Steps to Success
Profile on: S Truett Cathy: The Chick-fil-A success Story. Chick-fil-A is a fast food restaurant chain in the USA. It has over 1000 restaurants.
Truett Cathy’s career story belongs in a collection of biographies labeled “Christian Business Leaders” or in the broader category of “Businesses Built on Religious Principles.”
In 1967 Cathy founded the Chick-fil-A chain of fast food restaurants. In building the 1,000 store chain, he explicitly relied on his religious principles. The influence of that Christian faith extended beyond the organization and operation of the business. It also included instructive examples of efforts to strike a work-life balance somewhat at odds with the surrounding commercial culture. The most notable example is the fact that Cathy insisted on closing his restaurants on Sundays.
Cathy has authored two autobiographies (1989 and 2002) which are the sources of most of the following profile. The forward to the more recent autobiography was written by Professor Frederick Reichheld, an authority on the effect of loyalty on business performance. Reichheld has studied Cathy’s company and uses it as an example of how loyalty leads to superior performance. As he puts it in the preface (Cathy, 2002, p.vi):
“(The) 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.”
Youth: Trials and preparation
Samuel Truett Cathy was born in his family home in Eatonton, Georgia in 1921. His parents named him Samuel after a pastor friend, and Truett in honor of the famous Baptist evangelist George W Truett.
Cathy’s father was a farmer who had achieved some success prior to Truett’s birth. But the farming business failed in the wake of a boll weevil attack on the cotton fields. The family then moved to Atlanta where the father took a job as an insurance salesman. Truett Cathy was three-years-old at the time.
During the 1930s the Cathy family struggled to survive. Truett’s father was unable to make a decent living selling insurance so the family began to take in boarders. The renters slept two or three to a bedroom and were provided with two meals a day – all for a rent of a dollar a day. The house typically had seven or eight boarders. Ad to that number Truett, his two brothers, his four sisters, and his two parents and you have a picture of slum-like crowding in the small home with a single bathroom.
The family’s unfortunate financial circumstances turned out to be a long-run blessing for Truett Cathy. As he explained (1989, p. 37):
“Growing up in a boarding house introduced me to hard work and taught me the value of diligent labor. I learned to shuck corn, shell peas, wash dirty dishes, set the table, shop for my mother at the corner grocery store and even flip eggs and pancakes on the grill.”
That background made it psychologically easy for him to start a restaurant business later. Truett engaged in several entrepreneurial ventures as a youth. At the age of eight he began buying six-packs of Coca Cola for 25 cents and then selling individual bottles door-to-door for five cents each. Then he opened a soft drink stand in the family’s front yard.
Next he sold magazines door-to-door. At the age of 11 he began helping a friend with a newspaper route. In the process he met Jeannette McNeil whom he would marry many years later.
At the age of 12 Truett was awarded a newspaper route of his own. From 1933 to the end of 1941 he was a newspaper delivery boy. Truett was energized by the challenges of:
- signing up and keeping customers and
- earning a profit.
Since he bought his papers at wholesale rates and sold at retail prices, he saw the enterprise as an exercise in business management. Out of this early experience came a vision of what he would do with his adult life. In his words (Cathy, 2002, p. 31):
“My success with the paper route convinced me that I would one day open a business of my own, most likely a service station, grocery store or restaurant.”
Two other childhood experiences stand out in terms of their influence on Cathy. One was exposure to his Sunday school teacher, Theo Abbey. Truett’s father had some positive characteristics but was not able to give his son the attention and love that Truett desperately wanted. Into this void stepped Abbey. As Truett put it (Cathy, 2002, pp. 29-30):
“My Sunday school teacher recognized somehow that I had a father who never told me he loved me…. I think he sensed my isolation because he reached out to me and became a model of the loving and caring father…. Through his teaching, Mr. Abbey gave me a better understanding of the Bible, but more important, he displayed to me a loving and caring spirit. He visited Techwood Homes (a public housing facility where the Cathy’s lived for a time) often to see me and others in our Sunday school class. He also invited us occasionally to go with him and (his son) Ted to his cabin on Lake Jackson.
