Uncommon leadership Featured

10:08am EDT December 28, 2005
Planning the future of one restaurant chain should be enough responsibility for any one person. Philip J. Hickey Jr. must do it for three.

There’s the high-end concept, the one with the strange name and the one named after a funny looking species of cattle.

The three chains — The Capital Grille, Bugaboo Creek Steak House and LongHorn Steakhouse — comprise RARE Hospitality International Inc., which owns and franchises the restaurants. And it is Hickey’s job to find a way to move those three restaurant chains forward, keeping the concepts relevant, the staff trained and intact, and the growth manageable.

“The ultimate goal is to build a company that stands the test of time,” says Hickey, chairman and CEO of the company that posted more than $812 million in revenue in 2004. “Restaurant companies often struggle to stay alive for a long period of time. In our company, we are very fortunate to have been in business for 24 years.”

The first step to growth is making sure the company stays relevant to customers.

“A healthy fear that gets me out of bed every morning is how do we stay current,” Hickey says. “I use the term concept relevance — that is, what we serve, the price we charge for it and the manner in which our people serve it — does that continue to answer the guests’ needs? For example, in the early days of LongHorn, there were nine entrees, one salad, one dessert — a very limited menu. Today, we’ve expanded broadly; we’ve added a number of taste profiles. We’ve modified the box, the restaurant, the interior and exterior seven times. Staying relevant and staying current are very critical to staying alive.”

Hickey knows a little something about what happens when a restaurant concept loses its focus. Although he left the chain more than 15 years ago, as co-founder and former executive of Cooker Bar & Grille, he felt more than a small pang when that restaurant padlocked its final locations in 2004.

But it also served as a cautionary tale.

“They did grow too fast, but also they lost track of the core values upon which the company was founded,” Hickey says. “That may sound like founder’s sour grapes, but I don’t think so. I left in 1989; the company survived for 15 more years after that. But when I left, we had established the foundation and core principles of the company, and a big feature of the foundation was how we treat guests and how we treat our people.

“The guests have to be nurtured and catered to. If, over time, that focus veers away from the guest and more toward financial performance, the guests will abandon the concept.”

To make sure that doesn’t happen at any of RARE’s restaurants, Hickey surveys guests in a number of ways.

“We’re pretty relentless on tracking guest satisfaction from shopper scores,” Hickey says. “We also use what we call top box or intent-to-return scores. We use Internet market research, phone market research, and we also have the verbatim and subjective comments from the managers, the staff and guests sent upstream as well. Again, this is all in the effort to stay relevant to our guests.”

Managing employees
Another way to keep guests happy and ensure the chain’s success is to make sure they see the same smiling faces every time they visit the restaurant. That’s not an easy thing to do in a trade in which the tenure of the average waitperson is notoriously short.

“It’s the bane of our business,” Hickey says. “It is transient by nature. What we strive to do is to build loyalty and to have that person who will stay loyal and stay with our company for a long period of time. We have a large number of long-term employees who are very devoted to their guests and have promoted a family-like feel in many of our restaurants.”

Hickey says it all starts with the restaurant management.

“Most of our restaurants have a managing partner,” he says. “That is a person who buys into the restaurant and has a very focused need to grow the business. Correspondingly, that managing partner has the understanding that the pathway to building loyalty with guests is by having loyalty of the staff members.

“Imagine going into a restaurant and seeing the same friendly faces that you’ve always seen, and they know your name. That’s a very magnetic quality for a restaurant to possess. We try to drive that. Also, the consistency that comes through loyalty — the consistency of food quality and presentation — is something that we continue to strive for.”

The way to do that is by making the restaurants a place that people want to come to work at every day.

“We’ve been able to sustain that in a lot of our restaurants by creating a great culture individually in each restaurant, and trying to have the underlying culture of RARE support those same values,” Hickey says.

And there is a practical side to loyalty.

“Our managers are very well paid,” Hickey says. “We have very competitive benefits. When we benchmark our satisfaction levels against other companies, our managers are very happy. There’s the expectation that our managers have to provide for our crew, our team members. They have to make them happy and drive their loyalty, and they have to get results. If they don’t, then we have to have a dialogue with them and try to modify that behavior.

“We do employee-level satisfaction surveys and we do management level surveys at least annually, and if there are any clouds on the horizon, we do them more often. We do a support center survey of all our support center staff. In addition to that, we go out on the road and we conduct what we call day camps. We bring in every manager in the company once a year, in small groups, to hear the current goals of the company and the future goals of the company and (provide) a reinforcement of some of our cultural benchmarks.”

Management also does small focus groups of six to eight managers at a time.

