Chick-fil-A Inc. History

Address:

5200 Buffington Road
Atlanta, Georgia 30349
U.S.A.

Telephone: (404) 765-8000
Fax: (404) 765-8140

Private Company
Incorporated: 1964
Employees: 200
Sales: $569.9 million (1996)
SICs: 5812 Eating Places

Company Perspectives:

The mission of Chick-fil-A is "to glorify God by being a faithful steward of all that is entrusted to us; and to have a positive influence on all who come in contact with Chick-fil-A."

Company History:

With some 722 units in 35 states, Chick-fil-A Inc. is, after KFC and Popeye's/Church's, the United States' third largest fast-food chain specializing in chicken. In addition to the Chick-fil-A restaurants, which are run according to a unique "Operator Agreement," the company in 1985 launched the Dwarf House line of sit-down establishments, and in 1996 opened Truett's Grill as a nostalgic 1950s-style diner. Whatever the type of restaurant, the focus remains chicken, and by far Chick-fil-A's most famous product is its chicken fillet sandwich, created by founder Truett Cathy in the early 1960s. From small beginnings in a restaurant outside Atlanta, Cathy has built Chick-fil-A into a firm worth an estimated $1 billion, but as of the late 1990s he had no plans to take it public. To sell shares to stockholders would, he suggested, change the very core of Chick-fil-A as a family-run business with a focus on people.

The First Dwarf House

On May 23, 1946, 25-year-old Truett Cathy and his younger brother Ben opened a restaurant called the Dwarf House at 461 South Central Avenue in Hapeville, Georgia, a small town south of Atlanta. The Cathy brothers had begun the enterprise with $4,000 they were able to raise, partly by selling Truett's car, combined with $6,600 on loan from a bank, and for their money they had a restaurant only 50 feet wide and 150 feet deep--including the kitchen. To further enhance the difficulties facing them, the recent shift from a wartime to a peacetime economy had created supply problems that affected companies much bigger than their own. At least larger firms established before the end of World War II had been able to adapt to an environment of scarcity; the Cathy brothers, on the other hand, had to educate themselves quickly in the procurement of scarce resources, even using discarded building materials to finish off their restaurant in time for opening day.

The Cathys' father, an insurance salesman, had lost heavily in the stock market crash of 1929, and had never recovered emotionally from his loss. Eventually the father died, and their mother had to take in boarders. In addition to offering a room, she served meals, and Truett Cathy later recalled watching her cook for her guests one of the South's most distinctive contributions to American cuisine: fried chicken. But her boy Truett was already a young food-service entrepreneur in his own right, having figured out that he could purchase six-packs of Coca-Cola in Atlanta, then sell them to neighbors in Hapeville for a nickel apiece, thus making five cents profit on every six bottles sold.

Eventually he would make more money selling magazine subscriptions, but at about the time he came of age, war broke out. Ben went to fight in Europe, but Truett had relatively easy duty as a clerk, and never went further from home than Fort Lewis, Washington. Truett was discharged in 1944, and once Ben came home, the two brothers began to plan their future. They decided they would start a restaurant, and after spending some time as employees of a woman who promised to set them up in business but never did, they opened the Dwarf House.

Besides problems with supply, the Cathys had to deal with bureaucracy and other foibles, and they ended their first day with sales of $58.20--a modest beginning, but a beginning still. Most of their patronage came from employees of the nearby Ford plant, as well as the emerging Atlanta airport next to Hapeville, and many of these seemed to be repeat customers. The fact of this steady repeat clientele engendered in Truett an awareness of what would become a key element of Chick-fil-A's success: as he stated it in his 1989 book It's Easier to Succeed Than to Fail, "Word of mouth in the food business is more important than any other source of advertising. It's better to maintain your present customers than to spend a lot of time and expense replacing them with new ones."

