New ownership at Long John Silver’s, a former Kentucky quick-serve restaurant success story that’s spent much of the past two decades growing stale, plans a major relaunch of the brand this year via a healthy-can-be-delicious strategy.
With approximately 1,265 locations, management sees opportunity in the U.S. quick-serve restaurant seafood category and will roll out new products while pitching seafood as the healthiest protein not only for customers but the environment as well.
“We have had an exceptional start,” said Mike Kern, CEO and leader of the group that bought Long John Silver’s from Yum! Brands in late 2011. Kern has a 33-year quick-serve restaurant history, most of it with this chain, including marketing duties and eventually personal ownership of 20 franchises.
For 2012, even before the rebranding initiative, LJS posted its best operational numbers in a decade, he said. A 5 percent increase in comparable store sales yielded a 50 percent increase in bottom-line income, Kern said, as management worked to cut fixed costs.
Executing the brand makeover planned for the 45-year-old chain is expected to take a couple of years, he said.
“The American consumer doesn’t know how to cook seafood at home,” said Marie Zhang, chief food innovation officer at LJS and senior vice president of research and development, quality assurance and supply chain. “This is from my heart. I want to see people eat seafood.”
Long John Silver’s is developing a new look for its restaurants that it is not unveiling yet but which is part of the plan to attract attention to the menu overhaul that will take place this year and next. It will signal that things are changing inside. In 2014, the new product rollout will include four or five sandwiches, four or five salads and two or three soups, Zhang said.
A test kitchen tucked away in a quiet office park in east Louisville has been busy crafting the updated offerings, which are a distinct evolution away from the traditional deep-fried fare that have dominated the LJS menu since its origins. The chain succeeded and grew by bringing the New England fish and chips experience to the rest of the country. Today, however, customers are growing more health conscious and even wonder about the wider impact of their food choices.
“The product has to taste good. That’s No. 1 to me,” Zhang said. “Then it has to be healthy.”
Beyond relieving their hunger, it is important that customers “feel good after they eat,” she said. LJS is developing products that satisfy without heaviness after having been produced by a supply chain with sustainability in mind. Customers don’t want to feel guilty about what they’ve eaten or how it was made, she said.
Seafood, according to Zhang, has a smaller carbon footprint than beef or chicken production. As the daughter of a top executive with China’s First Automobile Works, Zhang grew up in a nation without the land and resources required for large-scale beef and poultry production; seafood was the dominant food protein.
With its healthy omega-3 fats, Zhang said, seafood is a healthier and better protein than beef and chicken, whose production process generates more waste and usually consumes corn and soybeans, which competes with humans.
It’s a new way of thinking, but one aimed at wooing the traditional Long John Silver’s customer, said Charles St. Clair, chief marketing officer. The strategy developed since the new team took over, he said, is “to focus on our core customers – satisfy them, get them to come back and they will bring others.”
They want to avoid the mistake of focusing too much marketing on light and lapsed customers. “You can lose sight of who loves you and taking care of them,” St. Clair said. The “young millennial” customer is another frequent industry distraction, he said, but LJS isn’t temped because its stores aren’t located near this mostly urban demographic.
Kern, Zhang and St. Clair aim to shore up the relationship with their existing core customers and build from there. The strategy has input from the ownership group, an impressive gathering of Louisville business talent including Ed Glasscock, Dan Ulmer, Ken Berryman and Rich Duffy as chairman of the board. Duffy is a former KFC franchising and acquisitions vice president and former Creative Alliance advertising CEO. The group also includes the CFO and COO of B.F. South, the successful Wendy’s and Chili’s franchising company headed by Ulysses “Junior” Bridgeman. Significantly, there also are two daughters and the son of quick-serve and casual restaurant guru James Patterson Sr.
Patterson, 80, was the first president of Long John Silver’s and led it in its heyday. He went on to found the Rally’s Hamburgers and Chi Chi’s Mexican restaurant brands. Kerns said Patterson remains “a very prolific creator of restaurant concepts” and said the management team’s ability to tap into his expertise is a unique opportunity.
“I see him at least twice a month,” Kern said.
Patterson is credited with translating the fish-and-chips concept into a chain restaurant success in the early 1970s. Over the years, however, management and ownership changes seemed to leave the chain running mostly on the inertia of those days, with changes in financial structure, but little in the way of new product or presentation in an increasingly crowded quick-serve and fast-casual restaurant marketplace.
The 1990s and 2000s, long after Patterson had left the company, are now called “lost decades” for LJS.
