Ryan's Restaurant Group, Inc. History

Address:

405 Lancaster Avenue
Greer, South Carolina 29650
U.S.A.

Telephone: (864) 879-1000
Fax: (864) 877-0979

Public Company
Incorporated: 1977 as Ryan's Family Steak Houses, Inc.
Employees: 22,600
Sales: $805 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: RYAN
NAIC: 722110 Full-Service Restaurants; 533110 Owners and Lessors of Other Non-Financial Assets

Company Perspectives:

Since 1978, the Company has offered high quality food at affordable prices with exceptional friendly service in a family-oriented atmosphere to millions of hungry patrons who always leave well satisfied. From our delicious grill selections, our vast array of hot vegetables, our fresh salad ingredients to our sumptuous dessert bar, only the highest quality products are presented to our customers.

Key Dates:

1970:: Ryan's founder, Alvin McCall, Jr., enters the restaurant business by opening the Western Family Steak House.
1977:: After selling Western Family, McCall establishes Ryan's, opening his first restaurant the following year.
1982:: Ryan's completes its initial public offering of stock.
1986:: Ryan's introduces the Mega Bar, a self-service buffet bar.
1993:: The Mega Bar concept is revamped, turning one central buffet bar into six buffet stations.
1997:: Ryan's celebrates its 20th anniversary by generating nearly $600 million in revenue.
2000:: Some of the company's restaurants begin to cook entrées in view of diners.
2003:: The display cooking restaurants are given their own name, Fire Mountain.

Company History:

Ryan's Restaurant Group, Inc., operates more than 300 restaurants in the southern and midwestern United States. The company operates restaurants in 23 states. The majority of Ryan's restaurants operate under the name Ryan's Grill, Buffet & Bakery. The restaurants, which cater primarily to families, feature a menu that changes daily, offering a selection of steaks, chicken, seafood, hamburgers, side dishes, and vegetables. The restaurants are best known for their signature offering, the Mega Bar buffet, a collection of self-service buffets scattered throughout the dining area. Ryan's also owns roughly two dozen restaurants that operate under the name Fire Mountain. The Fire Mountain units, designed to look like a lodge, are more upscale than the Ryan's Grill, Buffet & Bakery chain, featuring a display grill where patrons can watch their meals being prepared. The Fire Mountain units, like the larger chain, also allow unlimited visits to food bars scattered throughout the dining area.

Origins

Ryan's founder, Alvin A. McCall, Jr., was born in 1927, ninth in a family of 11. His parents worked at a mill in Pelzer, South Carolina, and he and his siblings grew up poor. His entrepreneurial bent showed itself at an early age as he recruited his sister Martha to help him raise chickens, peppers, and tomatoes for sale. As a teenager McCall delivered newspapers and also cleaned a movie theater and worked in a couple of grocery stores, including a Dixie Home Store, one of the forerunners of the Winn-Dixie chain.

After graduating high school, McCall served a stint at a mortuary owned by the father of a friend. After serving a year in the Navy at the end of World War II, he studied business and accounting at schools in Greenville, South Carolina, and Johnson City, Tennessee. He also moonlighted as a bookkeeper for a restaurant and a gas station, both of which provided practical perks. When he returned to Greenville, he joined an accounting firm and married. He continued his habit of moonlighting, which earned him more than his regular salary.

The restless McCall next began to build houses. His initial success prompted him to quit his accounting job to form McCall Construction Co., which, according to McCall, showed a $43,000 profit its first year, 1958. This led to property development; eventually he built and ran a Volkswagen dealership in Sumter, South Carolina.

McCall's search for interesting businesses to run brought him to restaurants. In 1970, inspired by the successful Ponderosa chain, he started his own, Western Family Steak House, most of which took the name Quincy's in 1976. The first restaurant was on Wade Hampton Boulevard in Greenville, built by employees from his contracting business. After the hired manager lost $50,000 in three months, McCall took the reins and developed a formula based on principles of quality he had learned as a contractor. Quality at his steak house began with using fresh meat, not frozen.

In 1977, McCall sold his interest in Quincy's to what would become Trans World Corporation, but he retained the freedom to compete. He started Ryan's the same year and the first restaurant opened in 1978 on Laurens Road in Greenville. Sales for the first year were $568,000. Although the restaurants, which numbered seven by 1981 (including one franchisee), were successful, growth was limited by the structure of the company, which put profits back in the hands of the partners, not into the business. At the end of 1981 (when sales were $8.1 million) the partnerships were consolidated; Ryan's first public stock offering raised $4 million.

