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As casual seafood grows, competition heats up

Up the Creek, McGrath's and Fish City expand at a steady but manageable rate

By Steven Hedlund
July 01, 2006

Applebee's co-founder Bill Palmer scoured the country in the late 1990s searching for an underdeveloped niche in which to launch a new casual-dining concept.

He determined that the casual-seafood scene, dominated by Red Lobster and mom-and-pop seafood shacks, was perhaps the most underdeveloped niche in foodservice. So Palmer, now an Applebee's franchisee, created Up the Creek Fish Camp & Grill.

He opened the first restaurant in Gainesville, Ga., in 2000, and the concept has expanded steadily since then; the 13th unit came in February and the 14th is due to open in September.

Palmer wasn't alone in recognizing casual seafood's potential. Now several small but growing concepts are vying for position in the increasingly competitive casual-seafood arena.

Seafood outperformed all other niches in Technomic's annual report on the nation's 500 largest restaurant chains (see Newsline this issue, p. 8). Sales at full-service seafood chains increased 12 percent, to more than $4.6 billion, from 2004 to 2005, exceeding Asian (10.5 percent), mixed menu (8.7 percent), Mexican (8.3 percent), steak (7.6 percent) and Italian (6.6 percent), according to the Chicago research and consulting firm.

For our annual Buyer Focus, which this year looks at casual dining, SeaFood Business salutes three up-and-coming casual-seafood concepts - Up the Creek, McGrath's Fish House and Fish City Grill - that stand out from the crowd.

They are maturing from regional to national players by either opening new restaurants in underdeveloped markets at a steady but manageable rate or partnering with experienced, trustworthy franchisees, or both.

At the same time, they're maintaining the variety and quality of their seafood offerings while keeping their per-guest check averages under $13 at lunch and $18 at dinner, despite rising seafood prices.

And they're doing it without the financial backing of casual-dining powerhouses, such as OSI Restaurant Partners (Outback Steakhouse), Darden Restaurants and Brinker International.

That's not easy, given the rapid pace at which the competition is growing.

T ake OSI's Bonefish Grill. The casual-seafood chain's sales increased 66.7 percent, to $235 million, from 2004 to 2005, 
a greater percentage increase than any other full- or limited-service chain with annual sales exceeding $200 million, reports Technomic.

The sharp increase was due primarily to the 27 Bonefish Grill units that opened last year. At 34, only Smokey Bones BBQ, a Darden concept, tallied more restaurant openings 
in 2005.

The first Bonefish Grill opened in St. Petersburg, Fla., six years ago, and the chain now has a whopping 108 locations in 26 states.

Then there's Darden's perennial stalwart, Red Lobster. Although the 39-year-old chain's growth has slowed considerably in recent years in terms of new units, it still posted 2005 sales of more than $2.4 billion, up 1.7 percent from 2004, reports Technomic. Red Lobster is still by far the country's largest casual-seafood chain, with 647 units nationwide.

"It's difficult to compete with Red Lobster, given its marketing strength, brand awareness and customer loyalty," says Darren Tristano, managing director of Technomic Information Services. But Red Lobster "doesn't seem to be aggressively expanding. Landry's (which operates several concepts, including the 149-unit Joe's Crab Shack) has also been flat on unit development. So there is opportunity to fill in some markets."

And that's just what Up the Creek, McGrath's and Fish City are doing. The first Up the Creek restaurant outside the Southeast and 14th overall is scheduled to open in Minot, N.D., in September.

The first Fish City locations outside Texas are due to open in Baton Rouge, La., and the Oklahoma City suburb of Edmond in the coming months. The third McGrath's restaurant in the Phoenix area and 19th 
overall opened in Goodyear in March.

Small, landlocked markets like Minot and Oklahoma City may provide few options when it comes to casual seafood, but they're likely home to a plethora of casual dinnerhouses, such as Applebee's, Chili's, T.G.I. Friday's, Ruby Tuesday and the Cheesecake Factory.

Collectively, those five chains operate 4,200-plus restaurants nationwide and recorded 2005 sales of nearly $12 billion, according to Technomic. And they're adding seafood dishes to their menus and promoting them with their mammoth marketing budgets.

For example, Applebee's, the nation's largest casual chain with more than 1,730 restaurants and 2005 sales of $4.2 billion, in February launched a network-TV ad campaign to coincide with its Shrimp Sensations promotion.

Casual dinnerhouses are adding farmed shrimp, salmon and tilapia to their menus because the relatively inexpensive species are available year-round.

