Morton's Restaurant Group, Inc. History

Address:

3333 New Hyde Park Road
New Hyde Park, New York 11042
U.S.A.

Telephone: (516) 627-1515
Fax: (516) 627-1898

Public Company
Incorporated: 1978 as Morton's of Chicago Inc.
Employees: 3,612
Sales: $189.8 million (1998)
Stock Exchanges: New York
Ticker Symbol: MRG
NAIC: 72211 Full-Service Restaurants

Company Perspectives:

Morton's Restaurant Group was founded with the mission of identifying, acquiring and growing time-tested restaurant groups which are clearly distinguished in their market niches. This mission was refined to focus on two interrelated strategies: expanding and replicating the continuing success of our Morton's of Chicago steakhouse restaurants and Bertolini's Authentic Trattorias; providing Morton's Restaurant Group with the means to transition our company to new levels of competitiveness and growth.

Company History:

Morton's Restaurant Group, Inc. owns and operates Morton's of Chicago, a high-end steakhouse restaurant chain aimed at a business clientele, and Bertolini's Authentic Trattorias, a smaller chain offering Italian specialties in a casual dining atmosphere. At the end of 1998 Morton's Restaurant Group owned and operated 43 Morton's of Chicago and 12 Bertolini's units. All Morton's of Chicago restaurants were similar in style, concept, and decor, and were located in retail, hotel, commercial, and office building complexes in major metropolitan areas and urban centers. Catering primarily to business-oriented clients, Morton's of Chicago had an average per person check of about $65 in 1998. The Bertolini's restaurants offered white tablecloth service, with an average per person check of about $20. Morton's Restaurant Group also held a minority of stock in two other restaurant chains, Mick's and Peasant.

Arnold Morton's Concept: 1978-87

Born into a family of Chicago restaurateurs, Arnie Morton was director of food and beverages for Playboy's clubs and resorts in the 1960s. Known, according to William Rice of the Chicago Tribune, as the man who "pinned the tails on the bunnies," Morton found corporate management stultifying after Playboy founder Hugh Hefner moved to California. He left in 1973 to open a discotheque and several restaurants in the Chicago area. In 1978, with Klaus Fritsch as his partner, he opened Morton's, a Chicago steakhouse that was to serve as the prototype for the Morton's of Chicago chain.

Ted Kasemir, an employee, later recalled to Rice of Morton's, "There wasn't much room for a kitchen, so he kept the menu short and simple enough to be done by a broiler cook instead of a chef." Instead of aging and cutting the meat on the premises, Morton "bought meat that was cut and aged. Then he glamorized the front, gave it a classy, clublike feel." The aging process involved two to three weeks at 34 to 36 degrees Fahrenheit in climate-controlled rooms.

By the time a Morton's of Chicago restaurant opened in Washington, D.C., in October 1982, the chain had developed an elaborate "presentation" of the menu during which a server wheeled a cart to the diner's table and held aloft, for inspection, raw cuts of beef wrapped in cellophane, a raw chicken marinating in the wrap, a live Maine lobster crawling across its tray, and various other items, including gigantic specimens of Idaho potato and steamed asparagus. All items were a la carte.

Washington Post restaurant reviewer Phyllis C. Richman was not impressed. While conceding that the new Morton's was "playing to a packed house" and offering "a good show," she wrote of the steaks that "despite their highly touted aging, they have little flavor."

By 1987 there was another Chicago-area Morton's steakhouse and seven more in other cities, including Philadelphia, Dallas, and Boston. Entrees at the Boston unit, which opened in 1987, included prime rib, veal and lamb chops, and swordfish steak, as well as chicken, lobster, and the usual two-inch-thick steaks. That year, when Morton's of Chicago had sales of more than $15 million, the chain was sold for a reported $12.4 million to Lexington Investment Co., a venture capital firm, and Alex. Brown & Sons, a Baltimore brokerage house. Fritsch stayed on as president of the enterprise.

