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Editor’s Note: In the limited-service restaurant industry, some brands become standard bearers for the rest of the business, prime examples for how to run certain aspects of a restaurant. McDonald’s, of course, has long been one for its marketing, scale, and efficiency. In the last five years, Chipotle has climbed to that position by being the pioneer in the fast-casual space. And when it comes to great customer service and a dedication to a brand’s core values, there is no better example than Chick-fil-A.
S. Truett Cathy, who passed away early Monday morning at the age of 93, is responsible for the company’s intense focus on people—both the people who run the brand and the people who come through its doors. The founder and chairman emeritus incorporated the company in 1964 and ran it until 2001, when his son, Dan Cathy, took over as president and chief operating officer.
In remembering Truett Cathy, we dug up a 1997 Q&A Cathy did with QSR’s founding editor, Lea Davis Paul, for our magazine’s second issue. We’re republishing that Q&A, “Truett Cathy, Nontraditional All the Way,” in its entirety below as a way to reflect Chick-fil-A’s remarkable consistency over the years and its incredible success in the 17 years since the story published—both hallmarks for which Cathy can claim responsibility.
The story is a fascinating time capsule. At the time, Chick-fil-A was doing $570 million in systemwide sales at 757 units, enough to make it the third-largest brand in the quick-service chicken category. Today, Chick-fil-A reigns as the largest chicken quick serve, having earned more than $5 billion in systemwide sales last year at 1,775 restaurants. Some of the things Cathy says here feel appropriately dated; his note that the brand couldn’t enter Chicago or New York City without the proper brand recognition seems out of sorts now that the brand has national renown and a growing presence in both cities. But for the most part, even 17 years ago, Cathy’s words were timeless, attached to a greater cause that continues to underscore every decision the company makes.
My favorite line from this interview is short and simple, and easy to gloss over. It’s one of those phrases that seems so inherent to the quick-service business, yet one that is so often discarded in the name of profit: “You multiply your efforts when you work through good employees; you can’t do it all yourself.” Cathy knew intimately that good business began with good people, and he created a company that has multiplied its sales, its unit count, and its reputation for great customer service on the backs of people who were deeply dedicated to the cause. Among his peers, in that regard, there was no equal.
—Sam Oches, Editor, QSR
Truett Cathy, Nontraditional All the Way
Truett Cathy went to visit a friend in the industry, the founder of a well-known burger chain, in Florida last summer. “While we were sailing one day,” Cathy says, “the idea for a great commercial came to me. We would each claim that our chicken sandwich was the best on the market. We’d debate, and in the end we’d decide to let the customers judge for themselves. I wanted to do it, and he said he did, too. But he told me his people wouldn’t let him.”
Cathy flashes an impish grin. “You see. I don’t have any people who tell me what and what not to do.”
Seventy-six years old and still at the helm as chairman and chief executive of Chick-fil-A, the company he incorporated in 1964, Cathy is well aware that his quick-service chain is unlike any other. Today it’s one of the largest privately held restaurant chains and the third-largest quick-service chicken restaurant company in the nation. With record-high system sales of $570 million in 1996, Chick-fil-A has enjoyed twenty-nine straight years of net sales growth, including double-digit increases the past four years. The chain’s performance over the first three quarters of 1997 reflects nearly a 20 percent sales increase.
Cathy decided early on to eschew franchising in favor of signing operating agreements with independent contractors. What does he see as the benefits of his way of doing business? Cathy shares his point of view with QSR.
Why does Chick-fil-A need nontraditional locations?
We just opened the 106th locations of this type at Duke University. We’re simply meeting the needs of our customers. People tell us they would eat more Chick-fil-A if we made it more convenient. We feel that the college age group has been raised on hamburgers and now they’re looking for something a little better and healthier, a quality product with less fat than the typical quick-service product. We’re filling a niche here that’s resulting from the changing times and interests of our customers. We like to say we’re providing some relief from a hamburger-crazy world.
We expect this kind of growth to continue for Chick-fil-A, and we will continue to work with institutional feeders—schools, hospitals, even factories.
What are the sales volumes in these nontraditional units, compared with your traditional mall and freestanding units?
Well, some of these smaller units will do more than a mall unit. They have been very successful and hold a lot of potential for us. Of course, the larger the college is, the better off we are. It’s like going into a busy mall—you’ll generate more sales where the volumes are higher. So our success in nontraditional units like this one depends on the student capacity and their needs.
No matter what the precise numbers are, business at these sites is developing new customers and reinforcing the brand. These students will grow up to have families and little ones, and hopefully their families will become Chick-fil-A customers and help us grow.
Is it true that Chick-fil-A’s basic growth plan is to go in where you have some locations already established and fill those areas out?
