the upscale seafood restaurant market via an established player with national expansion potential.

In the year since, the dismal economy hit the fine-dining segment hard, Mitchell's tapped new leadership and ultimately put expansion plans for 2009 on hold. All this begs the question: Will Mitchell's be able to hang onto the fresh fish flair that made it famous and realize its vision to be a national brand?

It will if Tom Burmane has his way. The chain's VP of operations began his Fish Market career nine years ago when restaurant No. 3 opened in Pittsburgh and has shepherded the concept through the ownership transition. He acknowledges the economic climate poses great challenges.

Previous recessions meant you just worked harder, he says, but these times call everything into question.

"How can we change the way we do business without changing those things fundamental to our success?" says Burmane. "We are considering a completely different approach to purchasing and distribution. We haven't figured out what that means yet, but that's what we're looking at and in the process, we're really focusing on being brilliant with the basics."

Employees come first

Mitchell's will not compromise any of its core philosophies and values - like putting its associates first - that have led to its success, vows Burmane. "And we've always been uncompromising about the quality we put on the plate."

Each restaurant has a chef, a scratch kitchen and a menu that varies by location.

"We are a chef-driven concept. We're making everything in-house from scratch, not cutting open a bag," says Will Wadsworth, a regional executive chef who oversees half the restaurants.

A typical Mitchell's menu offers 80 items. About two dozen of those change daily: a dozen fresh fish species, four to six oyster varieties and several "chef's special" dishes. Forty percent of guest orders are off the fresh fish list.

Top-selling entrées include cedar-planked salmon with roasted vegetables and a grilled portabello relish, and shrimp and scallops pan-roasted in a shellfish butter sauce, served over oven-roasted potatoes and tossed with spinach. The signature dish is the "Shang Hai preparation," in which Mitchell's steams fresh fish with ginger and serves it with sautéed spinach, sweet sticky rice and a rice wine soy sauce.

Key to the menu, says Burmane, is the balance of "fish forward" simple preparations (broiled, blackened, grilled and Shang Hai) as well as more adventurous chef's specialties. Chefs are required to stay within price points, the concept and seasonality, but are otherwise free to create lunch and dinner specials. The menu was recently updated in the fall with oysters charbroiled New Orleans-style for $13.95 and pumpkin seed-crusted tilapia for $18.95. Mitchell's has been experimenting with a strategy of promoting four to six often seasonal special items for a limited time, and is currently pushing a lobster and shrimp potpie for $19.95. It will be revamping its lunch menu this year with an eye on value.

The approach has worked beautifully. An online Cincinnati restaurant review called Mitchell's "one of our regular seafood joints because their dishes are fresh, delicious and reasonably priced every time we visit."

That regular might be surprised to learn he doesn't actually come first in the company's eyes. Rather, the associates come first, by design.

"We've always felt [our associates] were the central focus of our company and if we took great care of our associates, they'd take great care of our guests and our guests would take great care of our company," says Burmane. Or, in other words, "The answer is 'yes.' When there is a request of us, no matter what the request is we will do everything in our power to honor that request. In a lot of restaurants today, that spirit is not there."

If a guest wants a Coke, even though the restaurants serve Pepsi products, a server runs across the street to get a Coke. If a customer wants a chocolate dessert other than what's on the menu, staff run to a nearby ice cream shop to get fixings for a simple chocolate dessert. And the kitchen will often make a dish no longer on the menu if a customer is craving it, says Burmane.

Taken literally, there are situa-tions in which the answer isn't absolutely yes, he says. But it's never "no," says Burmane. "It's a mindset. It isn't as difficult as you might think it is. It's definitely a question of training and culture, of recognizing opportunity and answering creatively." The stories and examples are retold around the company and take on a life of their own, reinforcing the attitude, says Burmane.

To be on the diner's end of such a request often yields appreciation. A Seattle blogger, for example, visited the Mitchell's in Tampa, Fla., and was impressed and appreciative when her waitress ran back and forth to the kitchen to attempt to answer sustainable-seafood questions. (She didn't have a lot of answers, but received an A for effort and a healthy tip for her trouble.)

