Daniel G. Jacobs

Friday, 21 April 2006 06:23

Independent dealer

Mike Gentile affectionately calls is.group’s 500-plus independent dealers cockroaches for their ability to adapt to challenges presented by big-box retailers such as Office Depot.

It is Gentile’s job as president and CEO to lead the office retail cooperative through a series of struggles not just with larger national competitors but sometimes within his own organization, as well.

“Running a cooperative is like herding cats,” says Gentile of is.group, which collectively does $2.5 billion in annual sales. “The minute you’ve got them all going in one direction, then you’ve got a group that’s going to go in a different direction. It takes a tremendous amount of collaborative communication and building consensus on the direction that we need to go in, which is not a skill set that you have to fully utilize in a Fortune 100 environment, where I came from.”

In the traditional corporate structure, the person at the top wields the power. A board of directors may have oversight, but day-to-day operations and the vision for leading the company forward belong to the CEO. In a cooperative such as is.group, Gentile not only has a board of directors, he also works for the members of the organization.

This requires him to really focus on communicating and building a consensus — skills any CEO can use to be a more effective leader.

“One thing you can’t do in a co-op is dictate any actions or conformance,” Gentile says. “Some of the more persuasive ways of building consensus are through best practices — implementing something, beta testing, sharing the results with others, allowing them to network amongst themselves, letting the process of osmosis take over.”

Communication
After spending 16 years in the corporate world, Gentile knows that in any organization, communication is key. It starts by figuring out what everyone’s initial opinion of a particular idea is.

“If it’s a program of services, we’ll go out and we’ll take the temperature of dealers to see what the participation rate would be,” Gentile says. “If there is a cost associated with it, we’ll assess the cost and see if folks are amenable to that before we go down that road.”

The most important thing is to make sure you are getting a true cross-section of opinion and not basing a decision on the last phone call or who yelled the loudest.

Building a consensus is not an easy process. Gentile has implemented a number of strategies and learned to adapt along the way.

“What it really comes down to is trying to identify a mutual need within a constituency,” Gentile says. “Any group of people, if you can identify a mutual need, then you can use that as an opportunity to begin to brainstorm how to meet that need. There will always be disparate opinions on what tactics to take, but the overall strategy is the one where people have the agreement that something needs to be done.”

Finding out what that need is can only take place by staying close through communication.

“In any organization, if you’re close enough to your customers — whether your customer is internal or external — and you’re listening to them, you don’t need to have a two-by-four hit you across the head and say, ‘Here’s a need,’” Gentile says. “If you’re in tune, you should be aware of issues that you need to address in order to make your organization more vibrant, profitable and grow.”

Gentile communicates with his constituency in a variety of ways — annual and regional meetings, a bi-monthly newsletter and a weekly e-mail called Fast Facts. And it’s important that that communication is a two-way street and that Gentile has the opportunity to hear people’s concerns.

“We’ll do member satisfaction studies,” he says. “We’ll constantly be polling people on various issues. I personally get out and conduct listening meetings with our dealers. I go out to a marketplace and get 15 or 20 dealers and we’ll talk — find out what’s on their minds. It’s not an ‘I got you’ session; it’s ‘I care about what you think about this.’ If people generally feel good about their job, they’re going to do a good job.

“You have to communicate broadly and often. Whether it’s internal customers or external, you tell them once, you tell them again, then you tell them what you just told them. People’s bandwidth today is really challenged. The onslaught of communications that we get on a daily basis — whether they’re e-mails, voicemails, phone conferences, written communication — people are overwhelmed with communication. It’s not that they’re not paying attention when you think they are, they’re just overwhelmed, so you need to find alternate ways to communicate your message.”

One of those alternatives is giving dealers an opportunity to communicate without input from is.group.

“We had a bulletin board that we set up on our Web site,” he says. “The members felt it was too sanctioned by is.group. They wanted something more independent, so they developed their own blog called IS Think Tank, independent of our Web site. That has become a vehicle that fosters open communication, the sharing of ideas.

“They’re complaining about things. They’re offering solutions. Some organizations or companies might say, ‘We’re not sure we want to sanction that type of an activity.’ But if you’re running an open environment, you’ve nothing to hide — allow people to speak openly and candidly, and it has worked out well. That’s really how the members communicate among themselves.”

Problem-solving
Communication and consensus-building can help identify and solve problems. In Gentile’s case, it contributed to finding a solution that could ultimately keep some of his members competitive against the big box retailers.

In his regular discussions with dealers, Gentile noticed a recurring topic. Manufacturers, in an effort to streamline their supply chains and decrease costs, began increasing the minimum buy for retailers, which increased pressure on the independents.

“It kept coming up,” Gentile says. “The need was so apparent, it was dominating the discussion. The board said, ‘Let’s go out and do some hard-core research.’”

That led to the implementation of a regional distribution center system that serves as an example of the best and worst of what a cooperative can be and shows how important it is to make sure everyone understands the premise of a major initiative in an organization.

“In essence, the dealers were continuing to come under significant operating pressures, trying to support their inventory needs, and manufacturers weren’t cooperative to the independent dealer,” Gentile says. “If the dealer developed a strategy that they were going to stock less and buy more from the wholesalers — and we really have in this industry a duopoly with wholesalers — that would result in lowering their gross margins because they would have to buy product through the wholesale channels and compete against big box retailers who are buying everything direct from the manufacturer.

“There was the possibility that the independent office supply dealer could be a fade-to-black scenario as happened in many other industries, such as pharmacies, local theaters and florists. You can go down the list where big box retailers have come in and, through acquisitions, rollups and outward predatory pricing and marketing strategies, have removed an entire independent distribution channel.”

Is.group hired an outside consulting group to investigate the challenge. Following the consultant’s advice, two years ago, it developed a regional distribution center system that allows the cooperative’s members to buy collectively and match the buying power of the national chains.

What the consulting firm didn’t provide was an easy way to explain the new system to members.

“We call it self-distribution, not wholesale distribution,” Gentile says. “The members of the cooperative are shareholders. They’re not customers.”

In other words, Gentile couldn’t simply dictate an order and have members use the new system. It sounds like a simple solution, but the system wasn’t viewed as a panacea by all of the independent office supply dealers. While the vast majority of members now use the system, about 200 couldn’t make the switch and left the cooperative.

“We went through an attrition rate in ’04 and ’05 where the model that we had built was for some dealers a round peg in a square hole,” Gentile says. “Some dealers are more stockless in their distribution model, where they depend on the wholesaler more, and is.group was not the right fit for them.”

While he is proud of the benefits the system provides, Gentile did learn a few lessons about implementing large initiatives.

“People don’t change unless they feel they’re in trouble,” he says. “That’s just human nature, and it manifests itself in people’s professional behavior. We had unrealistic expectations in the beginning when we invested in the (distribution centers) with the concept — build it and they will come — totally underestimating the need in the marketplace and the level of dealer sophistication to recognize the need.”

