Philip Friedman has just taken full leadership of McAlister’s Deli, as president & COO. Here’s where he plans to take his fast-casual concept. By Frederick Burger

The idea began with a converted movie set from the late '80s film The Heart of Dixie. After the movie's production company wrapped up filming in Oxford, Mississippi, local dentist Don Newcombe purchased the 1930s gas station the company had converted into a '50s college hangout and opened a sandwich shop there with his two sons. The year was 1989.

With its flavorful sandwiches, courteous service and decor of French posters and brass rails, the quick/casual concept became a hit, and the Newcombs soon began franchising their McAlister's Deli (formerly known as Checquers). By early 1998 the chain had 51 stores–eight were company owned. In 1998 Newcombe asked Michael J. Stack, a California-based consultant if he was interested in buying McAlister’s.

Stack was and he enlisted a friend, Philip Friedman, to join the project. By the time the buyout was completed in 1999, Stack and Friedman had raised about $ 9 million to purchase the growing chain through a holding company they formed called Mississippi Holdings Inc.

In late January 2002, chairman and Stack resigned his CEO post, leaving Friedman, to run the company as president and COO.

Friedman envisions continuing, strong growth for McAlister’s, which had gross sales of $61 million in 2000, an impressive increase from the $34 million in 1998. Based in Ridgeland, Mississippi, the company expects 2002 sales to top $80 million.

QSR: What’s the reorganization plan announced last October about, and why is Mike Stack leaving his position as chairman and CEO?

Friedman: Mike and I bought the company almost three years ago. We essentially split functions–I was responsible for all the financial and franchise functions, and Mike was responsible for all the concept development and the company operations. At the franchise convention in October, we announced the reorganization where I would take over all operations.

Do you see the departure of Mike Stack as significant?

Friedman: Mike did a great job in finding the company and leading the buyout, but we have a plan and that plan is progressing the way we thought it would. Mike will continue as chairman of the board.

When you and Mike Stack decided to buy out McAlister’s in 1999, what kind of investors did you attract?

Friedman: We actually acted as our own investment banker. We put together a financial plan and business plan, and we went out and marketed to people in Mississippi. With the prior owners we had put together an option to buy the company, so we took that and raised the money against the option.

How did McAlister’s catch on?

Friedman: The Newcombs ran that first sandwich shop in Oxford. They got the same great response from the college students in Hattiesburg. The concept was then taken to Tupelo, which is a smaller town in Mississippi, a blue collar town, where they also did well. They opened a store in Ridgeland, and it just took off like crazy. That was the impetus to start franchising.

On expansion: We’re on a very good growth curve. We grew 35 percent last year. And we’ll keep going pretty much at that rate this year.

When you took over, did you shift the direction of the company very much?

Friedman: No. We had to look at the commitments in terms of the franchise system and what was required to support that system. So we spent a lot of time on the basic infrastructure–building the training staff, building the franchise support staff–and looking at marketing. We tried to add our skills and enhance the direction but not change the direction. The basic concept, we felt and still feel, is very good and has a tremendous appeal in the market.

What do you consider to be unique about McAlister’s?

Friedman: The combination of simplicity with service. There’s a sense at McAlister’s that you’re coming into something that’s a little more than you expect and a little special. True quick-casual to me means people get a much better experience than fast food and at an increased price than fast food, but they don’t have to spend the time or the money in a casual restaurant. We like to say we’re in-between Wendy’s and Chili’s.

McAlister’s appears to be primarily in medium and small towns.

Friedman: We very much started as a Southern concept in Southern towns. We’re getting in bigger towns and getting a good response. One of our biggest markets is Memphis, where we have five restaurants. Another big market for us, and really a good indication of our concept’s travelability or broad appeal, is Charlotte, where we have six restaurants. And, we have five restaurants in Birmingham.

Is growth stemming primarily from existing franchisees who are expanding their operation?

