How Steve Davis used five principles to rebuild the Bob Evans brand and its balance sheet Featured

7:00pm EDT January 29, 2008

When Steve Davis took the helm of Bob Evans Farms Inc. in

2006, the company was in poor shape.

Same store sales — one of the most relied-upon measures of

financial health in the restaurant industry — had been falling

steadily for two years. Restaurants were closing. Shareholders

were unhappy.

His predecessor, Stewart Owens, had stepped down after profits fell eight out of nine quarters prior to his resignation — and

net income in fiscal 2005 had dropped 48 percent from the previous year.

The only bright spot was sales, which were growing, but at a

lackluster, single-digit pace.

“When I met all the people and looked at the historical performance, I realized these are good people. They just needed a

rudder,” says Davis, chairman and CEO of the nearly $1.7 billion,

Columbus-based company. “They needed somebody to come in

and say, ‘Let’s see what we can do.’”

Find a better course

Davis wasted no time bemoaning the situation at hand when

he accepted the top post of the underperforming restaurant

and food product chain. He knew decisive action was needed

and that he couldn’t turn around the company alone. So he set

out to meet the crew.

“In my first six months on the job, I hit about 100 restaurants,” he

says. “In the first nine months, I visited all of our plants.

“I had to be visible. I talked with managers and asked them

three questions: What do you like about working at Bob

Evans? Where can we improve? And what would you do if you

were me?”

He got some interesting answers.

“I heard everything from new product ideas to how we

should control our development, to wanting to better understand how to track our business, to what kind of Christmas

party we should have,” Davis says. “Everybody has different

points of emphasis. But it created an environment of really listening to the people closest to the action.”

It also helped him lay the groundwork for some sweeping

changes.

First came a change in management compensation.

“You have to be tough-minded about performance and link

your pay to clear metrics that are a stretch for the organization

but are still achievable,” Davis says. “It’s a simple principle:

Things get better; people make more money.”

Davis started by linking officer compensation to specific company

goals and used a cascade process to bring the system to other levels,

including restaurant and plant managers. Individuals eligible for performance-based pay are measured against each metric twice annually — once at a six-month check-in to see how they’re progressing toward each goal, and once to determine if they’ve met each

goal and, thus, qualify for the incentive pay.

“It’s almost like taking the SAT: Here’s the metric; here’s your

score,” Davis says. “That makes it relatively easy to say, ‘Here’s

where I did well, here’s where I didn’t do well and here’s where

I have to do better.’”

Performance metrics are linked directly to the other big change

that Davis instituted in his first few months on the job.

“Within the first 30 days, I said, ‘We don’t have a strategic

architecture,’ so I took that very seriously, and we crafted our

BEST Brand Builders,” Davis says.

The acronym BEST stands for Bob Evans Special Touch, but

essentially, the brand builders are a five-pronged strategy for

rebuilding Bob Evans.

“I’ve worked in large businesses and small businesses and

having clarity of purpose and vision is essential,” Davis says.

“It’s the leader’s job to articulate the vision, but we also have to

say how we’re going to get there. That’s where the Brand

Builders come into play.”

They are:

  1. Win together as a team.
  2. Consistently drive sales growth.
  3. Improve margins with an eye on

    customer satisfaction.

  4. Be the BEST at operations

    execution.

  5. Increase returns on invested

    capital.

“It’s hard to argue that these aren’t things you need to do to

build a business,” Davis says. “They’re very clear measures.

And each of the five Brand Builders are tied to incentive pay. I

think everybody bought in to it. It gave us a road map to follow.”

Communicate your plan

Once the direction was clearly set, Davis’ next task was to

“broadly and boldly” communicate the five BEST Brand Builders

to the more than 50,000 employees throughout the Bob Evans

system.

“We’ve got people working in plants, we’ve got people working in restaurants, we’ve got satellite facilities, we’ve got people in California, people in Ohio,” Davis says. “We had to find a

way to connect with all the different constituent groups across

the country.”

Posters, mouse pads and other assorted paraphernalia were

emblazoned with the five expectations set forth in the Brand

Builders. Davis began hosting departmental lunches and companywide meetings to reinforce the importance of the Brand

Builders.