It makes sense for us to expand where the name is already recognized and some seeds have been planted, rather than going into a big market like Chicago or New York City where if you didn’t go in with, say, 50 or 100 places, it would take a long time to build awareness. So we’re looking at expanding in areas where we already are, and simply making Chick-fil-A more convenient for the customer.
We opened our first Chick-fil-A in Greenbriar Mall in suburban Atlanta in 1967, and we’ve grown from there. Today, we have 757 units, 112 of which are licensed operations. By the end of the year, we will have 780 units, of which 115 will be licensed operations. We will continue to expand through our freestanding units and also through the traditional self-service Chick-fil-A. We also have some drive-thru–only units.
You do business differently from many other quick-service restaurant companies.
I’ve been advised to run a big business like a small business. That means taking care of the little things and not losing sight of what made you successful. To me, that means you can’t set your goals too high. Set them high, but be reasonable. I have a picture in my office of a man climbing a mountain with all the safety equipment, and it says, “No goal is too high if we climb with care and confidence.”
In my business, I have to take care of individual persons, particularly customers. If you take care of the customer, the customer will take care of you. Never forget what causes things to happen. Number one is take care of the customer and your employees. You multiply your efforts when you work through good employees; you can’t do it all yourself.
How do Chick-fil-A’s operators work with the company?
Well, there are two important things: capital and management. Fortunately for me, I had the capital to borrow the money that was needed to grow at the pace we wanted to grow. Many individuals have a fervent desire to have their own businesses, yet can’t afford the opportunity—especially if they have a spouse and children and house payments. They might have a steady job, even a prestigious position, but the income has never come up to the level where they can take the gamble that’s involved in starting up a business.
So we’re a protector for the operators. We let them become a part of Chick-fil-A for a one-time financial commitment of $5,000, which, if the restaurant’s books are in order, is fully refundable to them in the event that the relationship should be severed. [The company has not changed that amount since 1967.] Each month, operators pay the company 15 percent of gross sales for operational expenses; then, after all the other unit expenses are paid, the net monthly profits are split fifty-fifty. We guarantee them they will make at least $30,000 a year. However, average operator income is around $82,000.
We work hard to stabilize the management end of our business. We have only a 5 to 6 percent turnover rate among operators, which is unheard of in this segment of the industry. So we have a competitive advantage there. Operators are going to get fifty cents of that dollar, and one reason they want Chick-fil-A to be successful is because they’re going to get 50 percent. It’s a good arrangement because it gets everyone working together, creating dividends.
The way you’ve got it set up, neither one of you is indebted to the other. What does that mean to you?
We have a cancellation clause in our agreement. With thirty days’ notice an operator can leave the system, or we can dismiss him or her with thirty days’ notice. So, if they’re not performing properly—if they’re having a hard time keeping the store clean or stabilizing the employees—we can ask that they resign.
If you had an investment there, as in a normal franchise, you could spend one hour a day in your store, or no hours at all—but you’d have to suffer the consequences for not having proper management in there. This way, we have a high caliber person managing that store, and they’re present the majority of the time, getting to know the customers and treating customers like they ought to be treated.
How should a quick-service customer be treated?
Our mission statement challenges us to “Be America’s best quick-service restaurant at satisfying every customer.” To do that, we tell our people, “Treat your customers like you like to be treated when you eat out.” You’d like to be greeted with a bunch of smiling faces and a serving spirit. You’d want someone to help you through menu selection so that you choose something you’ll enjoy. That means doing some suggestive selling. And you’d want to be charged a reasonable price and have a nice, clean table to sit at. Before you leave, you’d want someone to come over and speak to you, make sure you had a good experience, that you plan to come back. Those are some of the things we encourage our people to do.
Being consistent is important. A customer could eat fifty times at our restaurants, but if they have one disappointing experience they’re liable never to come back. And they usually don’t bother to tell you why. They simply don’t come back.
That’s why we have to get customer service right the first time, every time. And if the experience at Chick-fil-A is not right, we want to know about it. Occasionally, there is an employee on your payroll who might be doing you more harm than good.
How is the company structured over the operators?
We have less than thirty field staff over the operators, from the senior vice president on down. If we get the right kind of operators, they don’t need supervision. If he’s doing his job, his profit and loss statement is looking good, business is going up, and employees are stabilized, the operator is doing everything right and needs very little supervision.
We do have the operators visit headquarters from time to time. And each year we invite them to a five-day business seminar at a five-star resort at the company’s expense. That’s where I set my sales goals for the year and we help them to become more successful, not just in the business but also in their home life and other responsibilities they have. I believe if an operator doesn't take responsibility for his family and he loses his family, he’s not going to be able to make money. There are many things more important than money. One of the worst things we can hear about an operator is that he’s getting divorced from his wife and family. We can’t expect him to do his best at work if he’s got problems at home.
So you believe family life and work life affect each other.
Right. We try to emphasize that our operators need to spend time with their families. That’s one reason why we’re closed on Sunday—that’s when operators can give themselves wholly to their families, and that’s more time than the average father or mother can give the family these days.
