Sea Galley Stores Inc. -- Chain's Executives Gear Up For Pitch Toward Home Base

Sea Galley Stores Inc.;

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-- Employees: 955;

-- Business: Seafood restaurants and hardware stores with western wear;

-- Headquarters: Mountlake Terrace;

-- Locations: 14 seafood restaurants in Washington, and one each in Arizona, Alaska and Idaho; three American Ranch & Home Supply Centers stores selling western wear and hardware, all in Washington.;

-- Chief executive officer: Kim Krieg;

-- 1989 sales: $51.5 million;

-- 1989 losses: $6.8 million, $2.21 per share;

-- Current stock price: 62.5 cents.;

-- Major competitors: Moderately priced restaurants such as Red Lobster and Sizzler Steak Houses.;

-- Strategy: To concentrate on the Northwest market and to win customers through more diversified menus and more aggressive marketing.;

-- Annual meeting: 9 a.m., tomorrow, Stouffer Madison, 515 Madison St.;

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Kim Krieg, chairman, president and chief executive officer of troubled Sea Galley Stores Inc., isn't sure what to expect when he faces his shareholders for the first time at tomorrow's annual meeting.

Krieg, 34, an energetic, personable former Denver restaurant consultant, has been at the chain's helm only since late March. Operating on the theory that shareholders are entitled to ask tough questions, he says he's prepared for anything.

``I've heard from a good number of shareholders already,'' said Krieg, who had done consulting work for Sea Galley before being selected for the top spot.

Judging from the phone calls and letters he's received, he says, shareholders are most interested in knowing why founder and former chairman Steve Dowen is still employed as a top executive, and why Krieg is qualified to lead Sea Galley, a Mountlake Terrace-based chain of seafood restaurants and hardware stores with western wear.

Krieg figures that holding the meeting in Seattle is a first step toward explaining himself and the company's new strategy of refocusing on the Northwest market and improving its image.

As part of the new strategy, the company changed its menu to include more broiled and baked fish, and launched two large direct-mail campaigns offering discounts to diners. Sea Galley also has started advertising on television, a switch from its former strategy of radio advertising.

Sea Galley also has changed its approach to management, not only by hiring Krieg, whose entire career has been in restaurant operations and consulting, but also by hiring a new marketing vice president, a former Denny's Restaurants executive.

Krieg said the entire corporate structure at the company's no-frills, Mountlake Terrace headquarters has been reorganized and slimmed down. There are 26 corporate-level employees now, compared to 52 a year ago, ``and everyone is taking on new jobs and getting out to the stores more than they used to,'' Krieg said.

For the past three years, Sea Galley has held its meeting in Mesa, Ariz., where it has one restaurant and few shareholders. Those in Seattle's financial community viewed selection of that location as an attempt to minimize questions about declining sales and roller-coaster profits and losses.

``Sea Galley didn't have a great story to tell,'' said Krieg. ``This year it's in town because it needs to be. We are accountable to shareholders and we're going to be honest and straightforward.''

Shareholders may indeed be concerned over the company's financial health. Although Sea Galley has in the last year sold off many of its most unprofitable restaurants - 17 locations were sold to a subsidiary of Keg Restaurants U.S. Inc. late last year - it lost $956,000, or 31 cents per share, on sales of $7 million in the first quarter ended March 31. That compares to sales of $12.2 million in the first quarter of 1989, and losses of $593,000 or 19 cents per share.

Those figures can't be compared accurately with the first quarter of 1989, since the company operated 42 restaurants then and has 20 now. But despite having fewer restaurants and lower sales in the quarter just ended compared with the first quarter of 1989, the company lost more money than it did in the first quarter a year ago.

Sales that peaked in 1983 at $70 million, had declined to $51.5 million by last year. The company has earned profits only four of the nine years since it went public in late 1980. Last year, it lost $6.8 million, or $2.21 a share, after earning $206,000 in profits in 1988.

Sea Galley's stock hit a high of $17.875 a share in 1981, up from $8.125 a share at its initial offering in December 1980. It has been trading recently at 62.5 cents per share in the over-the-counter market.

Steve Chess, an analyst with National Securities in Seattle, describes Sea Galley as ``a company with a lot of potential that cannot make any more serious errors.'' Chess, who closely follows Sea Galley, said putting Krieg in the top spot is a step toward getting Sea Galley back on a more profitable track.

``Kim Krieg appears to me to be a very resourceful and knowledgeable person in the restaurant business. He's quite energetic and his youth will be an asset,'' said Chess. The chain could post profits in the third quarter, said Chess, adding that its basic concept of selling moderately priced seafood meals still is a good one.

Chess said, however, that the the company ``needs to define exactly what its goals are for the next two years, and to conserve cash, and to make an attempt to make the company profitable in the short order.'' He also believes the company needs ``an infusion of fresh blood and new ideas on the board.'' Dowen and his founding partner, John Cox, are both on the board.