Those who did remain are clearly reaping the benefits.

“We’ve had folks that have gone from high single-digit inventory turns to mid-teens by utilizing the (distribution centers),” Gentile says. “It’s allowed them to free up tremendous amounts of working capital to reinvest in their businesses. Many of these folks have purchased another delivery truck, hired another sales rep or upgraded their computer because they don’t have inventory sitting on the floor sucking up capital.”

Gentile knows that better communication up front might have eased the transition.

“Certainly, more due diligence and preparation may have prevented some of the issues we had to overcome early on when we introduced the model,” he says. “Too many programs I’ve seen — and I’ve been guilty of it in my past corporate life — where you come out with programs and services or marketing initiatives with all the best intentions, but they’re not truly tested. All you’re doing is really liquidating a lot of good shareholder equity.”

HOW TO REACH: is.group (317) 845-9155 or http://www.isgroup.org/

Friday, 24 March 2006 06:14

Fuel economy

Stephanie White-Longworth ascended to the top of the GasAmerica Services Inc. empire far sooner than she ever planned.

When her father, Richard, passed away at the age of 53 in 1998, White-Longworth was appointed president and CEO.

“There was a big transition time. It was a little scary,” White-Longworth says.

Eight years later, she is quite comfortable leading the 78-station chain of gas station/convenience stores throughout Indiana and Ohio. And if the company is to continue moving forward, stagnation is not an option.

“We certainly believe that you have to grow to survive,” she says. “Overall, we look at growth two ways — same-store growth, which we try to keep a focus on, and new stores. Our goal with the new stores we call ‘assertive but fiscally responsible.’ We want a steady pace of growth that we can handle financially and work into our operations without a great deal of upheaval.”

White-Longworth plans to grow GasAmerica with a detailed real estate plan, a commitment to employee training and by using technology to maximize efficiency at the company, which posted 2004 revenue of $343 million.

Real estate
White-Longworth’s goal for new site growth is between 8 percent and 10 percent every year.

“We’ve watched the industry, and we’ve watched some of our competitors who’ve grown probably a little too rapidly,” White-Longworth says. “We went through spells where we didn’t grow; we know that that’s not a good thing. We went through spells where we stretched ourselves a little bit. That (8 percent to 10 percent is what) we’ve averaged out at that seems to work well for us to keep us growing at a manageable pace.

“We feel it’s assertive. It doesn’t put us in a compromised financial position. It allows us to grow and keep our key ratios where we like them to be. It seems to be a number that flows pretty well for us. You have to be careful when you get overexcited. It’s very difficult when you’re a company our size to grow at 20 to 30 percent every year.”

For White-Longworth, there is something to be said for knowing your market. That’s why the company focuses on building in Ohio and Indiana and not on branching out into other states.

“We feel that we have built a local brand,” White-Longworth says. “We can tell that in our new stores if we put a new store in city or a market where we already have a presence. That store will take off much more quickly than when we go into a new market.”

And there is no better way to find the right location than looking for it yourself.

“We do it the old-fashioned way,” she says. “We drive around in the car — a lot. We get a lot of calls in the Indiana market about different real estate that is available. We try to check out every opportunity. Our primary focus at this point is to stay and expand in the Indiana and Ohio markets. We’re there, and we’ve got plenty of fill-in space.”

Moving into new markets — although not entirely out of the realm of possibility — creates challenges the company doesn’t want to deal with at this time. Moving to a new state means dealing with new tax laws and hazardous product issues.

“If we came across a seven- to 10-store chain in another state, we would take a look at it. But to add one site, it really doesn’t make much sense for us to do that,” White-Longworth says.

While the company looks for new places to put its gas station/convenience stores, White-Longworth makes sure that existing sites are not neglected. Each year, she budgets to remodel and rebuild some of the older locations.

“(With) same-store growth, we put quite a focus on rebuilding our older locations and continually doing remodel work,” she says. “Every year, we take a look at our whole package and we decide if there’s anybody that we need to completely tear down and rebuild. Then we look at each store individually and look at whose counters are falling apart, who needs a new awning, who needs new lighting. We try to fit in as much of it as we can.”

Remodeling is important to maintaining the overall integrity of the chain.

“Appearance is important, particularly with women,” she says. “You need to keep your lighting up — things like that. They want to feel safe where they shop.”

White says that while remodeling provides a slight sales increase, the main purpose is to maintain consistency across all of the stores.

Same-store sales
In addition to the growth that comes from new sites, White-Longworth also focuses — through a combination of training and technology — on organic growth from existing sites.

“(The growth target) changes annually, and we have to break that down because gas to us is not a dollar business, it’s a gallon business,” White-Longworth says. “If you look at dollar sales, it’s real easy to inflate that depending on the gas price. Cigarettes are also more of a unit-type item, so we break those goals down by location. Each store has its own goal by units and dollars for the other categories that we try and base that upon.

White-Longworth says she receives data daily, and gas sales can be pulled hourly. That data is then used to identify trends, and track promotions and adjust them accordingly.

“If you run a program with a coffee and a doughnut, you want to see if it’s effective,” says White-Longworth. “We can see how many people actually bought coffee and a doughnut. Sales are certainly the No. 1 place that we use that in deciding merchandising and promotions.”

Every month, the company runs different promotions, which are scheduled a year in advance.

“Every single month, we analyze the effectiveness of every one of those promotions,” she says. “We look at how much signage was put toward it. What did the sales actually do? Did our loyalty (card) customers buy more than the nonloyalty customers?

“Early on, we used to not sell a lot of eggs. We ran a really hot deal on eggs, which cost us money to run. We ran that deal for 30 days. The next month, we doubled our egg sales, and our egg sales have continued to be double ever since. And we’ve not ever had to do that promotion again.”

Promotions are also useful for introducing people to GasAmerica and what it can provide.

“A lot people don’t associate convenience stores with having reasonable prices on groceries,” says White-Longworth. “We try to do that to develop some consistency so consumers understand we aren’t the old-fashioned, high-priced convenience store chain that is out to gouge every penny.”

GasAmerica is able to track its sales and target its promotions because the company has installed the latest technology in its stores.

“We’ve been 100 percent scanning and pulling our data for 10 or 12 years now,” White-Longworth says. “That provides us with a tremendous amount of data. We’re pretty detailed, down to the per-store measurements. We have all of our data down by transaction, by time, by item, by person responsible for the sale. So we have a huge amount of data to manage.

“We have systems here that will pull that information constantly. We put a lot of effort in trying to stay ahead of the curve. We know we’re a smaller business, but we think it’s important not to fall behind on that.”

Of course, having the information and doing something with it are two entirely different things. White-Longworth works hard to make sure those people who need the information get it.

