Innovative Express

"Improving effectiveness by making the complex simple and making the simple work!"

June 2007

In this issue:

I hope this newsletter finds you well.

Earlier this month, I was in Atlanta to receive ASTD's 2006 Excellence in Practice citation in the Performance Improvement category. I took this opportunity to visit one of the most amazing companies: Chick-fil-A.

You may or may not have heard of Chick-fil-A, but its inspiring story of creating loyalty has something to teach all of us. It reinforces that you don't have to follow the crowd. You can march to the beat of a different drummer and still be successful. Hopefully, you will be as inspired after reading it as I was.

Inspired to agree, disagree, or otherwise comment? Have an interesting story to share? I hope that you will let me know your thoughts.

Happy Father's Day to all the dads out there!

Abhay Padgaonkar
President, Innovative Solutions Consulting, LLC

An Unscheduled Appointment

It's not often that you can meet with the Chairman of a $2-billion company. It is even more unlikely when you don't have a scheduled appointment on the calendar!

That was in fact the case when I visited Atlanta in early June. I got to meet unannounced with S. Truett Cathy, the legendary founder and chairman of Chick-fil-A. What is equally amazing is that Mr. Truett Cathy is 86 years old.

But that is hardly the only unusual thing at Chick-fil-A. And I am not talking about the fact that there are no cash registers in the corporate cafeteria, or the Monday morning devotional, or that the well-equipped wellness center is free to the employees.

What many people don't know is that Chick-fil-A has been performing a quiet miracle for decades. Chick-fil-A didn't do it by following the beaten track. However. they did it by following their own convictions. Currently the nation's second-largest quick-service chicken restaurant chain in sales ($2.2 billion in 2006) with nearly 1,300 restaurants in 37 states, Chick-fil-A marked 39th consecutive year the chain has enjoyed a system-wide sales gain—a streak the company has sustained since opening its first chain restaurant in 1967.

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Blessed Employees

After hearing Dan Cathy, Truett's son and the President and COO of Chick-fil-A, speak in Phoenix in February, I had to find out more about this highly unusual company. When I realized that I was going to be in Atlanta, I managed to make an in-person appointment with Phil Orazi, Senior Director of Training & Development at Chick-fil-A.

Because all the activities were in downtown Atlanta, I had decided not to rent a car. When Phil Orazi's assistant Brenda Patterson found out that I may have to rent a car just to come for the appointment, she called and offered to send a driver to pick me up from the hotel and bring me back. The driver showed up promptly in a Cow Car-a town car with Holstein cow spot patterns and the words "Eat Mor Chikin" painted on it.

What caught my attention was not the unusual cow car, but the short ride to the corporate office. I found out that the driver, Bob Kennedy, was extremely knowledgeable about the company, its history, performance, policies, different store formats, supervisory structure, and compensation methods. I was totally amazed! I asked him, "Bob, you are probably in the car, parking lot, or airport all day. How do you know all these things? Do you overhear these things from the passengers in your car?" His simple answer was that "I hear these things in the quarterly meetings open to all employees.

And then I heard something I was going to hear many more times from others as well during the rest of the day: "I am blessed to be working at Chick-fil-A!"

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Smooth Operators

Chick-fil-A does an extraordinary job of developing loyalty by aligning the interest of franchisees (or Operators) with those of the company. The company is incredibly selective about who it will bring on as Operators. There is a long, arduous selection process of behavioral interviews, evaluations, and detailed reference checks to assess their character, competency, and cultural fit. As Truett Cathy says, "Character traits are most important. Everything else can be learned."

Operators are selected from thousands of applicants every year for a specific restaurant location. They have to be entrepreneurial, but are not the typical entrepreneurs who build something and move on. Most of them are expected to operate the same single restaurant for years to come. Not only that, they are expected to wear a uniform and serve customers. They are not simply expected to preside over a restaurant; they are expected to run it everyday-except on Sundays!

Unlike all other franchisees, the Operators neither own the stores nor do they need hundreds of thousands of dollars to become one. They only put down $5,000 in refundable earnest money to run a $2+ million business for a free-standing location. And they are rewarded with a lot of flexibility and very low level of supervision. Operators are encouraged to take risks and push the limits of their responsibilities. They are also encouraged to think and experiment under reasonable conditions. The saying inside Chick-fil-A is: "We'd rather restrain mustangs than kick mules."

The Operators have the same basic franchise agreement with Chick-fil-A for the last 60 years: The Operators pay 15% of gross sales plus 50% of net profits from the restaurant as a service charge. In return, the company supports them with training, technology, and anything else they need to be successful. Now that there are over a thousand Operators, one of Truett Cathy's regrets is that he doesn't know all of them personally by name!

What does all this unconventional wisdom beget? In two words: Phenomenal Results!

  • The Operators on average earned $184,000 in 2006-several times more than an average fast-food restaurant manager. It also attracts a different caliber of people.
  • In the fast-food industry where a revolving door with 40+% turnover among store managers is a norm, Chick-fil-A's turnover rate is in the low single digits.
  • Chick-fil-A routinely achieves higher sales per square foot than its competitors despite the fact that Chick-fil-A is closed on Sundays-one of the biggest sales days for restaurants--for family time and worship.
  • Chick-fil-A has steadfastly remained a private company and has never had to issue stock to finance the creation of more than 1,000 restaurants across 37 states. It has done it all through internally generated cash flow and lines of credit.