“It’s a way to motivate and get people energized around the

Brand Builders,” he says. “They’re the key to our future success.”

In addition, Davis now has his own corporate blog within

Bob Evans.

“I have a blog where people can go online and ask me anything,” he says. “People want to know what’s going on in their

company.”

Despite all the improvements in internal communications,

what probably speaks the loudest to employees is seeing actual results.

“The first half [of fiscal 2007] was pretty rough,” he says. “But

the second half was really strong. That’s when the business

started to turn and cash flow started getting better, and we

started being smarter in where we were spending and investing our money.”

For example, when Davis promoted Mike Townsley to executive vice president of food products, he immediately combined the corporately owned but separately branded Bob

Evans Farms and Owens Foods product lines into a single unit,

helping reduce overhead, streamline operations and maximize

buying power. In addition, Davis’ Brand-Builder-inspired

stance that business segments now had to “earn” capital

investment by meeting sales and profitability expectations

helped send a message of fiscal responsibility throughout the

company and stave off losses.

“We went from restaurant openings as a birthright to

whomever has the best return on investment will get new capital in the future,” Davis says. “If we want to improve shareholder value and drive stock price, we have to be great at

return on value.

“I think the majority of people understood what we were trying to do [with the Brand Builders]. But we started really hitting our stride when we started getting results. When that happens, people start to realize these Brand Builders really do

make sense.”

Get buy-in at the top

Communicating with shareholders and board members was

also a vital part of Davis’ turnaround plan for Bob Evans. After

all, measurable change was going to take time and shareholders had already run out of patience with Davis’ predecessor.

“One of the first things I did was visit some of the top shareholders,” Davis says. “I said, ‘Here are my thoughts on the business. Give us time to craft a strategic plan.’ When we came back

with the Brand Builders, I think they saw we were serious

about performing. Then, when the results came, that spoke

loudly.

“The best way to earn the support of shareholders is to show

progress in operating results, and our Brand Builders generated improvements shortly after we implemented them.”

As for the Bob Evans board of directors, Davis was careful to

get alignment with them on the direction he was sailing before

he got too far.

“You have to make sure you have a direct line with the

board,” Davis says. “Change starts at the top.”

Board members were very receptive of the Brand Builders

concept, and together with Davis, they crafted a five-year

strategic plan to further solidify Bob Evans’ course.

“Everybody rallied around it,” Davis says. “We are headed in

the right direction today.”

So where would Bob Evans be today if Davis had not taken

control and set a clear, performance-centered direction for the

company?

“It’s hard to speculate,” Davis says. “The business didn’t get

to where it was overnight. I kept reminding myself of that. I’m

just proud of our team and our company for galvanizing as

quickly as we did and moving in a better direction.”

The clearly humble Davis says what he has done with Bob

Evans isn’t so extraordinary. It’s basic change management.

“You start with a plan, you communicate it, you get alignment

from your key stakeholders and your board, and then you don’t

waiver,” he says. “You have to keep driving it.”

There is, after all, still a long way to go.

Although sales and net income are still plodding along, same-store sales have rebounded into the positive column and cash

flow has improved dramatically. So much so, in fact, that the

board of directors has authorized the repurchase of up to 3 million shares during fiscal 2008 on top of the 2 million shares

repurchased in fiscal 2007.

Shareholders are regaining confidence in the brand, and

employees seem to be encouraged, too.

“I’m seeing people smiling a lot more,” Davis says. “It’s a reaffirmation that we’re at least trying to move in the right direction.”

But it’s just the beginning.

“I’m one of those happy-but-never-satisfied guys,” Davis

says. “You can never rest on your laurels and think your turnaround is complete. There’s a fine line between positive and

negative sales, so you can’t become the least bit complacent.

There are a lot of external factors out there. You have to

always be on your game.”

Still, the progress he’s seen is encouraging.

“When you see it work, it’s so rewarding,” Davis says. “When

you sit in a meeting, we’re not challenging which direction

we’re going anymore, we’re challenging the best way to get

there.”

HOW TO REACH: Bob Evans Farms Inc., (800) 272-7675 or www.bobevans.com