Casual Dining King

Casual Dining King

By Sean Roth

Real Estate Editor

Lloyd Hill is somewhat of an oddity in the restaurant industry hierarchy. Heis an executive officer who didnit grow up through the ranks of the restaurant business, dealing with irate patrons or scraping food off dishes.

Instead Hill, who has a masteris degree in business administration from Rockhurst University in Kansas City, grew up in the medical/home health care industry working with the likes of Marion Health and Safety, a division of Marion Laboratories, and Kimberly Quality Care (KQC).

Hill, 61, is chief executive officer and chairman of the board for the 800-pound gorilla of causal dining restaurants o Kansas-based Applebeeis International Inc. Applebeeis Neighborhood Grill & Bar is the largest casual dining concept in the world, both in terms of number of restaurants and market share. As of Dec. 26, there were 1,671 Applebeeis locations, with about 25% owned by the company. Applebeeis has realized a 64% increase in net earnings per share growth between 2001 and 2004.

Hill saw the chainis potential early. While president and a director of KQC, a home health care and nurse staffing company, Hill joined the first Applebeeis board after it went public in 1989.

In 1994, he became chief operating officer. A year later, he was promoted to president. He became co-chief executive officer in January 1997; chief executive officer in January 1998; and was elected chairman of the board in May 2000.

Hill spoke with GCBR from his office in Overland Park.

Not coming from a traditional restaurant-management background was it hard to make the transition?

It wasnit really that big a leap. Both restaurants and health care are really interpersonal businesses. The leadership principle in both businesses is really the same O trying to engage (your staffs) to believe in your mission and purpose.

Now from the operational stand point it is quite important to understand what you are asking people to do. When I joined the company I went through the same 10-week management MIT course.

This is why we have our Gustin-Hamra days (A requirement that once a year every employee must work a shift at a restaurant). We need our people to know what greeting people in front of the kitchen feels like. Seeing what a lunch rush is or what a Friday night rush is really all about.

Applebeeis strategy going forward is focused on growing the international market. Rohan St. George, as president of the companyis international division, has hinted at growing that market from 53 locations to 3,000. What will the international rollout look like?

We certainly have more emphasis on our international market. But a lot of this is preparation for the future. We are ending the year with 1,671 stores domestically. We plan to open more than 100 restaurants domestically this year. We believe there is room in the market for 3,000 restaurants domestically.

And I have heard the 3,000 number mentioned in financial circles for our expansion internationally, but I believe the number we are working with right now is closer to 1,000 restaurants internationally.

Applebeeis relationship with Weight Watchers International was said to be so successful in testing it was introduced early in 2004. How is the concept working?

It was initially introduced in May of last year, and so it hasnit had a full cycle yet, but really we are pleased with how it has done to this point. It is a little cyclical, and we believe we are at the best part of the cycle right now.

It seems we all take a few more liberties around Thanksgiving and the holidays, but around Jan. 1 you start to see people joining Weight Watchers.

In the long term, a number of people are becoming more health conscious. There is also the growth of the baby boomers, who have more disposable income and time and are concerned about their weight. We think it will do very well in the future.

Bottom line, it offers people a choice.

What is the advantage of econscious cannibalization?i In that style of growing you tend to saturate a particular market by placing restaurants so close together they actually steal customers from one another.

The big thing it gives us is market share. We are big believers in market share. It gives you substantial advantages in salability from a local advertising standpoint. It is also incredibly important for top of mind awareness.

We are believers that demand is determined by time and convenience. The more saturated a market is the more convenient it is for someone to visit us.

Iim a big believer that at Applebeeis you shouldnit have to wait too long to get a table. It doesnit matter if itis a Friday night

Instead of a $50,000 a week restaurant I would rather have two $40,000 a week restaurants.

As the largest and most successful casual restaurant chain what do you and your staff do to innovate and stay on top of the competition?

We are somewhat of an unusual model for casual dining in that we are franchisee driven but we have only very few select franchise partners o 48. They operate about 75% of the market, and they know their local markets. They were generally raised in the local market.

The other way we innovate is though the culture at Applebeeis International. We are constantly challenging ourselves internally to not be satisfied with things the way we do them but to find a better process.

What is your goal for same-store sales in 2005?

This year we have publicly stated we plan to grow by at least 3% in same-store sales.

The last half of the of 2004 was very strong for us. We are hoping that the back half of 2005 is a little stronger than the first.

Describe your iHey Lloydi employee campaign?

I started it when I first joined Applebeeis as operations manager in 1994. I did it to start to establish a culture of openness. I put out a card in all the Applebeeis that said iHey Lloydi where any restaurant employee could write in absolute candor and confidentiality about someone they wanted to recognize or if they wanted to bring up any problems.

We have since evolved past that. Today we have iAsk Goebel.i David Goebel is our president and chief operating officer. We are doing that through our Internet portal. Where anyone can ask a question under that moniker and answers will be listed so that everyone can see it.

Applebeeis was one of the first chain restaurants to introduce a computerized ordering system for the serving staff. What has been the advantage of that system?

It has certainly sped up the experience for the customers. The biggest advantage is in the back of the house it gets directed to a computer that shows it back on the kitchen display system.

Letis say for example, you order a steak well done, and I order a salad. The salad takes two minutes to prepare, and the steak takes eight minutes to prepare. The steak comes up (on the display) first in the broiler station, and six minutes later the salad comes on the system.

Both meals are done at the same time and to the table with the hot food hot and cold food cold. It has had a big impact on the speed of service and the quality of the way we deliver the food.

Who was your mentor?

I have been blessed to have three or four different mentors. One of the most influential came later in may career in health care. Larry Stuesser was CEO at Kimberly Quality Care when I was president and COO.

Larry just confirmed for me that everyone wants to be part of something really big. They want to be part of a value-based organization that they can subscribe to with very big vision O if they can trust the organization.

As long as there is open communication. That someone can raise their hand and disagree and not suffer for that.

Why work with Applebeeis?

It was my dream when I worked in the home health care business to build a one-of-a-kind business that was known for a mission.

When I left the health care business; I looked at what Bill Palmer and Abe Gustin had done at Applebeeis. I thought the time was right for casual dining. We had causal dress and a causal lifestyle.

This really excites me O Food is not just physical; it can have a spiritual and emotional impact as well. We can make people feel better when they leave than when they came in.