Another key element of the Chick-fil-A corporate identity was forged in those early days: the policy of operating six days a week, but "never on Sunday." The Dwarf House, in fact, was open 24 hours a day, but closed from midnight on Saturday night to midnight on Sunday night; and in more than five decades, the policy has not changed. In the beginning, Cathy said in a 1997 speech to the Newcomen Society, "it wasn't that we were holy--we were just tired!" But in fact Cathy's religious beliefs as a devout Christian informed not only this aspect of his business, which is based on the fourth of the Ten Commandments from the Bible, but many others. Yet Cathy did not set out to proselytize so much as to set an example: "I never intended to make a big issue out of being closed on Sunday," he told the Newcomen Society. "In fact, it always amazes me that other people bring up the subject so often." On a professional level, he has said, the policy helps him and his employees to stay fresh in body and soul, and thus it ultimately redounds to the company's benefit.

In 1949, Ben Cathy was killed in a plane crash along with a third brother, Horace. Now Truett had to run Dwarf House on his own, and in 1951 he opened a second restaurant in the nearby town of Forest Park. For the next nine years, Cathy prospered as he and his wife Jeannette raised their family; then in 1960, another tragedy came when fire destroyed the Forest Park restaurant. "Without adequate insurance to rebuild the restaurant," Cathy said in his 1997 speech, "I faced some tough questions. Do I take a giant step back to just one restaurant, which would mean having to lay off employees? Do I incur more debt and rebuild the restaurant as it was? Or is it time for something new? I was convinced it was time for something new."

The Birth of Chick-fil-A

Cathy had become aware of the idea of fast-food restaurants, which he judged to be the coming wave in food service. So with $90,000 in borrowed capital, he opened a new restaurant in Forest Park based on the concept of Li'l Abner restaurants in Chicago. It seemed like the right idea, but he soon discovered that customers preferred the Dwarf House to his new idea. (In It's Easier to Succeed, Cathy would later write "Customers are very sensitive to change.") So, he recalled in 1997, "I settled back into the original Hapeville restaurant, [but] I started getting restless." Inspired by a comment from a friend and colleague, Ted Davis, he started experimenting with ways to make chicken a viable fast-food item.

In the kitchen, Cathy began experimenting with different ways to cook and serve poultry quickly and economically. He started with a breast fillet, and began serving it fried on a bun, which eliminated the problem of customers getting grease on their fingers. This was the prototypical Chick-fil-A sandwich, and Cathy began to perfect it with different cooking methods (eventually he settled on a pressure cooker with peanut oil), and different spices and seasonings--including the addition of a pickle to the sandwich, which would become a lasting part of the Chick-fil-A formula.

But they were not yet called Chick-fil-A sandwiches; they were just chicken sandwiches, which rapidly began to outsell hamburgers on the Dwarf House menu. In 1963 Cathy decided to give them a name in order to market the product. A patent attorney had advised him that he could use ordinary words for his product name, as long as he misspelled or in some way altered the terms from their dictionary usage. Working with the words "chicken" and "fillet," Cathy came up with Chick-fil-A, making use of the "A" to convey the concept of being the first or best. He hired the Richard Heiman Company to create the logo that Chick-fil-A still used more than three decades later, and in 1964 he incorporated the company.

At first Chick-fil-A sold its product to other restaurants during the mid-1960s, but Cathy--wary that a large chain would take his idea, change it slightly, and make it their own--decided to move from selling licensed products to operating Chick-fil-A restaurants. In 1967 the first of these opened in Greenbriar Mall south of Atlanta, the first indoor mall in the Southeast.

Growing with the Malls

The next 15 years would see extraordinary growth, both for Chick-fil-A and for its hometown of Atlanta. The latter's airport, now named Hartsfield, would become one of the busiest in the world. Hapeville and Forest Park, once just small towns down the road from Atlanta, would become suburbs, absorbed in the urban sprawl of one of the nation's fastest growing cities. Atlanta's leading homegrown businesses would come to include not just Coca-Cola, but Delta Airlines, the Turner communications empire, and Chick-fil-A.