“In time I came to understand that I could choose the type of model I would follow in life and I chose the example of Theo Abbey.”
The second impressionable experience occurred in high school when Truett took an elective course call Everyday Living. In that course he was introduced to Napoleon Hill’s book Think and Grow Rich. Here is what Truett has to say about that encounter (Cathy 2000, p.32):
“I wasn’t all that bright. I had difficulty keeping up in class and I had always carried with me a bit of an inferiority complex regarding socializing at school and I never felt confident about dating girls. But I enjoyed my work and I enjoyed the rewards of working. As I read Mr. Hill’s book, I realized I could do anything if I wanted it badly enough. His words motivated me and showed me that I live in a do-it-yourself world.”
After graduating from high school Truett went to work for the United States Civil Service where he was part of a team that repaired equipment for the Army. He eventually had 200 mechanics working under him. Then he was drafted by the Army and was given a clerical assignment. In 1944 his unit was assigned to join the fighting in the South Pacific. But before the unit could ship out, Truett developed a skin allergy which led to his honorable discharge in 1945.
Truett and his brother open a restaurant
Truett’s brother, Ben, was also discharged in 1945 and the two decided to go into some sort of business together. They seriously considered opening a restaurant or a grocery store. They chose the restaurant business when a local restaurant franchiser offered to set each of them up as a manager of one of her franchised restaurants. They accepted her offer and began on-the-job training in one of her restaurants.
After seven weeks of training, the Cathy brothers were told that they could not each have a restaurant to manage but could share the management of a single restaurant. The boys felt this was a violation of the original agreement so they quit with the intention of starting their own restaurant. (Cathy, 1989, pp. 42ff)
The impetus and vision for the new business came from Truett. He pictured a short-order business open 24-hours a day. He and Ben would each work 12 hours shifts. The menu would consist of easy-to-make offerings such as hamburgers, fries and a simple breakfast selection. Once open, the new restaurant was reasonably close to the original vision.
The brothers’ image of how easy it would be to get started turned out to be far different from what actually happened. One of the few aspects of the start-up that did follow the original plan was financing. The plan was to use personal savings plus a bank loan. Total startup capital was $10,600, of which $6,000 represented a loan from the First National Bank of Atlanta and the rest came from personal sources.
Selecting a location also followed the plan – in general. The Cathy brothers scoured Atlanta in search of a location that had a good flow of potential customers. They found and purchased a lot at 461 South Central Avenue in a suburb of Atlanta (Hapeville). The area was attracting new businesses, including a new factory which Ford Motor Company was building near the restaurant site. Once the lot had been purchased the boys hired an architect to design the facility in accordance with ideas which Truett had developed.
There was one unforeseen aspect of the location decision that could have caused the boys to move elsewhere. The problem was zoning. The property was not zoned for business and the Cathy brothers had failed to check this detail before buying the property. Fortunately they were able to obtain a change in zoning for the lot.
The original plan for the restaurant deviated significantly from what actually happened in the process of building the facility and procuring supplies. In both cases, immediate post war shortages caused problems that the Cathy brothers failed to anticipate. But in both cases, the boys overcame the difficulties through a combination of hard work and creative thinking.
Among the supply difficulties that threatened to derail construction plans were the following (Cathy, 1989, pp. 47-48):
- A shortage of nails. The boys solved this problem by going to small towns where nails in small quantities could be found and by straightening bent nails.
- A shortage of lumber. The boys solved this problem by finding scrap wood from torn-down buildings.
- A lack of reasonably priced restaurant equipment. The boys solved this by purchasing used equipment from restaurants that had gone out of business.
- A shortage of reasonably priced skilled labor. The boys solved this problem by doing much of the construction themselves. This involved learning how to perform such tasks as hanging sheet rock and digging footings.