Beginning Life As a Public Company in 1982

Unfortunately, there was initially a small obstacle to expansion and the stock offering. The name "Ryan's" had been chosen because it was short and recognizable, with a wholesome and frugal Irish ring to it. The registration of the trademark was opposed, however, by John Rian, owner, through Rian's Inc., of ten restaurants in the metropolitan Portland area of Oregon. In order to speed its 1982 initial public offering, McCall agreed not to use the name "Ryan's" west of the Mississippi except for in Texas, Oklahoma, and Louisiana. In 1987, to clear the way for westward expansion, Ryan's paid Rian $150,000 for use of the name in the remaining United States.

Once these hurdles were cleared, Ryan's growth was impressive. A share of stock, worth $9.25 originally, rose to more than $30 at its peak. Ryan's never paid dividends and was thus able to use all of its profits for expansion. Fred Grant, a finance officer, explained in 1991 that issuing a 25-cent dividend would cost $13 million, enough to start six restaurants. The company maintained that its policy helped secure stock prices in a highly leveraged industry. In the 1990s, Ryan's opened approximately 20 new restaurants each year, peaking at 30 in 1993. This performance flew in the face of emerging concerns over the health risks related to the animal fat and cholesterol in beef, or the "beef scare" of the 1980s. The variety found in the Mega Bar helped satisfy wider crowds; the restaurants also sold a few ala carte fish and poultry dishes.

McCall relied on conservative methods to maintain control of the restaurant's destiny. Although he tinkered with franchising in the beginning, McCall found that it left him unable to ensure consistent quality from store to store. Franchises did come to contribute a significant portion of company revenues, however, though not without some difficulties. When Family Steak Houses of Florida, Inc., Ryan's largest franchisee, fell behind in royalty payments in 1993, Ryan's restructured its agreement. Family Steak Houses, based in Neptune Beach, lost $2.1 million in 1993, in large part due to the closure of unprofitable stores. The company, which went public in 1986, was founded by Eddie Ervin, Alvin McCall's brother-in-law, owner of Margate, Florida's Rustic Inn Crabhouse. The first Ryan's in a foreign country was a franchised restaurant, which opened in Ballarat, Australia, in 1994.

Borrowing also surrendered control of the company, and Ryan's developed a habit of relying on cash, not credit. In fact, it gained a reputation for extraordinary promptness in paying its vendors. In the late 1980s the company did begin to borrow to fund expansion. Inside the restaurants, Ryan's did not accept credit cards until 1991.

In some ways, the company took an unconventional approach. In addition to its lukewarm embrace of franchising, at least in the early days, it disdained advertising, even for store openings. The company did not run a significant advertising campaign until 1994, when it bought television and radio spots in Charleston. By 1996 the company planned to support one-third of its stores with $1.7 million of advertising, a great deal for a chain that for years relied exclusively on word of mouth.

While most restaurants invested 3 to 4 percent of sales in advertising, Ryan's, according to company officials, preferred to apply the money toward what it stated were the highest food costs in the business, hoping that would bring back customers. The high costs made high volumes critical to the success of the restaurants. Ryan's stores also boasted twice the volume of others in its segment, about $2 million each in the 1980s.

In May 1986, McCall's son T. Mark McCall was named president of the company, after shepherding the introduction of the "Mega Bar." These offered salads, entrees and vegetables, and desserts. After just one year, the buffet bars accounted for nearly half of Ryan's total sales, and pushed same-store sales up 50 percent to 2.5 times the industry average. At the same time, bread-baking ovens were installed, allowing the chain to offer fresh rolls made from scratch (the recipe was developed with help from General Mills). In 1986, annual sales were up 99 percent to $103.3 million; profits rose 92 percent over the previous year.

Mark McCall faced difficult times in his tenure as president. In October 1987, the company's stock fell, as did the stock of just about every other company in the wake of the stock market crash. The average restaurant stock fell 42 percent during this time. This prompted company officials to think about the possibility of a takeover for the first time. The success of the Mega Bars drew many imitators, which flattened sales.

In June 1988 Alvin McCall resumed his role as CEO as his son Mark left the post to start a restaurant chain in Texas. Greenville accountant Charles Way took over as CEO in 1989 after serving as controller since the company was only two years old. Way, whom Alvin McCall described as his protégé, had already been serving as president. In 1992, he became board chairman as well.

