Buffets, Inc. History

Address:

10260 Viking Drive
Eden Prairie, Minnesota 55344-7229
U.S.A.

Telephone: (612) 942-9760
Fax: (612) 903-1356

Public Company
Incorporated: 1983
Employees: 24,350
Sales: $868.9 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: BOCB
NAIC: 722211 Limited-Service Restaurants; 722110 Full-Service Restaurants

Company Perspectives:

Our food quality, friendly service and cleanliness will exceed your expectations. Key Dates:

Key Dates:

1983:: Buffets, Inc. is founded by Roe Hatlen.
1985:: Company goes public.
1989:: 'Scatter system' buffet format is introduced.
1996:: HomeTown Buffet is acquired.
1999:: Company purchases 80 percent stake in Tahoe Joe's, Inc.

Company History:

Buffets, Inc. is one of the most successful businesses in the restaurant industry, owning and operating 388 eating establishments in 36 states and franchising another 24 in ten states. The vast majority of the units are operated under one of two names: Old Country Buffet (a total of 258) or HomeTown Buffet (140). These buffet-style restaurants feature a "scatter system" with several separate food islands or counters rather than the straight-line system typical of most buffets. The company's remaining units are divided among two formats: Country Roadhouse Buffet and Grill, which combines a buffet with display cooking of grilled foods; and Original Roadhouse Grill, a nonbuffet menu-format steakhouse also with display preparation of grilled entrees. Buffets also holds an 80 percent stake in Tahoe Joe's, Inc., which operates two Tahoe Joe's Famous Steakhouses in California.

Instantly Successful Beginnings

Buffets was founded by Roe Hatlen in 1983. Hatlen, a veteran of the restaurant industry, had spent nine years with International King's Table, Inc., an Oregon-based chain whose revenues were boosted to an annual $40 million with Hatlen's help. In 1982, Hatlen moved to Minnesota, where he took an executive position at the publicly held Pizza Ventures chain of restaurants. After only eight months at Pizza Ventures, however, he was let go when the company was acquired and reorganized by Godfather's Pizza.

During this time, Hatlen contacted his friend and former colleague at King's Table, C. Dennis Scott, an experienced restaurant operator responsible for running 22 King's Table restaurants. Hatlen persuaded Scott to leave the financial security of King's Table to pursue a new restaurant venture.

Hatlen and Scott decided to open a buffet style operation, which they expected to prove economical both for themselves and their customers. Without wait staff and bartenders, the buffet would necessitate a lower payroll than more formal operations and might appeal to customers who preferred not to pay gratuities.

The partners divided responsibilities along the lines of their expertise, with Hatlen handling financial matters and Scott overseeing the details of restaurant management. Hatlen was able to purchase Pizza Ventures' discarded computer system for five cents on the dollar and tapped his network of acquaintances in the restaurant business for investment capital, amassing about $750,000 by the time Buffets, Inc. was incorporated on October 13, 1983.

Scott planned the restaurant's offerings, designing a series of menus that centered on typical U.S. favorites, such as fried chicken, baked fish, and hamburgers. With particular attention to the value-conscious diner, he made sure that each meal included salad and dessert. Also featured were pasta dishes and other fare that could be prepared fresh in small batches throughout the day by cooks rather than by highly trained and expensive chefs.

With a staff of 29, Old Country Buffet opened in March 1984 in a small strip mall on the outskirts of Minneapolis. There, customers encountered a plain but comfortable decor, a buffet station with lines at either end, affording the customer a view of all food items, and a generous and varied menu. Customers prepaid the fixed rate before lining up at the buffet.

The restaurant was an instant success. Hatlen's and Scott's initially cautious projections for sales of $1 million during its first year were doubled by the end of 1984. By October 1985, nine Old Country Buffet restaurants were in operation around Wisconsin, Illinois, and Minnesota, requiring a total of 687 employees and netting sales of $59.5 million. Moreover, several investors were encouraging Buffets, Inc. to go public, which it did that year with an initial offering of 525,000 shares.