When I was in his office, Truett Cathy gave me a wooden ruler with a "Golden Rule" imprinted on it: "Do Unto Others As You Would Have Others Do Unto You."

At Chick-fil-A it's not just an empty saying. They mean it and they practice it everyday to the best of their collective abilities so that everybody wins.

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Loyal Customers

Just like Chick-fil-A is careful in selecting Operators, it is also quite selective about its customers. But how can you select customers in a fast-food business? Chick-fil-A strongly discourages coupons. It discovered that customers with coupons spent less, were less likely to return, and slowed down the lines at peak times. It also made the loyal customers feel short-changed.

Truett Cathy tells his Operators to focus on customers, cleanliness of the restaurant, and quality of the food. Other than probably the marinade and the breading, there is no "secret sauce" at Chick-fil-A. What you see is what you get. The high-caliber people hired as Operators make sure that the parking lot and drive-thru areas are clean. They keep the back of the restaurant clean because drive-thru customers spend a lot of time back there. When the customer comes in they insist on great service, with polite team members who make eye contact with their customers and treat them with respect.

The Operators train team members to clean restrooms the way they expect them to be cleaned. Truett Cathy says that "When top executives demonstrate that they don't mind doing dirty jobs, team members understand that every job is important."

At Chick-fil-A, the physical requirements differ from other restaurants. They don't believe in simply assembling pre-processed food. Because of their commitment to preparing fresh food on site, they require more interior space. Chick-fil-A has a limited menu and will rarely have "seasonal specials." They stick with what customers have always liked and don't like to surprise them.

Unusual as it may sound, all employees are taught to build long term relationships with the customers-a glaring anomaly in a fast-food business. They are taught that the customer standing in front of you is funding their paycheck, and perhaps their future. They are encouraged to give all their attention to that customer for the moment and treat them right.

The Operators don't just preach, but model these behaviors themselves. They treat the customers right even in difficult situations and lead by example. They try to catch employees doing something special for the customer and reward them with a small gift in front of others. The special employees they have hired then try to outdo each other in a healthy way to do special things for the customers.

Chick-fil-A's advertising expenses are considerably lower as a percent of sales compared to its competitors. Chick-fil-A's has had a hilarious and long-running campaign with cows. Out of desperate self-preservation, these cows exhort everyone through quirky antics to "Eat Mor Chikin." The Cow Calendars, priced at $5 each with more than $20 worth of coupons, have become so popular that schools, churches, and other organizations order large quantities to use them in fundraising activities. By one estimate, the Cow Calendars were only outsold by Sports Illustrated's Swimsuit calendars!

A lot of the marketing expense and attention is directed at the local level by the Operators. They are very active in their communities and the school system. They teach the employees that they are part of a winning team with a lot more at stake than just profits. It is not unusual for customers to write to Truett Cathy talking about their positive experiences at "my" Chick-fil-A restaurant-and this was before the online marketers figured out "My" strategies to customize customer experience and build ownership.

At Chick-fil-A, you will not find the latest Disney movie characters with Kid's Meals. Instead, they include books on history, geography, weather, plants, animals and dozens of other subjects, including certain character traits.

As Fred Reichheld, author of The Loyalty Effect says, "This loyalty effect, the full range of economic and human benefits that accrue to leaders who treat their customers, Operators, and employees in a manner worthy of their loyalty, is at the core of most of the truly successful growth companies in the world today. And there is no clearer case study of the loyalty effect than Chick-fil-A."

Check out some of the Cows' latest self-preserving antics

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Giving Back

Even at 86 years, Truett Cathy hasn't lost his self-deprecating sense of humor. He gave me the reprint of an article on him with his picture on the cover page saying, "There is my ugly face on it." He described how he had opened his first restaurant in 1946 with his brother by using $4,000 of their savings and by borrowing $6,600. Soon thereafter one of the two restaurants burned to the ground and he found himself with an "unexpected opportunity" of time and availability. He put it to good use to develop a new recipe for the Chick-fil-A chicken sandwich. He strongly believes in not setting magnificent, long-range goals, but being available to take advantage of unexpected opportunities as they arise.

What touched me most was that Truett Cathy didn't dwell on his employee, customer, or financial success for too long. He walked me over to the part of his "tree-house" office to show me his family pictures with 12 grandchildren. But clearly his family is a lot larger than that. He walked me outside his office. He proudly handed me several brochures-everything from college scholarships to foster care homes to summer camps to marriage enrichment programs he supports personally and financially. When I told him that I have two sons, he gave me a brochure for All-Pro-Dad, a program designed to increase public awareness about the importance of being a good father. He also signed his book called It's Better to Build Boys Than Mend Men and encouraged me to bring by the boys on the next visit.

I could clearly see that there was a greater purpose in this humble and genuine man's life. He means it when he proudly proclaims the Chick-fil-A's Corporate Purpose: To glorify God by being a faithful steward of all that is entrusted to us. To have a positive influence on all who come in contact with Chick-fil-A."

I was convinced that he continues to be more than a faithful steward and now has passed on the baton to second and third generation of the Cathy family.

And I can also say with certainty that he had a positive influence on me.

Bottom Line: As Voltaire said, "Common sense is not so common."

Truett Cathy's book on Amazon:

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Personally Speaking...

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Disclaimer: "This written advice is absolutely intended to be used, and if used under expert supervision is known to improve organizational and individual effectiveness substantially."

© Abhay Padgaonkar 2007. All Rights Reserved.