Print Preview 1/28/16, 9:52 PM Chapter 7: Chick-fil-A: Bird of a Different Feather Chapter Contents Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning Case 7 Chick-l-A: Bird of a Dierent Feather Chapter Introduction 7-1 Southern Roots: Samuel Truett Cathy and Chick-fil-A 7-2 Corporate Strategy: A Focus on People 7-3 Corporate Culture 7-4 Marketing and CSR Approach: Send in the Cows 7-5 Company Outlook and Finance 7-6 Awards 7-7 International Expansion 7-8 Sustainability 7-9 Succession Planning 7-10 Controversy Chapter 7: Chick-fil-A: Bird of a Different Feather Chapter Introduction Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning Chapter Introduction In 2011, sales at Chick-fil-A (CFA), a southern U.S. restaurant chain, surpassed , an increase of over 2010. The privately held, family-run business headquartered in Atlanta, Georgia, was ranked 13th among U.S. quick-serve restaurant franchises, second only to KFC in the fried-chicken category. CFA's business model varied significantly from that of most other fast-food chains. Advertising budgets and debt loads were lower than average, and operating hours were reduced. Franchisee recruitment, financial commitment, and management expectations also deviated from industry norms. Due to ownership's aversion to debt, the pace of expansion was significantly slower than the fast-food-segment average. But perhaps the http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 1 of 17 Print Preview 1/28/16, 9:52 PM most significant differences between CFA and other fast-food chains were its private, family-controlled ownership structure and its management philosophy, which was based on biblical principles. In 2012, CFA came under fire for statements made by its COO, Dan Truett, in favor of the \"biblical definition of marriage.\" These statements were perceived to be critical of gay marriage, a pending legal issue in a number of states that had been gaining popular support. Gay rights groups called for a CFA boycott; CFA supporters, meanwhile, flocked to local restaurants for Appreciation Day, for which CFA reported record sales. Nevertheless, the controversy raised questions about the extent to which an ownership's views could affect or even compromise an enterprise's long-term viability. Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-1 Southern Roots: Samuel Truett Cathy and Chick-fil-A Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-1 Southern Roots: Samuel Truett Cathy and Chick-l-A The CFA story began with the humble roots of its founder, Samuel Truett Cathy. Cathy was born in 1921 in Eatonton, Georgia, approximately southeast of Atlanta. He was named Samuel after a respected family friend and Truett in honor of Baptist evangelist George W. Truett. It was the name Truett that stuck. He was born into a family of cotton farmers, although just prior to his birth, when the family farm failed in the wake of a boll weevil attack, his father turned to selling insurance. To help make ends meet, the family took boarders into their small home, as many did during the Great Depression. The family served each guest two square meals a day, and the entrepreneurial Cathy, who had delivered newspapers and sold Coca-Cola door to door, helped with meal preparation. This laid the foundation for his entry into the restaurant industry. At the age of , in the Atlanta suburb of Hapeville, Cathy and his brother Ben opened his first restaurant, which featured only four tables and counter seats, aptly named The Dwarf Grill (later renamed Dwarf House). Customers had a choice of a hamburger , bacon and tomato sandwich , steak sandwich , bacon and eggs , fried ham , and pie . Over the next years, Cathy tested various menu items, including fried chicken, although that item was soon removed because it took too long to cook and presented quality assurance problems. In 1961, however, Cathy's big breakthrough was realized: Jim and Hall Goode, owners of Goode Brothers Poultry, came to me in a quandary. They had been asked by an airline to provide a boneless, skinless chicken breast that would fit the plastic trays they used to serve meals on planes. The Goodes met the http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 2 of 17 Print Preview 1/28/16, 9:52 PM request, but their process left boneless breast pieces that didn't meet the airline's size requirements. They were trying to develop a market for these excess pieces...I knew immediately that they had provided the answer to the chicken problem. After the bone was removed, the chicken would cook evenly and thoroughly...Then I discovered the recently introduced Henny Penny cooker, a pressure cooker that used oil and could cook a boneless chicken breast in four minutes, start to finish. Cooking so quickly meant we wouldn't have to cook our products ahead and hold them in a warming cabinet or under a heating lamp. All our chicken would be served fresh. Cathy devised a seasoning formula of ingredients, put the chicken breasts between two buttered buns, and trademarked the name