3321 Hessmer Avenue
The mission of Ruth's Chris Steak House is to build a growing, profitable restaurant business in which the highest standards of quality, value and hospitality are expressed.
Ruth's Chris Steak House is an international chain of upscale restaurants. Various listings have placed Ruth's Chris among the best restaurants in the United States. The company runs Ruth's Chris Steak Houses in close to 70 locations, including four in Mexico and two in Taiwan. About half of the restaurants are run as franchises, and the company directly operates the others. Each restaurant has a unique decor, but all are similar in their menus, which feature corn-fed Midwestern beef steaks. Though other dishes are on the menu, steaks account for almost 90 percent of sales. Ruth's Chris beef is dry-aged in Chicago and then shipped twice weekly in large cuts to the restaurants. The steaks are cut into smaller portions at each restaurant, and cooked by a special process using a broiler heated to about 1,800 degrees Fahrenheit. This cooking method is consistent throughout the chain. The company is privately held by founder Ruth Fertel and her two sons.
Ruth Fertel was born in 1927 and raised in Happy Jack, Louisiana. Her father sold insurance and her mother taught kindergarten. Fertel graduated from Louisiana State University in Baton Rouge at the age of 19 with a degree in chemistry and a minor in physics. She taught briefly at a junior college, and then married and began raising a family. In the early 1960s, Fertel found herself divorced and working as a lab technician to support her two teenage sons. She was making enough to get by, but not enough to send her sons to college. So Fertel began looking for another line of business. An advertisement for a local steak house somehow caught her eye. Although she had no experience in the restaurant business, Fertel decided to mortgage her house and buy Chris Steak House, a failed restaurant in a not too spiffy section of New Orleans. Chris Steak House had belonged to Chris Matulich, who operated the business for 35 years. He had sold the business, but took it over again when the new management went bankrupt. The steak house seated 60 people, had no parking lot, and was located near the New Orleans Fairgrounds racetrack. Against the advice of all the practical people she knew, Fertel borrowed $22,000 to buy Chris Steak House in May 1965. When Fertel opened for business a few weeks later, she was selling around 35 steaks a day, for close to $5 each. Fertel worked doggedly, cutting her own beef as well as cooking, waitressing, and doing the books. A few months after opening, Hurricane Betsy devastated New Orleans, and Fertel was left with no electricity and a cooler full of expensive raw meat. She turned the disaster to her advantage, cooking steaks for the relief workers and displaced people in the neighborhood. She was also able to keep the restaurant open on Fridays, as the bishop of the New Orleans diocese temporarily suspended meatless Fridays because of the loss of local fisheries in the storm. Fertel soon built a loyal customer base, and before long there were lines out the door. Fertel estimates that 90 to 95 percent of her customers were male, and her restaurant began to attract prominent local politicians and businessmen.
With the great popularity of the new Chris Steak House, Fertel opened a second one four blocks away. Chris Matulich, the original restaurant's first owner, sued Fertel to keep her from calling her second steak house by the name he had established. So Fertel simply added her first name, and the chain became Ruth's Chris Steak House. In 1975 Fertel's first restaurant burned down. Fertel relates in Entrepreneur Magazine that she called her bank in tears. But a man in the construction business happened to be in the bank at the time, and he assured Fertel he could erect a new restaurant for her in one week. He fulfilled his promise, and Fertel ended up with a much bigger restaurant--160 seats versus the old 60. She had no problem accommodating the crowd.
