Poultry Prosperity

Poultry Prosperity

CEO Q&A by Jean Gruss | Editor/Lee-Collier

Dan Cathy, president and chief operating officer of Chick-fil-A, gives a candid look at how his unique fast-food chain doubled its revenues in five years without borrowing a penny - and the strategy that makes it family-friendly to run a franchise.

Chick-fil-A fast-food restaurants are well known for being closed on Sundays. But that hasn't stopped the company from posting $2 billion in annual sales this year for the first time.

Founded by Truett Cathy 60 years ago, the Atlanta-based company now has 1,250 restaurants in 38 states. Dan Cathy, the 85-year-old patriarch's son, is now the company's president and chief operating officer. Truett Cathy's grandson, Andrew Cathy, is learning the business as an operator of a Chick-fil-A restaurant in St. Petersburg.

The Review caught up with Dan Cathy after he spoke to the Christian Chamber of Southwest Florida in Fort Myers recently. Here's an edited transcript of the conversation.

Q: Why haven't you taken the company public?

A: Most people go public because they need a lot of capital. In some industries you need a whole lot of capital. In our business it doesn't require that much capital. It depends on your appetite for growth and how fast you want to grow the business. To credit my dad, he said we've got enough money to grow as fast as we need to, let's let our customers finance our growth and just use internally generated cash to grow the business. In the last five years, we've doubled the size of the business without borrowing any money.

Q: How have you managed family dynamics as your company has grown?

A: We've had the Shangri-La situation. I saw Dad live it out to begin with and somehow that got infected into my thinking. My brother, and sister and I signed a covenant of agreement about four years ago that we gave our parents. We said we would be closed on Sundays, be privately held and continue to make decisions in the same value system that we've had in the past. And we presented that in a one-page document to our parents and it really meant a lot to them. We're really committed to it. So the wheels don't have to come off the wagon from one generation to the next, but I give God thanks for that.

Q: What advice do you have for those who want to transfer their business from one generation to the next?

A: A real practical word of advice is study the models of other family businesses that have successfully transitioned from one generation to the next. One of the things you'll find is start early. Start real early.

Q: How early?

A: As early as you have young children. I had a young man who's an attorney and his father was a very successful attorney. He was interviewing with me to get a job. I said why don't you work with your dad? What an incredible opportunity you have. He can help you get started in business. I'm sure you've already learned a lot from him. He said, oh, no, my mom and my dad are divorced. My dad worked so many hours I would hate to do that to my wife and my children.

Q: How can startup restaurants survive by being closed on Sundays these days?

A: Being closed on Sundays has worked for us. I'm not advising other companies to do that. They need to make their own decisions. I just know that it does help us attract really outstanding people who appreciate the value system associated with what it means to be closed on Sunday. We are really committed to creating great experiences Monday through Saturday. You can be closed on Sunday, but if the restrooms are dirty, the service isn't good and the food's not hot, then the whole message unravels at that point. You've got to have a good business model that works financially.

Q: But at the end of the day you have to be profitable?

A: That's exactly right. We are a business, we are not a ministry.

Q: So how do you do that by being closed on Sundays?

A: There's an awful lot you can learn on Sundays that you can apply on Monday. For one thing, you learn to be a good dad. I wasn't a perfect dad, but I think I was able to be a better husband because I wasn't working on Sunday. I was able to be with the family. We got in the car and went to church together. There's an element of humility about worship. There's an element of honesty and recognizing our own humanity. Maybe there's something God wants to teach me and help me deal with the struggles and challenges in life.

There's also limited availability. That's part of managing cult brands. We try to run our business model like we're trying to manage a cult brand. One of the elements is limited access and availability.

Q: How much has the advertising campaign featuring spelling-challenged cows boosted your sales in recent years?

A: It's a big part of it. It's given us tremendous awareness. We don't have a big advertising budget like the big guys and so we've been able to offset that with some very creative media that generates a lot of word of mouth. First it was billboards, then radio and now we've got some really good TV ads with cows that are parachuting into a football stadium. These cows are motivated.

Q: How measurable are the results from the cow campaign?