“Each manager can go in there and look at (the data),” she says. “It may be the store that is having a problem; it may be the vendor’s out of stock. The retail department has access to that data so they can look at their specific areas of responsibility, such as shortages or low sales or not asking for the loyalty card. Each department has access; we’re pretty open within our company on our data in terms of sharing that information and allowing people to get to whatever it is they specifically need to do their job.”

Despite the technology, it is still the people in the stores who have the most direct impact on customers.

“That is part of the reason we went to computer-based training (so) we could systemize that instead of counting on our managers specifically,” White-Longworth says. “Standard procedures, such as carding for cigarettes, the same information goes out to every employee that we hire.”

A manual and an intranet site give the more than 800 employees access to routine human resources information. It’s all part of keeping a consistent culture throughout the organization.

“Culture is formed around the values you have and living by those values,” says White-Longworth. “We do an annual strategic planning session. From that, we set individual goals for every department. Those goals are shared companywide across departments.”

Goals are always in alignment with the culture and the values the company is trying to promote. And White-Longworth issues an annual statement to employees that includes the company’s vision, mission, values and goals.

“We always talk about those things,” she says. “We try to make our performance measures tied to those things.”

Competition and differentiation
In recent years, GasAmerica has faced increasing competition, often from nontraditional retailers that can afford to sell gas at a lower cost. Wholesale clubs have invaded areas in which the company operates, and that can greatly squeeze profit margins.

“Gas margins are very unpredictable,” White-Longworth says. “They fluctuate rapidly, day to day. Our No. 1 priority is to not overly rely on them. (We have an) in-store focus; inside is a much bigger focus for us in terms of where gross profit comes from. The main product we sell is convenience. There is always going to be a certain segment of the market that will go to those types of shops. We are trying to play our cards to the group of people that are mostly interested in convenience at a competitive price.

One way GasAmerica attracts those customers is by having the best locations. “There’s only going to be so many wholesale clubs in an Indianapolis market whereas smaller stores can sit on many corners and be more convenient,” White-Longworth says. “Competition is an ongoing thing. We know they’re going to get a certain piece of the pie, and it’s our goal to hold on to as much of the pie as we can by treating our customers in the best manner possible, by running an ethical business.”

Another way to keep customers loyal is to give them something the competition doesn’t.

“We try to be innovative,” White-Longworth says. “We’re one of the first marketers in the state to offer E85 (an ethanol fuel for hybrid cars). We try and stay ahead of the curve.”

White-Longworth recognizes the market for alternative fuels is not a big one yet, but innovation means taking risks.

“It’s not starting out profitable,” she says. “It’s something that’s coming in the future; it’s more environmentally friendly. Those are the kinds of things you have to make an investment in at the start and watch them grow.”

GasAmerica also keeps customers through its Convenience CARD program, which offers discounts and an opportunity to turn points earned for purchases into savings.

“I believe we were the first convenient store chain to have a loyalty program,” White-Longworth says. “It’s been really successful. From our estimates of where we started, we’ve signed up five times the number of customers than we had originally budgeted to do. It’s certainly changed the way we do business. We do know that people that join that loyalty program are more apt to visit more often and they’re more apt to spend more when they’re there.”

With loyal customers, a focused strategy for growth and nearly a decade of experience, White-Longworth is no longer a timid leader.

“When we were newer in positions, it was a little scarier; we weren’t as prompt to move sometimes,” White-Longworth says. “I’m sure we cost ourselves a few opportunities in the past. We take our chances a little better.

“You have to be afraid to not make a decision. You won’t always be right, but if you make one, at least you’re moving forward. If you make those decisions based on ethics and making the right decision, you come out OK.”

HOW TO REACH: GasAmerica, (866) 427-9900 or www.gasamerica.com

Wednesday, 01 March 2006 04:48

Corporate shake up

Almost any business executive will tell you that growth is good. A company that is standing still is on the way out, or, at the very least, losing ground to competitors.

But growth without the proper foundation is a recipe for failure.

Take Steak n Shake Co. for example.

In the mid-1990s, Steak n Shake opened 30 to 40 new restaurants every year. But trouble was brewing beneath the seeming success.

“The (previous management) had not put the infrastructure in place to support expansion, and as a result of that, the expansion was not profitable and the base business was starting to have issues,” says Peter M. Dunn, president and CEO of the company. “They cut back to less than 10 stores a year. When they did that, the stock price dropped from $20 to $7 in about a quarter.”

The infrastructure had too few people in critical areas such human resources, real estate and legal. And perhaps most critical was that the company had no way to provide those new restaurants with trained managers.

Dunn has spent the past three years devising a strategic plan that will allow Steak n Shake to aggressively grow the number of stores in its designated marketing areas, develop strong, sustained earnings growth and, most important, deliver on its desire to become the absolute best at one thing — creating delighted and loyal guests.

To accomplish that goal, Dunn revitalized the way the company prepares future managers, changed how and where it opens new stores and instituted a series of process improvements.

Improving management
Each Steak n Shake restaurant the company opens requires new managers and assistant managers. But its previous approach to growing managers was ill-conceived and even detrimental to patron loyalty.

“In the past, we would go to our managers and say, ‘We’re gearing up for expansion, and we’d like you to develop new parts of management (shift leaders, extra managers) in your restaurant to prepare for expansion,’” Dunn says. “They’d say, ‘Great, we’d be glad to do that.’ They’d hire the extra managers and put them on their staff.”

At the end of the year, the stores that had taken on the training of new managers had those trainees’ salaries and expenses counted against their store revenue, costing them bonuses.

“It didn’t take them very long to figure out that that wasn’t something they necessarily wanted to do,” says Dunn. “So we ended up not having extra parts of management.”

But stores continued to open, leaving Steak n Shake executives two options — install poorly trained or inexperienced management or rip quality managers from existing sites and leaving those depleted.

“Either one is a disaster,” Dunn says. “It caused enormous pain.”

Unhappy managers create unhappy associates, and unhappy associates provide a disappointing customer experience. In 2002, Steak n Shake experienced 220 percent turnover, which meant, on average, that for every position, 3.2 people had been in it in a the past 12 months. Manager turnover was also poor, at nearly 50 percent.

Dunn’s solution, implemented beginning in 2004, put the financial onus for training on the corporation. Steak n Shake’s corporate office would now front the cost of training managers in the restaurants.

“We are now hiring, six to 12 months in advance, new leaders for restaurants, putting them in place and getting them fully trained at the company’s expense, not the stores’ expense,” Dunn says. “The store is fully staffed; they get a free part of management, a free manager to be developed in their restaurant, as long as they’re willing to give one up for expansion.

“We did that knowing it was a new $3 million annual fixed expense,” he says. “In the first year, between $1 million and $1.5 million was the manager part. There was another $1 million of technology, real estate, (human resources) and all the other things that go with that. If you’re going to hire more managers, then you need more HR people to find more managers and more legal people to negotiate deals on more restaurants and all the things that go with expansion.”