Chick-fil-A for the new sandwich. The name was intended to draw comparisons with already popular steak fillets. The Chick-fil-A sandwich was soon licensed to other restaurants and food service operations. At the time, Cathy had no interest in establishing a restaurant chain; his earlier expansion attempt ended badly when a second Dwarf House restaurant burned to the ground. Over the next six years, however, Cathy became increasingly disturbed with the chicken sandwich licensing model, given his inability to control the quality of a product in which he took so much pride: We began to realize...that licensing our product might not be such a good idea, for while it was one of the easiest ways to sell, it was almost impossible to maintain consistent quality. Some restaurants, for example, would cook all their Chick-fil-A breasts in the morning for the lunch crowd, then leave them sitting around for a couple of hours. Hours before Braves baseball games at Atlanta Stadium, they cooked the chicken downstairs, then put it in a refrigerator until just before game time, then sent it upstairs to be reheated and sold as Chick-fil-A. The result, as described by Major League Baseball umpire Ron Luciano, was a lousy chicken sandwich. Luciano disliked the sandwich so much he wrote about it in a book years later. I needed to control the quality, and the only solution I could think of was to open my own restaurantsa prospect that didn't appeal to me. In 1967, Cathy opened his first chain restaurant in a sq. ft. space at Atlanta's Greenbriar Mall, the same mall where his sister Gladys operated a gift shop. The initial upfront investment was a modest , allowing him to reserve funds to develop other mall locations. The first freestanding restaurant did not open until 1986, nearly two decades later. Over the years, CFA's menu expanded to include a number of variations on the original Chick-fil-A sandwich. By 2012, the menu included chicken nuggets, sandwich wraps, numerous sides, kids' meals, desserts, and a breakfast menu. Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-2 Corporate Strategy: A Focus on People Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 3 of 17 Print Preview 1/28/16, 9:52 PM Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-2 Corporate Strategy: A Focus on People From the start, Cathy was zealous about controlling not just the quality of the products, but the quality of the people who operated the restaurants. CFA's mission was stated flatly as \"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,\" and to be \"America's best quick-serve restaurant.\" To achieve these goals, Cathy repeatedly stressed the importance of focusing on personal relationships, often sacrificing short-term growth and profits for the sake of building enduring loyalty among employees and customers. The strategy was premised on his Golden Rule philosophy, which prized people over profits. All restaurants closed on Sundays, in keeping with the tradition of reserving that day for worship and for operators and employees to spend time with their families. Regarding restaurant operators, Cathy stated: We would be loyal to them, treating them as we wished to be treated, and they would reciprocate. They did. Fewer than of our operators leave the chain in any given year. Other chains tout their \"knowledge management\" systems; we manage knowledge by keeping peopleand their knowledgein the organization. The food tastes better with that kind of long-term operator stability. Chick-fil-A as a company had developed a customer base that was almost fanatical in its support, along the way receiving numerous awards for customer service. Operators were carefully screened, often enduring a year-long interview process, and chosen based on demonstrated management skills and talents. Of course their past business track records were important, as well as their affiliations with church, civic, and other organizations that could help them promote their restaurants in the communities. In short, each operator was expected to spearhead an extensive, ongoing networking campaign in his or her community, one designed to build awareness of the brand, enhance its reputation, and encourage as many people as possible to visit CFA. An operator's (i.e., franchisee's) upfront investment in a CFA restaurant was minuscule: an initial franchise fee; there were no minimum net worth or other personal financial requirements, and the operator was guaranteed a base income of . CFA purchased the land, constructed the restaurant, purchased equipment, and took a hefty sum from the operator's revenue and profit base: of annual sales revenue and of net profits. In contrast, KFC requires, among other things, a franchise fee of and a mimimum net worth of (Exhibit 1). Exhibit 1 http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 4 of 17 Print Preview 1/28/16, 9:52 PM Chick-l-A: Bird of a Dierent Feather: Comparison of Franchisee Capital Investment for KFC, Chick-l-A Minimum Minimum Franchising Liquid Net Total Company Established