Pacific Coast Restaurants, Inc.

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Pacific Coast Restaurants, Inc.

7165 Southwest Fir Loop, Suite 200
Portland, Oregon 97223-8055
U.S.A.
Telephone: (503) 684-2803
Fax: (503) 620-6149
Web site: http://www.pacificcoastrestaurants.com

Wholly Owned Subsidiary of Restaurants Unlimited, Inc.
Incorporated: 1980
Employees: 1,800
Sales: $100 million (2006)
NAIC: 722110 Full-Service Restaurants

Pacific Coast Restaurants, Inc., owns and operates several restaurants in the Pacific Northwest area, including the flagship Newport Bay chain and the Stanford's Restaurant & Bar chain. These restaurants are located primarily in and around Portland, Oregon; Seattle, Washington; Denver, Colorado; and in Northern California. The company's other concepts include Portland Steak & Chophouse, Portland City Grill, Manzana Rotisserie Grill, and Henry's 12th Street Tavern. Pacific Coast places an emphasis on customer satisfaction and employee training and benefits; in 2007, the company was acquired by Seattle-based Restaurants Unlimited, Inc.

THE BIRTH OF A SUCCESSFUL PARTNERSHIP

Pacific Coast Restaurants was founded in 1980 by Robert MacLellan and Al Fleenor. The two men first met during the 1970s while working for Bob Ferrell's Portland, Oregon-based ice cream parlor business. Fleenor originally had joined Ferrell's operation in 1969 in Seattle when he was 22 years old and just back from a one-year tour of duty in Vietnam. Rising to the position of manager trainee, he eventually transferred to Portland in 1973. There he befriended MacLellan, who headed the firm's real estate department and whose personality and experience seemed to complement his own.

Fleenor and MacLellan's partnership proved both long-lasting and enormously successful, though it began modestly enough. Their first joint venture began in 1980 based on a tip from a friend that a local restaurant called Dungeness Dan's was struggling. Dungeness Dan's was in a prime location, a busy suburban Portland mall called Washington Square, but required a significant amount of remodeling. Fleenor and MacLellan were hardly flush with cash; nor could they count on loans. In fact, they were untried in a business (starting restaurants) that was, and remains, risky even for established entrepreneurs. On top of this, the nation was in a recession, with high interest rates, rising unemployment, and significant inflation. However, the pair negotiated a deal with Dungeness Dan's owner that allowed them to take charge of the establishment for no money down and, subsequently, managed to scrape together $150,000 for renovations. Fleenor supervised the work himself.

The result was a new seafood restaurant called Newport Bay that opened in November 1980, three days before Thanksgiving. Newport Bay cultivated a casual and family friendly atmosphere, seeking to appeal to diners from many walks of life. Fleenor had originally just wanted to establish a single restaurant, but soon he and MacLellan began to lay more ambitious plans, which they formalized in the creation of Pacific Coast Restaurants. The success of their first attempt made it a model for a series of Newport Bays that they went on to found in Oregon and Washington. They also continued to follow the same strategy, negotiating their way into owning five of their first seven restaurants, which were all doing poorly under their prior owners, for no money down. In the October 22, 1998, issue of the Oregonian, MacLellan recalled that "I got thrown out of at least 10 doors for every deal we landed, but we connected a few times." During its first eight years of operation, Pacific Coast managed to acquire one new restaurant a year.

Throughout their long business association, MacLellan routinely focused on the external aspects of their endeavors, including making deals and establishing territories while Fleenor dealt with internal issues, such as customer service and day-to-day operations.

By 1983, they were joined by a third partner, their former employer Bob Ferrell. Ferrell, who had been chairing the company's board of directors, purchased a 25 percent share in Pacific Coast. Because he had experience founding his own chain of restaurants and because he was well known in the community, his increased profile at Pacific Coast proved to be a substantial boon, opening new doors for the company. During the early 1980s, help also came from other quarters. Pacific Coast was involved in trying to turn around another struggling restaurant, but was having difficulty doing so. The company initially lost $90,000 on the venture, but was soon offered a loan of $150,000, not by a bank but by Portland-based Standard Insurance, which was investing heavily in real estate at the time. Wayne Atteberry, Standard's vice-president in charge of real estate investment, had been impressed by Pacific Coast's success with its first Newport Bay. His infusion of funds covered the remodel of the failing establishment and turned it into another Newport Bay.

