The Palm's Softer Side

The upscale steakhouse chain refreshes its image to draw a younger clientele and more women.

By David Farkas, Senior Editor -- Chain Leader, 8/1/2007

The families of Executive Vice President Bruce Bozzi Jr. (l.) and CEO Wally Ganzi have owned The Palm since Ganzi’s grandfather, John, and Bozzi’s great-grandfather, Pio, opened the first Palm in New York. Bozzi Jr. will likely succeed the 64-year-old Ganzi upon his retirement.

Giant crustaceans, like the 5-pounder above, remain among The Palm’s best-known dishes.

But lobster’s high cost and relative scarcity has compelled the 28-unit chain to promote other kinds of seafood like seared ahi tuna.

Management keeps a handful of Italian dishes on The Palm’s menu, which dates back to the Italian immigrant founders. The dishes help keep food costs low while offering variety.

These days, food costs for USDA Prime cuts are steep and likely to go higher as the price of corn—the main ingredient in cattle feed—rises. Instead of simply raising prices, The Palm is employing a beverage strategy to lure a new customer in: typically young people who come to drink and nibble in The Palm’s remodeled bars.

Wally Ganzi concedes he has never hired a designer to create a uniform for waiters at The Palm. What for? The formless butcher jackets both sexes have been donning in the dining room for 80 years are emblematic of a classic steakhouse, known more for what’s on the plate than who’s bringing it.

“Bruce and I never changed what our fathers and grandfathers made,” Ganzi says proudly, referring to retired co-owner and partner Bruce Bozzi Sr. “But we kept up with the times.” The CEO cites a time in the 1960s when he and Bozzi allowed men into The Palm (there was only one at the time) without sports coats, to the chagrin of their fathers.

The times are changing, again. The company, which traces its roots to Italian immigrants Pio Bozzi and John Ganzi, who opened the first Palm in New York City in 1926, will debut a designer-made butcher coat tailored for the female figure later this year. Bartender uniforms are already cut separately for men and women.

“We don’t want to veer too far away, but we’re going with the times a little,” explains Executive Vice President Bruce Bozzi Jr., 41. Bozzi, a likely successor to 64-year-old Ganzi (who has yet to announce his retirement), adds that the modifications were prompted by a changing work force and customer base.

Ganzi, who had been overseeing The Palms’ real-estate holdings, returned full time to The Palm in 2004 to work more closely with longtime president and COO Fred Thimm, Bozzi Sr.’s son-in-law. The two eventually clashed over the direction in which to take the chain. Thimm, who joined The Palm in 1991, resigned in May 2006 to become president of Martini Park, a Bethesda, Md.-based bar concept he has since left.

Breaking with Tradition

The new uniform is one of several steps management is taking to refresh the image and increase the customer base at the 28-unit chain, the first white-tablecloth concept to achieve a national posture, Ganzi boasts. Others include rolling out a new bar and beverage menu, rehabbing bars and private dining rooms, and reviving plans for a smaller prototype.

Ganzi, meanwhile, has given the go-ahead for a new Palm—the first one in two years—that’s scheduled to open later this year in New York’s financial district. He’s also eager to open restaurants in Europe and China.

Yet boosting customer counts at existing restaurants—a less expensive way to grow revenues than opening new units—means steakhouses like The Palm must make themselves attractive to younger, affluent customers, particularly women.

“The steakhouse segment is traditionally a male bastion,” says Bozzi Jr.

There’s the rub. Traditional steakhouse chains, with their dark woods, stiff drinks and beef-heavy menus, traditionally appeal to older males. The Palm, for instance, likes to brag that regulars include CNN’s Wolf Blitzer and Southwest Airlines founder Herb Kelleher, scarcely trendsetters. The walls of its restaurants are lined with caricatures of mostly male celebrities, politicians and favored patrons, many of whom appear to be over 40.

Former Palm Senior Vice President of Marketing Andrea Von Utter, now president of Fishbowl Marketing in Washington, D.C., thinks steakhouses will have to replace older male customers sooner rather than later. “With a demographic of aging expense-account customers set to retire, any marketer’s job is looking for opportunities to put together programs for younger customers,” she offers.

“We started that conversation this year, to open our doors to a younger and more diversified clientele,” Bozzi Jr. explains.

Don’t expect steakhouses like The Palm to toss aside red meat, which typically accounts for more than a third of their sales. Americans, after all, ate more red meat (117 pounds per capita) last year than poultry (105 pounds), according to the U.S. Department of Agriculture.

Seafood Lovers

But do expect to see an emphasis on fish—less expensive than beef dishes and with better margins. The Palm, which has always offered fresh fish, recently began highlighting its offerings by boxing them in the upper right-hand corner of the menu. “We decided we should give as much attention to fish as we do to beef,” says COO Walter McClure.

Prominently displaying fish, which averages $30 a dish, gives the impression of a more reasonably priced menu. Steaks at The Palm are in the $40 range. “With this re-engineering of the mix,” Ganzi explains, “we have been able to lower our food cost and thereby maintain a reasonable price for beef.”

