Restaurant Associates Corporation

views updated

Restaurant Associates Corporation

36 W. 44th Street, Fifth Floor
New York, New York 10036
U.S.A.
Telephone: (212) 789-7911
Fax: (212) 302-8032
Web site: http://www.restaurantassociates.com

Wholly Owned Subsidiary of Compass Group USA Inc.
Founded: 1919
Employees: 10,000 (est.)
Sales: $250 million (2003)
NAIC: 722110 Full-Service Restaurants

Based in New York City, Restaurant Associates Corporation (RA) is a subsidiary of Compass Group USA, a unit of the United Kingdom's Compass Group plc, the world's largest foodservice company. Acclaimed for developing the concept of theme restaurants and other accomplishments in the 1950s and 1960s, RA operates a dozen restaurants in Manhattan, including Brasserie, Rock Center Café, and Tropica. It also operates restaurants and concessions at major museums and performing arts centers, such as the Metropolitan Opera House, Avery Fisher Hall, the American Museum of Natural History, The Guggenheim Museum, and the Metropolitan Museum of Art. Outside of New York, RA handles dining at Boston's Museum of Fine Arts; the National Gallery of Art; the National Museum of American History; Smithsonian National Museum of Natural History; John F. Kennedy Center for the Performing Arts in Washington, D.C.; the Philadelphia Museum of Art; The Music Center of Los Angeles County; and San Francisco's War Memorial Performing Arts Center. RA has been the longtime provider of foodservice at the U.S. Open Tennis Championships in New York, and also handles foodservice for the PGA Championship and Ryder Cup. In addition it controls the franchise rights for Krispy Kreme in the New York area and the franchise rights for Au Bon Pain across North America.

Growing Out of a 1950s Coffee Shop Chain

The two men most responsible for the growth of RA were Jerome Brody and Joseph H. Baum. Brody was born in Manhattan in 1922, the son of a well-to-do family. While attending Dartmouth College, shortly before joining the Army Air Force during World War II, he married Grace Wechsler, the daughter of coffee importer Abraham F. Wechsler. After his stint in the military Brody attended Columbia Law School, but his education was interrupted by his father-in-law, who insisted he join him in his coffee business, which was struggling after three top executives died in succession. Wechsler, who had no background in restaurants, had picked up the Riker's chain of under-performing coffee shops as payment for a debt and put Brody in charge. The company was called Riker's Restaurant Associates, founded in 1919, the name of which would later be shortened to Restaurant Associates. Not having much money to work with, Brody took incremental steps in turning around the Riker's chain. To bring in much needed revenue he bid on concessions to run. His first contract was with the Mitchell Air Force Base on Long Island, followed by the employees' cafeteria at the Ohrbach's department store in Manhattan. Next, he won the food concession at Newark Airport, a turning point for RA, which now moved into the fine dining market. To launch the airport restaurant, which would become known as the Newarker, Brody recruited Joseph Baum, who had a strong background in hotels.

Baum was born in 1920 in Saratoga Springs, New York, where his parents operated a seasonal hotel. After graduating from high school he worked two years in New Jersey and Florida hotels as a busboy, waiter, and cook to earn enough money to attend Cornell University. In 1943 he graduated with a degree in hotel administration. After serving two years in the Navy, he went to work for the Manhattan accounting firm of Harris, Kerr, Foster & Company, and in 1947 became manager of one of its New York accounts, the Monte Carlo Hotel. Two years later he became director of restaurants in Florida for the Schine hotel chain, a position he held until Brody came calling in 1953, asking him to take on the dubious task of introducing luxury dining to an airport terminal.

The Newarker a Major Success in the Early 1950s

Baum hired a classically trained Swiss chef, Albert Stockli, to develop the menu, then invested in fine china and furnishings. The Newarker would become famous for its large portions: the oysters were so large they had to be eaten with a knife and fork, and Baum would add a seventh on a separate plate for orders of a half-dozen. He also added a third claw to lobster orders. In addition, Baum displayed the flair that would one time earn him the moniker, "the Cecille B. DeMille of restaurateurs." He was the first to place a sparkler in a birthday cake, and had a penchant for setting dishes on fire. As he once explained, "The customers like to see things on fire, or accompanied by fiery props, and it doesn't hurt the food that much." Although the restaurant would lose $25,000 in its first year, Baum and Stockli continued to make improvements to the menu, so that after three years it was turning a profit and grossing $3 million in annual sales. About 90 percent of the 1,000 meals served by the Newarker each day were to nontravelers. Moreover, the restaurant was earning half as much as the entire Riker's chain.

