BC Business
When his British dinner guest handed the menu back to the liveried waiter at Hy’s Encore and ordered chicken cordon bleu instead of one of the iconic restaurant’s famous steaks, David Aisenstat squinted suspiciously across the white linen tablecloth.
Chicken cordon bleu? At Hy’s? It was 1987, and Aisenstat and his father, Hy, had just reluctantly given up their 20-per-cent stake in The Keg restaurant chain with the sale of the steakhouses founded by George Tidball to British brewing company Whitbread PLC for $14 million. Whitbread had dispatched a young Brit named Michael Smith to Vancouver to run its Keg operation, and on this evening Aisenstat had graciously deigned to introduce the Whitbread emissary to a prime cut of Canadian beef. “I thought he was joking. The British, with all due respect, do not make great steaks,” recalls Aisenstat, whose father opened the eponymous steakhouse on Hornby Street in 1962. “The guy comes out here – and I think he must have known that The Keg was the biggest steakhouse chain in the country and Hy’s was sort of a high-end version – and the guy orders f***ing chicken cordon bleu. I thought, ‘OK, this is a bad start.’” Things got Keg-size worse. Whitbread’s man in charge soon went West Coast native, Kitsilano-style. “He became a non-drinking vegetarian,” Aisenstat bristles. The interloping Brit proceeded to renovate the bar areas right out of The Kegs and abandon the menu’s steak-first focus. “Basically it took two or three years of this and people who were big Keg fans – loyal Keggers, myself among them – were starting to get pissed off. And yet they weren’t doing anything good enough to attract new guests, so it started sliding.” Whitbread, perplexed by the plummeting sales of its multimillion-dollar overseas acquisition, decided to conduct some market research. According to Aisenstat, “They spent a million bucks researching this to figure out a Keg should be, ‘Oh, a steakhouse and a bar,’” he says, “which is exactly what they f***ing bought. Go figure. What kind of genius told you that?” When Whitbread eventually decided to refocus on its brewing business and put The Keg up for sale in 1997, Aisenstat asked for the bill. “I was quite surprised because Whitbread wasn’t a company that sold things,” he admits. The $50-million selling price astounded some food-industry pundits who thought it was rich for the chain in its state at the time. But Aisenstat believed the under-performing steakhouse chain represented sizzling value, and he partnered with Sam Belzberg, an old pal of his father’s, and CIBC to come up with the asking price. “His timing was impeccable because beef was just coming back into favour,” says Chris Wadham, president of Restaurant Office Intelligence, a hospitality consulting company. “It was absolutely the right time from a perspective of what the market was demanding for food. They’d gotten out of the whole pasta, healthy vegetarian stuff. That had come to an end and meat was coming back into favour.” Adds Aisenstat, who became president and CEO of Keg Restaurants Ltd. and Hy’s Steakhouse: “I didn’t think the steakhouse business was ever as bad as many people perceived.” On a recent evening, David Aisenstat dined at Hy’s. Predictably, the meat mogul ordered a charred rare filet, baked potato, Caesar salad and “a good bottle of wine.” His cheque arrived around midnight. “As it happens, I love eating steak. So I find myself at either The Keg, at Hy’s or Gotham a couple nights a week at least,” he admits. After a recent trip to Cabo San Lucas, where he golfed and ate everything but steak, Aisenstat admits somewhat sheepishly that he drove directly from the Vancouver International Airport to Hy’s Encore for dinner. “Did not stop at home to change.” As he relaxes on a black leather sofa inside his condo-size office at the company’s office-park headquarters in Richmond, Aisenstat apologizes for sounding hoarse. He’s been feeling under the weather all week, a condition probably made worse by the crate of wine recently delivered to his office by a Washington State producer hoping to be added to The Keg’s wine list. “He gave us some to try out. That was the start of my downhill slide yesterday. [We] cracked a bottle at about three in the afternoon and went downtown, and that was the end of that until midnight,” Aisenstat confesses. His gravelly tone may also have something to do with the fact that yesterday he sat alone inside his black, 500-hp Mercedes SL 55 in The Keg’s corporate parking lot singing along to Led Zeppelin for 30 minutes. “They were playing side two of Houses Of The Holy,” says Aisenstat, who recently turned 50. He was a little late for a business meeting, he explains with a shrug. “I wasn’t getting out until they finished playing.” [pagebreak] When you’re CEO and president of a 90-restaurant steakhouse chain, you can afford to walk into a meeting a few minutes