EMERGING Fund

An Interview with Stephen Lombardo, CEO of Gibsons Restaurant Group

If you’ve been in Chicago for any length of time, you’ve undoubtedly heard of Gibsons, otherwise known as THE Chicago Steakhouse. What started in 1989 has become an iconic brand, one of the most well-known in hospitality. Recently, Mathew Focht, CEO of EMERGING, had the pleasure of speaking with Stephen Lombardo, the CEO of Gibsons Restaurant Group.

Here’s what he had to say about their humble beginnings and rise to fame.

Mathew: Steve, you have a hell of a story and one of the most iconic brands in the industry. When I started in consulting, there were a few clients that really stood out: Gibsons, Houston’s, Hillstone Restaurant Group, Bravo Brio, and Win Casino. But when I mentioned Gibsons, it was like a light bulb went off. People immediately recognized the name because of its reputation and the memories they made there that unlock what life’s all about.

Stephen: I want to make it clear that I did not build the brand. I stand on the shoulders of the giant of my father and his partner, Hugo Ralli, following in their footsteps. 

Mathew: That’s a great place to start. How was it walking into your family’s business, and what did the brand mean to you?

Stephen: So, my father has been in the restaurant and bar business for pretty much his entire career other than a five-year stint in the army after he graduated college. Interestingly, he was sent to a restaurant management school in the army and ran all the officers and NCO clubs on the Korean Peninsula for a year. That was his first introduction to operating food and beverage. 

After leaving the army and returning to the States, he and a bunch of friends he grew up with built their first bar by O’Hare Airport. They had some background in construction and built it for about $11,000. They made their money back in three weeks and were ridiculously successful. They bought and sold a number of bars before opening up one of their first restaurants in Las Vegas.

It was at that point their partnership blew up, and my father ended up with the restaurant that pre-existed Gibsons at that location. Keep in mind, Chicago, at that time, was not a good place. It was before Daley got elected. 

But my father realized that the restaurant, which had been there for about 14 years in its current form, a French American concept, had run its useful life. He took a trip to New York with Rich Melman from Lettuce Entertain You, where they went to about 35 restaurants over the course of a 36-hour period. He came away thinking about establishments like Smith & Wollensky and Peter Luger, deciding there was something to the iconic classic steakhouse. In the late 80s, there were only five or six steakhouses in Chicago.

Humble Beginnings and Hospitality

Stephen: At the time, I was 14 and helping a little here and there, bussing tables and helping set up the inventory system. It was definitely not an overnight success. It took years of a slow build before it really made a name for itself. At its core, it was about hospitality and taking care of the customer, saying “yes” no matter what the question was. 

We have countless stories in our training and the archives about my father running to other restaurants to get dishes. If a customer wanted a pizza or a cheesecake that wasn’t on the menu, he would run out and get them. There’s a story about my father seeing a customer walk out after waiting at the bar for about 30 minutes for a table. My dad literally jumped in his car and followed him to his house, bringing him back to the restaurant on a different night.

In the 90s, superstition led the Bulls to decide to go to Gibsons after every home game. During the season, there were times when they wouldn’t get to the restaurant until midnight, which meant we were open until as late as 3 a.m. They talked about it in The Last Dance, a documentary series about the Chicago Bulls’ dynasty. While they didn’t mention it by name, you could see them doing the triangle offense in the dining room, with Rodman in one corner and Jordan and Pippin in another, surrounded by their entourage. 

A Family Business

Stephen: My siblings and I were actively discouraged from getting into the restaurant business. We all went to school to do different things. I became a corporate M&A lawyer, doing a lot of private equity work in the healthcare industry as well as food and beverage. Because of my background, the restaurant deals that came through our firm ended up on my desk. And then, I began advising the family business, helping them with fundraising, opening up new restaurants, and leasing.

At that time, about 16 years ago, my father and his partner were in their mid-60s. I kept reminding them that they needed to start thinking about planning for succession. My father’s answer to that was that he worked out an extra hour every day. It wasn’t until about six years later that he came to the same conclusion. 

Because his earlier partnership with his friends did not end nicely, he decided that the only people he could trust to take over was the family. So, he wanted my brother and me to run the business.