Krieg said sales this year should be about $34 million, though he wouldn't comment on profitability. ``I'd rather let the shareholders ask that,'' he said.

He said the company's problems are similar to those that have befallen some other restaurant chains in the last decade. Sea Galley expanded too rapidly in the early 1980s, he said, opening some locations that were off the beaten path at the same time that competition was heating up in the restaurant industry.

For instance, Sea Galley founded and then spun off the Flakey Jake's gourmet hamburger restaurant chain, selling shares to the public in 1983. Though Sea Galley profited from the deal by selling most of its own interest in Flakey Jake's, the hamburger chain filed for bankruptcy protection in 1986 and later folded, damaging Sea Galley's reputation and lowering its stock price.

Sea Galley was more seriously hurt by its 1981 acquisition of 31 East Coast restaurants, which were eventually sold, leaving Sea Galley with about $3 million in red ink.

``Going to the East Coast was a mistake,'' Krieg said. ``Sea Galley is a Northwest company and it understands the Northwest customer. The East Coast is very different.''

Krieg said that by selling unprofitable stores in Colorado, Wyoming and Oregon last year, the company is positioned to concentrate on improving existing stores and wooing back customers.

Sea Galley now has 14 stores in Washington and one each in Alaska, Arizona and Idaho. Revenue from the sales is being used partly to remodel and refurbish existing stores, and to acquire sites for five Seattle restaurants within the next three years.

Krieg wouldn't say exactly where he wants to put those restaurants. But he said that five of the locations included in the deal to the Keg were Seattle-area sites that Sea Galley would have preferred to keep. Krieg says the company also would like another location in Eastern Washington.

Though Krieg said Sea Galley will stick to its roots in the Northwest restaurant business, the company also plans to continue to operate its American Ranch & Home Supply Center retail subsidiary. The three American Ranch & Home Supply Centers cater to customers in smaller towns. The 30,000-square-foot stores sell western apparel, animal feed, hardware and hunting and fishing gear. The stores are in Moses Lake, Pasco and Mount Vernon.

``These kinds of stores have been extremely successful across the U.S.,'' Krieg said. ``They do well in towns small enough - maybe 40,000 people or less - that Target and other big stores can't afford to go into.''

Chess also agrees that the Ranch & Home stores could prove to be a profitable diversification for the chain. The two central Washington stores are profitable, he said. ``I would like to see moderate to slow expansion of the Ranch & Home stores,'' he said.

Though Dowen, Sea Galley's founder, stepped down from the top spot in late March, he is now president and chief executive officer of Ranch & Home subsidiary, a move questioned by some in the financial community. Chess notes that Dowen's contract with Sea Galley was extended into 1994.

``I'm not too happy with the extension of Dowen's contract and Sea Galley's resultant obligation to Steve Dowen,'' Chess said.

Krieg is aware that some shareholders share Chess's opinion. But Krieg said there are good reasons to keep Dowen on board.

``When you have that kind of a resource, do you discard the resource?'' asked Krieg. ``Steve is a classic entrepreneur who had successes and made mistakes. I don't want to make those same mistakes. Besides we'd have to replace him with someone to run the Ranch & Home centers. The benefits of keeping Steve Dowen far outweigh the costs.''

Despite speculation to the contrary, Kreig also said that there will be no move to allow Dowen to take the Ranch & Home centers private. ``At one point in time that was under consideration,'' Krieg said. ``But that wouldn't have made economic sense to the company or the shareholders.''

What does make sense, said Eric Robison, Sea Galley's marketing vice president, is to continue to fine-tune Sea Galley's menu by offering more selections, including chicken, pasta, beef and special dishes such as beef stroganoff. Robison said the company's marketing strength still lies in its image as a casual but full-service restaurant chain that offers moderately priced meals ranging from $7 to $12.

Sea Galley's typical customer, Robison said, is 34, married with children and has a household income of $34,000.

Joyce Fasano, a Portland restaurant consultant, said that restaurants specializing in seafood have an advantage since seafood is perceived as healthful. There is also a strong demand for moderately priced restaurants, she said. But she says Sea Galley's menu includes too many battered and fried dishes and two few broiled and baked dishes to appeal to health-conscious diners.

``Just because somebody doesn't want to pay high-end doesn't mean they aren't interested in healthy eating,'' she said. Fasano said she considers Sea Galley's menu much like Skippers', a fast-food seafood chain specializing in fish and chips.

Krieg, meanwhile, says he is optimistic about Sea Galley's future. He said he has visited all the Washington stores several times, and is convinced that Sea Galley's strategy of stressing value for the money is a good one for the '90s.

And, he said, morale within the company is good, despite years of financial turmoil.

``I'm a pretty energetic, enthusiastic guy,'' said Krieg. ``Maybe it rubs off.''

Strategies appears weekly in the Business Monday section of The Seattle Times.