Old-fashioned principles keep Chick-fil-A flying high

Few companies have mastered the balance of business morality and strong P&Ls like Chick-fil-A. Since 1946, when he opened the "Dwarf Grill," Chick-fil-A founder Truett Cathy has used old-fashioned principles and loyalty to employees to lead one of the country's most dynamic corporations.

In the book "Loyalty Rules," Frederick Reichheld calls Chick-fil-A a miraculous company. "The deeper I dug into the economics of Chick-fil-A, the more amazed I became," Reichheld wrote. "Chick-fil-A's same-store sales and total percentage growth were growing faster than the industry king-pins such as McDonald's and Burger King, despite Chick-fil-A's advertising expenditures of 2 to 3 percent of sales, compared to more than 6 percent of sales at the big brands."

Since the first Chick-fil-A opened in 1967, the company has posted 37 consecutive annual sales increases, including a 13.1 percent increase to $1.975 billion and a 5.87-percent comparable-store sales increase in 2005. Although he'd never take the credit for that performance, Truett's son Dan Cathy is a big reason behind those superior numbers. Since 2002, Dan, the president and chief operating officer, has slowly taken over the company his father built. QSRweb.com managing editor Fred Minnick recently spoke with the younger Cathy about his ascension to crow's nest overlooking one of the country's top chicken chains.

QSRweb: Your father recently offered free marriage counseling to anybody in your company, including cashiers, and Chick-fil-A always has been known for its moral business practices. Tell us about how Chick-fil-A fuses morals and business.

Cathy: We have a positive, wholesome family and have tried to incorporate that in our work. Unfortunately, we live in a society where there are a lot of dysfunctional families — they don't have love and respect and tolerance for one another.

We find if we try to run the business like we run our family, it works a whole lot better. I have a younger brother and sister, and all three of us are singing from the same hymnbook for the company. We are 100 percent committed to values ... and it runs very deep within our company. And people just kind of naturally gravitate to it. Our workers don't leave once they come on board. They're in the Chick-fil-A business for life. In fact, we have a 97-percent retention rate among operators. We have a genuine commitment toward our people, which reflects how we treat and deal with them.

The heart of our industry is about hospitality and about the way you treat other people. I think the combination of family values and hospitality is a wonderful tandem.

Chick-fil-A is just an entirely different atmosphere here than publicly traded companies where they're run off of balance sheets and profit-loss statements.

QSRweb: Has there

Among multiple Chick-fil-A store designs is the famous Dwarf House.

ever been a temptation to go public?

Cathy: It was never a temptation for my dad, but it was for me at one point. In the absence of full appreciation of the values I just talked about, it was certainly something I flirted with. But as you observed the landscape of the businesses that have gone public and see the many of the consequences, I now consider going public a risk we wouldn't want to take on. The only reason we'd go public is to grow faster than we are, and I don't think we could perpetuate our culture any faster than we are.

QSRweb: But still, the temptation has to be there.

Cathy: My brother, sister and I made a pledge to our parents that we would never take the company public. We had — what we called — a "covenant of understanding" and presented it to our mom and dad. We also said we would continue to be closed on Sundays.

QSRweb: What did that mean to your parents?

Cathy: It meant a lot more to them than I thought it would. We presented it to them about five years ago. It wasn't a legal document, but it was certainly a moral document. It meant so much to our dad that he read it in front of all our operators. They stood to their feet and applauded.

QSRweb: Not many companies can say every year was better than the last. How has Chick-fil-A been able to continue to grow?

Cathy: There's a saying in the industry: If you don't grow fast enough, you won't attract the talent you need; and if you grow too fast, you're not able to perpetuate the culture of the business.

So as sales increases, it has helped the business. But we have maintained the culture and values. We're also constantly making improvements from technology and menu design to concepts and the way we deal with people. I would say that above all that God has blessed us; we're not smarter or harder-working than any of the other folks out there. But we believe God has blessed the business.

QSRweb: What are your thoughts on the obesity lawsuits facing the industry?

Cathy: Overall as business people, I think we need to be responsible citizens and leaders in the community, and we need to model and encourage others to take care of their bodies and stay fit. That cookies and cream milkshake we have is 850 calories ... I got up this morning and ran for a solid hour to get rid of my cookies and cream milkshake. I encourage fitness. The biggest issue here is people are simply not moving as much and burning calories off.

QSRweb: Speaking of your new milkshakes, how have they worked out?

Cathy: It has done very well. I think a consumer trend is out there for frozen drinks. That is an emerging product category that will grow with interest.

QSRweb: Your staple has been

This story and all the great free content on QSRWeb is supported by: Mid-Atlantic Food,  Beverage & Lodging EXPO September 20-21, 2006

chicken and obviously, you've taken precautions against the bird flu. Do you believe this country is prepared?

Cathy: We've been working very closely with the CDC, which is based in Atlanta, and our government has just done a great job putting up firewalls to protect our food supply. But you know the very nature of how we do poultry here is different. In the Third World countries, they have open plots and the chickens are exposed to wild birds. I'm very confident in the steps that have been taken at large by the federal government and the steps implemented to make sure we have a safe food supply for our society.

QSRweb: Are we going to see any new cool cow ads?

Cathy: These cows have unlimited creativity to sell chicken on behalf of the bovine population. They are motivated and inspired to go to any length to encourage people to eat more chicken. When they're mooing in the pasture, they're thinking of new ideas.

QSRweb: How many times have you told that joke?

Cathy: Quite a few. But we're very proud of the Richards Group in Dallas. They have done a wonderful job the last 12 years coordinating our campaign. It gets funnier and wittier every year.

QSRweb: Twelve years is a long time to be with one agency.

Cathy: They are a large shop with a lot of wonderful creative people. They have people waiting in line down there so they can add their own little twist of ideas to the cows. We're going to milk it till the cows come home.

QSRweb: How many times have you said that?

Cathy: A couple.

QSRweb: Since we're on the subject of external help, how are things with your Coca-Cola partners?

Cathy: Our longest supplier relationship is with Coca-Cola.

A legendary Chick-fil-A cow ad.

Before our first restaurant, Dad was selling Coca-Colas door to door in his community in southwest Atlanta. We've been selling Cokes for more than 70 years. And we not only buy Coke syrup from them ... we do a lot of coop marketing and strategic planning and consumer research together. Not to mention, we've formed several personal relationships as well.

QSRweb: Why would somebody become a Chick-fil-A operator instead of Subway or McDonald's?

Cathy: They only pay $5,000 for security deposit versus hundreds of hundreds of thousands somewhere else. In operators, we look for the three Cs: confidence, character and chemistry. We're not so concerned about their financial statements like traditional franchise operations.

QSRweb: Every time Chick-fil-A opens a store, you camp out with customers. Why?

Cathy:I sleep more with my customers than I do my own wife. (Cathy laughs) Seriously, those things are a lot of fun. We line dance and everything ... .

One of the things that helped us is we think of ourselves as restaurateurs ... . As business leaders, if we spent more time behind the counter than sitting in meetings and boardrooms, we'd have a more fundamental view of our business.