Quantum Restaurant Group, 1989-96

Morton's Steak Houses was sold in 1989 for $9 million in equity to Quantum Restaurant Group, Inc., a company recently founded by Allen J. Bernstein with venture capital from Castle Harlan, a private New York City merchant banking firm. Quantum's first acquisition, in December 1988, had been an 89 percent stake in Peasant Restaurants Inc., an Atlanta-based, 14-unit restaurant firm, for $11.6 million. The Peasant chain began in 1973, when Stephan Nygren and Richard Dailey turned a Mexican restaurant on Atlanta's Peachtree Street into the Pleasant Peasant, a continental New York bistro. Dailey's Restaurant followed in 1984, and a unit later opened in Washington, D.C. Peasant Restaurants included a diner-style sister chain, Mick's, which was founded in 1984 and consisted of four units in 1989.

Quantum Restaurant Group was not profitable in its early years. Although restaurant revenues rose from $50.2 million in 1989 to $78 million in 1991, a variety of nonoperating expenses raised its negative net income to $20.6 million in the latter year. The company made its initial public offering of stock in 1992, its first profitable year. One of the two new Morton's that year was a unit in Beverly Hills--named Arnie Morton's of Chicago so as not to be confused with the celebrity-studded, West Hollywood "Mortons" opened in 1980 by Arnold Morton's son Peter. Reviewing Arnie Morton's in the magazine section of the Los Angeles Times, Charles Perry called the three-pound double porterhouse (actually half T-bone, half sirloin strip), "the most satisfying steak I've had in years."

Morton's of Chicago made its New York City debut in October 1993, locating in midtown Manhattan. "Are we too snooty, too myopic, too chauvinistic ... too rigid for Second City brassiness?" New York restaurant critic Gael Greene asked rhetorically. This transplanted Midwesterner gave the new Morton's a mixed review but called the three-pound porterhouse "spectacular. Really rare, fire-glazed, tender but not too, bursting with flavor. As is the sirloin. And our two-and-a-half-pound lobster ($38.95) is cooked to a perfection rarely found in a steakhouse."

Another sophisticated city with a tradition of fine dining, San Francisco, received its own Morton's of Chicago a year later. San Francisco Chronicle food editor Michael Bauer--another transplanted Midwesterner--turned thumbs down on some of the side dishes, expressed outrage at the prices, and sneered at the food presentation. However, he called the steaks "better than I've had since my father sold his butcher shop in Kansas. Beef lovers will swoon over the buttery tenderness of the double-cut filet ($27.95), the richly marbled rib eye or even the melt-in-your mouth quality of the brochette ($19.95) skewered with onions and peppers."

There were 10 Peasant and 25 Mick's restaurants in 1994, when Quantum Restaurant Group--which now wholly owned both chains&mdash⁄ifted to lower prices for the former, with most entrees in the $7 to $16 range. Chefs were recruited and trained to replace kitchen managers in executing Peasant's new culinary strategy. The chain, although remaining Atlanta-based and -oriented, opened a Philadelphia unit in 1994. The Mick's chain also was concentrated in the Atlanta area, but there were other units in Baltimore, Memphis, Miami, Minneapolis, Nashville, Philadelphia, and Washington. In December 1993, Quantum launched a new chain, called Bertolini's Authentic Trattorias, that featured northern Italian food at midscale prices. The original Bertolini's had opened in Las Vegas in 1992 and the second in Atlanta in September 1993. Four more opened in 1995.

Peasant and Mick's were proving to be Quantum Restaurant Group's black hole, sucking out the profits earned by Morton's of Chicago. In 1995 Quantum put the two chains on the block and took a pretax charge of $15.5 million related to the closing of certain Mick's and Peasant restaurants. As a result, the company lost $13.9 million during the year. In 1996 the two chains lost $11 million on revenues of $54.4 million, but Quantum nevertheless registered net income of $1.8 million.

Morton's of Chicago remained Quantum's high-end restaurant chain. Billing at an average rate of about $65 per person in 1996, the 34-unit Morton's was the most expensive major restaurant chain in the world. It also had the severest operating controls, with the emphasis on complete consistency for its business-oriented customers. Bernstein, who started out in the business as the owner of 17 Wendy's units, was using fast-food principles not only to manage cost and quality but to recruit and train managers, chefs, and serving staff.