- The major supply difficulty which could have prevented the newly constructed restaurant from succeeding was a shortage of supply of some critical items, particularly meat. The boys solved this problem by asking for help from one of the large local restaurants. That restaurant had privileged access to meat suppliers and agreed to purchase meat for the Cathy brothers. (Cathy, 1989, p. 49)
In May of 1946 the Cathy brothers opened the Dwarf Grill. It had four tables and 10 counter stools. The major menu items were:
- Hamburger…15 cents
- Bacon and tomato sandwich…25 cents
- Steak sandwich…30 cents
- Bacon and eggs…30 cents
- Fried ham…25 cents
- Pie…10 cents per slice
- Coca Cola…5 cents
The restaurant was open 24-hours a day, six days a week. But it closed on Sundays to give the brothers (and later employees) a day of rest combined with participation in church activities.
Soon after launching his new restaurant, Truett began courting Jeannette McNeil. They were married on September 19, 1948. They subsequently had three children: Dan, Don and Trudy (1953-1955). Jeannette immediately began working by Truett’s side at the restaurant until their first child was born. When the children were old enough, they too, became employees.
One of the values that attracted Truett to Jeannette was her strong Christian faith. In at least one way, hers was stronger than his. Jeannette had begun tithing in elementary school. Her example led Truett to also tithe. (2002, p. 53)
A long period of same site growth
The Dwarf Grill was hard work for Truett and his brother but it was profitable from the beginning and sales increased steadily year by year.
In July of 1949, Ben Cathy died in a tragic private airplane accident. His share of ownership was inherited by his wife who sold it to Truett a year later.
In 1951, Truett opened a second restaurant using the same format and located in nearby Forest Park, Georgia. That restaurant was called the Dwarf House, a name which was also given to the original Dwarf Grill. On February 24, 1960 the Forest Park restaurant was destroyed by a fire. The restaurant was not adequately insured, so Truett borrowed $90,000 to build a new restaurant on the site. He decided to make the new restaurant a self-serve fast food restaurant in order to stay current with what he saw as the trend in the restaurant industry.
The new Forest Park restaurant opened with great fanfare but it was not popular with Cathy’s old customer base. Truett consulted an experienced restaurant owner, Ted Davis. Davis assured him that the concept would work for a different segment of the population. Davis went on to suggest that Cathy put a Kentucky Fried Chicken franchise in the new restaurant and do so in partnership with Davis. Truett had great respect for Davis and was sure that the Kentucky Fried Chicken approach would be successful. But the business would have to be open on Sundays and Cathy was determined not to work on Sundays. So the Forest Park restaurant was leased to Davis and Truett Cathy was left with one restaurant – his original Dwarf House restaurant in Hapeville.
Chick-Fil-A is born as a product sold to restaurants
Fourteen years after opening his first Dwarf House restaurant, S Truett Cathy was still managing that one restaurant. But his mind was not on automatic pilot. No, he was engaged in developing a new breakthrough menu item – a special chicken sandwich. The original idea for the product seems to have originated from a boyhood experience with chicken dinners and an unexpected opportunity brought to his attention by a local poultry company.
The boyhood experience was his mother’s cooking. He recalled how popular white breast meat was in his home and he recalled how his mother had perfected a method of cooking that kept the chicken meat unusually juicy.
The opportunity presented itself when Goode Brothers Poultry Company contacted him to ask if he would be interested in purchasing scraps of boneless, skinless chicken. The Goodes were producing chicken for an airline and the process always produced pieces too small for use by the airline. Truett immediately realized that those scraps would make it easy to prepare quality chicken using his mother’s approach. So he experimented with a method of cooking and seasoning a boneless chicken breast and then serving it as a sandwich. The fascinating details of this process are told by Cathy in both of his autobiographies. (1989, 2002)
Cathy’s lengthy experiments finally resulted in a product he felt comfortable introducing at the Dwarf House. So, the sandwich was added to the menu with a great deal of promotion. Customer response was excellent, so excellent that sales of the chicken sandwich soon surpassed hamburger sales.