That cost will continue to increase as the company expands. In 2005, it was about $4 million, and the amount will vary in direct proportion to the number of restaurants opened. The new strategy has had a positive effect on employee retention — associate turnover has dropped to 135 percent, and manager turnover is down to 26 percent.

“We need to continue to increase all of the resources associated with expansion at the rate we can do so successfully,” Dunn says. “So, for example, each year, we set a higher number for our expansion goals. We need more real estate people and more HR people and more managers. The benefit of that added expense will take a few years to be realized.

“The way in which we described it, in the last analyst call, is that there is a new level of cost in the infrastructure and that in the first couple of years, it costs you significantly more than the benefit that you get,” Dunn says. “Around 2007, it breaks even. And some time beyond 2007, it actually pays back very handsomely.”

Structured growth
While Steak n Shake is growing new managers, it is also reigniting the growth engine so those people will have a place to go. The company opened 19 stores in 2005 and plans to open at least 26 this year.

The brunt of that growth will come in what Dunn refers to as designated marketing areas, which is basically encompasses television markets.

“We are clear that a designated marketing area is probably our key economic engine,” says Dunn.

He cites author and teacher Jim Collins’ book, “Good to Great.”

“(Collins) talks about being clear about what your economic engines are — where is the money really made. For us, it’s obviously the restaurants to some extent; it’s obviously franchisees to some extent. In some ways, the most important economic unit is actually the designated marketing unit.”

The DMA’s importance ties into television advertising.

“If you have a high concentration of stores in a television market, then the cost of advertising per store is less,” Dunn says. “You actually spend more on television. People see more of your commercials. It costs less per store, and lastly, you have restaurants closer by so when they’ve seen the advertising, there is one to go to. That’s a synergistic equation. We know it works very well. We know, for example, our highest return on asset markets are those where we happen to have the highest level of concentration.”

Growth in the mid-1990s was aggressive but not focused in the DMAs.

“In the past, we opened multiple new markets without achieving an up-penetration in each market that we opened,” Dunn says. “The restaurants did not get the benefit of television and therefore, ultimately, were subject to slower same-store sales trends and even erosion over time because people didn’t understand what the concept was. One of things you have to do, you have to focus your expansion in order to be successful and have a clear plan for each DMA.”

When Steak n Shake advertises in a DMA, sales increase, on average, 15 percent, Dunn says, and they remain strong after that.

“Our expansion plan for the next five years is focused mostly on deepening the penetration of our current television markets,” he says.

The DMA is key, but so is finding the right site — something that’s more of a focus now that the corporate infrastructure has been expanded to handle the demands of expansion.

‘The second thing you need to do is have high-quality real estate,” Dunn says. “You have to have enough real estate people, enough sophistication in real estate site selection tools and other processes in place to ensure, when you pick a site, it’s going to be a good one.”

Process improvement
Dunn’s strategy also involves improving the processes to squeeze as much profit as possible from each of its 400-plus restaurants. In other words, happy guests are more willing to come back, and they more easily part with their money.

“We have both labor and margin improvement measures,” Dunn says. “And with margin expansion, we obviously have successful store growth and return on assets.”

Those margin improvements will come with increasing customer satisfaction. Steak n Shake completes a minimum of 50 guest satisfaction surveys per store per month and uses that information to make changes in the way it serves guests.

“We know, for example, in the dining room, the quality of the greeting is a very important component of things that drives overall satisfaction — that first impression when you walk in the door,” Dunn says. “We’ve actually changed our practice. We took the menus off the tables and put them up front so that a greeter meets people at the door. As a result of our greeting, scores have gone up substantially.”

The company’s overall satisfaction scores have gone up, as well. The percentage of guests who gave the company a five on a five-point scale rose from 53 percent to 61 percent in the second half of last year.

The company also surveys employees.

“We know that the first 30 days’ experience of an associate is very important,” Dunn says. “There are a number of things about the interview process and the first week of employment. By keeping a very close eye on them and providing them with support and management interaction, we know that increases their loyalty.”

Finally, the company is working to improve the product pipeline.

“We have added significantly in that, but it does take awhile to build a new product pipeline,” Dunn says. “The intent, over time, is that it will be consistently strong.

“You need to develop a series of new products involving consumer research, product development, test marketing. All those things typically take nine to 12 months for any new product, minimum.

The company’s goal is to have three or four significant product introductions each year.

“If you want to have several ideas competing, then you need several ideas being developed at the same time,” says Dunn. “Each requires teams and production equipment, training materials and all the things that go with it. It takes a little while to build up the infrastructure to support multiple new product initiatives.”

The result
Over time, Dunn has stated the goal of the company is to create strong, sustained earnings growth. But it was only recently that he was willing to clarify exactly what that meant.

“The good news is, after having avoided that question for a long time, as a result of finishing our strategic plan, we have indicated within our five-year strategic plan that it is our aspiration to deliver strong, sustainable earnings growth approaching 15 percent,” Dunn says. “It is our intent, within that five-year window, to achieve that rate.

“We’re putting in the building blocks to have significantly higher odds of achieving those kinds of numbers. Without putting those building blocks in place, we wouldn’t be able to do that.”

Last year, the company posted $30.2 million in net earnings on $606.9 million in revenue.

Dunn’s target for 15 percent growth breaks down as follows.

“The primary contributor is first having a healthy core franchise,” Dunn says. “That means that you are able to achieve a respectable same-store sales growth rate because your guests are delighted and they come back more often, (you have the right) product mix and some of those kinds of things. There’s a 2 (percent) to 3 percent same store sales number that you can achieve.”

New restaurants will add 7 percent to 10 percent, and margin expansion will add another 2 percent to 3 percent.

“As you gain economies of scale through both expansion and same-store sales growth and become a little more efficient, you ought to be able to find two to three more margin points there as well — buying commodities, sharing the fixed costs of the corporate overhead — some of those kinds of things,” says Dunn.

And while 15 percent is the ultimate goal, Dunn expects to achieve 7 percent or 8 percent earnings growth this year.

“One of the reasons the earnings growth are 7 (percent) or 8 percent is we’re actually putting more back into the infrastructure and we’re not getting those economies of scale (now) because we’re setting ourselves up for the future,” he says.

So far, investors agree with Dunn’s plan — after hitting a high of nearly $22 a share last summer, Steak n Shake’s stock price has been hovering in the $18 range.

The future as Dunn sees it will have the company achieve its goal of becoming world class at what he calls the defining moment.

“The driving force of our strategic plan is based on the idea that if you’re going to become world class, you become world class at one thing,” Dunn says. “It can’t be 100 things or even three things. When you pick the thing you’re going to be best in the world at, you need to pick the right thing, the thing that will make the most impact on your business, allow you to succeed and differentiate yourself from your competition.