All Morton's of Chicago units were designed to be, in the words of one manager interviewed by Glenn Collins of the New York Times in 1996, "a timeless place of refuge," with no windows, dark-wood furnishings, photos of celebrities, Leroy Neiman prints, and canned music featuring Frank Sinatra. A large, mahogany-paneled boardroom was set aside for business meetings by corporate clients. While the emphasis was on beef, Morton's also offered fresh fish, lobster, veal, and chicken. All units featured an open display kitchen where steaks were prepared. Each had a fully stocked bar with a complete line of name brands and an extensive premium wine list, offering about 175 selections.

The prime aged beef--at a wholesale price of over $14 a pound--was shipped from Chicago, lobsters from New England, smoked salmon from Seattle, swordfish from New York's Block Island, and cheesecake from New York City's borough of The Bronx. Chefs were trained to prepare and present every dish to exact company specifications, with the same ingredients and recipes. A color-photo display depicted the desired presentation of each dish. Each Morton's of Chicago monitored inventory, sales, and profits with a point-of-sale computer system similar to those used by the fast-food chains. If supplies were suddenly found to be running low, Morton's deployed couriers, air carriers such as Federal Express, and even taxicabs to make sure all the 500 kitchen items, sauces, and garnishes were available to diners. Downtown units remained open Sundays, despite little business, in order to cater to visiting out-of-town businesspeople. Nine Morton's were serving lunch as well as dinner in 1998.

Morton's Restaurant Group, 1996-99

Quantum Restaurant Group renamed itself Morton's Restaurant Group in 1996. The company announced in early 1997 that it was selling 19 Peasant and Mick's restaurants, for $6.8 million in cash and notes, to Gregory M. Buckley, former president of Quincy's Family Steakhouse. Morton's retained a 20 percent stake in the two chains and kept the Washington units for itself, but closed, sold, or otherwise disposed of these by the end of the year. The transaction allowed Morton's to concentrate on its eponymous steakhouse chain, which now was accounting for 85 percent of its revenues. The first overseas Morton's opened in Singapore in 1998, followed by another in Toronto. Bernstein was hoping eventually to establish 60 to 70 Morton's units outside the United States.

Bertolini's opened another restaurant in 1996, one in 1997, and two in 1998. Like the steakhouse chain, it was being run on the principle of uniformity, with each unit offering the same menu, ingredients, ambience, and level of service. During 1998, however, Morton's Restaurant Group identified several underperforming Bertolini's units and authorized a plan for the closure or abandonment of certain ones. In early 1999 the company closed the units in Westbury, New York, and Contra Costa, California.

The revenues of Morton's Restaurant Group peaked at $193 million in 1996, just prior to the sale of underperforming Peasant and Mick's restaurants. Net income rose from $1.8 million in 1996 to $6.9 million in 1997. The company lost $1.9 million in 1998, after taking a pretax charge of $19.9 million for a writedown of Bertolini's assets. Despite this setback, Morton's high operating income--$24.5 million in 1998--attracted investors, who bid the stock as high as $25 a share in 1997 and 1998, compared to the $10 per share at which the company went public.

Alcoholic beverages accounted for about 32 percent of Morton of Chicago's revenues in 1998. The on-premises private dining and meet facilities referred to as "boardrooms" and available in all but the Chicago Morton's accounted for about 18 percent of the chain's sales. During the year dinner service accounted for about 67 percent of Bertolini's revenues and lunch for about 33 percent. Alcoholic beverages accounted for about 20 percent.

FMR Corp. was Morton's Restaurant Group's largest stockholder in May 1999, with 12.8 percent of the shares. Bernstein held 6.3 percent of the shares. Several investment and venture capital firms held six percent or more of the stock. The company's long-term debt was $40.3 million at the end of 1998.

Principal Subsidiaries: Bertolini's Restaurants, Inc.; Italian Restaurants Holding Corp.; Morton's, Inc.; Morton's of Chicago, Inc.; Porterhouse, Inc.

Morton's Restaurant Group, Inc. History

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