An interesting twist to the story occurred at this time when Colonel Sanders visited the Dwarf House and tasted Cathy’s chicken sandwich. Asked by Truett’s grill man if that wasn’t the best chicken he had ever tasted, the Colonel replied, “Second best.” (Cathy, 2002, p. 82)
Success of the new sandwich caused Truett to think about ways of expanding the business. He did not want to create a chain of restaurants. He decided to license sales of the product by giving it a name, trade marking the name and providing licensees with the breaded product ready for cooking. For a name he chose Chick-fil-A. Truett thought that name, particularly that last letter, created an image of excellent product quality, cleanliness and service. (Cathy, 1989, p. 122)
In 1964 Truett began promoting Chick-fil-A to other restaurant operators as an item to be added to their menus. He rented an office near the Dwarf House and hired a secretary, Brooksie Kirk. He took a booth at the 1964 Southeastern Restaurant Trade Show and obtained numerous indications of serious interest. He traveled extensively promoting the product and helping new licensees learn how to make and serve the chicken sandwich.
A significant number of restaurants signed a licensing agreement and began selling Chick-fil-A. Fifty had signed an agreement within the first four months. (Cathy, 2002, p. 122) The McDonalds hamburger chain became interested for a time and then lost interest. But the Houston Astrodome signed a licensing agreement in 1965 and as far as Truett Cathy was concerned, that put the Chick-fil-A sandwich on the national restaurant industry map. (Cathy, 2002, p. 70)
Despite the initial success of the licensing strategy, Truett began to recognize a long run problems. Licensing put quality control in the hands of the licensees and some failed to meet Truett’s standards. He realized that inconsistent quality would damage the Chick-fil-A image and endanger long run success. And so Truett turned to an alternative plan – the opening of company owned restaurants. Years later, he would say, “Looking back I can see that I had been preparing for twenty-one years to open the first Chick-fil-A restaurant.” (Cathy, 2002, p. 86)
Chick-fil-A becomes a restaurant chain
The new restaurant strategy began to take shape in 1967 when a small store was opened in a Georgia mall (Greenbriar Mall in Atlanta). Truett’s sister, Gladys, already operated a gift shop in the mall and suggested that he sell Chick-fil-A sandwiches there. Truett liked the idea and was able to obtain a 384 square-foot space. He experimented with various layouts for the small space and finally settled on an approach which put the actual cooking in full view of the customers. When the facility was finally ready to open for business Truett was thrilled to find that his total investment was only $17,000. That number was far below what he estimated it would cost to build a free-standing restaurant. Opening stores in malls, he concluded, was a way to get more selling capacity per dollar of investment. That was particularly appealing to an entrepreneur who faced a significant capital constraint.
The basic menu in the Chick-fil-A mall store consisted of:
- Boneless chicken breast sandwich
- Potato fries
- Coleslaw
- Lemon Pie
- Lemonade
Over the following years, other items would be added, but the star of the show would always be the Chick-fil-A chicken sandwich.
The Atlanta mall store was an immediate success. A second store was opened in Savannah, Georgia and a third in Burlington, North Carolina. By 1971 seven stores were in operation and Chick-fil-A held its first annual seminar meeting for store operators. By then, Truett Cathy was committed to a policy of continuous expansion. But this was still a small company. It did not even generate enough revenue to allow Truett to take any money out until the seventeenth unit opened. Dwarf House subsidized the chain until then. (Cathy, 2002, p. 86)
As plans were being made to open the second mall store, Jimmy Collins entered the picture as Truett’s first management employee. Collins was a skilled food service equipment and facilities designer who operated a consulting business. He had helped Truett with the design of the second Dwarf House restaurant and also with the first Chick-fil-A restaurant. Truett was attracted to Collins because of their common Christian living, in addition to Collins’ talents. Truett felt he needed someone to take over the task of opening new restaurants and Collins was his first choice. So the two men discussed going into business together.