When I started about nine years ago, we were doing about $106 million in sales. This year, we should do about $240 million. While I’m not certain, I’d bet we’re in the top three highest average unit volumes for restaurants in the U.S. We’ve got four restaurants doing over $20 million, one doing over $50 million, and everything else is over $10 million. 

We know how to do big very well. In fact, we’re currently working on a location in Fulton Market that’s about 14,000 square feet and considering adding an additional 7,000 feet on the second floor. 

Mathew: That’s wild and quite the success story. I know you spun out and added a couple of other brands. Was that all part of the plan? 

Stephen: My primary directive over the last nine years has been to take this entrepreneurial model and make it a company that’s scalable. Most of the growth has been opportunistic, with people coming to us. There’s very little that’s been intentional, but we’re slowly pulling the company in that direction. 

Mathew: What do the next three years look like for you? 

Stephen: We recently had our quarterly planning meeting, and we’ve got three probable deals on the table. Fulton Market is about two years out. It will be a Gibson’s derivative property that will likely be more casual and approachable with a little more focus on the bar and a little lower check average. We have a possible deal for an original Gibsons in Dallas and are working on buying an existing brand in the Florida market.

Mathew: I know one of your brands is The Boathouse at Disney Springs in Orlando, as well as concepts like Hugo’s Frog Bar & Fish House, LUXBAR, Quartino Ristorante & Wine Bar, Bazaar Meat Chicago, and Café By the River. Do you keep the same culture, or how does it change between each brand? 

Stephen: For every unit that we’ve opened, we send at least half a dozen existing employees, both management and hourly, to the new location. These are the people who exhibit our culture the best. One example is The Boat House, which was a challenge culture-wise because of the strong demand. An employee might steal from their employer, get fired, and get hired next door because there are so many open positions. 

While it took a while, I would argue that the culture down there is now even better than the culture in Chicago. It’s very customer-focused.

The food business is really a people business, and people are imperfect beings. We teach our crew that they are going to screw up. There will be nights when people wait for 45 minutes and are not happy about it. But it’s about how you recover and show the customer you care. It’s going that extra step. 

One of the many examples occurred during the pandemic when there was a worldwide shortage of frog legs. A woman came into Hugo’s, and that’s all she wanted. I knew we didn’t have them, but I told her I’d go back to the chef and see what we could do. I expected him to come out to the dining room and share the information about the shortage. Instead, he came out, gave her his card, and told her to let him know about 48 hours in advance when she was coming in. This would give him time to buy enough frog legs for a few orders. That’s a perfect example of going that extra step. 

We also have a server who gets her customers’ addresses and writes them thank-you notes. They love her, and she gets invited over to their homes and becomes part of the family. 

Mathew: You’re obviously making a huge impact, but what’s inspiring you and motivating you on a daily basis?

Stephen: We’re making people happy, and we get to witness some of the best celebrations that people have, from weddings to birthdays, anniversaries, and even funerals. Even just sharing a meal is something that’s sacred. If you don’t have that gene in you that loves to serve and make people happy, then this business isn’t for you.

Mathew: We’re very honored that you and your brother are a part of the EMERGING Fund. We’re doing some great things, like filing holes with capital for underfunded concepts and accelerating the growth of real solutions that will hopefully make our industry a little more efficient and profitable. But why are you, specifically, in the fund?

Stephen: Well, the first reason is to get a good look at some of the companies you guys are investing in on the tech front. The restaurant industry changes so fast, and it’s outside of my day-to-day purview to follow it. Right after I joined the family business, I sat down with Nick Kokonas and asked him about raising money. They had just invested about $1 million three weeks earlier.

In addition to being in the know, it’s also about getting different opinions from other people in the industry, even just the anecdotal data of what everyone’s up to and the map of the economy.  

Mathew: You guys are already playing a significant role in tech. You’re evaluating 1Huddle and F&B Insights and another half dozen investments, which is awesome. I also know you’re pretty active, trying to help the industry level up and fight for fair wages. At the same time, there are a lot of headwinds in the restaurant space right now. Where do you see the industry going, and how do you maintain the business?

Stephen: I think the quick service and fast casual segments are going to see more and more automation. However, our differentiating feature in full-service is the “service,” and that can’t be automated. You might see some AI when answering the phones and pay-at-the-table options, but for the most part, I don’t see our business radically changing in what we do. 

 

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