Since Capital Worth Investment Franchise Fee KFC 1930 1950 $750,000 $1.5 million $1.3 million- $2.47 million $45,000 CFA 1946 1967 None None $281,000- $815,000 $5,000 Data source: KFC website, http://www.kfcfranchise.com/requirements-investment-fast-foodfranchise.php (accessed March 5, 2013) and Franchise Direct website, http://www.franchisedirect.com/foodfranchises/chickl-a-franchise-07431/ufoc/ (accessed March 5, 2013). Franchisees at CFA were required to be managers. As an operator, franchisees had to be free from all other business commitments to fully concentrate on managing the location. Operators were responsible for setting up business plans for the restaurant, overseeing hiring and firing, setting wages, and managing equipment and day-to-day operations. With few exceptions, CFA operators were allowed to own only one restaurant, and all were strongly encouraged to be consistently present, personally managing employees and the processes they were tasked to oversee: Another key to operator loyalty lies in our decision to allow each operator to have only one restaurant. At first, this policy may seem counterintuitive. Many companies reward success by enlarging territories or bringing them into the company to oversee operations of other franchisees. I want our best people right there full-time in the restaurant they've built, serving the customers and team members who have become loyal to them. The belief was that, once people visited the restaurants, they would be so impressed with the cleanliness, the friendliness of employees, and the quality of the food served that they would become customers for life. The strategy proved extraordinarily successful, and CFA consistently met its promises regarding superior customer service, quality products, and competitive prices. The income earned by the operators depended on their performance. In 2002, more than half of the operators earned more than , and a few even topped . http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 5 of 17 Print Preview 1/28/16, 9:52 PM Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-3 Corporate Culture Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-3 Corporate Culture CFA's Mission Statement reads, \"Be America's Best Quick-Service Restaurant.\" The company was known for playing \"involved parent\" when it came to screening franchise applicants and spelling out how the restaurants must be run, as well as how franchisees \"operated\" their personal lives: Loyalty to the company isn't the only thing that matters to Cathy, who wants married workers, believing they are more industrious and productive. One in three company operators have attended Christian-based relationship-building retreats through WinShape at Berry College in Mount Berry, GA. The programs include classes on conflict resolution and communication. Family members of prospective operators children, evenare frequently interviewed so Cathy and his family can learn more about job candidates and their relationships at home. \"If a man can't manage his own life, he can't manage a business,\" says Cathy, who says he would probably fire an employee or terminate an operator who \"has been sinful or done something harmful to their family members.\" The parent company asks people who apply for an operator license to disclose marital status, number of dependents, and involvement in \"community, civic, social, church and/or professional organizations.\" Danielle Alderson, , a Baltimore operator, says some fellow franchisees find that Chick-fil-A butts into its workers' personal lives a bit much. She says she can't hire a good manager who, say, moonlights at a strip club because it would irk the company. \"We are watched very closely by Chick-fil-A,\" she says. \"It's very weird.\" Cathy sees this through a different business prism: that significant business relationships with people should be made with the same care and caution with which one might approach one's personal relationships. In my first meeting with a potential operator, I explain that our commitment is going to be like a marriage, with no consideration given to divorce. We're much more careful about selecting operators when we know we can't easily get rid of them. Despite this level of perceived intrusion, CFA received thousands of applications from http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 6 of 17 Print Preview 1/28/16, 9:52 PM would-be franchisees every year. Out of more than applicants per year, fewer than , or , became new operators. For the few who received the call, extensive training classes into the basics of how to run a Chick-fil-A franchise and assimilation into the company's management culture soon followed. The end result was that operators at Chickfil-A tended to be a tightly knit group who shared a common commitment to the corporate mission. The WinShape Foundation, founded in 1982 by Cathy and his wife Jeannette, was a cornerstone of CFA's charitable activities and a direct reflection of the CFA culture. The foundation originally provided tuition assistance to students attending Berry College, a small nondenominational Christian college in Georgia. Later it sponsored other programs, including WinShape Camps, a Christian-themed camp for young people through high school, and WinShape Homes, which operated foster homes throughout Tennessee, Georgia, and Alabama that served children who had been abused or neglected. As stated on its website, the goal of this program was to provide children with \"a place they will grow physically, spiritually, and emotionally, surrounded by tenderness, wisdom, and structure. A place where they will be loved for life.