Brody enjoyed further success in the concession business, winning contracts on the New York State Thruway from Syracuse to Buffalo. But building on the success of the Newarker, RA would now embark on developing the theme restaurants that would make the company famous. In 1955 Baum was named to head RA's specialty restaurant division. He and Brody soon found their next project, taking over the money-losing Hawaiian Room in Manhattan's Hotel Lexington, a club that had once been a city hot spot. They completely transformed the Hawaiian Room, returning it to popularity. In 1957 RA opened what was regarded as the first theme restaurant on the ground floor of the United States Rubber Company Building in Rockefeller Center. It was called the Forum of the Twelve Caesars. The upscale Forum invoked ancient Egypt, with servers wearing togas and wine served in gladiator helmets. Equally exotic dishes could be found on the menu and so many of them were flambéed that the air conditioning system had to be upgraded.

Other RA restaurants in Manhattan would follow in the late 1950s, aided by James Beard and Julia Child, hired by Baum to consult on the menus. There was the La Fonda del Sol, a Latin theme restaurant located on the ground floor of the Time and Life Building. There was Tavern on the Green, occupying a precious slice of Central Park, featuring panoramic windows to allow diners to enjoy a theatrical view of trees strung with thousands of white lights. There was the Brasserie, employing a Paris bistro theme and becoming the best known 24-hour restaurant in the world, attracting an impressive array of athletes, movie stars, and royalty. RA also acquired a theatre district restaurant, Mamma Leone's, and turned it into a perennial cash cow. But the crowning achievement of RA in this period came with the 1959 opening of the Four Seasons, a three-level restaurant in the Seagram's Building. According to most accounts Baum named the restaurant after a haiku collection he had read. His inspiration was to create a restaurant that would change with the seasons, so that every three months the menu, color scheme, and foliage would be replaced. A minority opinion held that Brody did not receive as much credit as he deserved for the development of the Four Seasons and RA's other famous eateries. He was in many ways an ideal manager for the flamboyant and creative Baum, keeping him on "a very long leash," according to some intimates. Whatever the truth of the matter, there was little debate about the influence of the Four Seasons in the restaurant industry. The restaurant's Grill Room epitomized New York's "power lunch."

RA became a public company and entered the 1960s at the peak of its reputation. In 1963 Brody was divorced and Wechsler subsequently forced out his former son-in-law. Baum took over as president and the company continued to prosper. It took over the dining at the Metropolitan Museum of Art, opened two restaurants at the 1964 New York World's Fair, and launched the Zum Zum chain of sausage shops. By 1965 RA was operating 130 restaurants and foodservice operations around the world. The price of RA stock during this period topped out at $47. But RA had overexpanded and Baum's disregard for costs led to thin margins. By 1970 RA stock dipped below $2 per share and it was merged with Waldorf Systems, a company that ran a chain of lunch rooms and a poor fit for Baum, who quit to start his own company. Nevertheless, Baum left a lasting legacy with RA, credited for many innovations in his field, some of which are taken for granted today. It was his idea for servers to replace a full ash tray by cupping it with an empty one, to refold a napkin when a guest left to use the rest room, and to introduce themselves to diners. Baum was responsible in large part for making American cuisine respectable, at a time when a restaurant had to be French to be considered elegant. He also commissioned Americans to design the dinnerware and serving pieces.

With Baum gone RA lost much of it cachet, although it remained a major force in the foodservice industry, continuing to operate many of the restaurants created by Brody and Baum. In 1974 RA acquired the New Jersey steakhouse chain, Charlie Brown's. It became the caterer for the U.S. Open Tennis Championships in 1976, a contract it would hold for the next 20 years and for many people would become the company's best known venture. In 1984 RA acquired the California-based Acapulco Mexican Restaurants chain.

Company Perspectives:

Restaurant Associates: a name that has been synonymous with exciting restaurant concepts and high quality foodservice for well over half a century.

Management Buyout in 1988

In 1988 RA's senior management, headed my Max Pine, who had been the company's chief executive officer since 1976, engineered a leveraged buyout to take RA private, paying $150 million for a 54 percent stake. The price proved too heavy, however, and RA was hard pressed to meet 13 percent interest payments. Expansion plans had to be shelved and RA sold off 152 Eastern Lobby newsstands for $25 million. RA independence lasted just two years. In 1990 Tokyo-based foodservice conglomerate, Kyotaru Co., became the first of many Japanese firms to take over an American company involved in retailing, entertainment, real estate, and technology. It paid approximately $120 million for RA and assumed $80 million in debt. RA expected an infusion of cash from its new corporate parent in order to resume growth plans, which called for RA to double in size in five years. Kyotaru was supportive at first, but after a year, as the Japanese economy began to falter, RA found itself sending its money to Japan to support Kyotaru.