“And what we have chosen as our driving force is what we call the defining moment — having inspired, loyal associates creating delighted and loyal guests. We have said that, over time, we will become the best in the world at providing that experience.”

HOW TO REACH: Steak n Shake Co., (317) 633-4100 or www.steaknshake.com

Wednesday, 01 March 2006 04:28

The Ratcliffe file

Born: 1948, Tifton

Education: Bachelor of science degree, biology, Valdosta State University; law degree, Woodrow Wilson College of Law

What is the most important business lesson you’ve learned?
It’s an ongoing lesson — the value of honesty, integrity and accountability in leadership.

What is the greatest business challenge you’ve ever faced, and how did you overcome it?
A racial discrimination lawsuit in 2000. I overcame it with a great deal of help with some very knowledgeable people and a great deal of work in understanding the issues.

Ratcliffe on vertical integration: The Southeast tends to be more vertically integrated (with its power companies) than the rest of the country because we have enjoyed very good prices of electricity compared to the rest of the country. So the regulators have not seen the necessity of disaggregating the business at this point.

What that means for me — for example, going back to the Katrina response — all my folks are part of Southern Co. They may be part of different functions — they may have a generation responsibility or a transmission responsibility or a distribution responsibility — but they’re all part of Southern Co.

If there are three different companies here — a generation company, a transmission company and a distribution company that are in no way connected corporately — it is harder to have efficient and effective communications at the same level that you have with a vertically integrated business.

Not only it is easier in that regard, but also, I think, in terms of the resources that are available to me in a vertically integrated business. For example, I can use the transmission guys if I need them to help with distribution, or vice versa. We’re all trying to do the same thing and working on the same team.

The generation guys are able to help in a lot of ways — staging areas, support vehicles, bodies and coordination — not to mention that they’ve got to get the generators back up and running.

Thursday, 02 February 2006 10:13

Frank Robinson

In 1939, Frank Robinson saw Igor I. Sikorsky piloting a small helicopter, and he knew right then that that was his future.

He spent 16 years working for six helicopter companies before starting his own at age 43.

“I wanted to learn all aspects, not just designs of helicopter rotors,” Robinson says. “Moving around like that, I was able to get a broad background in the aircraft. I never allowed myself to be specialized in any one thing.

He has since been called the Henry Ford of helicopters, and his company has won numerous awards, including the Igor I. Sikorsky International Award in 1990 and 1991 for record-setting flights. Robinson shares his thoughts on building a company, entrepreneurship and his plans for the future.

On doing your own thing: When I worked for the larger companies, they used to exasperate me — the multitude of management they had, the bureaucracy and the meetings — always holding meetings. It’s better to give the job to one intelligent, sensible person, let him go off someplace and do the job.

On taking chances: I really wanted to develop a small, personal helicopter. It took a little longer than I thought it would. I had to rotate around to six different companies because I couldn’t convince any of them to do it. They all wanted to build bigger helicopters for the military.

When I got to be 43, I read somewhere if you haven’t started you life’s work by the time you’re 40 years old, you’re not going to do it. I was already three years past due. I decided to gamble my house and everything that I had, knowing the odds of success were very, very poor.

I was at a point in life that if it failed, I could always get a good job. I could start over.

On his approach to business: If I have a religion, it is keeping things simple. There is a tendency, nowadays, with any product, people want to make it more complicated. Even with the use of language, they want to change the names of things. One irritating thing to me is changing the name of personnel to human resources — utterly ridiculous. Why change one simple, easy-to-understand word with two meaningless types of expression?

When you make products simple, they are going to be more reliable, easier to understand, less expensive, and the main thing is, they are going to be much easier for the person to use.

On hiring: I have been successful in developing a really good group of key people. I only hire the very smartest engineers based on their scores and grades, and I hire them right out of college. I found it best to let them learn the practical aspects of designing helicopters here rather than try to hire people from other companies. They do about as many bad things as good things to you.

There’s a lot of difference between people as far as their intelligence and common sense. I really value common sense very highly. I also look for people that are very creative. Very few people are actually creative. They can be really smart but not be creative.

On managing: You have to follow codes of ethics. And you have to have certain principles that you follow if you want to keep the loyalty of the people that are working for you. You have to be very open and very honest about everything that you do. They have to have confidence in you; they have to trust you. If you try to go out and BS them, that’s a disaster. Your word has to be good.

On growth: One thing that has brought it up the past few years has been the weak American dollar overseas. We export nearly two-thirds of our helicopters.

Our business is going to continue to grow. It still could have its peaks and valleys. The use of helicopters is always expanding, and I’m convinced will always continue to do so.

On longevity: Just about all of my key people have been with me for over 20 years. It’s been a very stable work force, stable management. That all really helps.

On the other hand, you could say it’s like incest. A little bit of outside blood from time to time would be good. And we have done that on some occasions but not very much.

On loyalty: They have to have confidence in the organization and the product they’re working on. You have to treat them right. They have to feel that you’re sharing a significant part of the company’s success with the employees.

One thing that has helped us a lot is that our company is quite stable. They feel that they have a good job, and they are going to be able to keep it for a long time as long as they good job.

On management changes: Most of the people, over 1,100 of them, are involved in production. In the old days when we were much smaller, I’d have company meetings where I’d call everybody together and be able to talk to them as a group. That was quite a number of years ago.

Now, I don’t communicate with them as a group. The only way you can do that really is to put out a memo stapled to their time cards or paychecks. Those are more for official directives and things of that sort. As far as meetings are concerned, I’ve always felt that meetings are one of the most wasteful things in industry.

We avoid having meetings as much as possible. Most decisions don’t have to have a meeting.

On succession: I really would like to figure a way so that the people who helped me build this company would be the recipients of it and the ones who would continue with the company. I don’t have the solution to that problem yet.

I’ve looked at Employee Stock Ownership Plans; I’ve looked at other types of succession plans. I can’t say that I’ve really found one that I strongly favor yet. But it is something that will have to be done.

HOW TO REACH: Robinson Helicopter Co., (310) 539-0508 or www.robinsonheli.com

Thursday, 26 January 2006 19:00

Michael Perry

When Michael Perry joined IndyMac Bancorp Inc. in 1993, it had just four employees.

Today, Perry, chairman and CEO of the company, oversees 6,500 employees and $1.1 billion in revenue, making IndyMac one of the Top 10 mortgage lenders in the country and a Top 10 thrift.

Perry shares his thoughts on how the company’s growth has changed the way he manages the company, how he’s built his staff and why management training is pointless.

The great thing about leading this company today is that I have a team that is so strong and talented that when we have an idea, we’re able to execute on it. Back in the early days, when we had an idea, it was difficult to execute because our management team was too small. We had too many good ideas for the size of our team.

