Will Chick-fil-A become the Ritz-Carlton of fast food? The family-owned chain of chicken restaurants is attempting to bring Southern graciousness to a fast food experience that can be anything but. Through the "recipe for service" program, it intends to bring some white glove manners to its nearly 1,500 locations. In the future, don't be surprised if a Chick-fil-A employee carries your tray or pulls out a chair for you. As Dan Cathy, the company's COO says, "If anyone can pull it off, we can."
Chick-fil-A is completing its 42nd year in business with an impressive record of continual growth. Even in the current recession, the company achieved its 42nd consecutive year of sales growth with $3.2 billion in sales in 2009. And the restaurants aren't even open on Sundays.
Several factors make it stand out from other fast food companies. As a family-owned business operating without shareholders or massive bank loans, it can take the long view. The food is tasty - judging from online testimonials - and the company is not afraid to display a sense of humor. Its advertising features black and white cows standing on their hind legs admonishing us to "Eat mor chikin." When a new restaurant opens, the first 100 customers win the right to eat there for free for a year. People camp out in the parking lot to be among the first 100. Regular customers can be downright cultish. Raving fans dress in cow costumes, serve Chick-fil-A at their weddings, and follow the company on Twitter.
We spoke with Cathy at the company's headquarters in Atlanta.
Q| Sales for Chick-fil-A for 2009 were around $3 billion and this marked the company's 42nd year of continual growth. How did you escape the effects of the recession?
A| It [the recession] was certainly a blip on the radar screen, but it wasn't the catastrophic event that it was for others who were so tightly leveraged that they didn't have enough financial elasticity to get through this. Business schools teach optimization and financial leverage and so on, but we're not really designed to operate that way. The recession meant that we had to build margins into our schedules, our financial ratios, and our capacity for growth and development. I think that's one of the factors that helped us.
What's key is keeping the business healthy. It's not about how big and scalable you can become. That was important in the industrial era. Today, businesses are able to gain competitive advantage by trafficking in great ideas. You need the ability to absorb and pollinate great ideas.
I use my BlackBerry to traffic in good ideas. I can take pictures of good ideas that I see and send them out on the spot [indicating a photo on his BlackBerry]. This is a lady who is 90 years old sitting in one of our dining rooms in West Virginia. Somebody there put her name on a piece of paper and they use it to reserve her table. It makes her feel like she's queen for a day. She loves that place because there, she's somebody special. That idea cost absolutely nothing to implement, but it creates tremendous value for the business.
Q| So you're encouraging innovation and creativity.
A| We always have. It's not a new thing for us. We're always trying new things, experimenting, doing low-risk, low-profile things under the radar. I just had lunch with all of our new staff. I do this every month, and we usually showcase someone from the company. This time, I brought Tiffany Holland who, eight years ago, had the wacky idea of inviting the first 100 customers who come in when we open a new store to eat at Chick-fil-A free for a year.
When she told me about this idea, she wasn't sure how I was going to react. Her idea meant giving away about $28,000 worth of food at every new store, and she wasn't sure what was going to happen. But we specialize in trying to create a safe environment here where you can fire bullets. That's a Jim Collins expression. Now it's going to get dangerous around here if you want to fire cannons, but as long as you fire bullets, you're okay.
The payoff from Tiffany's suggestion is that it created millions and millions of dollars worth of publicity for Chick-fil-A. It's now one of our signature elements. It's not quite as high up there as being closed on Sundays, but in terms of how people think about our brand, it's one of our mainstays. And with each opening, that story gets bigger and bigger.
Q| Chick-fil-A is known for selecting employees in a long, careful process. What characteristics and qualities do you look for in store operators and in your leaders, and how do you verify that candidates will live their values?
A| This year, we had to go from 22,000 [operator candidates] down to 100, so we've got to have a lot of filters. We have to ask a lot of questions and really get to know people. We look for what we call "the three Cs": competence, character, and chemistry.
Competence is business acumen and the knowledge and skills to do the job. The job of the restaurant operator is evolving and growing. It used to be fairly simple. You'd have 15 people in a mall location that was 800 square feet doing $700,000 or $800,000 a year. Now, you're talking about 70 or 80 people in a 5,000-square-foot building doing $3 to $6 million in sales. We have four restaurants this year that may reach $6 million. It's a vastly different arena today, and we've had to adjust our expectations and the qualifications on competency.
Character and values are hugely important to us because there can be brilliant people with MBAs and so on, but as several celebrities have shown us recently, you can have some skeletons in the closet. The financial consequences of those kinds of things are horrific. Moral choices and decisions do matter. They do count.
When it comes to chemistry, we're looking for the ability to inspire, excite, and motivate other people. They say it's easier to get a job with the CIA than with us.