According to Datassentials, a Chicago research firm that tracks the menus of the nation's 500 largest restaurant chains, mentions of "salmon" on 
casual-dining menus jumped from 206 in the second half of 2004 to 240 in the second half of 2005, while "tilapia" mentions more than doubled, to 29.

While seafood sales are expanding at casual dinnerhouses, there are three seafood chains that have set themselves apart from the competition. The following profiles show how.

Up The Creek Fish Camp & Grill

When the 11th Up the Creek restaurant opened in The Villages, Fla., last August, Gary Cockerill, the company's director of marketing, told SeaFood Business: "We're very confident that this concept has legs. We're not a regional concept by any means."

He wasn't kidding.

Since then, Up the Creek Restaurants of America, based in Duluth, Ga., has opened two restaurants in the Atlanta area and signed deals with franchisees Seafood Ventures LLC in the Dakotas and Reel America LLC in the Tampa, Fort Myers and Naples, Fla., areas. Four to six Up the Creek restaurants, including the Minot unit, are expected to open in the next 12 months, says Cockerill.

That's in addition to seven company-owned restaurants in the Atlanta area and six franchised units, two each in Alabama and Tennessee and one each in Mississippi and Florida, to Without a Paddle LLC.

Up the Creek is also "very close" to inking deals with two other franchisees, notes Cockerill, declining to elaborate.

"We think the concept can work anywhere," he says. "We're even talking to people in New York City. We're looking for the right partners to franchise with. Who'd have thought we'd end up in Minot?"

Approximately 85 percent of the menu is seafood. The most popular entrées are two of five Up the Creek Combinations: the Mixed Seafood Grill (broiled grouper, Jim Beam Atlantic salmon and lemon-lime shrimp) and the Shrimp Trio (hand-breaded fried shrimp, shrimp scampi pasta and charbroiled lemon-lime shrimp).

In late June, Up the Creek unveiled a new segment to the menu called "You're the Chef," where by diners choose one of six fish (tilapia, grouper, Atlantic salmon, trout, mahimahi and ahi tuna) cooked one of two ways (charbroiled or blackened) and topped with one of six sauces (Creole Alfredo lobster, citrus pesto butter, wasabi plum, chile hollandaise, seasonal fruit salsa and Jim Beam Kentucky bourbon).

"This gives the guests the opportunity to be creative and have fun," says Cockerill.

Technomic's Tristano agrees: "I think the concept is a little more fun, and the décor seems to be targeting a younger audience."

Another popular entrée introduced last year is the Blackened Tilapia Alfredo, which is served over a bed of Cajun wild rice and topped with a Creole Alfredo lobster sauce.

Cockerill hopes two new entrées debuting this summer receive similar feedback: the Cedar Planked Salmon (Atlantic) and Tilapia in Parchment.

The tilapia is "tender, it's moist, it's got a lot of flavor, and it's lighter," says Cockerill.

Up the Creek's atmosphere screams casual. The 6,500-square-foot, 200-seat restaurants (there's also 6,000-square-foot prototype) features a rustic, lodge-style look and a full bar.

The menu prices also fit the casual bill: per-person check average is $9 to $10 at lunch and $13 to $14 at dinner.

"Our strategy isn't discounting," explains Cockerill. "We want our guests to be able to afford to eat here on a regular basis."

And they do. Per-restaurant sales average $2.8 million a year. By comparison, Applebee's per-restaurant sales average $2.5 million a year.

McGrath's Fish House

Living in Salem, Ore., in the late 1970s, John McGrath was perplexed by the void of casual-seafood restaurants in the area, just an hour's drive from the Pacific Ocean.

So he borrowed $125,000 from his family and the bank and put his background in hotel-and-restaurant management to work, opening McGrath's Fish House underneath a downtown Salem parking garage in 1980.

"And it just kind of boomed," says McGrath. "There wasn't a lot of competition" at the time.

Now McGrath's boasts 19 company-owned restaurants across the West Coast: eight in Oregon, four in Utah, three in Arizona, two in Washington and one each in California and Idaho.

The 20th and 21st units are due to open in the Denver suburb of Lakewood and the Seattle-Tacoma suburb of Federal Way in the coming months.

McGrath is tight-lipped about his expansion plans, other than to say it's been "pretty aggressive" to date. He doesn't intend to partner with franchisees for fear he'll lose control of the concept.