Buckling up for a rough ride

You have to wonder, though, how the Mitchell's approach will fare under Ruth's control in this dismal economic climate. The fine-dining segment has been struggling since 2006, says Bonnie Riggs, a restaurant-industry analyst with the NPD Group market-research firm based in Port Washington, N.Y. 
Overall restaurant industry traffic was down 1 percent for September to November 2008 compared to the same period in 2007, and fine dining traffic dropped 2 percent in the same period. White tablecloth restaurants are struggling to convince consumers they represent value, says Riggs, and even recent deep promotions haven't been effective. NPD data shows the amount of promotion-related fine dining traffic dropped 5 percent for September to November 2008 compared to the same period in 2007.

Ruth's Chris' preliminary 2008 fourth-quarter comparable restaurant sales dropped 18.5 percent and Mitchell's average weekly sales fell 17.5 percent from $82,400 to $67,900 compared to the fourth quarter in 2007. The results indicate the sales slide is not only 
continuing, but growing deeper. In the third quarter, Ruth's comparable sales fell 6.9 percent and Mitchell's average weekly sales fell to $77,100 from $83,800, compared to the third quarter of 2007.

Ruth's CEO and President Michael O'Donnell warned investors the company believes by the end of March it will be in violation of a leverage covenant, or a condition of its lenders, and is proactively working on new terms, a position several restaurant companies have recently faced. O'Donnell - a former CEO of Sbarro and chief of new business at Outback Steakhouse, owned by OSI Restaurant Partners - was appointed in August following the April departure of Ruth's Chairman, President and CEO Craig Miller.

As he announced third-quarter earnings results to investors in early November, O'Donnell talked about Ruth's efforts to manage through a prolonged recession and cut costs.

"We are examining every process we undertake in our support centers and in the restaurants and are asking, 'Do we need to do this? Can we be more effective? Can we do it less expensively?' We know that in this environment, the consumer will not pay for the inefficiencies of an organization," says O'Donnell.

A good fit

Burmane acknowledges the fine line Mitchell's is walking as it rallies every employee to operate as efficiently as possible. "I think we've run things pretty lean and mean," says Burmane. "There wasn't a lot of low-hanging fruit and there wasn't a lot of fat that could be cut."

When Cameron Mitchell put the seafood chain on the market two years ago, it was scary, says Burmane. "We've all worked so hard and dedicated a number of years of our career to building the Fish Market and we have so much pride in it." As Ruth's emerged as the new owner, says Burmane, there was a great sense of relief as the companies have similar histories - Ruth Fertel mortgaged her home in 1965 to buy the Chris Steak House in New Orleans - and similar cultures since they were built by 
entrepreneurs committed to hospitality and their people, rather than by "empire-builders."

One key to Mitchell's success is giving chefs freedom to run their restaurants. "We find that in the right environment you can have both freedom and consistency," says Burmane. Ruth's has said it plans to operate Mitchell's as a "distinct entity" while giving brand management and development expertise.

Burmane says that pledge has proved true: "Nobody has come in and tried to change what we do."

Any entrepreneurial company's culture is at risk when it becomes part of a larger company, says Bryan Elliott, a restaurant industry analyst with Raymond James & Assoc. in St. Petersburg, Fla. Elliott notes Mitchell's is answering to new leadership - O'Donnell and Sam Tancredi, a 30-year restaurant industry veteran and former president of nine Bonefish Grill restaurants, appointed in early December as Mitchell's senior VP and COO.

The sale places Mitchell's in a better financial position to ride out the recession, says Elliott, since Ruth's has a close relationship with a private equity firm that can, if necessary, make resources available to both brands, serving as a financial safety net. "I think we're a long way from that," says Elliott. And the risk that Ruth's will over-tinker with Mitchell's is low. "The Ruth's people are very cognizant of the fact that they need to maintain the quality and positioning of the brand or they destroy what they paid a lot of money to buy," says Elliott.

As for future growth, Ruth's officials have stated Mitchell's can grow to at least 100 restaurants, and there is opportunity for expansion and market-share gains in the upscale seafood dining sector, including in the Southeast and in coastal regions where seafood consumption is 30 to 40 percent higher than Mitchell's Midwest home turf. With careful growth, Ruth's says "we can establish our position as the dominant player in high-end seafood and high-end steak."

A market-share battle with competitors Legal Sea Foods, McCormick & Schmick's and Oceanaire Seafood Room will have to wait. For now, Ruth's is focused on possibly building one Mitchell's Fish Market in Orlando, Fla., near its corporate headquarters, and maintaining its brand and business during the recession.

"We're pretty fortunate, all things considered," says Burmane. "If we stay focused on what we do and what we do well, we'll weather the storm."

Contributing Editor Lisa Duchene lives in Bellefonte, Pa.