My job isn’t so much to roll up my shirt sleeves any more and actually do the work myself. That’s not really productive. My job is to make sure the top senior managers are organized properly, they have the right goals, their pay plans are aligned to those goals and that I’m working with them so that they can succeed, hit those goals and blow through their pay plans and are extremely motivated.

When you’re looking to hire somebody, at any level, what I’m looking for is a level of success commensurate with their age and education. If they’re 22 years old, they’re not going to have a lot of career success. You’re looking at their academic success and their extracurricular success. If I’m looking at a 40-year-old, I’m very focused on their career success. And I want to see them have some wins, not someone who has bounced around from place to place. I’m looking for, what achievement have they made with the opportunities they’ve been afforded in life? We’ve all not had equal opportunities in life. I’m looking for people that have made the most out of the opportunities they’ve had.

The great thing about difficult times is you find out who are the rats that are worried about going down with a sinking ship. And you find out the people in your organization who were really only there for the good times. It’s like when you have friends and you go through a difficult period in your life — no longer are they calling you, inviting you to dinner. You find who your real friends are. In tough times, you find out who the people are who are really committed as managers and leaders at your company. It also melded our team together in a much greater way. We know we can fight through anything.

I’m not a big fan of just cutting and laying off people like some in our industry do when volume goes down. That is not very loyal to your employees. It’s not a smart way to run your business, not only from the culture and employee morale standpoint but also a quarter or two later, your business may be back up and you’re rehiring. If you see it as a permanent decline in your business — which is pretty hard to see for IndyMac given our growth rates — then you lay off. If you see it recovering in a year or so, you don’t lose those layoffs.

The biggest thing I see in growth is you fear hiring and fear making the capital investment. You’re worried you might have to retrench. That fear sometimes makes certain leaders grow at a slower pace than they otherwise could. If you’re in a business that has good long-term growth potential, you don’t want to be afraid of making the proper investments in your business. The old adage — you’ve got to spend money to make money — it’s true. A lot of financial leaders may get obsessed with the cost and not the revenue opportunity. I’ve always looked at it as any great person I hire is going to generate way more revenue or save me more in costs than their cost.

I’m not a big fan of management training. You can give me golf lessons all day long, but I’m not going to be a pro golfer no matter how many lessons I take. We’re a professional organization here, managing people. If you don’t have the innate leadership ability — and it truly is some innate skills — it’s part of that thing called the emotional quotient. If you don’t have the ability to articulate your vision, get your people to understand it, get them behind it and get a sense of when they think you’re full of it, they’re probably right. You need to listen to them.

I’m a big believer in getting 75 percent of the facts in, and then making your decision, moving forward. Monitor those decisions. Be humble. Admit the ones you screwed up on. You can fix them quickly, and they won’t cost the company much. Waiting until you have 100 percent of the facts in or never making the decision, that is just paralysis. I want people to make some mistakes.

For a lot of my career, I worried about the pace of change — change was going to overtake us. I was always fearful that change was going to wipe out our business. I’ve learned, over time, very few things change that quickly. If you prudently move your business toward change, you won’t get left behind, and your business will succeed.

HOW TO REACH: IndyMac Bank, www.indymacbank.com or (800) 669-2300

 

 

 

Wednesday, 28 December 2005 10:33

The Olson file

Born: 1959, Minneapolis

Education: Bachelor’s degree, business, University of Minnesota; master’s degree, St. Thomas University, Minnesota

What is the greatest business lesson you’ve learned?
Never underestimate your own abilities. The same applies to the team because it is amazing what people can accomplish when you give them the opportunity to do that.

What is the greatest business challenge you’ve faced, and how did you overcome it?
It was when I was an ex-pat, living in a foreign country, and I didn’t speak the language or know the culture. I was asked to lead a team of people in an area that didn’t exist before, with individuals from all over the world, with definite communication styles.

Pulling that team together, accepting each others’ differences, learning from one another and eventually becoming a successful high-functioning team [was a challenge].

Whom do you admire most in business and why?
I have tremendous respect for Steve Jobs as a visionary and a leader. He is a master at analyzing and understanding the market and creating a need from absolutely nothing.

Take a look at what he did with the music business. He saw that file-sharing technology was going to be very disruptive and possibly lead to the demise of the tradition of music retailers. He asked the question, ‘How can I change the old model?’ His answer was the iPod.

We face some of those same types of issues and the same question: ‘How can we change the model of health care as it exists today?’

It’s the pursuit of that answer that inspires and motivates me to come to work every day. That helps us with our innovative culture.

Tuesday, 29 November 2005 09:28

The Eyler file

Born: 1947, Hamilton, Ohio

Education: Graduated high school in 1966

First Job: A shoe salesman while in high school and played in a rock and roll band. Wrote and produced records.

Residence: Las Vegas

What is the greatest business lesson you’ve learned?
It was from a motivational speaker named Ira Hayes. It was to make sure I gave the customer what they want, not what I want.

Many times you can come up with an idea and you think it’s the greatest idea in the world, and it so happens that you’re the only one that thinks that. You need to be able to understand what people want and give them what they want, but make sure it’s more than what they want.

What is the greatest business challenge you’ve faced, and how did you overcome it?
Knowing that I have to make payroll for hundreds of people every two weeks. That’s the greatest business challenge that any business owner faces. I’ve never missed one in 33 years.

Whom do you admire most in business and why?
I admire Bill Gates for the incredible job he’s done building his company. I admire the Waltons for family, for how they built Wal-Mart. I admire Warren Buffet for what he’s done.

My father was probably my favorite. That’s probably the person that I admired the most, though I was only able to work with him three or four years.

He taught me to believe in myself. He taught me how to treat people. I watched how he worked with his staff, his management people and his employees. People from every level of the business all got the same treatment. I learned that from him.

Monday, 28 November 2005 19:00

Business by Jake

Jake Steinfeld readily admits he didn’t come to California to become an entrepreneur. But when the opportunity presented itself, he grabbed it and held on for dear life until he was able to build a fitness empire worthy of his well-muscled frame.

“I knew I was an entrepreneur the second I made the cover of (body-building magazine Sportstyle), and I said, ‘How can I turn this cover into money? How can I parlay me being on this cover into the next idea, the next venture? I knew it right at that moment,” says Steinfeld, chairman of Body by Jake Global.

But the road from $200-a-half-hour fitness trainer to global business leader was fraught with mistakes. And Steinfeld has heard “no” and experienced skepticism more times than he can count.

His goal when he came to Los Angeles was to win the Mr. America bodybuilding competition, but when he came in second in the Mr. Southern California competition, he knew he wouldn’t realized that goal. Not wanting to give his former girlfriend and friends back in Brooklyn, NY. — who predicted his return in six months — the satisfaction of an “I told you so,” he decided to give it a go in the City of Angels.

A chance meeting with a B-movie actress ultimately led a career as a personal trainer for a host of the movie industry’s biggest names. And although he didn’t know it at the time, it was the launch of his fitness empire.

