WASHINGTON Palm Restaurants’ decision to expand into the European marketplace marks a first for high-end steakhouse operators based in the United States who previously had avoided crossing the Atlantic because of tough restrictions and high tariffs on imported American beef. —
The 28-unit chain’s European beachhead will undoubtedly be watched closely by U.S. steakhouse chains like Morton’s and Ruth’s Chris, which also have been pursuing international growth policies but previously have been focusing on Asian markets, where American beef is more welcome. The 77-unit Morton’s, for example, recently opened its third Asian location in Macau, China, at the Venetian Casino on the Cotai Strip. —
With the first European Palm steakhouse slated to debut in London in 2008, the privately owned company spent the last several years scouting sites, studying local labor regulations and, most importantly, ensuring a reliable supply of the chain’s signature USDA Prime aged beef and jumbo lobster. —
“If we don’t serve the same beef and lobster in Europe that we serve in the States, we might as well just be a local steakhouse,” said Wally Ganzi, chairman, chief executive and co-owner of Palm Management Corp., based in Washington, D.C. “There wouldn’t be much to differentiate us.” —
In the past European nations strenuously resisted the importation of American beef in favor of domestically raised product. Not only did the governments there insist that the little U.S. beef allowed into Europe must be raised hormone-free, but they also burdened it with heavy tariffs approaching 40 percent. —
More recently, though, the European Union has begun to adjust its attitude toward imported American beef, said Lynn Heinze, vice president of information services for the U.S. Meat Export Federation. “The E.U. went from being a surplus beef market to a deficit market,” Heinze said, explaining Europe’s growing interest in U.S. beef. —
In addition, more U.S. suppliers are raising hormone-free beef for domestic consumption, and, as a result, are willing to invest the time and money necessary to merchandise their product in Europe. —
Currently, the annual quota on American beef exported into Europe is 11,500 metric tons—a figure that Heinze would like to see grow further. —
At the same time, the European Union has been reducing tariffs, and Ganzi is hopeful that next year they could fall to 20 percent or even lower. —
American quick-service and casual-dining brands that landed on European shores earlier did not face the same menu expectations as upscale steakhouses, and were able to purchase locally raised beef and other ingredients without compromising their brands. Even fine-dining pioneer Trader Vic’s, which has operated a location in London since 1963, purchases Scottish beef, said company president Robert Davies. The 32-unit Trader Vic’s also operates locations in Germany and Spain. —
But the flavor and texture of USDA Prime aged steak is critical to the Palm dining experience, as it is to other luxury steakhouse brands, Ganzi observed. Acknowledging that any Palm opening in Europe would have to serve the same beef that is served in the United States, Ganzi struck a deal with the chain’s supplier to ensure that enough hormone-free beef could be supplied. —
“They have enough now to supply one restaurant in 2008 and are gearing up to supply two or three more in 2009,” he said. “We have to give them a year’s notice in order for them to raise the necessary amount of beef to handle our expansion.” —
In addition to opening in London next year, the Palm is planning to open restaurants in Paris and Milan in 2009. A fourth Palm also is scheduled to open in Madrid either in 2009 or 2010. Ganzi said he expects to open 15 steakhouses in Europe within five to seven years. —
The Palm, which also has future plans to augment its traditional stateside menu with hormone-free Prime aged beef, is paying the same price for both products, Ganzi said. Menu selections in Europe, however, are expected to be priced higher than those in the United States. —
In addition to guaranteeing a dependable supply of beef, the Palm had to ensure that its signature jumbo lobsters would be available in Europe. “We lucked out there because our supplier already has facilities in London and Paris,” Ganzi said. “So we won’t have to pay any great tariff.” —
He said European Palm outlets would purchase the remainder of their ingredients locally. —
Another challenge faced by the Palm was having to sort out local operational logistics. For example, the company hired consultants in London to help it negotiate through the labor laws and regulations. That resulted in the Palm agreeing to pay a flat payroll tax of 11 percent of an employee’s salary to cover income tax, health and life insurance, and other costs. —
“This is a very complicated procedure,” he said. “There has been a lot of research done on our side.” —
While the company has not yet signed a lease for its London space, Ganzi said he expects to open in the posh Mayfair section of the city, which encompasses the U.S. Embassy, Claridge’s, a number of major hotels and law offices. The London Trader Vic’s also is located in Mayfair. —
Ganzi is bullish about the expansion, saying that Palm customers from Europe have been requesting that they open overseas for years. He also anticipates it will be “a very profitable venture,” and is projecting average unit sales of $7 million to $8 million. —
Funding for the European expansion is still being determined. —
Robert Nyman, founder of The Nyman Group Ltd., a Phoenix-based international restaurant and hotel consulting firm, also believes there is demand for U.S.-style steakhouses like the Palm in Europe. —
“A lot of people travel and are already familiar with it,” he said. —
The U.S. Meat Export Federation’s Heinze concurred, saying: “We’ve found that one of the first places European and Asian travelers go in this country is to a good steakhouse. So we’re interested in finding out what happens, too.” —
In addition to expanding in Europe through company-owned stores, the Palm also has plans to license its brand in Asia. Ganzi said a Palm should be open in Beijing for the 2008 Olympics, and other deals are pending in Taiwan, Macau and Shanghai. Local licensees will pay a fee upfront, and then an annual fee plus a percentage of the gross and a marketing fee. The Palm already licenses one outlet in Mexico. —
The company also is seeking to expand through a smaller, more casual prototype called Palm Bar & Grill, which has been tailored for airports and hotel lobbies. The downsized concept will feature a limited menu, smaller portions and takeout items. The average check is expected to run from $22 to $27 per person. The inaugural unit is expected to open in a Washington, D.C., airport. —
The Palm also expects to launch a proprietary food line this year. —
“We’re very excited about the direction the company is going in,” Ganzi said. “Within five to seven years, we hope to increase sales from $165 million to over $500 million.” —