A: There's a new word that popped up in peoples' vocabulary when they described Chick-fil-A after the cow campaign got going and that was "unexpectedly fun." People saw those cows and said those folks don't take themselves too seriously.

Q: Was it a problem of perception before that campaign?

A: No, it wasn't a problem. But I think it opened up a wider audience to us that were willing to embrace us and identify with us because we're more real and more approachable.

Q: How big a problem could the bird flu be for your company?

A: If it gets into domestic flocks, it could be dramatic. The chances of that are very, very remote. Where avian flu has come up is in Third World countries where people actually have chickens that are infected living in their houses. The other thing is they're exposed to wild birds. But in U.S. production they're in enclosed houses. I don't doubt that there will be migratory birds that will infect wild-bird populations. We've got all sorts of contingency plans.

Q: What are those plans?

A: We want to have a real strong information campaign so that there's not a lot of speculation as to what the impact would be and what chances are that your family will get infected. So we want to make sure that we get all the media cranking, that we have good, reliable information that's getting out there. We're part of a team of people that includes our federal regulatory agencies to help communicate accurate understanding of what risks people might be taking. That's a big part of it.

Q: You've talked about encouraging employees to go the extra mile. How do you do that successfully with such a big organization?

A: It's a long and arduous process. You've got to talk to your horse. You just keep on talking it, living it, showing people how to do it. You do it one restaurant at a time. It's affected how we select people. You have to go all the way back to the selection process, particularly our operators. We get to know them really well. We do background investigations on people. We look at everything from their grade-point average to how they manage their personal finances. We look for people with competence, character and chemistry.

Q: Tell us about why you have an operator model rather than franchisees?

A: The genesis of the concept that worked so very well for us goes back to the experience that my dad had as a young, 25-year-old restaurateur. The ideal situation would have been for someone to capitalize the business, where he didn't have to worry about making those notes to the bank and the have the stress and anxiety to make payroll and have enough cash in the bank to pay the vendors. He also would have had a company to help him with marketing, advertising and product development to let him run that business and take care of customers and make them happy. So that's how we came up with this formula that really works. We put up the capital and the operator puts up the talent and ability. That's what makes our agreement work.

CHICK-FIL-A: THE NEXT GENERATION

Andrew Cathy remembers spending several nights sleeping on the rubber floor of the Chick-fil-A playroom in St. Petersburg during his first months as an operator.

"One of the biggest surprises is that you're always on," Cathy says. "It's almost a 24-hour-a-day operation."

Cathy, 28, is the grandson of Chick-fil-A founder Truett Cathy and he's learning the business from the ground up, running a restaurant he opened in January. There are all sorts of challenges even when the restaurant is closed, ranging from employees calling in sick to fixing broken equipment.

Cathy concedes that expectations are higher because of his family connections. His father is Dan Cathy, the president and chief operating officer of privately held Chick-fil-A. The elder Cathy is eager to see his son succeed. "He'll call up and check on things," the younger Cathy says.

Family members can't join Chick-fil-A until they've worked at least two years outside the business. Andrew Cathy taught high school students and coached them in track and football after graduating from college.

But after two years teaching, the younger Cathy felt the calling. "I wanted to join the company," he says. Being an operator would give him the front-line experience he would need to eventually move up the corporate ladder. "I felt like it was the good way to get into the business."

Back at the St. Petersburg restaurant he opened in January, Cathy says he does a turn in every job, from cleaning the tables to serving food. If there's a part of his job he doesn't enjoy, he won't concede it. "I jump in there and try to rotate through so people see me do it."

There are parts of the job he enjoys more than others, though.

"My favorite part of the job is talking to customers," he says. Many of them ask him about his family after reading about the company's history posted on the wall of the restaurant.

Long hours in the restaurant don't leave much time for outside interests. "Dating life is pretty tough," he says. Still, he's engaged to a young lady who helped him with the grand opening of the restaurant in January. "She knows what she's getting into," he says with a chuckle.

Up next: the corporate headquarters in Atlanta, where Cathy says he hopes to move to in the middle of next year. He's particularly interested in starting out in human resources, because finding the right employees is at the heart of the success of the business.

But he's not going to be pigeonholed. "It's wide open," he says.

-Jean Gruss