\" Additional WinShape initiatives include marriage retreats and international natural disaster relief support. Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-4 Marketing and CSR Approach: Send in the Cows Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-4 Marketing and CSR Approach: Send in the Cows In addition to operating only six days a week, a perceived financial handicapestimated to cost approximately annuallywas CFA's relatively tiny advertising budget. In 2009, the chain spent just on advertising media, compared with the nearly McDonald's spent. But there was a bright side: On average, despite the smaller budget, CFA generated an annual volume per restaurant of , compared to McDonald's . Faced with such competition, Chuck Bradford, CFA's manager of media integration, said his company took on a \"David and Goliath\" mindset to doing business: \"We're going out to try to slay some giants,\" he said. A particular success, developed by the Dallas-based Richards Group, took advantage of the media presence in Atlanta during the 1996 Summer Olympics. A billboard campaign depicted Holstein cows as underground revolutionaries avoiding a hamburger fate by encouraging the public to \"Eat Mor Chikin.\" The strategy was obvious and very effective: to position chickenmemorablyas an alternative to hamburgers. In addition, a marketing program was developed that integrated point of purchase, merchandise promotion, direct mail, and public relations efforts. In the immediate aftermath of the campaign's rollout, same-store sales rose four times above the industry average, and three times greater than the rate CFA stores had http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 7 of 17 Print Preview 1/28/16, 9:52 PM experienced before the campaign. This growth in same-store sales was all the more impressive given that CFA, unlike most quick-serve competitors, hadn't made any major shifts, additions, or changes to its menu or marketing campaign since 1996. It devoted the lion's share of the advertising budget to outdoor media, with radio, television, and print advertising distant seconds. Rated among America's most popular advertising icons in an Advertising Week poll, the \"Eat Mor Chikin\" cows were enshrined in the Madison Avenue Advertising Walk of Fame in New York, inducted into The Outdoor Advertising Association of America's (OAAA) OBIE Hall of Fame, and given a Silver Lion at the Cannes Advertising Festival. CFA did not offer any kind of frequent-buyer card to develop relationships with customers, but it utilized creative sales promotions quite effectively. CFA developed its customer community electronically, particularly through its website. When opening a new store, CFA generated excitement through its First promotional event. Customers could register on the company website to receive a free meal every week for a year at the new location, with names drawn at random to receive the prize. Additionally, customers were encouraged to upload videos and pictures that told their Chick-fil-A stories, how they connected with CFA in a special way. For example, one grandmother posted a picture with her grandson, who was suffering from cancer, and wrote that whenever he left the hospital, he wanted to go straight to Chick-fil-A. Another described how a couple visited Chick-fil-A on their wedding day. Another highly successful CFA event was Cow Appreciation Day. Customers who went to a CFA dressed in full cow regalia received a free meal, and awards were given out for \"best herd\" and \"best calf.\" CFA solicited customer experiences on Cow Appreciation Day, also to be posted to the website. The company also purchased rights to the former Peach Bowl, a college football bowl game played each December on national television, and changed the name to the Chick-fil-A Bowl. Compared to quick-serve burger restaurants McDonald's, Burger King, and Wendy's, CFA's customers were more affluent, more active, and more educated. Visitors to the Chick-fil-A website were slightly more likely to be female, between the ages of and , and have a college education (Exhibit 2). Exhibit 2 Chick-l-A: Bird of a Dierent Feather: Chick-l-A Website Visitor Demographics Demographic Percentage of Customers Age 18 and under 18% http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 8 of 17 Print Preview 1/28/16, 9:52 PM 18-24 11% 25-34 22% 35-44 24% 55-64 7% 65+ 3% Gender Male 43% Female 57% Household Income $0-$50,000 13% $50,000-$100,000 26% $100,000-$150,000 31% $150,000+ 30% Education No College 38% College 47% Grad School 15% Ethnicity Caucasian 74% African American 16% Asian 4% Hispanic 5% Other 1% Data source: Adapted from Quantcast data display, http://www.quantcast.com/chick-l-a.com (accessed March 5, 2013). Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-5 Company Outlook and Finance http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 9 of 17 Print Preview 1/28/16, 9:52 PM Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-5 Company Outlook and Finance Forecasts called for quick-service restaurants to achieve stronger growth in 2011 after three years of declining sales. As a whole, the quick-service segment was expected to achieve sales of more than , a gain of over 2010. CFA posted record sales of in 2011, an increase of over 2010. This followed a sales increase in 2010 of more than overall sales and close to a increase in same-store sales over 2009. By this point, CFA had enjoyed uninterrupted strong year-over-year sales growth since its founding. Ranked second among U.S. quick-serve chicken restaurants, CFA's 2010 sales revenue dwarfed that of Popeye's and was gaining on KFC, which had struggled in recent years. \"KFC continues to cede a lot of market share to privately held Chick-fil-A,\" wrote Mark Kalinowski of Janney Capital Markets. \"Lapping an easy comparison from the second quarter of last year did not help KFC U.S.\" Between 2010 and 2012, KFC shuttered more than U.S. outlets. In 2010, CFA surpassed Popeye's, McDonald's, and Burger King in total sales growth and same-store sales growth despite having far fewer locations and closing its stores days of the year. (See Exhibit 3 for summary revenue statistics in the quick-serve restaurant industry and Exhibit 4 for summary financial characteristics of publicly traded competitors.) Exhibit 3 Chick-l-A: Bird of a Dierent Feather: Select Competitor Revenue Summary, 2010 U.S. sales 2010 (in Percent change millions) from 2009 Percent change from 2009 (samestore sales) Number of stores CFA $3,582 11.37 5.92 1,606 Popeye's $1,635 2.5 2.6 1,977 $24,075 4.4 5.0 32,737 $9,070 (2.5) (2.3) 2,376 4,710 (3.9) (3.0) 5,200 McDonald's Burger King KFC Data source: Company annual reports and 10-K lings; \"Fastest Growing Limited-Service Chains > http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 10 of 17 Print Preview 1/28/16, 9:52 PM ,\" Technomic Information Services, http://www.technomic.com/Resources/Industry_Facts/dyn_10_limited_sales.php (accessed February 18, 2013). Exhibit 4 Chick-l-A: Bird of a Dierent Feather: Select 2011 and 2010 Quick-Serve Restaurant Financial Data Summary (in millions of dollars) McDonald's Wendy's Yum!Brands MCD WEN YUM 2011 Sales 2010 2011 2010 2011 2010 18,293 16,233 2,127 2,079 10,893 9,783 8,713 7,841 305 296 1,733 1,560 Total Sales 27,006 24,075 2,431 2,375 12,626 11,343 Cost of Sales 14,838 13,060 1,816 1,757 9,140 8,120 Gross Prots 12,168 11,015 615 618 3,486 3,223 Gross Prot % 45.1% 45.8% 25.3% 26.0% 27.6% 28.4% 493 451 114 118 156 175 5,503 4,946 18 18 1,319 1,158 20.4% 20.5% 0.7% 0.8% 10.4% 10.2% 7,150 6,342 247 226 2,170 1,968 Investing Cash Flow (2,571) (2,056) (58) (113) (1,006) (579) Financing Cash Flow (4,533) (3,729) (225) (194) (1,413) (337) Assets 32,990 31,975 4,301 4,733 8,834 8,316 Stockholders' Equity 14,390 14,634 1,996 2,163 1,916 1,669 Long-Term Debt 12,500 11,505 1,357 1,572 2,997 2,915 Franchise Revenues Financing Costs Net Income from Cont. Ops. Prot Margin Operating Cash Flow http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 11 of 17 Print Preview 1/28/16, 9:52 PM Store Count Company-Operated 6,435 6,399 1,417 1,394 8,024 7,796 27,075 26,338 5,177 5,182 29,097 30,039 33,510 32,737 6,594 6,576 37,121 37,835 Dividends 2,610 2,408 32,366 27,621 481 412 Shares Outstanding 1,021 1,054 390 418 460 469 101.33 77. 10 5.42 4. 64 59.61 49. 30 103.5 81.2 2.1 1.9 27.4 23.1 7.2 5.6 1.1 0.9 14.3 13.9 18.8 16.4 117.9 107.2 20.8 20.0 Franchised Total Price per Share Market Cap (billions) Market-to-Book Price-to-Earnings Data source: Company 10-K lings and case writer calculations. In 2012, most of CFA's restaurants, which employed approximately people, were located in the southeastern United States; approximately more than two-thirds were below the Mason-Dixon line (Figure 1). The West Coast had fewer than , all in California, while New England and New York had . The company's growth focus was on the Midwest and Southern California. Figure 1 Chick-l-A store locations in the United States by county, 2012. (darker areas denote more stores) http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 12 of 17 Print Preview 1/28/16, 9:52 PM Source: Wikimedia Commons. CFA was also one of the world's largest privately owned restaurant companies. By all accounts, Cathy and his sons intended to keep the business in the family, a goal stemming from their desire to maintain very tight control over the business. Many others have