Failure to Launch

Rockfish Seafood Grill is a terrific concept. I ate in one last night, and the restaurant was crowded with contented customers chowing down on “Great seafood, for not a lot of clams”. The concept was started in 1998 by Randy and Michelle DeWitt. Their original 1,800 square foot location in Plano, TX did extremely well, others followed, and in 2001 Brinker International bought a 40% interest in the eight unit concept. The future looked bright enough to warrant another increase in their ownership to 43% in 2003. By late 2004 Brinker had helped expand Rockfish to 25 units. About the same time period Brinker wrote off its investment in Rockfish. From impressive to impairment in just over three years. What happened?

I was among the first to applaud when Brinker announced their deal with Rockfish. It seemed like a perfect match. Clever Dallas entrepreneurs being funded by a Dallas-based, casual dining portfolio company. A seafood Chili’s partnering with the parent of Chili’s. Even in this tough industry some things look like sure things. Brinker and I weren’t alone. Investment analysts and restaurant publications all sang the praises of the deal, and the Rockfish concept. "Rockfish looks to be one of Brinker’s stronger partner brands for the future," said Bob Derrington, a senior vice president of research for Morgan Keegan. An old quote by Cyril Connolly springs to mind. “Those whom the gods would destroy, they first call promising.”

Before I go any further, and you get the wrong idea, let me tell you that Rockfish is still a very good concept. There are 14 locations, down from 25, but growth still continues. More slowly than before, but growth nonetheless. The lesson to be studied is how a promising concept, paired with a casual dining powerhouse, can fail to grow into a regional, if not national, brand. The lesson to be learned is that there is never a “safe zone” for a concept based on size, or financial backing. Believe it or not, financial backing has probably caused more promising concepts to derail than any other reason. While you and I would need to raise money from outsiders for each opening, reexplaining the concept each step of the way, financial backing without begging can lead to unchallenged growth. 

Casual dining seafood is a tough market to compete within. Red Lobster acts as a kind of “death star” for any concept that has visions of growth outside of its core trade area. To be safe you must be positioned either below Red Lobster (the early Rockfish concept), or above Red Lobster (the current Bonefish Grill concept). The Rockfish concept that excited Brinker, as well as others, was a neighborhood seafood place. Usually less than 2500 sq. ft. and in strip center locations. The concept was chef-driven food at prices in the $7-$14 range for entrees, in an old fishing lodge motif. The unique experience, and quality of the food, generated $2 in sales for every $1 of investment in the early locations. The kind of numbers that attract attention and suitors.

This sales-to-investment success appears to have led to the unraveling of the concept. After all, if you can do 2:1 in small locations when money is tight, why not build it in bigger locations if money is no object? This subtle change led to a change in the positioning of the concept from “neighborhood” to “mainstream” casual dining. Suddenly, instead of being the “little gem in the nearby center”, Rockfish became one more casual dining concept on a pad site competing for the same customer dollar. The development strategy became more real estate driven than concept driven, and the concept lost its unique positioning in the market.

The lesson is not a new one, but apparently needs to be retaught to most restaurateurs at some time during their careers: concept positioning is the north star from which all decisions should flow. The success of any concept, especially a growing chain, comes from following three steps in the right order.

1. A clear concept positioning based upon an understanding of the customer
2. Optimize the unit economics to capitalize on the positioning
3. Grow the concept in a manner that does not jeopardize step 1 or 2

The Rockfish story has a happy ending, although not the ending that the DeWitt’s pictured when they partnered with Brinker. They bought the concept back from Brinker after the write-down of the investment. They closed the units that took them away from their original positioning, converted some to a second concept, and began the process of slowly rebuilding Rockfish into their early dream of a place for neighbors to gather and eat. The concept may have failed to launch, but it has not failed to satisfy.