Friedman: After the buyout, there was a large number of franchise groups that had to develop their territory. So we’ve concentrated on current franchisees to support their growth, but we have been attracting new franchisees. I think we’re entering a cycle where a major part of our growth is going to come from the newer groups.

McAlister’s has projected gross sales of $80 million in 2002.

Friedman: We have eighty-one restaurants today, and those eighty-one restaurants will average about $1.1 million [each]. By the end of next year our system will be above $100 million. We’ll break 100 restaurants somewhere in the fourth quarter of this year.

Have there been periods when the growth was at a standstill?

Friedman: After the buyout, we did have a little bit of a hiatus. I think there was a kind of wait-and-see from a number of people, which often happens in an acquisition.We grew 35 percent last year.

How long do you think it will be before you consider yourself a major regional chain?

Friedman: I think another two or three years. We’ll be in fifteen states by the end of this year. This year we’re going to open up Oklahoma, and by the end of the year we’ll have two, maybe three stores in Oklahoma. Then we’ll open up Indianapolis, where we’ll have one or two by next year. And if things happen as we think, we’ll have Ohio and Michigan, too.

The competition in quick service and casual dining is absolutely fierce. To start even a new concept and grab a niche is a hard thing to do, isn’t it?

Friedman: It is, and the reason I was attracted when Mike Stack asked me to look at it is because the attributes of McAlister’s have been proven in a number of markets. We’re a young brand, but it’s very much a brand.

On hiring: We attract a lot of employees who were restaurant managers in full service, who are used to closing bars at two o’clock in the morning. So we have a concept that works to quality of life.

You’ve talked about the problem of attracting and retaining good employees. What are you doing to guarantee your success and strengthen the business in that area?

Friedman: We’re trying to take this young organization and really build it into a professional organization that employees can look on as a long-term career. We’ve introduced a lot of teaching and development tools.We’re very committed to developing them [our employees] as people and managers and make this a long-term career.

Have you had people who have gone from working the counter to become franchisees?

Friedman: We’ve had three. They started when they were at one of the universities. Each became a manager and then got involved with investors. One, I think, got his father to put money together, and he, I believe, now has eight restaurants

Has the menu changed much in the last few years?

Friedman: The orientation of the menu has stayed pretty consistent: salads, soups, baked potatoes, and sandwiches. In those categories we’ve added products and taken products off. But basically, it’s stayed the same the last few years.

So basically you think you’re on to a good concept and you’re just going to continue to refine it?

Friedman: Continue to refine it and enhance it as trends develop. One of the things we did do is introduce extensive customer research. We track how customers respond to the concept and how we’re doing against the key attributes.

What are the attributes that your customers like the most?

Friedman: They like our atmosphere. At McAlister’s, you order at a counter and take a number and sit down. We bring the food to you. We ask if you’d like a refill with their drink, if you’d like something else to eat and desert. When we did the research, those little things became very big things for the customer.

Do you survey the customers in the restaurant?

Friedman: Customers are given a certificate in the restaurant and they call in. If they call in they get their certificate code verified, and they come back and get a free dinner.

How many stores do you expect to open annually for the foreseeable future?

Friedman: Realistically, between twenty-five and thirty a year. We did nineteen last year, and of that four were company owned. We signed nine new franchisees last year, and they’ll start contributing as well.

QSR subscribers: get the answers to these questions and more in your October issue!! Had it long been determined that Mike Stack was going to be leaving the company on a daily basis, or did that just come up in October? What’s the reason for Mike Stack leaving the day-to-day operations? How many investors did you put together to raised the $9 million? The current five officers own 46 percent of the company. So there’s not a single major stockholder. Is there a strategy to start hitting in the bigger metros like Atlanta and Nashville? Are your newer franchisees leaving other concepts, or are they just adding your concept to their business? Are you looking over your shoulder at usurpers of the concept? Do you expect to gradually fan out across the country? Want full coverage of every QSR interview? Subscribe now!