In 1967 Cathy had hit on a stroke of brilliance, one which would come to seem as basic as sliced bread, but like sliced bread was once revolutionary: "At the time," he told the Newcomen Society 30 years later, "there were precious few restaurants--fast-food or otherwise--in malls. People would come to the malls to shop and go elsewhere to eat. We saw this as an opportunity to reach customers where they shopped and before they went elsewhere." As malls grew, so did Chick-fil-A. By 1971, it had seven restaurants in Georgia and the Carolinas, and within three years, it would triple that number.

But before the explosive growth of 1971-74, several key aspects of Chick-fil-A's corporate philosophy would develop. Cathy articulated four basic tenets: (1) the company would grow not by selling franchises, but by forming joint ventures with independent operators; (2) they would operate exclusively out of shopping malls; (3) financing would come not through debt, but primarily from the company's own profits; and (4) people would be the primary focus of Chick-fil-A. With the exception of (2), which had to be adjusted as shopping malls became saturated with restaurants in the 1980s--a hallmark of Cathy's foresight--these tenets have remained in effect ever since.

Chick-fil-A's operator agreement, and its emphasis on people, are both highly unusual. As the company plans a new location, instead of looking for franchisees, Chick-fil-A conducts a search for a highly responsible person--often from within the organization&mdashø become an operator. That person invests only $5,000 (a token sum compared to the typical investment of a franchisee, which can easily be a quarter of a million dollars) to sublease the restaurant. After six weeks of paid training, the operator is in business with a guaranteed salary of $30,000 a year, plus half of net profits after 15 percent of gross sales goes to Chick-fil-A, Inc. An operator can earn a six-figure income, and operators are motivated to make their restaurants profitable; for this reason, other companies, most notably Outback Steakhouse, have begun to emulate the Chick-fil-A operator agreement.

There are a number of other bonuses for operators, including an annual business meeting for which the company pays all expenses to fly its operators and their spouses to a given location--one year it was Bermuda--for five days of fellowship and training. As for hourly employees, referred to as team members, among their incentives is the "Team Member Scholarship Award" of $1,000, offered to any high school graduate who has worked with the chain for two years at an average of 20 or more hours a week, and has been recommended by their operator. Through these and many other means, Chick-fil-A has managed to have a turnover rate of just 50 percent for hourly employees--compared to a fast-food industry average of 150 percent.

With its strong personnel and its distinctive product, Chick-fil-A grew rapidly in the 1970s alongside the shopping malls in which its restaurants were located. But in 1982, as Cathy recalled in his Newcomen speech, the company "fell victim to its own success." Other restaurant chains, impressed by Chick-fil-A, began marketing their own chicken fillet sandwiches. To counter their competition, Chick-fil-A put coupons in newspapers throughout the country, and the response rate turned out to be twice as much as expected, thus leading to heavy losses. Added to these problems were difficulties created by construction delays and inflation. Cathy, who chose not to receive a salary in 1982 in order not to force a pay cut on employees, called a special meeting of the chain's executive committee. It was to be, in his words, the company's "defining moment."

Cathy's son Dan, by then a leading company executive, asked the committee members three questions: "Why are we in business? Why are we here? Why are we alive?" Because all of the board members were Christians, Cathy recalled in 1997, it was not long before the discussion came to focus on matters of faith. "We all agreed," he recalled, "in the important role Jesus Christ played in our own lives, but none of us liked the idea of parading around our religious faith. We sought, then, to create a statement of our corporate purpose--not to press our beliefs onto others, but rather to influence others in our organization by the example we set in our lifestyle and by the way we treat people." As a result of these discussions, they came up with the company's twofold purpose, which would remain in effect from then on: "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." Armed with a renewed sense of purpose, Cathy and his leadership began to fight the competition.