He spent years working with Hollywood’s power elite as a personal trainer, absorbing their secrets. And he parlayed that knowledge — along with his “Don’t quit” attitude and a little bit of fame — into several successful businesses, including FIT TV, which he sold to Fox Network’s Rupert Murdock for $500 million in 1997.

Steinfeld spawned the personal trainer industry, helped found Major League Lacrosse, has peddled more than $600 million in a line of fitness products that bear his Body by Jake brand and is in the process of launching his second fitness-themed television network.

“Once I was able to hang with these rich and famous people, I discovered these people are no different than you and me,” says Steinfeld. “The only difference is, they had a dream and they never quit on a dream and never took no for an answer.

“I might never direct ‘ET’ but I’m going to have my own successes in life. And I was able to feel like I can do whatever I want in my life as long as I put my head to it. I parlayed that famous-by-association into videos and books and television shows.”

Of course, fame does not guarantee success. Despite the fact that the past decade has brought Steinfeld, a chubby Jewish kid from Brooklyn, more wealth, success and fame than he might have ever imagined, he still regularly hears “no” from people.

“We live in a world where there’s a lot of crap out there,” he says. “People have to move through it in order to get to the right thing. I’m a big believer in keeping that uniform on because you never know when they’re going to put you in the game. I’ve always kept that uniform on; I’m always working at my craft. I’m always working to reinvent myself. I proved that with Body by Jake to FIT TV to Major League Lacrosse.

“Now we’re launching another fitness service called Exercise!TV, which is a video-on-demand service I’m doing with Comcast, which is extremely exciting. It’s all about futures.”

It’s about working toward the future and the willingness to fail. Steinfeld’s first attempt at creating a Body by Jake brand was an idea to put fitness centers in hotels and country clubs around the country.

“I was able to raise 200 grand,” he says. “We hired a PR firm and all kinds of stuff. We went around, went to the Hiltons ... Everybody loved the idea. But the recession was just hitting. Everybody was more interested in heads and beds. Everybody said, ‘It’s a great idea. We think it’s fun, but we can’t do it right now.’”

It was a troubling moment for Steinfeld and one of the first make-or-break moments of his business career.

“I ran out of money,” he says. “I could have said, ‘That’s it.’ But fortunately for me, (I have) a great wife who’s a big believer in me.”

Steinfeld and his wife had just purchased a home, and they agreed to take out a second mortgage to finance another attempt at the business.

“We had to take another hard look at what Body by Jake was,” he says. “Obviously, we had a good idea, but it wasn’t going to work.”

Whatever disappointment Steinfeld may have felt after that first venture was short-lived. Instead of retreating, he turned the experience into a lesson.

“As an entrepreneur, if you’re not failing, you’re not pushing yourself hard enough,” Steinfeld says. “A lot of people equate failure with death. The great thing about failing is that you get up, you wipe yourself off and you go, ‘Hey, at least I did it my way. I gave it a shot. Now let me learn from those mistakes. Let me get with some different people. Let me try it a different way.’ If you’re passionate and you believe in yourself and your idea, you’re not going to let anybody throw you off course.”

It was about that time that Steinfeld finally agreed to enter the world of infomercials, something he’d been reluctant to do because of the stigma he felt consumers attached to the programs.

“I was not a believer in the infomercial business because I thought it was really cheesy things that were on television,” he says. “I said, ‘I’m not going to get involved in that kind of game.’ Then I sat down and said, ‘Wait a second, if we do it, do it with my passion, do it with the brand that we were building and make sure that we underpromise and overdeliver, we’ll have a shot.’

“That’s when we took a shot with the infomercial business. That was a major moment for me, a major moment. That gas tank was on ‘E,’ baby.”

Not one to waste a moment, even today the hold music on the Body by Jake telephone system includes inspirational messages from Steinfeld. In one, he counsels listeners to embrace their fears. And true to form, Steinfeld shares his own.

“The fear was committing that this was what my life was going to be,” he says. “I was not cut out to work a 9-to-5 job. I was not cut out to work for anybody else. I was not cut out to do mainstream anything. I’m going to set myself up. I’m going to put everything in this game. I’m going to make this work.

“The fear was not succeeding. I love what I do so much, whether it was going to someone’s house and doing a workout with them or doing my first book, my first video or television show. I had no training in any of it — it might show. At the end of the day, when you’re watching or reading or perusing, especially television, you can see honesty in someone’s eyes and if they’re bullshitting you or not. I’m as straight up as it gets.”

And Steinfeld confesses his deficiencies as a businessman.

“To say that I had this plan — no, no way,” he says. “I got more and more courageous, more and more encouraged, felt better about myself every step of the way with everything that I started to get involved in and making sure that I was keeping true to what the core idea, the core business, was.”

A good understanding of the core business keeps Steinfeld focused even as he is inundated with offers for new business deals.

“If you can imagine Body by Jake Global as a film company where writers are sending scripts in, we are inundated with fitness product ideas,” he says. “We look at everything because you never know. ... I feel I’ve got a pretty good gut. And I go on my gut. Sometimes I’m wrong. I’ll always take a meeting because you never know.

“You can’t forget where I started. I would think, ‘I wish somebody would take a meeting with me so I could pitch that idea.’ I’m a big believer in (the fact that) there is a whole lot in the new generation of fitness talent out there, which is why we’re starting this management company to create the next generation of Jakes. There are no new big names in fitness anymore outside of locally or regionally.”

And while he now has a recognizable name and brand, Steinfeld knows he still has much to learn as an entrepreneur.

“Experience makes a leader,” Steinfeld says. “The company goes as you go. If you’re walking around in a pissy mood all the time, everybody in the office is in a pissy mood. If there are challenges, you’ve got to rise above the challenge. You’ve got to find solutions, and if you can’t find solutions, you’ve got to be smart enough.

“Everyone’s human. Everyone makes mistakes, but I really believe it’s all about you need to understand and have a lot of years under your belt to make a good leader. I’m a whole lot better today than I was at 23 or even five years ago.”

Steinfeld bills himself as a street-smart entrepreneur, and after 24 years of learning on the job and finding a way to make money at most everything he touches, he is sharing his business acumen in a new book, “I've Seen a Lot of Famous People Naked, and They've Got Nothing on You! Business Secrets from the Ultimate Street-Smart Entrepreneur.”

Steinfeld is also looking for the next great idea and sponsoring a contest in which he will provide the winner with $200,000 and $50,000 worth of flying time on a Marquis Jet to help someone establish a business. He’ll have no ownership in the new company; he is simply trying to find a way to bring another healthy business into the world.

“The fun thing about being an entrepreneur is waking up in the morning and not knowing what’s going to be happening today but feeling it’s going to be good,” Steinfeld says. “Just waiting for the day, coming into the office and making things happen; that’s what it’s always been for me.”