Rapid Expansion: Mid-1980s to Early 1990s

The cash flow generated by the offering allowed the company to expand over the next few years. By 1987, the Old Country Buffet chain had grown to include 11 restaurants in Minnesota, seven in Wisconsin, four in Illinois, and the remainder in new territories, including Missouri, Nebraska, Pennsylvania, and Oklahoma.

Public recognition of Old Country Buffets steadily increased. Moreover, Restaurants and Institutions, a food industry trade magazine, praised the buffets as "shipshape" and "financially responsible." The reviewer also observed that buffets were beginning to offer strong competition to the country's cafeterias.

While buffets and cafeterias offered similar menus, the buffet featured a fixed rate policy, which proved less costly to the customer than the pay-per-item policy common in cafeterias. Moreover, buffets began to offer an alternative to the standard straight-line cafeteria layout. In 1989 Old Country Buffet restaurants adopted a new "scatter system" layout that featured individual food islands throughout, a system that hastened the self-service process and thereby allowed each restaurant to accommodate more customers. The number of restaurants in the chain rose to 70 by the beginning of 1990.

Buffets also became known for providing employment opportunities in the early 1990s, when economic recession led to high unemployment rates on a national level. During this time, Buffets placed a series of newspaper advertisements targeting potential managers seeking long-term employment. Emphasizing the rapid growth and continued success of Buffets, the copy received widespread attention and garnered the company the Personnel Journal's Vantage Award for 1989.

In an effort to maintain employees knowledgeable in food production and personnel management, and to help curb its high employee turnover rate, Buffets opened a training center for managers at their Eden Prairie headquarters in Minnesota. There, employees underwent five weeks of seminars and three weeks of hands-on training in the headquarters restaurant.

Though at least 75 percent of Buffets employees were on part-time schedules in the early 1990s, graduates of the eight-week program helped established a solid managerial framework in almost all Old Country Buffets. Each restaurant retained two managers: one associate manager and one general manager in charge of operations. To maximize the profitability of each unit, the company based 50 percent of the general manager's annual salary on the profitability of his or her establishment.

In addition to enhancing the company's workforce, founder Hatlen also focused on procuring new restaurant locations left by unsuccessful retailers, whose incomplete leases gave him considerable negotiating power with desperate landlords. These cheaper rents helped make 1990 the seventh record year for earnings; sales soared 26 percent to $145.2 million, up from 1989's total of $115.4 million.

By 1991, Buffets operated a total of 110 restaurants, including those under the direction of two new subsidiaries. Gateway Buffets, acquired in 1989, came with a purchase price of $1.9 million. Evergreen Buffets was purchased for $1.7 million from C. Dennis Scott, who had left the company in 1990.

Firmly established as a leader in the restaurant industry, the company earned its fifth accolade from Forbes magazine as one of the 200 best small companies in the United States in 1992. Buffets' gross sales for 1992 reached $247.5 million, a figure that was bolstered one year later when the company discontinued its policy of serving free meals to employees. Charging employees $2 per meal, Buffets' added $300,000 to the sales total. Overall sales reached $334.9 million in 1993, an increase of 35 percent over 1992.

Mid- to Late 1990s: HomeTown Acquisition and New Formats

Buffets entered the mid-1990s as a 180-unit strong chain, with plans for continuing rapid expansion. By mid-1996 there were more than 250 Old Country Buffet restaurants. There was also a significant challenger to Buffets in the form of HomeTown Buffet Inc. of San Diego, which had been founded by C. Dennis Scott in 1991. By mid-1996 Scott's company operated 74 HomeTown Buffets, a format that used the scatter system pioneered by Buffets, and two Original Roadhouse Grills (steakhouses where entrees were ordered from a menu and prepared at an 'on-display' grill); and franchised 19 HomeTown Buffets. For 1995, HomeTown reported earnings of $6.6 million on revenues of $152.4 million.