Parent company Jerrico, built on the Jerry’s chain of curb-service and dine-in restaurants, went public in 1969 and opened its first Long John Silver’s on Southland Drive in Lexington. It was quickly successful and by 1971 there were more than 200 locations and LJS was Jerrico’s most successful chain.
A management group along with two New York investment firms took Jerrico private again in 1989 via a heavily leveraged buyout. In 1990, Jerrico divested Jerry’s, Fazoli’s and its other restaurant concepts and renamed itself Long John Silver’s Restaurants Inc. The restructured organization carried heavy debt obligations. There were menu and marketing shifts, forays into workplace kiosks and co-branding, and the addition of drive-through windows.
Triarc Companies, parent of the Arby’s chain, wanted to acquire LJS in 1994, but the deal fell through, according to fundinguniverse.com. Credit Suisse First Boston, LJS’ leading debtholder, then transferred more of its debt to equity, giving it 80 percent ownership of the company. CSFB made several efforts to market LJS, according to fundinguniverse.com, and focused on improving financials as it considered potentially going public again in 2000.
Instead, in 1998 there was a Chapter 11 bankruptcy filing. A&W Restaurants, which had built the A&W Root Beer chain, bought LJS out of bankruptcy and created Yorkshire Global Restaurants.
Yorkshire’s strategy was to fix and flip LJS, according to an article last August about the chain in Restaurant News, and in 2000 it began a major co-location tactic with Long John Silver’s and A&W units. Yorkshire made co-location deals, too, with the Taco Bell and KFC restaurants owned by Tricon Global Restaurants, which was also the parent of Pizza Hut.
In 2002, Tricon swallowed Yorkshire to grow into the parent of five quick-serve restaurant chains and renamed itself Yum! Brands Inc. Its expectations for co-locations were not fulfilled, but international growth for KFC gained serious traction. LJS and A&W received little attention, with the result nearly a decade later that the Long John Silver’s brand in 2010 was in the same place it had been in 2001, according to the Restaurant News piece.
Franchise owners, Kern among them with 20 locations, were frustrated and wanted change. He was a member of the franchisee board. Kern became aware that Yum! had an interest in divesting LJS and approached the company in 2011 with his interest in acquiring it.
“In corporate timetable terms, there was an almost immediate interest” on Yum!’s part, he said. Within 45 days he was told Yum! “saw me as a serious party,” and it launched plans to put LJS and A&W up for auction, contracting with Goldman Sachs to conduct the process. The auction took four months, and Kerns learned in September that he had the winning bid.
He and his team then had 90 days to close, take ownership of the company, unbundle it from Yum! and create a new operation. Yum! was handing off the brand and its revenues and business relationships but no bricks and mortar administrative offices and support systems.
“We had to create a company in 90 days,” Kern said.
Not interested in reinventing the wheel, he said, after a few weeks Kerns consulted various merger-and-acquisition specialists looking for advice “and could not find anyone who had done what we were doing.” Fortunately, many of the Yum! personnel who’d been involved with LJS were interested in coming aboard.
“To say it was dynamic is an understatement,” Kern said. “The logistics were crazy.”
The day of transition came and “went off without a hitch,” he said. The lights came on, there was money in the bank, the bills were paid and payroll was met.
“We did keep the playbook,” Kern said.
A year ago, LJS hired Zhang, who has 20 years experience in the U.S. restaurant industry, from HoneyBaked Ham. Since coming to Louisville from Atlanta, she’s been directly overseeing development of new menu items. Phase one last year focused on improving the quality of products with some innovation. This year, she said, the focus will shift predominantly to innovation, which means new products.
Stores in Chattanooga, Tampa and Tulsa are test marketing various items, and customers are being tapped extensively for feedback. Zhang visits and speaks to customers regularly.
This year is where Kern, St. Clair, Zhang and the ownership team hope to see the real payoff begin to happen. By the end of 2014, they should know whether the new strategy is gaining traction, he said, but it will take four or five years to fully carry out the rebranding plan.
“If we can get people to think about seafood and LJS, we win,” Kern said. “We will know by the end of 2014 how it’s going.”
He and others in the team have been benchmarking what successful competitors are doing.
“All along I’d see a white space in the upper end of the quick-serve restaurant industry in seafood,” Kern said. Seafood is not as popular in the United States as it is in other developed countries. The LJS team views the situation as a perfect opportunity for them.
Mark Green is editorial director of The Lane Report. He can be reached at [email protected].