Growth Through Franchises in the 1970s and 1980s
Fertel worked tirelessly at her two New Orleans restaurants, and apparently had not thought of expanding into other markets. One of her devoted customers moved from New Orleans to Baton Rouge, yet still kept driving in to eat at Ruth's Chris. Finally he complained that the drive was too much, and asked if he could open a Baton Rouge franchise. Fertel claimed in a July 1997 Restaurants and Institutions article that she did not know anything about franchising, but that she let the customer have his wish because she was a good judge of people. The first franchise opened in Baton Rouge in 1976, and the chain began to grow. Franchisees paid an initial fee of $50,000, and then contributed six percent of gross sales back to Fertel's company. The earliest franchisees were friends or customers, and Fertel kept close control, spending time at each new restaurant to make sure it was operating up to her standards. Around the time she started franchising, Fertel perfected Ruth's Chris special broiler, a high-heat (1,800 degree) oven that seared the steaks. The franchised restaurants used this equipment as well, and basically followed the same menu. Though there were local variations, the overriding theme of the restaurants was good steak. Fertel insisted that each franchised restaurant buy its meat from her Chicago supplier, to keep quality consistent across the chain. Fertel also picked her markets carefully. In the early days, she was loathe to start a restaurant in a city without a professional football team. Her clientele continued to be overwhelmingly male, and football towns were the best bets for her kind of customer. Fertel also kept costs down by primarily moving new restaurants into existing locations. By taking over bankrupt restaurants, she avoided having to build from the ground up, and some of these failed restaurants had colorful histories. For example, the Ruth's Chris in Beverly Hills took the place of a restaurant that had been originally owned by Dean Martin, Frank Sinatra, and Sammy Davis, Jr.
By the early 1980s, Ruth's Chris was the only restaurant of its kind--an upscale steak house--that was growing through franchises. Fertel still kept close tabs on every aspect of the business, but as the chain grew to about a dozen restaurants, she had to find more experienced management. She hired Ralph J. Giardina, who was originally her banker, as president of the holding company she created for the chain, and in 1984 she hired Dan Earles as vice-president of operations. Earles had formerly managed a group of restaurants called Commander's Palace. Earles, Giardina, Fertel, and a group of seasoned staff spent a month on average at each restaurant that opened, making sure that the new restaurant conformed to the chain's standards. By 1987 there were 17 Ruth's Chris restaurants across the United States. Twelve were owned by eight franchisees, and the remainder were under Fertel's direct control. By that year the chain was the largest in the upscale steak house market. Its closest competitors were the Palm, with ten restaurants, and Arnie Morton's, a seven-unit steak house group.
Planned Expansion in the Late 1980s
By 1987, sales for the 17-unit Ruth's Chris chain stood at nearly $22 million. Fertel's $22,000 investment had paid off in a big way. Not only had she put boundless energy into the running of her restaurants, but she made sure that franchisees delivered the same quality as the original steak house. Furthermore, despite growing national health concerns about fat, red meat, and high cholesterol, Fertel continued to serve huge steaks topped with butter. Meat and potatoes were classics, and she made no apologies for her menu. She was right: no bad news about steak seemed to dent Ruth's Chris. Over the years of expansion through franchises, the restaurants had gotten bigger. By the late 1980s, the average Ruth's Chris seated about 200 and drew close to 225 diners daily. In large cities, the average gross from a Ruth's Chris was about $2.5 million annually, while in smaller markets, annual sales were somewhere between $1 million and $1.5 million. The chain was a real moneymaker. A downturn in the oil-dependent economy caused some losses at individual restaurants in the late 1980s, such as the Houston Ruth's Chris. But the chain as a whole grew 10 to 15 percent in 1987, and Fertel herself took over the ailing Houston restaurant from its franchiser, sure that more good years were ahead.
Growth up to this point had been relatively slow, but in the late 1980s Fertel decided to expand the chain more aggressively. In 1987 Fertel made public her plans to add about a dozen restaurants to the chain over the next three years. By 1990, the Ruth's Chris chain had 28 locations. Sales were close to $60 million, in other words almost tripling in three years, and the planned expansion continued. Fertel was 65 in 1992, and claimed she was going into semi-retirement. This meant she was working only seven or eight hours a day, quite a cutback. Nevertheless, she was still central to the business, which had a corporate staff of only 11 people and no regional managers. The company opened its first two foreign locations in 1993, one in Taipei, Taiwan, and the other in Cancun, Mexico. The Taipei location was over a McDonald's, at what was said to be the busiest corner in the city. The Cancun Ruth's Chris opened in an upscale mall built by a local real estate developer, who also planned to open a Mexico City location. That same year, Ruth's Chris invaded Manhattan. New York was home to many famous steak houses, and Ruth's Chris settled into Midtown, hoping to be one more. This franchise was operated by a franchisee who already ran a Ruth's Chris in Weehawken, New Jersey.