late. You can also afford to decorate your corner office any way you like. Next to Aisenstat’s stone-accented gas fireplace hangs a limited-edition series of black-and-white Jimi Hendrix photographs he bought while vacationing in Hawaii. Behind his paper-cluttered desk is a bold, blackboard-sized abstract painting by acclaimed West Vancouver artist Gordon Smith. Other artwork waiting for wall space is propped up around the perimeter of his office. “I just love art,” says Aisenstat, who is also a Vancouver Art Gallery board member. While he had found the time to dine at Hy’s Encore the previous night, these days Aisenstat devotes 95 per cent of his business energy to The Keg. Since buying the steakhouse chain six years ago, Aisenstat has successfully returned the chain’s focus to “running great steakhouses and bars,” something lost under Whitbread. He began by trimming some of the fat the British company had created at the managerial level. He explains that the biggest change was how he and his partners decided to run the business. “I’m not knocking Whitbread, [but] they’re a huge, huge company, and a lot of the bureaucratic clutter and process that comes with a company that big permeated The Keg. The first day I had The Keg I laid off a lot of people in administrative positions.” Aisenstat wanted to rewind The Keg to the entrepreneurial style and attitude George Tidball had started the company with, offering customers a place where “you could get a steak, have some fun in a casual atmosphere,” says Aisenstat, who waited tables at the downtown Vancouver 12 Caesars (predecessor to Keg Caesars) when he was 18. David, whose father Hy spent as much time chatting with his dishwashers as he did chatting up the well-heeled guests in his dining room, believes that his employees, known as “Keggers,” underpin the chain’s bottom-line success. “You can build a stunning restaurant in a great location, but if you don’t have the right people, you have nothing. It’s the experience: how you are greeted when you walk in, how your meal is prepared, how you get served, what the guy at the bar is like, down to if you get a glass with lipstick. Every single staff member is so important.” Aisenstat’s Keg has been named one of the “50 Best Employers in Canada” by Report on Business magazine four years consecutively, thanks largely to the fact that he goes out of his way to retain staff by doing everything from paying in the top quarter of the industry pay scale to offering yearly employee adventure weekends. Under Aisenstat’s rule The Keg has grown exponentially. Today there are more than 90 in North America, as well as seven Hy’s and Gotham Steakhouses. He’s also co-owner of one of the hottest new restaurants in Toronto, a hip Japanese eatery called Ki that reportedly cost $7 million to open and now logs sales that “exceed our targets.” Ki opened last October after Aisenstat says he noticed a lack of high-end Asian-style dining in downtown Toronto. “There appeared to be a void in the market, and clearly there was,” he says, acknowledging the irony of a steak man from Vancouver opening a ritzy sushi joint in Toronto. “We have a Hy’s and Keg there, so we know the market. And in fine dining, it’s more about style and service and the ability to get a great location.” In 2005, The Keg reported gross sales of $325 million, a 9.8-per-cent increase from the previous year. When Aisenstat acquired full ownership of the chain, annual sales rang in at $185 million. But Aisenstat prefers not to heap credit on his own plate. “Day to day, we’ve got guys that are better than me. I like the development of the business, locations and growth strategies, the evolution of our design and decor, that sort of thing.” Chris Wadham, who has spent three decades in the local food industry, including operating his own restaurants, is more willing to candidly assess Aisenstat’s restaurant savvy. “I think the people who are really successful in the restaurant business are really good business people. He’s always had a quality in his food, and quality of food is long-remembered after price is forgotten. And the level of service in his locations is very good. In the hospitality industry, if you’re not really good to your people, your business suffers.” When David Aisenstat was 24 his father, who opened his first steakhouse in Calgary in 1956, put an offer on the table for him to join the family business. “There’s no one working for me now that can take over, so if you want to come and give it a shot you’re welcome,” he recalls his father telling him. “He said, ‘If I were you I’m not sure that I would.’” Aisenstat, who studied economics at university before landing a job with Nabisco in Montreal and later New York, joined his father immediately. They worked together for eight years until Hy passed away in 1988. Afterward, David quickly proved his chops. Hy’s website notes: “Over the years of