Collins did not immediately accept the offer. At the time he was considering going into the ministry. In addition, he was not sure that he would have enough independence as Truett’s employee. He wanted to be sure that he would be trusted to handle the design work without direction from Cathy. Truett overcame his objections and Jimmy Collins joined the company as executive vice president in 1968. Twenty years later Collins became president of Chick-fil-A while Truett took the post of chairman of the board and continued at chief executive officer. (Cathy 1988, p. 152) Collins served as president and chief operating officer until his retirement in 2001. (Cathy, 2002, p. 166)
Truett’s expansion plan was deliberately conservative because of his determination to retain ownership. And, in general, stores opened at the planned pace without putting undue financial strains on the owner.
But there were a few stressful occasions. One occurred in 1974 when an unanticipated increase in the inflation rate cause the cost of opening each new mall restaurant to rise from $75,000 to $100,000. Fourteen new units were scheduled for opening in that year. Truett had to borrow $600,000 to stay on schedule and to do so he had to put up virtually all of his property assets as collateral.
A second stressful occasion was during the double-dip recession of 1980-82. The high rates of inflation and unemployment impacted profitability. The difficulties came to a head in 1982, the year of the second and more severe recession dip. Chick-fil-A experienced and actual decline in sales. Truett concluded that the cause was new competition from other fast food chains that were beginning to introduce chicken sandwiches. Here is a short version of the rest of that story as recalled by Cathy (1989, p. 151):
“As a businessman, I knew of only one way to combat the competition and that involved putting on a strong promotional campaign…. We notified the Operators of our campaign and put coupons in papers all over the country; we allocated 3.25 percent of our total sales for redemption of the coupons. “Our campaign was so successful that the coupon redemption cost ran to nearly seven percent of sales. We were glad for the success, but while it showed that people were eating Chick-fil-A, it also hit us hard in the pocketbook. I didn’t want the Operators to have to pay for the unexpected rise in advertising cost, even through they benefited in the long run.”
So Truett Cathy decreed that the parent company would cover the difference between 3.25 percent of sales and seven percent. In addition, he decided to forego paying himself for that year. In his words,
“I didn’t take a salary that year because I didn’t want our employees to take pay cuts. I struggled with this but I was determined not to loose sleep over it.” (Cathy, 1989, p. 153)
Truett’s decision to bear his share of the pain in tough times contrasts sharply with the attitudes and practices of some famous business heads in 2001-2002. Truett himself made the point this way in and interview with Bill Graham’s publication Decision, (Decision, p. 13):
“Too many CEOs are leaving sinking ships. They should be the last ones to leave the company. If some people are losing money, everyone should lose money, not just the stockholders.”
Truett’s behavior in 1982 is a clean-cut example of his ability to practice what he preaches. The 1982 challenge was met and expansion continued through the rest of the 1980s and the 1990s. By 2001, Chick-fil-A had reached the 1,000 store level. There were still many market areas not served by the company. But it had become a major player in the fast food industry.
By 1988 the company had grown into a sizable corporation with well established procedures. Here, for example, is how Cathy described the procedure for opening a new unit in a mall (1988, p. 130):
“New units are built from the profits of Chick-fil-A. We try not to go into debt to expand, although we have occasionally done so in the past. A typical expansion finds Chick-fil-A negotiating a lease while a mall is being built. We then design and build a restaurant (about 1,800 square feet) and furnish it for about $250,000. An Operator is selected who then subleases the restaurant and puts up a refundable deposit of $5,000. Once the restaurant opens, the Operator pays himself a draw of $20,000 per year, returns 15 percent of the sales to Chick-fil-A Inc. as a service charge, then splits the restaurant’s net figure fifty-fifty with Chick-fil-A.”