What about you as a person has led you to run Chick-fil-A this way?
When I was a kid, I knew if I was going to have anything I would have to work for it. I got started in business at eight years old, buying Cokes six for a quarter and selling them for a nickel apiece. I sold magazines and had a paper route for seven straight years. I concentrated on pleasing that customer. I never got excited about school, but I got excited about work. If I were offered some kind of performance incentive—a shirt or pocketknife or a trip to the beach—then I was challenge by that. I wanted to achieve more than was expected of me.
Taking care of that customer is something I learned very early. For my paper route, we bought papers wholesale, sold them at retail, and provided delivery service. I saw that I had to be punctual, dependable, and friendly. The same principles today drive my business. We’re buying food wholesale, selling it retail, and providing customer service. We’ve got to please that customer, not just meeting their expectation but giving them more.
When you see the friction between franchisees and franchisors these days, are you glad Chick-fil-A is outside of the fray?
Absolutely. What causes any organization to be successful is everybody working together. But when you lose confidence in each other—if someone is not doing what they’re supposed to do, and sales aren’t coming up, it’s easier to blame someone else than yourself. In my opinion, there’s often a tendency to blame the parent company.
We’re privately held, which is unusual. It would be easy to cash in and go home, but then someone would have to pay the stockholders. We don’t have that, and it permits us to do more for our employees, give our customers good service, and enjoy what we’re doing.
Does not having a franchise agreement give Chick-fil-A more freedom to experiment and grow?
With franchising, you tend to have a protected territory of, say, three miles. In the case of this new college campus unit at Duke, we’ve got another Chick-fil-A unit just a couple of miles from here. A franchisee would have reason to say this arrangement cuts in on his volume and will hinder him from growing. We do not have that problem.
Even as we expand within markets where we are already established, we try not to go into competition with nearby Chick-fil-A units. With many nontraditional openings, a nearby operator has some degree of involvement in operations, usually as a limited supervisor, and they do receive a fee for that. And we are free to reward good performance with additional units. If an operator has a Chick-fil-A that’s performing well in a mall and we put in a drive-thru-only unit on the mall pad, there’s a good chance that operator will get to operate the new unit as well. [Chick-fil-A loosened its one operator, one store rule in 1993.]
As we grow, there will be times when we cut in somewhat on an established operator’s volumes. If I were a franchisee, I would have protected rights in those areas, and I wouldn’t want anybody coming in and competing with me. I can understand that point of view.
To stay with the comparison with franchising, many franchisors speak of their franchisees as family. Do you see your operators the same way?
I sure do. We try to build that culture. Wendy’s, for instance, has done a great job, especially at their size, at maintaining the culture of franchisees as family. But when Wendy’s takes on a franchisee, the franchisee in turn hires a manager for each unit. That manager might make $30,000 a year, plus a bonus if they make so much profit. With our arrangement, it’s certainly to the interest of the operator, who is making 50 percent of the total, to get profits as high as possible. Where the incomes of managers in other quick-service restaurants can top out very quickly, our operators have basically unlimited growth potential.
We are a family. Here in Durham, for example, our operators have probably an average tenure of twenty years. Many of our operators have been through training together and have developed close friendships among themselves; they get together to exchange ideas, offer feedback, and provide support for one another. Hopefully, their talk is mostly positive.
When you hear negatives from operators, what are they?
Occasionally there are people who would be negative about just about every aspect of what we do, but we don’t tolerate that forever. You have to be a team member or else you’re not on the team. They might complain about going up on prices, or not going up on prices. They might complain about standards and requirements, whether they’re too loose or too stringent. They might not care for certain product rollouts.
What characteristics do you look for in potential operators?
This is not a casual investment; we have to determine that they want to be in it for the long run. They can’t just walk in and say, “Well, this is a small investment. I’ll see if it’s worth a try.” That kind of attitude won’t make it. Some people approach us who are already making $75,000 or more a year. They won’t be as good for us as someone who’s accustomed to $20,000 or $25,000 a year and will be personally dedicated to the operations. Applicants can be minimally qualified and still grow into a successful operator; what’s important is that they are a people person. And the family situation needs to be right. We usually try to find out what a person does during his spare time. If they’re on the golf course three times a week, you can expect them to bring some of that with them.
Sometimes you can learn a lot from talking with the children. One little boy told me, “My father can’t make a lemon pie!” And, sure enough, he couldn’t. I used to have applicants and their families come and spend a couple of days on my farm with me, but now that we’ve gotten so large, I can’t do that.
What’s ahead for Chick-fil-A?
Through the leadership of my son Dan, the company’s executive vice president, we have set a goal of reaching $1 billion in sales by the year 2000. That’s a big goal, but we’re on track to reach it, and if we climb with care and confidence, we’ll do it.