), freely admits that his high-end restaurants are getting hammered in the wake of the September 11 attacks and the current economic slowdown. The company reported on Sept. 20 that its revenues for the month were running 30% below the same period a year earlier. He says business has started to come back some -- "How could it not?" -- but is still weak.
Stillman, who helped created the phenomenon of the singles bar when he opened T.G.I. Fridays in 1965, spoke with BusinessWeek Online Associate Editor Amey Stone about his 35-plus years in the restaurant business and his company's strategy for weathering the slowdown. The energetic 64-year-old entrepreneur has lived through recessions before and is confident his company, which went public in May of this year, will survive this one, too. Edited excerpts of their conversation follow:
Q: Why did you take the company public in May -- to raise more cash and open more restaurants?
A: Yes. We paid off all our debt. We went from owing $25 million to having $11 million. That was a very good idea. I would not like to be $25 million in debt right now in the high end of the restaurant business. So we were quite lucky.
Q: How much cash do you actually have right now?
A: I think we have now about $8 million.
Q: You said soon after September 11 that traffic in the restaurant was way off.
A: We said the third quarter would be a disaster. And it was.
Q: Has it bounced back at all?
A: October will probably be off half as much as it was in the last three weeks of September. It's still off, but day by day, it's growing back.
Q: How much of the difficulty now is September 11, and how much is just the economy?
A: I would say it's about 50/50. The economy is so bad, and has been so bad, that September 11 just put the cap on it. It really put a lot of restaurants in a horrible situation because there is absolutely no traveling going on for businesses, high-end tourists, and conventions. And that's really where all the money is for people in the high end of the retail business.
This, too, will pass. I think this will be one of the times in the retail business when it will be very much a case of the last man standing. We're going to watch our p's and q's on expansion until we know that the economy has flattened out, and then continue our growth.
We still plan to build restaurants next year -- probably two, at least one. One of the reasons we're not going ahead [with some of our expansion plans] is we're waiting for better real estate deals.
Q: What steps have you taken to adjust for the tougher business environment?
A: First thing we did is we fired nobody. We don't believe in it. We're going to live through this. We have asked people who work on an hourly basis to work less, so that people who are used to working five days are working four. We've cut down on all bonuses, and unless something strange happens, we won't have any raises the next year. But all the people who can make the company go forward are still there. And we're going to do our best to make sure that they're still there.
Q: So you haven't had to reduce prices?
A: We have no intention of cutting prices, which run between $29 and $33 for a steak. We're having promotions in which you'll be able to spend less money than you normally would. But if you walk in today for a steak, it's the exact same price, the exact same quality, and the exact same cut as it will be forever.
Q: That's a pretty high price for a steak. Will that pricing make it tougher for you to weather the slump?
A: We've already been through three pretty big recessions. Here's the key: It costs quite a bit of money to get a new Mercedes. And it costs a lot of money to take a trip to Paris. Although $65 for dinner is a lot of money, it's still only $65. There are always going to be people out there who say, what's the difference whether I spend $65 or $35 for dinner? It's only $30. Those are the people that will be the backbone of our recovery back to normalcy.
Q: How long can you last if things don't pick up?
A: We're prepared for business to continue on this level for a year and a half. We [think] it won't get any worse. There are certainly going to be ups and downs. There are certainly going to be a lot of scares. But we also think that the American public, which is not used to any of this, will get used to some of this, and will come out of their caves.
Q: How did Smith & Wollensky get started?
A: In 1976 [after selling T.G.I. Friday's, which was by then a chain, in 1975 and coming away with about $1 million in cash], I bought the corner of 49th St. and 3rd Ave. for $1 million. There had been a restaurant there, and it had burned down, and we were in the middle of a recession. And Smith & Wollensky was born in '77.
Q: How did you get the idea for Smith & Wollensky?
A: [After having sold Friday's and traveling to Europe] I realized that I didn't want to be in the moderate end of the restaurant business. I wanted to be in the high end. I had no background in cooking, so I certainly wasn't about to open up a high-end French restaurant. And there was no such thing then as a high-end American restaurant...and a new steakhouse hadn't been opened in New York for about 20 years.
So I took a lot of my money and put together some money from other people that I knew in and around Wall Street, and opened up what I thought was the most sophisticated steakhouse in New York, with a real wine list, and a real chef, and a real pastry chef, to do one up from what the other steakhouses were doing.
Q: You said the economy was in a recession. I think that would have motivated you to go more to the low end.
A: You think I knew what I was doing? Why would you think that? But really, I knew I was buying a great piece of real estate for nothing. We figured we couldn't lose, that we could always sell the corner of 49th St. and Third Ave. to somebody for $1 million. So the only risk was the operating risk and the rebuilding risk.
Q: Was there a point when it really took off, or was it a slow-building process?
A: It was a slow-building process. And last year we were the largest-grossing a la carte [without banquets] restaurant in the country. We have six other Smith & Wollensky restaurants in the U.S. and seven other restaurants here in New York, including the Park Avenue Caf?, The Manhattan Ocean Club, Maloney and Porcelli, and One C.P.S.
Q: How did you come up with the Smith & Wollensky name?
A: We were having a big fight about using another name. We agreed to flip open the phone book and pick a page and use one of them. One came out Smith, one came out Wollensky. We finally said, the hell with it. We'll use both of them.
It has turned out to be a remarkable brand name.... Everybody in the U.S. on the high end either knows the name or has been in a Smith & Wollensky. So, for a little, tiny company, we have a brand name that's bigger than the company. And we intend to use it.
We need a 25th-anniversary idea [for Smith & Wollensky], because that's starting next year. All ideas gratefully accepted.