"McGrath's and Up the Creek appear to be targeting cities with population growth and increased tourism. [I think they] will be successful in growing their units," says Technomic's Tristano.

McGrath says the keys to his concept's success are providing quality seafood at a reasonable price in a comfortable setting (mahogany booths, Douglas firs and high ceilings highlight the new 7,500-square-foot, 200-seat restaurants).

"Put our seafood side by side with seafood from any [upscale restaurant], and it's hard to tell the difference," he says.

At the same time, the chain is maintaining a per-person check average of $10 at lunch and $18 at dinner. And that's difficult to do, since the menu is predominately wild seafood, for which prices are constantly fluctuating.

"It's a real challenge," he says. "For example, it's difficult to keep halibut under $10 [per entrée]. But it's so popular." (Halibut and wild salmon are the concept's top two sellers.)

McGrath alleviates the uncertainty by menuing a "Fresh Sheet" of several fresh fish that each chef, with the help of Executive Chef Alan Brines, selects daily. That gives the chefs the freedom to be creative and avoid temporarily overpriced fish.

"Consumers have a lot of places to go out to eat," says McGrath. "So I try to keep menu prices as reasonable as I can."

Labor is also a challenge, notes McGrath, who was forced to fly cooks and servers from Seattle to staff the Goodyear, Ariz., opening. He also spent $15,000 advertising for local help.

Despite rising seafood prices and labor shortages, McGrath expects his business will grow to $60 million next year, thanks to seafood's healthy profile.

Fish City Grill

Inside most cookie-cutter chain restaurants, it's difficult to tell whether you're in Concord, Calif., Concord, N.C., or Concord, N.H.

Monotony is exactly what Bill Bayne is trying to avoid as he takes his concept, Fish City Grill, well beyond its home market of Dallas-Ft. Worth. His cozy, café-style restaurants vary in size, layout and design; the smallest units are 1,200 square feet and seat 48 guests, the largest are 2,400 square feet and seat 110 guests. A 2,800-square-foot prototype is also in the works.

Bayne's Dallas company, Neigh­borhood Ventures, has attracted several big-name franchisees to help it expand Fish City from nine restaurants to 50 in four to five years.

They include Dave Schmille, former COO of Macaroni Grill; Dave Garner, former international director of franchise development for Macaroni Grill; Robert Marshall, former VP of operations for a 30-unit Applebee's franchisee; Vic Smith, former VP of international franchises for Chili's; Scott Nietsch-mann, former COO of Chili's International; and Brian Edwards, former senior VP of operations for Brinker.

Five Fish City restaurants opened in the past year; the ninth came in Houston in June. Six units are on the way in the coming months: four in Texas and one each in Louisiana and Oklahoma, the concept's first locations outside Texas.

Additionally, Neighborhood Ven­tures is negotiating with several franchisees to open units in Jacksonville and Tallahassee, Fla., Savannah and Augusta, Ga., and Charleston, S.C.

Bayne and his wife, Lovett, opened their first restaurant, Shell's Oyster Bar & Grill (now Half Shells), in Dallas in 1995.

"We're going to continue to grow as long as our culture is strong," says Bayne. "The idea of 'neighborhood' is crucial. It's a commitment my wife and I made when we opened our first restaurant - to stay neighborhood friendly. It's what brought us to the dance."

The concept's bestseller is Serafin's Fish Tacos for $8.99, and its signature dish is the Oyster Nachos, tortilla chips topped with fried oysters and pico do gallo and served with chipotle tartar sauce, for $6.29. Fish City also menus chalkboard specials of five to six fresh fish that "are of the same quality as the fish at, say, Oceanaire [Seafood Room], but cheaper," says Bayne. The chalkboard specials represent about 40 percent of sales, 
he adds.

"Our menu prices are very reasonable," says Bayne.

Entrée prices range from $6.99 to $12.99 at lunch and $9.99 to $18.99 at dinner, and the per-person check average is $12 to $13 at lunch and $16 to $18 at dinner.

Per-restaurant sales average 
$1 million a year at the 1,200-square-foot units and more than $2 million a year at the 2,400-square-foot units.

What's more, Neighborhood Ventures donates 15 percent of each restaurant's sales to a local charity on the first Tuesday of each month, a tradition that will remain as the chain grows. The company has contributed nearly $100,000 since 2002.

"Great food, great variety, great culture, great values, friendly staff - that's what makes us successful," says Bayne.

Associate Editor Steven Hedlund can be e-mailed at shedlund@divcom.com

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