Are Customers Hungry For Old-fashioned Values in Today's Quick-Service Restaurant Era?Published: November 20, 2002 in Knowledge@Emory
It’s no surprise that the quick-service restaurant industry is fiercely competitive, yet the third largest player – Atlanta, Georgia-based Chick-fil-A – operates on a philosophy of old-fashioned values that seem to fly in the face of today’s quarterly-profits-driven business practices. During an October 7 presentation at Emory University’s Goizueta Business School, Dan Cathy, President and COO, and son of founder Truett Cathy, detailed how Chick-fil-A’s "Operator" model and its biblically based Corporate Purpose statement are cornerstones of the company’s unparalleled 34-year record of consecutive sales gains. The event was sponsored by the Goizueta Christian Fellowship.
Cathy’s father rose from growing up in America’s first public housing project in Atlanta to opening the Dwarf House diner (named after its small size) in 1946. It was a 24-hour eatery, and at first the elder Cathy was its only cook. "By Saturday night of that first week, Dad was absolutely beat," Cathy recounted, "so he decided to shut down on Sunday." That was the genesis of Chick-fil-A’s never-on-Sunday policy, which also meshed with the family’s strong Christian faith, and has set the company apart ever since.
Cathy admits the policy has cost the company money -- it doesn’t operate in sports arenas and Disney properties, for instance. But he countered by saying, "The typical Chick-fil-A restaurant will do more business in six days than many of our competitors will do in seven." Sunday closings are also an attractive draw for attracting employees. "Dad still says it’s the single best business decision he’s ever made," declared Cathy.
There’s yet another reason for the Sunday-closing policy: "We developed our boneless chicken breast sandwich process in the early 60s, but the real launching of Chick-fil-A as a company was in 67, when we opened our first unit in a mall. At that time, virtually all malls, at least in the South, were closed on Sunday as well." (Chick-fil-A locations were exclusively in malls for the next two decades.)
Returning to his company’s primary unique selling proposition, Cathy pointed out, "In the 60s, no one had heard of a chicken sandwich ... there were hamburgers and hot dogs, but there was no boneless breast of chicken sandwich listed on any fast food menu. Secondly, just being in malls was unique. Malls were relatively new forms of retailing, and one of the things the developers discovered was that if you didn’t provide food service, customers would leave after shopping a couple of hours to find something to eat – and they probably weren’t going to come back to your mall.
"We saw in the 70s and early 80s a maturing of that industry, including the fact that food service shouldn’t be stuck out in some low traffic area, but should be given center coverage. Now food courts, as we know them today, are sometimes even called the ’fifth anchor’ of malls." Cathy said that with the emergence of “big box” retailers, such as Wal-Mart and Target, "in many malls, the number of stores that people visited, and the amount of time they spent in them, steadily declined. This meant we had to change.”
In 1986, Chick-fil-A opened its first Free-Standing Unit in Atlanta. That timing dovetailed nicely with the changing shopping, eating and spending patterns of consumers. Over the last 10 years, 95% of our growth has come from our free-standing units." Today CFA has over 1,000 stores in 35 states.
Beyond Chick-fil-A’s unique product and key locations, Cathy gives the most credit to the company’s success to its "Operator" model. "Someone has said that the closer you can get top caliber people to the customer, the better the business is going to be run. Typically our competitors will require their franchisees to put up some portion of the money, either for the land or the building or the equipment -- and then those franchisees will often hire a manager to run that business. Usually the people who have $2 million to invest aren’t the ones who are actually on-site, running that business, checking on the restrooms, making sure the fries are hot and the food tastes good.
"So at the outset, based on Dad’s own experience as a restaurateur, we did something different. He said it would have been wonderful when he started out if he could have had a Big Brother, someone who could help him capitalize his business and provide some marketing support and menu development expertise. He wanted to be out there really just focusing on growing the business, without have to worry about what his cash balance was and whether or not he was going to make payroll. So that’s the basis on which we operate today. All of our locations are franchised, but the local business is independently owned and operated."
Cathy singled out one “operator’s” story: "We have an operator in Atlanta who started working with us when he was 17; now he’s in his mid-30s and has an income of about $180,000. He’s a happy camper; he’s seen his income continue to grow. That’s the typical profile of our operators who have grown through the system. Now they not only have the option of operating a mall location, where the operator income averages about $90,000, they can also operate a free-standing location, where they can see ... a compensating growth in their income potential as well,” Cathy explained.
Cathy revealed that in 15 years he had missed only one time in personally conducting an annual full day of orientation for new corporate staff and operators. "I tell them, ’I’m doing this for you, because I want to demonstrate the time and the care and the attention we think you need to invest in your team members,” he said. Quoting a statement from the Ritz-Carlton Companies, Cathy noted, “as we study best practices of companies like Disney and others, they believe that ‘the first 40 hours of the work experience is the time at which you make an indelible cultural imprint on the mind of that new employee ... it’s not what those new employees hear management say during those first 40 hours, it’s what they see management doing that creates the paradigm mindset on which that new employee hangs every tenet about that business.’"
Cathy surprised his audience with this assertion: "The most important financial metric of our business is not sales, not profits -- it’s growth of operator income. As long as that remains growing, it means we’ve got quality leadership real close to the customer ... and it means we’ll have people who aspire to be Chick-fil-A operators in the future."
Cathy concluded by talking about the relationship among Chick-fil-A’s financial goals, its mission statement, and its Corporate Purpose statement. "We set a goal in 1988 that we wanted to reach $1 billion in annual sales by 2000 -- that was an audacious goal for us. But in December of that year, we made it. So what’s the next mountain we’re going to climb? Now we have a plan to attain about a 12% annual growth rate over the next 10 years." Cathy said expansion in California is crucial to meeting that goal (Chick-fil-A has only five stores there now). "If you take all our existing stores in all our markets in the U.S., and you aggregate all their sales, they come to the sum total of what we see as our market potential in the state of California alone."
Explaining that Chick-fil-A’s mission statement is "what we want to be in the mind of the customer," Cathy recited it from memory: "’To be America’s best quick-service restaurant at winning and keeping customers.’ We’ve got a research system internally and externally to benchmark and track over time how well we’re doing.
"The other part of our vision is what we call our Corporate Purpose, developed back in 1980. It says we’re here ’to glorify God by being a faithful steward of all that is entrusted to us [and] to have a positive influence on all who come in contact with Chick-fil-A.’ So while our 10-year financial goal is in place, there’s got to be a bigger, more compelling definition and vision of our company -- one that gives meaning and significance to what we’re doing. What’s it going to change if we become 10 times the size we are now, except to make us busier? Why am I still involved? I’ve got a younger brother and sister who are involved as well, and we’ve produced 12 children ... our question is: Are we developing the character and value attributes to keep our business as secure 40 or 50 years from now as it is today? Our Corporate Purpose is what drives our business; it’s what gets me up in the morning. I love the fact that through business, I have the opportunity to talk about values, about character."