Q| Do you think anything will change as you move outside the United States?
A| Not long ago, we visited with Mike Duke at Walmart. He's from our south Atlanta area, and he is the CEO of a $400 billion business. He reminded us that people aren't that much different in Asia and Europe and South America. They all like to save money and live better.
We already know that the taste profile of Chick-fil-A is very acceptable in other parts of the world, and we think the value system will be very effective. We intend to hang on to our heritage as we continue to expand. We think that people everywhere - employees and customers - will appreciate being treated like ladies and gentlemen.
Q| Is the selection process different for company staff than for operators or restaurant employees?
A| Not that different. We have a 97 percent retention rate here at our headquarters. Just about the only way you can leave is to die or retire. We try to create a nirvana atmosphere. We have free food and a free fitness center with hot showers, towels, lotion, and all that kind of stuff. We have a child care center right at the entrance.
You've got to rob a bank for us to ask for your resignation. You can be a nonperformer here for a long period of time, quite admittedly. The Scripture says that mercy triumphs over judgment, so we extend a lot of grace to people because we don't know what else may be going on in their lives.
When I was about 14 years old, I crawled up on the roof of our little family restaurant called "The Dwarf Grill" with my dad, and we saw a whole bunch of Black Label beer cans up there. Dad suspected that our night manager was stepping out at night and having some beer. It was kind of a stupid thing to do, really. I thought that was it for him. But in fact, that's not what happened. Dad helped him work through his problem and got him into a rehab program. He kept working for us and retired after 28 years.
That really stuck in my mind as a lesson about how to deal with people. In the course of a career, people will have issues and major personal challenges in their lives. If you can help them get through that, there's a loyalty that is incredible.
I think we all realize that our humanity seeps out every now and then. If we can be patient with one another, it creates a safe atmosphere. But if nonperformers become cavalier or maybe defiant and show they're just not going to change, our attitude is this: We're here to influence people's lives, and if we can no longer have a positive influence on someone's life, than they're probably not going to feel comfortable here.
Then we'd help them find a place where they could feel comfortable.
Q| Are leaders and managers formally trained to do what you describe or does it come from the culture or from something else?
A| If it's part of the culture, you don't have to describe it formally. People just see what happens. They watch very carefully how a nonperformer is dealt with. They know we all go through soft spots in our careers. It's not a matter of if; it's a matter of when.
Q| How do you look at potential leaders, and how do you develop existing leaders?
A| We inventory our talent. We do a review annually with our executive committee. There are six of us, and we review our whole organization chart, right down to the people who cut the grass. It's about 60 pages long. Everyone has a performance assessment. We have to know our people to be able to make decisions about them. We have a big flip chart and fit people into specific areas.
We look at fast trackers and people who need extra mentoring to be sure that we're developing them at the right rate. We pay attention to diversity of all kinds - racial, ethnic, and cultural. We look at fresh names that have come up during the year as having leadership potential.
If the six of us need to get to know someone better, we might just sit down and have lunch with him if we happen to see him in the cafeteria. It's pretty casual here. The cafeteria is like your mom's kitchen.
The folks who are leaders here are well-grounded in all areas of their lives and are great performers. They're carriers of the culture. They traffic in good ideas. They're fun to be with. They're consistent in their demeanor and their performance over time, and they're sharp and bright.
Q| One thing we talk about with a lot of CEOs is how they know learning is working in the organization and if there are specific metrics tied to that. How would you know quantitatively and qualitatively that training and development are being successful or if more or less investment is needed?
A| I think sales are a good indication. I like to share with our young people that customers vote with their Federal Reserve notes. Those are ballots, and in the free-enterprise system, people cast ballots for the businesses that they want to provide goods and services for them in the future. Our sole source of capital is customers. That's it. If they don't vote us into the future, we're not going down to the bank to borrow money, and we're certainly not going to Wall Street. So over the long haul, we'd better be learning in order to stay relevant to our customers.
We know that the customer can change. We saw a big shift in the early 1990s. People were spending less time in shopping malls, and that's where we had most of our operations. Thank goodness we had been incubating the free-standing store concept. We took a hot glue gun and some foam core and we built an entire mockup of a freestanding restaurant, including a little silhouette of a car going through the drive through. We did time and motion exercises of people ordering, and we simulated what the whole operation would be like.
Thank goodness we fired that bullet because we sure needed it when the mid-1990s came around and there was a tremendous drop-off in traffic in shopping malls. Sears was tanking. Burdines was tanking. Macys was tanking. It was bad news all over. Thank goodness we were already in motion for the next big wave.