In June 1996, then, Buffets announced that it would acquire HomeTown Buffet, in a stock and debt transaction valued at about $190 million when it was consummated in September 1996. The merger made good geographic sense, as the strongest markets for Old Country Buffet were in the Midwest and Southeast while HomeTown had the majority of its units on the West Coast. The deal also reunited the cofounders of Buffets, with Hatlen continuing as chairman and CEO and Scott serving as vice-chairman. Buffets' headquarters remained in Eden Prairie. At year-end 1996, Buffets owned or franchised a total of 270 restaurants.

The acquisition resulted in some difficulties for Buffets as merger costs were larger than expected and merger savings did not materialize as fast as anticipated. Despite impressive revenues of $750.7 million for 1996, Buffets suffered a net loss of $7.2 million as a result of asset impairment and site closing costs and merger charges totaling $49.6 million. Weak performances at 38 units led to the asset impairment costs and the closing of three restaurants, while the merger charges stemmed in part from the shuttering of five units because of their proximity to other units and from the closure of the San Diego headquarters of HomeTown Buffet. In another follow-up to the merger, during 1997 Buffets converted more than two dozen Old Country Buffets to HomeTown Buffets; such conversions were said to increase sales at stagnating units.

Buffets was back on track in the late 1990s, posting net income of $28.6 million in 1997 and $39.4 million in 1998, on revenues of $808.5 million and $868.9 million, respectively. In 1998 the company increased the number of company-owned restaurants from 360 to 386. Part of this increase came from the acquisition of 11 eating establishments from Country Harvest Buffet Restaurants, Inc. for $5.6 million. Ten of these units were subsequently converted to the company's buffet format with one of them converted to an Original Roadhouse Grill. Buffets also began testing two new restaurant formats, both of which were buffets with a twist. The PizzaPlay format offered Italian food and pizza served buffet style along with nonfood entertainment, including big screen televisions for sporting events, televisions showing children's cartoons, and a game area. This format was received lukewarmly by customers, and was abandoned during 1999. The second test format was called Country Roadhouse Buffet and Grill and its feature attraction was a display grill as part of its buffet. Both the Original Roadhouse Grill and the Country Roadhouse Buffet and Grill formats were performing well enough to be slated for expansion in 2000. In April 1999 Buffets purchased an 80 percent stake in Tahoe Joe's, Inc., the operator of two Tahoe Joe's Famous Steakhouses in California, thereby moving further into the nonbuffet sector.

The company broke ground in late 1998 on a new headquarters to be located in Eagan, Minnesota. As it entered 2000, Buffets was planning steady expansion of its buffet concepts primarily in existing markets but also extending into new territories such as Florida and Nevada. The Original Roadhouse Grill chain was performing well, with a dozen units in operation and with newer units averaging more than $3 million in sales per year. The company also had plenty of cash on hand to fund further expansion, acquisitions, and testing of new concepts.

Principal Subsidiaries: Dinertainment, Inc.; Distinctive Dining, Inc.; HomeTown Buffet, Inc.; HomeTown Development and Construction, Inc.; OCB Restaurant Co.; OCB Realty Co.; OCB Purchasing Co.; OCB Property Co.; Restaurant Innovations, Inc.

Principal Competitors: Advantica Restaurant Group, Inc.; Applebee's International, Inc.; Bob Evans Farms, Inc.; Carlson Restaurants Worldwide Inc.; CBRL Group, Inc.; FRD Acquisition Co.; Fresh Choice, Inc.; Furr's/Bishop's, Incorporated; Investors Management Corp.; Luby's, Inc.; Metromedia Company; Pancho's Mexican Buffet, Inc.; Piccadilly Cafeterias, Inc.; The Restaurant Co.; Ryan's Family Steak Houses, Inc.; Shoney's, Inc.; Star Buffet, Inc.; VICORP Restaurants, Inc.

Buffets, Inc. History

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