Web Exclusive: Private Party: The Palm’s Growth Strategy
The luxury steakhouse chain forgoes outside investors to run the family business on its own terms.
By David Farkas, Senior Editor -- Chain Leader, 7/25/2007
Palm Management Group is in an enviable spot. The Washington, D.C.-based luxury steakhouse chain can afford to open restaurants at its own pace (and risk tolerance) and pay employees large bonuses without worrying about investor reaction. It’s a claim few restaurant companies can make these days.
And it’s all because the Ganzi and Bozzi families—now in their third generation—have chosen to remain sole proprietors.
“They are in an enviable position without other equity partners,” says Bethesda, Md.-based investment adviser Paul Fields, former CFO for Sam & Harry’s restaurants.
All in the Family
In the early ‘70s, co-owners Wally Ganzi and Bruce Bozzi Sr. needed help getting their first West Coast unit open. “The first Palm in Los Angeles had 22 investors, but then Bruce and I bought them out soon,” Ganzi says.
Today, the families own all 28 steakhouses lock, stock and barrel. And they like it that way. “Nobody can buy us! And believe me we’ve had offers in the past,” Ganzi boasts, adding he once sat through a private-equity presentation.
“When it was over, I asked them if they ever got anybody to sign one of those agreements,” he chuckles. “Once you take on an equity partner, you have someone to answer to. Will they put up with it if I want to give someone a $100,000 bonus?”
On Their Own
Then again, Ganzi and Bozzi have opened only slightly more than two dozen Palms. They are certainly enough to enrich both the Ganzis and the Bozzis, but the modest number scarcely confers bragging rights. Until you consider that the principals have struck real-estate deals themselves instead of having a real-estate department do it for them.
What’s more, the families are sinking their own capital and bank loans into sites. “We can cut incredibly good rent deals,” Ganzi says.
Ganzi recalls that early on, “Landlords offered to build us out and share in upside through percentage increases [in rent]. We did 10 to 12 deals that way. Now we are going back to doing it ourselves.”
The company expects to open a restaurant, its first in two years, in Manhattan’s financial district later this year. He estimates a typical unit, which runs 8,000 square feet and seats 220 people, costs about $2.5 million to open. The average unit rings up $6.5 million a year.
Says Fields: “Bankers love to make loans to those guys.”
Real estate is nonetheless a sensitive topic for Ganzi, who has negotiated for nearly all the sites. “I taught Fred [Thimm] real estate,” Ganzi says of The Palm’s longtime president and COO who resigned in May 2006. By then, Ganzi had stepped back into company operations and both admit they differed on strategic direction.
With Thimm gone, the 64-year-old Ganzi appears to be the only one at The Palm with deep knowledge of the real-estate market. “No, there’s no one else [in the company] at present,” he admits. ”My attorney, Joy Jones, with whom I’ve been working for 23 years, is now doing some of the real-estate negotiations. But I still do the term sheets.”
Still, that’s not all bad considering the chain doesn’t have to open a restaurant on anyone’s say-so except its own.
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