By 1994 the chain had 43 units and sales had topped $100 million. At this point, the company announced it planned to double its number of restaurants over the next six to seven years but refrain from taking on new franchisees. Growth would come from new company-owned locations or from new restaurants opened by franchisees who were already running stores for the company. Fertel was also ready to step back from the day-to-day running of the company. Although she retained the post of chairman, in 1993 she hired Thomas Cangemi to run the chain as president and chief executive. His earlier business experience including running Dobbs International, an airline catering firm. The company also added regional vice-presidents around this time, a layer of management Ruth's Chris had formerly done without.
Increasing Competition in the 1990s
While Ruth's Chris announced it would take its growth a little more slowly, it did not really happen that way. It was not the only upscale steak house chain gambling on new markets, and competition began to be more noticeable. For instance, the year Ruth's Chris opened its New York City franchise, Morton's, a Chicago-based steak house chain, opened a New York restaurant just a few blocks away. One way upscale steak houses advertised was in airline in-flight magazines, since many of their customers were business travelers on expense accounts. Ruth's Chris touched off an imbroglio with the owner of a Dallas steak house in 1994 by implying in an article in a company publication that a listing of "America's Top 10 Steakhouses" used in one such airline in-flight magazine ad was bogus. The top ten listing came from an entity called the Knife & Fork Club of America. This was run by Dale Wamsted, who was the owner of Del Frisco's Double Eagle Steak House in Dallas. Not surprisingly, the Double Eagle was prominent in the Knife & Fork Club's listing. After a Ruth's Chris publication exposed the connection between Knife & Fork and Wamsted, Wamsted sued for libel. Ruth's Chris promptly countersued. Both sides dropped their suits in 1995, in a settlement which enjoined Wamsted from running his Knife & Fork Club ad again. Yet the listing game continued, with other clubs sponsored by groups of restaurants continuing to run "Top 10 Steakhouses" ads in in-flight magazines.
The chain's growth did not slow down in the late 1990s, as had been planned, but continued at its former pace. By 1995, the chain was doing $160 million in sales, with 48 restaurants. Franchisees opened Ruth's Chris restaurants in Portland, Oregon; in Indianapolis, Indiana; and in Mexico City in 1996, and the company opened its own restaurants in Tampa, Florida; Irvine, California; and Kansas City, Missouri. In 1997 the chain had 56 units; by 1998 there were ten more. For about six months of 1997, Ruth Fertel returned to the helm of her company as president and CEO. The president she had hired in 1993, Thomas Cangemi, resigned with no public comment, and Fertel came out of her semi-retirement to take over his duties. But Fertel turned 70 in 1997, and she was not willing to run the company again for long. By October 1997, a new chief executive had been installed. William L. Hyde took the job, leaving his position as president and chief operating officer of one of Ruth's Chris's major competitors, the Morton's Restaurant Group.
Fertel announced in 1997 that the company was considering going public. It was difficult to keep financing its own expansion, and a public offering might give the company a cash boost. The company bought back some of its units from franchisees, possibly because operating more of its own units would make the company more appealing to investors. Meantime, the company continued to add more units and upgrade existing ones.
Over the years, Fertel received dozens of awards from restaurant associations and business groups, recognizing her zeal and energy in building the Ruth's Chris chain. The chain had grown despite the popularity of many fad foods, including lighter, fancier fare. The success of the restaurant in cities across the nation and in exotic locales such as Hong Kong and Taipei, showed that the core product--good steak--had fans almost everywhere. The chain's projected sales for 1998 were $225 million, more than twice the figure of five years earlier. What remained to be seen was whether the chain would embark on a new course under new leadership and how a likely IPO might affect future growth.