Over the next six years, the company continued to expand, building its first restaurant from the ground up, the Newport Bay at RiverPlace in Vancouver, Washington. By 1989, Pacific Coast had begun to make plans not only for another new eatery, the 137th new restaurant for Bob Ferrell, but also for an entirely new concept distinct from Newport Bay. Ferrell, Fleenor, MacLellan, and three other partners targeted an area near Portland called Lake Oswego where there was a great deal of building, including the construction of host of fairly expensive homes. Standard Insurance purchased the land and held it for a year while Pacific Coast's developed its plans for its first Stanford's Restaurant and Bar.

1990–2002: CONTINUED EXPANSION AND NEW CONCEPTS

Stanford's opened in January 1990. It seated 240 and employed 100. Unlike Newport Bay, seven of which were operating, Stanford's was aimed at young urban professionals, offered a more upscale atmosphere, and emphasized fire-grilled foods. Over the next five years, the company opened seven more Stanford's. By middecade, it also operated ten Newport Bays and a number of other establishments that employed a total of 1,500 people in Oregon, Washington, and Northern California.

Pacific Coast continued moving into new territory. Beginning in 1994, Fleenor and MacLellan started thinking about a steak restaurant. After 18 months of planning and $1.9 million in investment money, they opened the Portland Steak & Chophouse in a remodeled Embassy Suites hotel. This new restaurant represented several departures for the company. Its menu listed some of the highest prices of any of Pacific Coast's establishments, though it tried to make its dinners a value by including a salad, a starch, and a vegetable. Fleenor acknowledged in an October 17, 1997, article in the Oregonian that Portland customers "don't like spending $20 or $25 just for a piece of steak." The Portland Steak & Chophouse was also Pacific Coast's first restaurant in downtown Portland instead of the suburbs.

COMPANY PERSPECTIVES

We believe in providing a consistently superior dining experience by offering our guests quality food, distinctive restaurants, and outstanding service.

Pacific Coast continued to grow throughout the second half of the 1990s; by 1995 Bob Ferrell had moved on to become a motivational speaker and customer service consultant, although he continued to be involved in Pacific Coast, occasionally addressing groups of new employees. By 2000, the company was operating 22 stores in four western states, including a Stanford's in Denver, Colorado, and two in California. In total Pacific Coast employed a workforce of about 1,450 and brought in revenues of $65 million. In 2001, it had signed leases for three more restaurants in the Portland area and was making plans to open an eatery in Scottsdale, Arizona, based on the Portland Steak & Chophouse concept.

The company and contemporary observers attributed its success to only gradual changes in menus, to an emphasis on maintaining physical structures, and to a focus on employee training and performance. As an example, of the $1.9 million invested in the Portland Steak & Chophouse, $150,000 was spent in training employees. Jobs at a Pacific Coast establishment involved taking classes, passing written tests, and adhering to a strict dress code. In return, employees received a range of benefits, including medical insurance, a 401(k) profit-sharing plan, and paid vacations for those working more than 20 hours a week.

The company was not without its challenges. High beef prices in 2001 forced the entire restaurant industry to make adjustments. Pacific Coast chose to expand its menus during this time, focusing particularly on seafood. It also took its boldest step yet in 2001 when it negotiated its way to the top floor of the Bancorp Tower in downtown Portland, a location with a panoramic view of the Cascade Mountains formerly occupied by a well known but struggling eatery called Atwaters. Unico, the owner of the tower, had previously declined four offers made by aspiring restaurateurs, and was intending to turn the space into offices. Instead, it found what it felt was a good match in Pacific Coast.

In March 2002, after $3 million and 13 months of work, the company opened the Portland City Grill, its largest establishment to date. Its 18,300 square feet had been totally renovated, including the installation of turn-of-the-century rugged wooden beams in the ceiling. Al Fleenor noted in the March 19, 2002, issue of the Portland Daily Journal of Commerce that "we tore everything out of it, except the sheetrock around the elevators." As usual, Pacific Coast focused on creating value for customers, negotiating with Unico to provide two and a half hours of free parking for diners. The company also invested $400,000 in employee training.