expansion, Hy’s had taken on a number of different partners – and its share of debts. Over the next five years, David worked to consolidate the business into its most profitable properties – seven in total. In the process, he made it a solely Aisenstat-owned business.” Today, Aisenstat is very careful not to muddle The Keg ethos with the white-tableclothed steakhouses he operates. “The higher-end, fine dining is under the Hy’s umbrella. [There is] very little overlap, day-to-day. They’re different ideas. The arithmetic would probably say it would be more financially efficient to get them together, but what you end up doing is bastardizing what each is doing. Here we wake up and all we have to think about doing is running The Keg,” he explains. [pagebreak] While The Keg’s staple menu items continue to be “high-quality steak at middle-of-the-road menu prices” (the average bill for a Keg customer is $35, including drinks but not tax or tip), the more upscale Hy’s (between $75 and $100 per person) is a legendary dim-and-velvety dining room that has, over the years, served politicians (John Reynolds), infamous stockbrokers (Ray Ginnetti) and Hollywood actresses (Courtney Cox). Wadham says with The Keg, Hy’s and Gotham, Aisenstat’s got the meat market covered. “Hy’s was around forever and is around because of an older crowd that still really enjoys going to that steakhouse; Gotham is really aimed at a market of the stockbroker crowd, the crowd that circles around in that type of high-end restaurant environment; and The Keg is for your everyday family. It’s three different markets.” This year, The Keg is building new restaurants in New Brunswick, Montreal, Ottawa, Calgary and two in Toronto. It’s also replacing a pair of outdated restaurants in Burnaby and Delta with brand-new locations to better match the chain’s “21st-century Keg” look. The once-ubiquitous West Coast ski lodge decor has been ditched in favour of a traditional contemporary look consisting of fireplaces, stone accents, ironwork, hardwood, dim lighting, leather seating and modern art, much of it eyeballed by Aisenstat himself. The growth opportunities for The Keg in Canada, however, are finite, so the chain is looking toward the U.S. The Keg already has 10 locations in the Pacific Northwest, and Aisenstat is seeking new U.S. locations. “About five or six years ago we started opening in new markets – Denver, Phoenix, Dallas – and building a team to do some fine-tuning. It’s a little different down there,” says Aisenstat. The competitors, and the portions, are much bigger in the States, and The Keg brand is much smaller there, he explains. “We’ve worked pretty hard on trying to get it right and I think we have. We’re starting to look a little further afield in the States.” The Keg recently secured a restaurant site in Naples, Florida, and is scouting possible locations in North Carolina. The introduction of Keg Royalties Income Fund, which went public in 2002 at $10 a unit and now trades at $13.87, has allowed Aisenstat to expand more aggressively, both in Canada and the U.S. Essentially, the income fund owns trademarks and other intellectual property used by The Keg and leases them back to the chain in exchange for four per cent of gross sales of all the restaurants in the royalty pool. In 2005, the fund generated earnings of $9.3 million, or $1.12 per unit, compared to $8.8 million in 2004. “The income fund has been a great vehicle,” Aisenstat explains. “It really doesn’t hamper our strategic position or our operating position. It’s a great way for the investors to participate in the business without taking on the risks of capital expenditures and operating costs. It’s good for them and good for us, because every year we open new restaurants and we roll them into the fund and get more units and provide capital to the private company to expand.” Aisenstat has also added some higher-end options for wine-loving Keg fans, such as a Caymus Vineyards Zinfandel ($68.95) and a Beringer Knights Valley Cabernet Sauvignon ($73.95). “The guys at Whitbread thought it was important not to have any wine that cost more than 30 bucks,” Aisenstat grouses. “Our list has evolved and we offer great value on some of the higher-priced wines. We don’t mark them up as much as most guys.” Some of the wines in Aisenstat’s office, however, won’t ever make it onto The Keg’s wine list, like the private stash he’s got boxed in the corner of the room. “This is the better stuff I’m taking.” Aisenstat hasn’t made any dinner reservations for this evening. It’s unlikely, though, that he’ll be cooking dinner at his English Bay home with wife Christina, a former fashion model. When asked how many nights a week the couple eats dinner at home, he replies, “Maybe one, maybe not. It’s important [not only] to get out to our restaurants, but also the other guys’ restaurants.” Chances are, he’ll probably end up ordering steak.