While standardized procedures had become the norm, that did not mean that Chick-fil-A had turned into a change-resistant bureaucracy. Continuous improvement was preached and practiced at the store level. Furthermore, the company continued to experiment with new formats. In 1984 planning began for the introduction of free-standing Chick-fil-A restaurants. The first one opened in 1986. In 1993 the company opened its first “drive through only” facility. And during the 1990s Chick-fil-A introduced catering services for schools and businesses, created a mobile service for public events and began opening food service operations on university campuses. (2002, pp. 144-145)
With the opening of free-standing restaurants Truett once more demonstrated the philosophy behind, and the implications of, his conservative growth strategy. As he put it (2002, p.143):
“Since the early 1960s, fast food chains had developed many of the best locations. We were a latecomer to the scene. That situation may have worked to our advantage, however, ensuring that we investigated every opportunity thoroughly before moving ahead.
“Our capital requirements also ensured deliberate growth. I am conservative in the amount of money I will borrow to build new restaurants. I also prefer to own the real estate under our restaurants rather than lease. The initial investment is greater, but when the loan is repaid the advantage is clear. I’ve owned Dwarf House since 1946 and haven’t made a note payment in decades. For nearly twenty years as we located in malls, owning real estate had not been an option.”
One interesting change in marketing occurred when Chick-fil-A began opening free-standing stores. It became necessary to introduce advertising and the company decided to make billboard advertising the primary medium. The advertising agency hired to develop a theme came up with the idea of billboards showing cows which urged the viewer to “Eat mor Chikin’.” This humorous approach was both entertaining and effective. (Cathy, 2002, pp. 150ff)
6 Responses to “Steps to Success”
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your restaurant i’m one of your prefered customer i love your breaksfast like your sausage gravy biscuit my daughter and I with the hashbrowns i wish you would have larger size
these steps may sound simple, but in fact are difficult to do.
Hey I just found your blog and it seems very interesting
Randall Jones and Jimmy Collins were Truett Cathy’s “Original” Management employees. Randall Jones created operating manuals, contributed to the 2nd Store in Savannah, GA, and help open hundreds of the first original stores for Mr. Cathy. Because he left the company due to spiritual and other reasons, Mr. Cathy has left him out of the history books. On one side he believes in loyalty if it benefits himself but if someone leaves him, he views that as a rejection to his loyalty and cuts them out of the equation. He’s a great man and has done remarkable and wonderful things, don’t get me wrong, but if you are going to tell the history of this company, via books, internet, interviews, IE It must be told accurately. If anyone would like further info on Mr. Jones and the “missing link” to the success of the company please contact [email redacted]
I grew up near Hapeville in the 60’s. I loved going to the Dwarf House. Especially when I got to use the ‘dwarf door’. My friends father was a cook there and we would have a blast when we got to visit. Nice memories.
As an adult, I still like a good, hot chic-fil-a sandwich, However what impresses me the most is the customer service. I’m speaking of every Chic-fil-a I’ve been to. The employees are ALWAYS polite and smiling. They will go the extra mile without being asked. No attitudes there. Some companies should take a page from Truett Cathy. He has it going on.
I love love love this man and what he stands for. I have been in the food service business for 35 yrs. The last 21 years have been with Plain Local schools in Canton, Oh…I love your concept. My sister in law and I were talking one day we drove by chick Filet and I said I want to meet that man. Then she told me how you talk at the Aultman Angel Auction; I told her I am going to meet this person..Way cool…I have since left the school long story Union issues and I was not Union need I say more. I will never regret the time I spent and the families i touched and how dedicated I was to the district but I will be sad at how it all ended..Your story has cme to me in 3 different ways I am not sure what “papa’ wants me to see but for now Mr. Cathy I am keeping my eyes on anything that has to do with you I believe there is a connection that ” Papa ” wants me to see..God Bless you for all the good you do…I am a RAK..(random act of kindness lover)…I hope our paths cross maybe you will be in Canton soon and I can meet you face toface…