Rusty Pelican Closes 6 Units, Lays Off 400

In more bad news for the Orange County restaurant industry, Rusty Pelican announced Monday that it has closed six of its 24 restaurants, laid off 400 workers and will seek protection in bankruptcy court later this week.

Rusty Pelican President Scott Barnett said about 100 full-time and 300 part-time employees lost their jobs when restaurants were closed Sunday night in Brea, Irvine, Palm Desert, Woodland Hills and Portland, Ore. The company’s Sand Dancer Broiler & Rotisserie in Newport Beach was also closed.

While the restaurants are themselves profitable, the chain has been saddled with “astoundingly high” lease costs and heavy debt left over from a 1987 buyout, Barnett said. “We had the options of either lowering quality or seeking (bankruptcy protection), and we weren’t going to lower quality.”

Would-be diners who showed up at closed Rusty Pelican locations on Monday were handed discount coupons redeemable at its remaining restaurants in Southern California: on West Coast Highway in Newport Beach and in Long Beach, Glendale and San Diego County.

The upscale restaurant chain, founded in 1967 by former Newport Beach lifeguard Louis (Pete) Siracusa, will be the third Orange County-based restaurant company forced into bankruptcy in recent months. Costa Mesa-based Del Taco Inc., the Mexican-style fast-food operator, and Irvine-based Restaurant Enterprises Group, which operates the El Torito, Coco’s and Carrows chains, are seeking protection from creditors under bankruptcy proceedings.

Rusty Pelican executives said they hope to use bankruptcy proceedings to get out from under costly leases at the locations shut down on Sunday.

Barnett said he shut down those locations after negotiations for lower leases failed and cited the chain’s location on Main Street in Irvine as an example. Rusty Pelican was paying $36,000 per month, far above the local market average of “somewhere in the $12,000 to $15,000 a month range,” Barnett said.

“We were one of the busiest restaurants in Irvine but we simply couldn’t make a profit at that level,” Barnett said. “It simply became impossible to make money at that location.”

A spokeswoman for the Irvine Co., which holds the lease, declined to comment on the planned bankruptcy filing or the restaurant closing.

Some landlords granted temporary lease reductions, but “we needed them to be more realistic about long-term occupancy costs,” Barnett said. The leases “made sense to someone back in the 1980s, but a lot has changed since then in a competitive sense . . . the recession has hit Southern California really hard and we’ve been a victim of that,” Barnett said.

The restaurant closings and the bankruptcy--to be initiated as soon as today--are designed to produce “a stronger company, with a core group of restaurants whose profitability never has been in doubt,” Barnett said. “We’re an upscale seafood restaurant that employs an atmosphere of casual elegance . . . we’re a special-occasion restaurant with a very loyal clientele.”

While the restaurants are “profitable from operations” with estimated sales of $52.3 million in 1993, Barnett said the San Juan Capistrano firm has seen its profitability eroded by a heavy debt load accumulated when Rusty Pelican’s current owner, San Diego-based Green Leaf Ventures, acquired the chain for $25.6 million in 1987.

Rusty Pelican’s decision to terminate its most expensive leases makes sense,” said Janet Lowder, a Rancho Palos Verdes-based restaurant industry analyst. “When these (leases) were signed in the 1980s, people were banking on 5% or 10% sales increases every year. But it’s hard to meet those targets in this economy.”

“Business is relatively soft for most restaurant companies operating in Southern California,” said Steven A. Rockwell, a Baltimore-based industry analyst with Alex. Brown & Sons. “Some chains that are more diversified geographically haven’t been hurt as badly as those who were mainly in Southern California.”

But at least one former Rusty Pelican executive, who asked not to be named, said the chain hasn’t been competitive. “Green Leaf paid too high a price to begin with in the 1980s,” the former executive said. “The old adage is buy low, add value and sell high. With Pelican, the price was too high to begin with.”

For Rusty Pelican, the bankruptcy filing is the latest in a series of high-profile moves.

In the mid-1970s, the chain that Siracusa founded was best known as a steak house. But as consumer tastes changed, the chain began to sell more fresh fish. Rusty Pelican made its initial public stock offering in 1983.

Rusty Pelican at a Glance

Business: restaurant chain

Headquarters: San Juan Capistrano

Number of restaurants: 24, reduced to 18

Locations closed: Six, including Rusty Pelicans in Brea, Irvine, Palm Desert, Woodland Hills and Portland, Ore., and Sand Dancer Broiler & Rotisserie in Newport Beach.

Concept: Emphasis on fresh seafood served in an upscale, full-service environment.

Employees: 1,500, reduced to 1,100

President: Scott P. Barnett

Founded: 1965 by former Newport Beach lifeguard Louis (Pete) Siracusa

Source: Rusty Pelican Restaurants Inc.

Researched by JANICE L. JONES / Los Angeles Times