Maturing in the 1990s

In 1990, a Restaurants & Institutions survey named Ryan's the best steak house in the United States. Nevertheless, the company slowed its expansion temporarily around this time and hired more staff to improve service. It also made retention of managers (who typically worked 14-hour days) a top priority, feeling that consistency in management helped reduce employee turnover. The pay of managers and supervisors was heavily tied to performance, and generally exceeded the industry average, although high volumes made payroll consume a lower portion of sales.

In 1991, "Bakery Bars" were added to Ryan's restaurants, offering desserts baked in the store. They were successful in boosting sales, but start-up costs and a poor economy prevented them, at least initially, from increasing earnings. The Mega Bar concept was revitalized in 1993, when it was changed from one central station to six buffet stations, known as "scatter bars," which reduced traffic congestion and increased variety. Expanded installation of the scatter bars in 1995 helped Ryan's turn around sales declines. In 1993, the company experimented with a higher priced weekend buffet bar, which featured seafood, prime rib, and Virginia ham. The new bar, which cost $11 per plate--nearly double the usual check average--was an attempt to increase declining same-store sales.

In order to create tax savings and in preparation for more growth, Ryan's created three subsidiaries in 1993. Ryan's Properties would manage Ryan's trademarks and service marks. Ryan's Family Steak House East operated the restaurants. Ryan's Capital Holding Corp. would deal with debt financing. Another subsidiary, Big R Procurement Co., had already been created in 1992 to purchase supplies.

In the mid-1990s Ryan's searched for ways to diversify in light of fierce competition in the family dining segment. In 1994, it began talks with Frankie's Food, Sports, and Spirits, an Atlanta sports bar. The company also built its own Caliente Grill, a Tex-Mex restaurant, in Greenville and operated it on a test basis. Another casual dining concept being tested in 1994 was an upscale Western-style steak house, the Laredo Grille, which opened in Plano, Texas, at the site of an existing Ryan's. Both of these casual dining restaurants offered alcoholic beverages, unlike Ryan's steak houses, and featured full-service dining as opposed to Ryan's order line and buffet tables. Observers cited these forays into casual dining as evidence of Ryan's mature management team.

A New Look for the Future

Ryan's management's search for a new twist to the company's dining concept ranked as a primary objective during the second half of the 1990s. The development of new concepts during the mid-1990s failed to take hold, but Way and his team persisted in exploring new opportunities for growth. The introduction of the Mega Bar, particularly the revision of the concept in 1993, had delivered significant sales growth, breathing new life into the chain and convincing its executives of the importance of finding new ways to attract diners. By the time the company's 20th anniversary arrived, a year in which sales reached $599 million, it had yet to find a new growth vehicle, either through developing an entirely new concept or revamping its existing concept. The company was successful, nonetheless, having adding roughly 50 new restaurants to the chain during the previous two years, giving it a total of 277 units by the beginning of 1998.

Ryan's found the new wrinkle it was looking for at the end of the 1990s, and the source of inspiration was its closest rival, Golden Corral Corporation. In 1999, Golden Corral began displaying the preparation of vegetables and bakery products to its patrons. The following year, Ryan's adopted a single-price format and began carving meat in view of its customers, a move that marked the beginning of the development of the company's display cooking concept. Ryan's soon began cooking steak and other items on a grill in view of its diners, which led it to remodel some of its Ryan's Grill, Buffet & Bakery units. These revamped units, designed to look like a lodge, featured a more upscale décor, new signage, and new lighting. By 2001, the company had introduced display cooking in 30 of its 300 restaurants, recording a 15 percent increase in sales at the remodeled units. As the company prepared for the decade ahead, much of its focus was on incorporating its open-grill format into the chain.

When Ryan's first began remodeling its units, the open-grill restaurants were referred to as "lodge" restaurants, but as the remodeling program evolved, the "new" units were given their own identity. At the end of 2003, 31 of the company's 352 restaurants were lodge models, seven of which were newly constructed restaurants (the rest were conversions of the company's traditional stores). These newly built units began operating under the name Fire Mountain, giving the company, after years of searching, a new restaurant concept to fuel its future growth. Ryan's planned to open as many as 25 Fire Mountain restaurants in 2004, with more units planned for the years ahead.

Principal Subsidiaries: Big R Procurement Co. LLC; Ryan's Properties, Inc,; Fire Mountain Restaurants, Inc.; Rymark Holdings, Inc.; Fire Mountain Properties, LLC.

Principal Competitors: Golden Corral Corporation; Metromedia Restaurant Group; The WesterN SizzliN Corporation.

Ryan's Restaurant Group, Inc. History

Company Perspectives:

Key Dates:

Company History:

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