HOW TO REACH: Body by Jake, www.bodybyjake.com

Tuesday, 22 November 2005 09:46

Addition by subtraction

During a six-month period last year, the executive team at AFC Enterprises divested the company of some of the most recognized names in the food industry.

AFC Enterprises Chairman Frank Belatti led the charge that started more than two years ago and culminated in the sale of Seattle’s Best Coffee, Torrefazione Italian Coffee, Cinnabon and Church’s Chicken, leaving only Popeyes Chicken & Biscuits.

“It’s a lot easier to buy things than it is to sell and dismantle, but at the end of the day, we wound up at a better place,” Belatti says. “We have a much more streamlined business today, we generated a great deal of cash, we made a good one-time dividend to shareholders.”

Belatti hasn’t entirely ruled out rebuilding the portfolio some time down the road, but for now, the sole focus is Popeyes.

“We have a company now that is relatively easy to understand and to manage and has good growth prospects, and we’re pretty much exactly where we wanted to be when we started the process two-and-a-half years ago,” he says.

Smart Business spoke with Belatti about how he divested AFC Enterprises of those companies.

Why did you divest of those companies?
We went through the process in the early days of putting together AFC that we could leverage a corporate center, which we structured for the management of Church’s and Popeyes. And as that began to mature, we looked at the prospect of adding some additional brands and businesses.

After we went public, we started looking very aggressively at the performance of those businesses and whether or not the businesses were demonstrating the kind of growth rate that we thought in the long term was going to be beneficial to the company and whether or not the corporate center was really being fully leveraged.

Our stance was that, as a public company, the best approach for us would be to sell the businesses other than Popeyes and dismantle the corporate center and run Popeyes as a stand-alone public company, and that would probably garner the highest value for shareholders. About two years ago, we started selling off businesses that we considered either to be not core or not having the kind of growth dimensions that we had originally hoped.

How did you decide which entities to divest of?
Our experience with the coffee (business) is that garnering real estate was a very difficult proposition given the fact that Starbucks had and continues to have a real estate machine. It was very difficult to get the sites we needed.

Secondly, our volumes were not as high as the Starbucks volumes. Thirdly, we started to see most of the growth in the coffee business occurring at grocery retail and food service wholesale, and the caf business was struggling from the standpoint of unit growth.

Grocery and wholesale were not exactly the businesses we wanted to be in. So given the underperformance of caf unit growth, it just was deemed as a business that was not working the way we had wanted.

Cinnabon we bought as corollary to the coffee business, thinking we could merge a bakery business into the coffee. The realities of the Cinnabon business, however, were that they were so mall-based, and we were clearly living with the mall dynamics and captive venues in airports, which struggled for several years. Since we were so dependent on foot traffic, that business was not showing the average unit volume and unit growth that we were expecting of it.

When you get down to the chicken brands, after 10 years, it became somewhat apparent to us that the brands were very independent. They were clearly working on their own at this point in time, not really requiring a great deal of the corporate center.

(They were), in fact, probably at odds with what the center was trying to do because we had kind of a vanilla service platform and the brands were trying to become more and more and more unique. Franchise partners began to say, ‘You know, what we’re getting awfully close to one another from a concept perspective.’

Both brands were clearly at a point where they were perhaps prepared to move off on their own much better than we could have continued to manage them, service them and run them effectively.

Why keep just Popeyes?
We thought ... that the brand that had the highest growth perspective, the highest growth platform domestically and internationally, the highest average unit volumes and was predominantly franchised was the one we most wanted to hold on to.

We thought it would also deliver the highest value to shareholders in the long run, and so we made the decision to sell Church’s and held on to Popeyes.

Have you achieved your goals following the divestitures?
We sold the three businesses for somewhere around $500 million. That cash, along with (eliminating) the corporate center, saved the company another $25 million a year. We paid down debt, capitalized the company and we returned to shareholders $12 a share, about $360 million. We now have a company that is operating at about $35 million a year with very little capital requirements.

The coffee business was rather capital intensive. We were in the process of having to purchase or build or lease additional coffee processing facilities and new technologies. Church’s was very capital-intensive. When you have got about 300 restaurants to maintain with a relatively old operating base, a lot of capital is required in that business.

All things considered, as a shareholder, you have to say you should be pleased with a company that was able to monetize its assets, return those proceeds to you and now be sitting on top of a highly profitable noncapital-intensive operation that has the highest growth prospects of all the brands that were in the portfolio.

How important was communication as you went through this process?
I think we relied very heavily on the presidents of the operating companies to continue to do the work that they were hired to do. I spoke with the franchisees of each of the groups at their conferences and with the leadership of the franchise communities and assured them that our goal was to not only do what we thought was right for AFC but what was right for them and the future of their brands.

We consider ourselves stewards of these brands and we had tried to do the very best we could with those brands while we had them. And I think the sense of the franchisees was that we had done well ... and they trusted us to put them in the hands of owners who would then take them to the next level.

We told them that in each case, that if we didn’t find the right owner or we didn’t find the right conditions, that we were under no obligation, no pressure to sell the businesses and that we wouldn’t unless we thought we were doing the right thing for the brands and for their long-term security, as well as for the company.

How closely did you follow a plan for the divestiture?
Each decision was made independent of the others, but clearly, from the beginning, there was a path that we wanted to move down. Of course, you never know when it takes that long how things develop and what market conditions are like and what the active participation by buyers is and so on.

In each case, you have to make a decision on its own merit and again, if the long-term strategies are in the shareholders’ best interest, it has to be made up of individual and independent decisions, which also affects shareholders in the right way. So I think you go down a path and make decisions one at a time.

Is there still a need for AFC Enterprises now that there’s only one company?
It’s really a legal entity. AFC Enterprises today is Popeyes, and I think the need for the legal entity remains necessary. Whether that will always be the case or not, I don’t really know, but today it certainly remains necessary.

A lot of the good things about what we’re able to do is that we had businesses that were able to be separated and able to be sold into the marketplace, into a good market. We didn’t have to continue to operate something that we didn’t necessarily want to operate long-term.

Would AFC consider buying another business to complement Popeyes?
This is probably not a good time because we’ve been through a lot of upheaval in the last couple of years and we certainly don’t want to do anything to confuse the normalcy that has come back to our business. Once normalcy occurs and once things are transparent to shareholders and they’ve got their arms around the business and we think that everything is where it needs to be, then I think it’s certainly possible.

I don’t think it’s necessary but I think it’s possible that we would be in the marketplace and looking to expand the portfolio if we thought it was going to be beneficial to shareholders. That process certainly hasn’t begun, but the mechanism is clearly in place to be able do that.

HOW TO REACH: AFC Enterprises, 404-459-4450 or www.afce.com

Editor’s note: Kristy O’Hara contributed to this story.