It has also helped fatten the company’s bottom line, along with several price hikes. Although the sums cannot be checked independently, officials claim pre-bonus EBITDA will climb 14 percent this year, to $16.2 million, on revenues of $158.7 million. Last year, it grew 2 percent.

Feminine Virtues

Fish is only a part of The Palm’s attempt to cultivate its feminine side. This year, the company became a sponsor of Dress for Success, a nonprofit organization that helps disadvantaged women achieve career goals. In September, The Palm’s Washington, D.C., outpost will donate 10 percent of the sales of five new salads to the New York-based group.

Then there’s the bar. Palm bartenders have been whipping up Watermelon Mojitos, White Cosmopolitans and Strawberry Mint Lemonades ($12 each) as part of a summer drinks menu. This fall, the chain follows up with the systemwide rollout of a bar menu, for the first time. Alcoholic beverages account for 37 percent of unit sales.

The Palm is also making its bars more attractive to drinkers by enlarging them, in contrast to the “holding tank” feel that traditional steakhouses have. The Philadelphia Palm got rid of its small bar after it underwent a $2 million refurbishment, which also increased the size of the private dining room. So far, bars in 11 restaurants have been modified. They now include communal tables, a trend that appears to be taking hold in bar areas of upscale restaurants.

The Washington, D.C., unit, which opened in 1972, is currently undergoing a major renovation that will increase the size of its small bar and the private dining room. Officials estimate that private dining, with its higher check average, will ring up about $24 million in ’07, or roughly 16 percent of a projected $158.7 million in sales.

“That’s generally our plan going forward,” Ganzi says of the effort to increase both highly profitable businesses.

Travel Plans

Emphasis on “generally.” Ganzi, who has negotiated many of The Palm’s sites, will expand the concept to China and Europe. He believes restaurants in both parts of the world could be up and running by the end of next year.

The company will license The Palm name to Chinese operators who will open a steakhouse in Shanghai, Beijing or Macau, a gambling center that attracted about 25 million tourists last year.

Ganzi sounds considerably more excited when he talks about a potential European deal, worth about $75 million, that could result in a dozen Palms throughout Western Europe by 2013. He mentions London, Milan, Rome, Paris, Madrid and Barcelona as possible sites, though he won’t identify the investor group he’s dealing with.

The Palm, he explains, will receive a $5 million management fee up front, with investors recouping their stake before splitting the profits with The Palm. The first unit opens in London’s Mayfair district, a popular tourist area of lavish shops and museums.

“I need [the restaurant] to be in a flashy place and have a phenomenal opening. I want the Queen there!” he declares. Ganzi estimates sales will reach $8 million in the 8,000-square-foot restaurant. He’d like to open the second Palm in Canary Wharf, another spot popular with tourists.

Ganzi also suggests that, possibly, key employees will become shareholders of the restaurants in Europe. “Nothing is certain,” he says, “but we have discussed allowing ownership of this European deal.” To date, the two partners have not shared long-term equity in the company with anyone outside their families.

Small Packages

Her Royal Highness isn’t likely to show up for the opening of The Palm’s other new venture: a small prototype called Palm Grille. “Planning for it started several years ago, but the real serious work began about two months ago,” McClure says of the 3,500-square-foot restaurant. The first is likely to open in Bethesda, Md., or Manhattan in ’08.

McClure declines to estimate a check average but allows that it will be “significantly lower” than The Palm’s current $77. The menu will be smaller, too, with about half of the 60 items available.

“We’re The Palm, so we will have beef and our sides, like Creamed Spinach. Seafood will be huge,” he explains. In a major departure, the prototype won’t use tablecloths or put caricatures on its walls.

Ganzi isn’t even sure it makes sense to menu USDA Prime beef, used exclusively in Palm restaurants. “I’m not sure what the beef will be. It could be Angus,” he says. He is certain the smaller footprint will provide opportunities for a new type of location.

“This is a great concept to go into airports,” Ganzi says, “especially with the airlines not serving food.” Given The Palm’s reputation—and changing image—something like this just might fly.

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Location, Location, Location

The Palm has made its reputation (and considerable money) by opening restaurants where expense-account diners gather. When the 28-unit chain has strayed from that model, things have gotten tougher than a $10 steak.

For instance, The Palm closed its suburban Troy, Mich., location late last year, after a promised highway that would have brought customers closer was never finished, maintains CEO Wally Ganzi. "We were about 2 miles off the beaten track. We were not doing business," he adds. The restaurant was opened in early 2001.

Then again, competition is stiff. The Capital Grille, Ruth’s Chris, Morton’s and Shula’s operate restaurants in the general vicinity of the former Palm unit.

Sales at The Palm in Northbrook, Ill., an affluent Chicago suburb, are flagging due to low customer turnout on weekdays and Sundays. The company recently began enticing diners with a $62 "family dinner" menu for four featuring meatloaf, chicken fingers, vegetables and mashed potatoes.

Apparently it hasn’t been working. Asked how many Palms he would rebuild if all burned down, Ganzi says all but one: Northbrook.