“We drill down and track all that information,” Hickey says. “We have a lot of different data points for management and crew satisfaction.”

Communication and training are keys to developing top-notch employees.

“Talent acquisition and talent development are the two linchpins to success,” Hickey says. “Most of our leaders are promoted from within. Because of our culture and our track record, we continue to attract people from outside the company, as well. We like that blend of talent.

“The culture that we have is one of training and development. If we can get people on board who have a lot of those skills, we can certainly enhance what skills they have and enable them to grow. We have enormous opportunities, and we love to see someone come on board, take the bull by the horns and grow as fast as they will allow themselves to grow.”

Once those people are on board, RARE takes steps to make sure that their skills do not erode. Each restaurant chain has its own training program, but Hickey also employs a corporate university to make sure that it’s not just those at the restaurant level who keep their skills honed.

“Those are programs that are driven toward driving guest loyalty and creating and sustaining the culture of high food quality consciousness and high guest satisfaction consciousness,” Hickey says. “RARE University is separate from all those, and that is where we train all our managers for all our concepts.

“Management training is two to three months, and then a week at our headquarters and support center. I speak to every class. It takes a lot of time, but we think it’s essential to preserving the culture. We believe that training and development are so key for our continued success. We continue to pour a lot of resources — both people and money — into perpetuating it, trying to perfect that.”

Managing growth
Hickey’s ultimate task, of course, is to increase value for shareholders, and the primary engine that drives that value is growth. But growth cannot come at the expense of destroying the concept relevance — lest the company suffer the same fate as Cooker — nor at the risk of being unable to find the right talent to oversee operations.

Hickey set a goal of 20 percent earnings per share annual growth. To do that he developed a three-part plan that includes growth through new restaurants, margin improvement and same store sales growth at the almost 300 total restaurants under the RARE brand.

Of that 20 percent earnings per share (EPS) growth, as much as 15 percent will come from new restaurants, with 70 percent of them opening in existing markets and 30 percent in new areas.

“Backfilling allows us to take advantage of marketing leadership, economies of scale and, of course, you continue to target new markets to expand and grow your brand,” Hickey says.

Over time, RARE management has learned how many restaurants can succeed in a market.

“We do a number of surveys that cut by population and income and growth,” Hickey says. “We have a large number of factors that we load into our models. Once we begin opening those restaurants in the cities, we see how they respond. We have over 30 restaurants in Metro Atlanta and over 40 in Georgia.

‘Ten years ago, I don’t think we had any idea that we could grow that many. It’s a matter of learning the market and making sure the customer base is willing to embrace more growth.”

That’s still a learning process. The company expected to post a loss in same-store sales for the Bugaboo concept in 2005. It posted a 6.6 percent decrease in the fiscal third quarter of 2005 compared to the same period in 2004, and Hickey brought in a new president to refocus the concept.

RARE’s ESP growth will also come from improving the margin by growing same-store sales. The more sales the restaurants post, the more purchasing power they generate, reducing the costs the chain pays for supplies while still charging the same prices to consumers.

The final piece of EPS growth is from same-store sales growth, of which there are two components:0 guest counts and increasing the average check price.

“We expect to grow our guest counts by 1 [percent] to 2 percent,” Hickey says. “We hope to grow guest counts by first of all delivering exceptional dining experiences, which will, in turn, generate loyalty among those happy guests. In addition, we count on word-of-mouth advertising, as well as our own advertising, to attract a continually growing stream of new guests. While the restaurant business is extremely competitive these days, restaurants can still grow guest counts and sales by exceeding expectations, meal-by-meal, day-by-day.”

The remaining EPS same-store sales growth comes from increasing the amount of the average check through either menu price increases or from quarterly menu promotions that are heavily emphasized to encourage people to choose additional items over what they would normally order.

So far, the plan is working. In the third quarter of fiscal 2005, LongHorn posted its 15th consecutive quarter of same-store sales growth, while The Capital Grille posted same-store sales growth of 4.4 percent compared to the third quarter of 2004. The organization overall posted 14.8 percent net income growth for the same period.

Under Hickey’s leadership, RARE Hospitality is ready to move forward, confident that management will keep the concepts relevant, the staff intact and the growth manageable.

“We like the balance of three growth concepts,” Hickey says. “Obviously, LongHorn is the most stable and established brand of the three, growing 27 [stores in 2005] and 29 to 30 (this) year. We’re very confident in sustained high growth. Bugaboo and Capital Grille, we’re not as aggressive in growing those, but we think that both those can grow more units per year in 2007 and beyond.”

HOW TO REACH: RARE Hospitality International Inc., (770) 399-9595 or www.rarehospitality.com