It makes your head swim to listen to our business plan for next year. How in the world can we keep up with all that? And that's the stuff that made the list. Eighty percent of it probably never made the final cut. When you have bright, talented people, there are so many great ideas you just can't do it all.
Q| So you don't have a place where you send people to think out these ideas, or is it more or less everyone's job?
A| It's everyone's job. It's got to be in every little nook and corner. We're getting ready to open an innovation laboratory to institutionalize the thinking process on innovation. We visited a lot of places including Hewlett Packard, Lucas Films, and Ideo, and we learned how important an innovation laboratory is. My plan is to require all of our departments to go through the innovation lab on an annual basis. We're going to teach the discipline of thinking creatively even though that sounds like an oxymoron. We want everyone to feel that they are expected to be a part of the innovation process. We're getting ready for 2.0 here. We want to get better at getting better.
Q| How do you improve on customer service that has already been cited for excellence?
A| How do you improve on what's already pretty good? It's difficult. It's much easier to improve on something that's not doing too well.
People change for three reasons - for pain, for fear of consequences, and because of a vision. As a leader, pain is your greatest ally. You don't have to be nearly as eloquent or as charismatic when there's pain. People will take their hands off a hot stove.
If you have fear of consequences, and those consequences are very imminent, you can get everybody's attention. But our challenge is that we don't have pain, and we don't have fear of consequences. But we do have a pretty clear vision of what we could do to improve customer service. That was aided by conversations with people outside our industry. For example, we talked with Horst Schulze from The Ritz-Carlton hotels who challenged us to jump out of our category in terms of the way we were thinking about service to our customers. Our transformation in customer service has been in the making for five or six years.
Q| What is different?
A| The concept is based on Matthew, chapter 5, verse 41. I like to say, with all due reverence, that Jesus was a restaurateur. He was feeding 5,000 people with a few loaves and fishes - the lowest food costs in recorded food service history. In the Sermon on the Mount, he could have been talking to a bunch of restaurateurs. That day, he said if someone asks you to go one mile with him, go with him the second mile. If a customer brings you $6, give him $20 worth of experience.
Everybody likes to get a good deal. That's a no-brainer. If you pay us $6 for a hot Chick-fil-A sandwich, some waffle fries, and a big glass of fresh-squeezed lemonade, you are getting just what you paid for. You paid us $6, we gave you what you wanted, and you feel good about the transaction.
What happens in the second mile is that the transaction becomes a relationship. That's our new recipe for service. If it's raining, somebody will run out with an umbrella and escort you into the restaurant. Someone will notice your name on your credit card and welcome you personally. Someone will take your tray, get you some catsup for your waffle fries, and hand you a straw for your lemonade. She will pull out your chair for you and offer to grind fresh pepper on your salad. And while you're enjoying your meal, you'll notice there are real flowers on the table. In this scenario, you got what you paid for, but you got a lot more.
Q| From a development perspective, particularly with traditional fast food restaurant staff, that's got to be somewhat of a challenge.
A| Yes, it is a challenge, but just think how you can run circles around the competition if you can crack that code. But you've got to have the idea first and the tenacity and the courage to make it happen. We have a lot of confidence that if anybody can pull this off, our operators can because this culture of service is already in our heritage. It's not a drastic re-engineering kind of thing. If anybody is going to teach 16-year-olds to say "My pleasure," and "May I refresh your beverage," it would be Chick-fil-A.
Q| You blog, you use a BlackBerry to spread ideas, and you encourage people to get on board with Web 2.0 technology. Chick-fil-A has more than a million Facebook fans, and the company's Twitter account gained more than 16,000 followers after it launched in August 2009. What role do you see social media playing in your business?
A| We see it as leveraging influence. Anybody can be an influencer now. You can use these social networking tools sitting at home. It's a very big microphone.
The reason I'm on Facebook is not because I need some more email or I'm looking for something else to do with my time. Through DanTCathy.com and my activity on Twitter, more people will know that I'm practicing what I preach. They'll see that I'm embracing stuff that makes me feel nervous. I have a new blog post coming out about the new normal of leaders who frequently feel butterflies in their stomachs. If I'm willing to hang myself out there a little bit and take some risk, it creates a safe environment for other people. And it also sets an expectation that they should hang out there a little bit with me.
Q| Is there anything else you want to mention?
A| I'll end with our corporate purpose. It says that we are here to glorify God by being a faithful steward of all that is entrusted to us and to have a positive influence with all who come in contact with Chick-fil-A. Stewardship is a simple concept - you're not going to take it with you so you better make the most out of today. The long view and the purpose of this whole enterprise is to positively impact people's lives. We live in a world and a society that can be pretty negative, and people need uplifting. They need a positive word. t+D