achieved our size by offering ownership in their companies to the public. We have resisted and will continue to resist that status. In the early days, we did not offer stock for sale because I could not predict how fast the company might grow or what dividends we might pay to anyone who might invest. Additionally, I'm afraid the directors, if we had a bad year, might tell me I'm old-fashioned and fire me. Many people who are creating and running companies couldn't care less about anything but their personal bottom lines. If the stock goes down the tubes after they've sold their options, they say that's just the risk an investor takes... If I had a widow invest her savings in Chick-fil-A and the company didn't pay the return she expected, I would feel obligated to make up the difference to her... The value of the stock would always be determined by the profits of the corporation, and if I cut into those profits by giving away a bunch of the company's money, employees and stockholders might resent my charity...Our system puts the cash in the hands of the operator today, instead of sometime down the road with a lump sum, and encourages them to earn all they can, save all they can, and give all they can right now. Their focus is on today's customer. http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 13 of 17 Print Preview 1/28/16, 9:52 PM Though Cathy, now , was less involved in day-to-day operations than in years past, sons Dan (COO) and Donald (senior VP) inherited their father's aversion to financing expansion through debt, preferring to reinvest CFA's profits. Cathy made no secret that low (or no) debt was, in part, a reaction to his childhood: \"In the Great Depression, you bought something if you had the cash to buy it. We are just about debt-free right now [2010], stretching that dollar as far as it will go. If you have debt, you have to worry about it.\" For these reasons, and because Cathy was fearful of expanding too rapidly, CFA pursued a slow, steady increase in the number of locations: I have never tried to overextend. I'm satisfied stepping from one plateau to the next, making sure we're doing everything right before moving on. Financial experts tell me our strength would allow us to open restaurants at a much more aggressive pace than our current per year. But I'd rather have restaurants operating efficiently and professionally than restaurants where half are run well and the other half not. CFA's location strategy included a significant presence in malls ( 2013) in addition to its more than stand-alone locations. locations as of January Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-6 Awards Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-6 Awards CFA had a devoted customer base and had accumulated numerous consumer and industry awards. In 2011, CFA won the Consumer Reports \"Nation's Top Chicken Chain\" award, based on a survey of readers. Other awards CFA accumulated include Zagat's 2011\"Top Large Chain\" in the fast-food category and \"Best Value\" and \"Best Milkshakes\" in Zagat's 2010 fast-food survey. Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-7 International Expansion Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-7 International Expansion In 2011, CFA opened new restaurants rather than the \"traditional\" or fewer. The chain still maintained a \"slow and steady\" attitude toward domestic expansion, as that pace could http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 14 of 17 Print Preview 1/28/16, 9:52 PM have been much quicker. The company had a handful of restaurants in Mexico, Puerto Rico, and Canada, but showed little interest in overseas expansion. The company had announced neither plans nor intention to capitalize on the slow growth of Popeye's or negative growth of KFC. It also had shown no inclination to blunt KFC's extremely successful expansion into China, with more than restaurants in Chinese citiesin 2011, a new restaurant every day. Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-8 Sustainability Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-8 Sustainability As \"a faithful steward of all that is entrusted to us,\" CFA had a stated commitment to being a good steward of the environment, though it admitted \"we are still very early in our environmental sustainability journey.\" The company boasted a number of green initiatives, including plans to retrofit restaurants in 2012 with energy efficient lighting, refrigeration, and water-saving technologies. The company continued to use Styrofoam cups because of the insulating properties, but stated that its current cups were recyclable where facilities existed. This included all of its California locations as well as restaurants in Denver, Salt Lake City, and Philadelphia. The company's goals included adding more stores to its foam cup recycling initiative in 2012 as well as chain-wide implementation slated for 2014. Additionally, as of January, 2013, in of its stores, all napkins, tray liners, and kids'-meal bags were recycled. Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-9 Succession Planning Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-9 Succession Planning Family business ownership has a chance of retention by the second generation, by the third, and by the fourth. Yet data from the Family Business Institute relates that a full of family business owners believe that the family will still own the business in five years: The statistics reveal a disconnect between the optimistic belief of today's family business owners and the reality of the massive failure of family companies to survive through the generations. Research indicates that family business failures can essentially be traced to one factor: an unfortunate lack of family business succession planning. http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 15 of 17 Print Preview 1/28/16, 9:52 PM The Cathy family was an exception. To prevent CFA from being sold or carved up by succeeding generations, second-generation stakeholders gathered four times a year, and third-generation stakeholders met twice annually. Some family members worked directly for CFA, and each third-generation family member oversaw a significant foundation. Every family member had to graduate from college and work outside the company for at least two years before employment with CFA. Once employed by the company, family members underwent the same employment channels as other applicants. Despite high divorce rates and the changing mores of society, the family sees no need for prenuptial agreements, according to Dan Cathy. \"There have been no divorces, and we are quite proud of the fact that we have stayed the course with our values,\" he added. \"We don't worry about future generations changing that. They are rock-solid.\" John White, the son of Truett Cathy's daughter Trudy, sees no trouble with perpetuating his grandfather's values. \"I think it would be unwise to seek out something else in hopes that it would work when it already works the way it does,\" he said. \"Typically what happens in families this size is they break into segments, but we are still meeting all as one group. I talk to my cousins frequently. We've made it a priority.\" Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-10 Controversy Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 7-10 Controversy Relations between CFA and gay and lesbian advocacy groups had been strained in recent years. In 2011, CFA donations (almost in 2009 alone) to organizations such as Focus on the Family and the Family Research Council prompted protests and boycotts among college students and others supporting gay rights. Dan Cathy, COO of CFA, protested that the company was \"not anti-anybody.\" The conflict erupted into a firestorm after a Dan Cathy interview in July 2012: We are very much supportive of the familythe biblical definition of the family unit. We are a family-owned business, a family-led business, and we are married to our first wives. We give God thanks for that. The article ran under the headline, \"'Guilty as Charged,' Dan Cathy Says of Chick-fil-A's http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 16 of 17 Print Preview 1/28/16, 9:52 PM Stand on Faith, Family Values.\" The reaction from gay rights supporters was swift and loud. Boston mayor Thomas Merino told the Boston Herald that Chick-fil-A \"doesn't belong in Boston.\" Chicago alderman Joe Moreno vowed to block the construction of CFA restaurants in Chicago until the company drafted an anti-discrimination policy. In response to the criticism Chick-fil-A was receiving, former Arkansas governor Mike Huckabee called for a CFA \"Appreciation Day\" to be held on August 1, 2012. Customers were encouraged to show their support for CFA by patronizing CFA on that day. Huckabee created a dedicated Facebook page, which received more than RSVPs to promote the awareness of the event. Appreciation Day was an enormous success. Customers flocked to CFA locations, with many patrons waiting hours in line to be served. Although CFA refused to release specific sales numbers, Steve Robinson, executive vice president of marketing for CFA stated that Appreciation Day sales were \"record-setting.\" A counter-protest organized by gay rights activists, National Same-Sex Kiss Day, was held on August 3, 2012. It called for same-sex couples to go to a CFA and engage in public displays of affection. The event did not achieve anywhere near the same degree of participation as Appreciation Day. In the short run, CFA appeared to benefit from the controversy, with quarterly consumer use up compared to prior year, market share up , and awareness up . Chapter 7: Chick-fil-A: Bird of a Different Feather: 7-10 Controversy Book Title: Strategic Management: Competitiveness & Globalization: Concepts & Cases, 11e Printed By: Paul Swinko (paulswinko@comcast.net) 2015, 2013 Cengage Learning, Cengage Learning 2016 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. http://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/print_preview.html Page 17 of 17