CHALLENGES AND CHANGES

By 2002, declines in the high-tech industry had begun to take a serious toll on the Oregon economy, particularly in the Portland area. However, Pacific Coast remained successful. In the July 16, 2003, issue of the Portland Daily Journal of Commerce, MacLellan observed that "while the other chains came whistling by us down the canyon, we continued quietly growing slowly." The Portland City Grill was honored soon after its opening in 2002 by Restaurants & Institutions magazine as one of the top 50 independent restaurants nationwide. Pacific Coast also intensified its commitment to downtown Portland, inaugurating a new type of restaurant called Manzana Rotisserie Grill in an upscale area called "the Pearl" and signing a lease for additional space in the Pearl for another new concept.

It also continued to expand outside of downtown, making arrangements to spend more than $2 million on a new Stanford's, its ninth, at a suburban Portland metro area shopping center. In 2003, it opened a second Manzana in Lake Oswego, Oregon, and was laying the groundwork for three new restaurants, a record number for the company. Meanwhile, the Portland City Grill seemed likely to top $12 million in earnings, a sales volume that set it among the top 50 American eateries.

KEY DATES

1980:: Robert MacLellan and Al Fleenor start their first restaurant, Newport Bay.
1983:: Bob Ferrell purchases a 25 percent share in the business.
1990:: Pacific Coast opens its first Stanford's Restaurant and Bar.
1995:: The company establishes Portland Steak & Chophouse in downtown Portland; Bob Ferrell leaves the company.
2002:: The company opens the Portland City Grill and the Manzana Rotisserie Grill in Portland.
2004:: Henry's 12th Street Tavern debuts in Portland.
2007:: Fleenor and MacLellan sell the company to Seattle-based Restaurants Unlimited, Inc.

The struggling economy began to take a toll on Pacific Coast in 2004, however. Revenues were rising, but profits were dropping, primarily due to the growing price of beef, chicken, dairy products, and to high payroll costs. The company responded with some modest increases in its prices, but without fully offsetting its higher expenditures. The poor economic climate did make it easier to acquire space for new restaurants, and the company was planning to establish a new Newport Bay in Northeast Portland and a Stanford's at the Portland International Airport. Its new concept in downtown Portland also came to fruition with the opening of Henry's 12th Street Tavern in 2003. Henry's was the largest restaurant in the Pearl and featured large flatscreen TVs in its bar and a wide variety of beers and microbrews. In 2005, Pacific Coast opened a third Manzana in Bellevue, Washington.

By this time, Pacific Coast was beginning to make a major shift in its public relations practices. For years, Fleenor and MacLellan had played down the company in favor of its individual restaurant concepts. Fleenor admitted in a November 11, 2005, article in the Oregonian that he "figured nobody gave a hoot about the company, they just wanted good food." However, Pacific Coast's continued success, including earnings around $100 million in 2006, motivated a new approach. So, too, did customer requests for gift cards that could be used at any of the company's restaurants. Fleenor became increasingly concerned with highlighting the local nature of the company and its roots in the Northwest. A new series of print ads for Pacific Coast featured a number of restaurant logos. Likewise, the company displayed a banner with all its brands at the annual Bite of Oregon, a summertime culinary event in 2006.

A second significant change came in 2007. Pacific Coast's potential attracted the interest of other companies. In July, Seattle-based Restaurants Unlimited, Inc. (RUI), acquired Pacific Coast for an undisclosed sum. In fact, five firms offered bids for Pacific Coast. RUI's was not the highest, but Fleenor and MacLellan accepted it because of strong similarities in approach between the two organizations. The sale was also motivated partly by the pair's long history in the restaurant business. Fleenor explained in the July 17, 2007, issue of the Oregonian that "my partner is several years past the age that most Americans retire, and I'm coming up on that age myself." RUI quickly announced plans for six new Newport Bays over the next three to five years in areas where the company already had a foothold, such as Denver, Minneapolis, and San Francisco. No other major changes, including layoffs or closures, were expected. Nevertheless, it was clear that 2007 marked a new era for Pacific Coast Restaurants.

Carrie Rothburd

PRINCIPAL COMPETITORS

Consolidated Restaurants, Inc.; Mad Anthony's, Inc.; McCormick & Schmick's Seafood Restaurants, Inc.; McMenamins, Inc.; Morton Restaurant Group, Inc.; OSI Restaurant Partners, Inc.; Rock Bottom Restaurants, Inc.; Ruth's Chris Steak House, Inc.; Schwartz Brothers Restaurants; Smith & Wollensky Restaurant Group, Inc.; Tavistock Restaurants LLC.