June 23, 1999
Ownership: The Cathy Family
Competition: KFC, Popeye's, Church's
A Future IPO? Not likely
Chick-fil-A operates 845 restaurants, including three international locations. The company's units historically have been located primarily in mall food courts, but lately it has been expanding much more aggressively with freestanding units. Another avenue for growth is licensed units at colleges, hospitals, and at business sites. Plans for 1999 include the addition of 92 new units, including 50 freestanding, 30 licensed, 11 mall, and one international location.
Revenue growth seems to be a trademark of the company, with positive results every year since the company was founded. Hoovers estimates that revenue attributable to the company was $750 million last year, a solid 17% increase from the $640 million that Nation's Restaurant News estimated for 1997. Same-store sales have been incredibly strong, rising 7% in 1998, 11% in 1998, and about 8% thus far in 1999. To compare that with the competition, KFC, the nation's biggest chicken chain, crowed about 4% gains in 1998 and the first quarter of 1999. Freestanding units tend to bring in sales of in the $1.5 million range, whereas mall-based units gross almost $1 million.
Chick-fil-A has prospered under a unique culture fostered by its chairman, CEO, and founder, Truett Cathy. Two of his sons, Dan and Bubba, are also involved in senior management, along with Jimmy Collins, who is president and COO.
One of the more surprising Chick-fil-A traditions in our increasingly secular world is that all stores are closed on Sunday. The company could certainly increase profitability by operating on the seventh day, but it feels that some things are more important than making a buck. (This policy probably does give Chick-fil-A an advantage in recruiting talented restaurant employees who want at least one day off every week.) The company is also quite active in community affairs and sponsors college scholarships for its employees.
Chick-fil-A has designed a pay structure for unit operators that motivates and rewards these employees. After paying headquarters 15% of gross sales, the operating profits from each restaurant are split 50/50 between the company and the operator. To ensure a certain standard of living, each operator is guaranteed a minimum salary of $30,000. Because of this profit sharing agreement, operators are strongly vested in improving the operating performance of their units.
As demonstrated by its "Eat Mor Chikin" advertising campaign, Chick-fil-A has a lighter side that customers seem to enjoy. If you haven't had the pleasure of seeing these ads, they have huge, cute cows encouraging people to Eat Mor Chikin. While you really need to see some of the billboards to fully appreciate the ads, you can catch a glimpse of the cows on this promotional page.
Alas, don't hold your breath waiting for Chick-fil-A to go public. The Cathy family owns the company and fears that such a move would hinder its ability to support community efforts and may require the chain to open on Sunday. Even though investors might be disappointed that the company isn't an investment option, it sure is great to see a firm profitably grow while sticking to its founder's beliefs. Perhaps public companies could learn a lesson or two from Chick-fil-A.
Next -- Crate & Barrel