Growing Profits, Growing People

Previously reliant mostly on word of mouth, Chick-fil-A in 1982 began to put more focus on advertising, first with the abortive coupon campaign, and then with a successful slogan aimed at reminding the public who created the first chicken fillet sandwich: "First 'n' Best." The company began to impress on its operators three key principles embodied in the abbreviation "QSC": Quality, Service, and Cleanliness. Within six months, sales by the reinvigorated chain had increased by more than 40 percent, and "From that point on," Cathy recalled in 1997, "Chick-fil-A seemed to enjoy one success after another."

In 1982, the company pioneered a new product, chicken nuggets, that would eventually make its way onto the menus of large competitors such as McDonald's. During that year, Chick-fil-A also built a five-story corporate headquarters building on 72 acres of woodland near Hartsfield International Airport. Three years later, in 1985, Chick-fil-A introduced its Dwarf House line, named after the original restaurant, which offered customers a choice of sit-down family dining or carryout. In 1986, Chick-fil-A first ventured outside of the malls, and as the number of free-standing restaurants grew, the company in 1997 predicted that by 2002, these would outnumber mall units.

Menus continued to diversify, though the focus remained on chicken--whether chargrilled, in a salad, cooked as a low-calorie item, or in strips. (The latter, introduced as Chick-n-Strips in 1995, became the company's most successful new addition to its menu.) The company opened new types of restaurants in new types of locations: on a college campus (1992); in a medical facility (1993); in a supermarket (1993); in a business/industrial location at Alabama Power in Birmingham (1994); in a foreign country (at the University of Alberta in Edmonton, Canada, 1994); overseas (in South Africa, 1995); and in an airport (1996).

In 1993, Chick-fil-A opened its 500th restaurant, and in 1996&mdashø celebrate the 50th anniversary of the original Dwarf House--it introduced Truett's Grill as a 1950s-style diner. The "Eat Mor Chickin" advertising campaign, launched in 1997, became enormously successful. Using a style reminiscent of Gary Larson's Far Side cartoons, these billboards (the company also introduced radio ads with witty scripts) featured cows painting crudely lettered signs encouraging customers to eat chicken--rather than beef.

The company experienced its 30th consecutive year of increased sales in 1997, and though it was far behind KFC and the Popeye's/Church's chains in sales, it was the third largest company in the chicken segment of the fast-food market. Wall Street analysts estimated the company's worth at $1 billion, but Cathy had no plans to take it public, in part because Chick-fil-A was his creation and he liked the independence offered by a private company, and partly because stockholders would not approve of one of his favorite activities: giving away money.

Cathy remained heavily involved with charities, especially one that he created called WinShape, through which he was able to give educational opportunities to disadvantaged children. The program began in 1983, when he learned that Berry College in Rome, Georgia, would have to close down part of its campus that housed Berry Academy, for children in grades five through 12. Cathy had long been inspired by the story of Martha Berry, who had started the college with little more than a dream, and he was also concerned with having a positive effect on a rising generation of youth. "Every child they build," he told the Newcomen Society, "will be one less adult to mend."

For several decades, Cathy has taught a Sunday school class for 13-year-old boys, and whenever he speaks before a public gathering, he is an ardent booster for WinShape. Starting with a 1996 LPGA golf tournament, the company has sponsored a number of sports activities, most notably the Peach Bowl football game, for which it signed a multiyear contract in 1996. These, too, Cathy sees as opportunities to promote WinShape, and he is just as apt to speak about giving money away as he is about making money. "The purpose of life is giving," he told Executive Excellence in 1995. "Contrary to what you may have been taught in business school, your net worth is not the sum of all you have managed to accumulate in your lifetime. When you die, those who survive you will measure your net worth by what you have given." As for the money he has made, as he said in It's Easier to Succeed Than to Fail, "Profits should be the score, not the name of the game."

Chick-fil-A Inc. History

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