In January 1994 Max Pine quit and was replaced as CEO by Nick Valenti, a longtime RA executive. According to the company, Pine left as part of a succession plan that had been put in place when Kyotaru bought RA. Valenti joined the company out of college in 1968, starting out as a management trainee. He took over at a time when not only was RA's corporate parent struggling but so was the New York economy. Revenues continued to rise, but RA could not reinvest in its own operations because of Kyotaru. In 1995 Brasserie closed, a restaurant that was in much need of a makeover. In 1995 RA suffered another blow when it lost the U.S. Open contract.

Starting in 1995 Valenti began lobbying Kyotaru to sell RA back to management, afraid that a third party might step in and attempt to buy the company. In July 1996 the two sides reached a deal, the terms of which were not disclosed. Management was backed by two Manhattan-based venture capital firms—Bruckman, Rosser & Sherill Co. L.P. and Furman Selz LLC. Valenti claimed that RA had not taken on excessive debt, as had been the case in the 1988 buyout, and he maintained that the company would have the capital necessary to grow the business. But almost immediately Valenti began searching for a new corporate backer. In 1997 it sold the Charlie Brown's chain and The Office Beer Bar & Grill chain to pay down debt.

In June 1998 RA agreed to be sold to Compass Group USA, the $2.3 billion North American division of Compass Group PLC, the world's largest contract caterer. The price was $87.5 million for RA and another $50 million for the Acapulco chain. Compass Group resulted from the 1987 spin-off of the contract services division of Grand Metropolitan, a London-based food and spirits company. After going public in 1988, Compass Group expanded rapidly. In 1994 it acquired Canteen Corporation, the third largest vending and foodservice company in the United States, forming the basis for the North American Division. A major step for the unit was winning a $250 million contract to serve 100,000 IBM employees located at sites in 29 states. In the months before acquiring RA, Compass Group won contracts for the Smithsonian National Museum of Natural History, National Museum of American History, and the American Art & Portrait Gallery—all of which would be administered by RA. By acquiring RA, Compass Group wanted to establish a strong presence in the premium concessions business. RA, for its part, would receive the financial backing it needed for expansion, while retaining a high degree of independence. Compass Group recognized the value of the RA name and its heritage—and would likely not have made the deal if management staying on were not part of the deal.

Under Compass Group ownership, RA advanced on a number of fronts in the late 1990s. It won back the U.S. Open contract in 1998, and in 1999 added the Intrepid Sea, Air & Space Museum, housed in a World War II-era aircraft carrier docked in Manhattan, as well as the cafeteria operations for Swiss Re, a financial firm relocating from Manhattan to Armonk, New York. Also in 1999 RA gained a strong West Coast presence with the acquisition of Los Angeles-based Patina Group, which operated a number of upscale restaurants and also served institutional contracts. In 2000 RA opened a wide range of operations, including three public restaurants in Rockefeller Center; steakhouses in Madison Square Garden and the MCI Center in Washington, D.C.; four foodservice operations in Macy's flagship department store in Manhattan's Herald Square; a food court in the Natural History Museum; an upscale cafeteria in the new Conde Nast Building in Manhattan; and two restaurants in Cleveland's Severance Hall. Of even greater importance, at least from a symbolic point of view, was the reopening of the completely remodeled Brasserie.

Over the next few years, RA opened a number of other notable eateries, including Macy's Cellar Bar & Grill in the basement of the Herald Square store, and a new cafeteria and restaurant at the Metropolitan Museum of Art. RA was growing at a 10 percent clip and expanding in a number of directions across the country, from operating fine restaurants and handling the catering for cultural and sporting venues, to controlling the franchise rights to Krispy Kreme and Au Bon Pain. In late 2003 Valenti announced that he planned to step down as president, but there was another seasoned RA executive waiting in the wings, Richard Stockinger, the chief financial officer and a 19-year veteran of the company. There was every reason to believe that he would be able to sustain RA's resurgence, as it continued in its efforts to expand on existing restaurants, acquire new ones, and grow its contract business.

Patina Group.

Principal Subsidiaries

Principal Competitors

Ark Restaurants Corporation; Levy Restaurants, Inc.; The Riese Organization.

Key Dates:

1953:: The Newarker opens in Newark Airport.
1959:: Four Seasons opens.
1963:: Joseph Baum replaces Jerome Brody as president.
1970:: The company merges with Waldorf Systems; Baum quits.
1988:: The company is taken private in a management LBO.
1990:: A Japanese company acquires RA.
1996:: Management buys back the company.
1998:: Compass Group USA acquires RA.
1999:: The company acquires the Los Angeles-based Patina Group.
2003:: Nick Valenti announces plans to step down as president, to be replaced by Richard Stockinger.