S & A Restaurants fights back after losing eight top executives
DALLAS — Can a large diversified food-service chain company continue to grow and prosper after losing eight key executives in a little over a year?
That is the $64 million question facing S & A Restaurant Corp., following the departure of founder-chairman Norman Brinker 1-1/2 years ago and the subsequent departures of seven S & A executives to join Brinker across town here at Chili’s. The most recent such jump by Brinker’s S & A successor, Hal Smith, has further fueled speculation about how S & A can stay on course.
Meanwhile bad feeling has been generated at S & A (denied officially but unquestionably lurking beneath the surface) by Pillsbury’s previous threat to sue Brinker and Chili’s to prevent any more departures from S & A to Chili’s.
Industry observers, skeptics and analysts seriously question whether any company can easily or fully recover from such massive executive losses. But top officials at S & A, parent Pillsbury and others maintain that S & A is “so deep in capable veteran executives” that it will in fact prosper “as never before.”
Michael Jenkins, S & A president and chief executive officer, is in line also to become chairman next year, and chief executive officer, executive vice president and chief operating officer Richard Frank would become president.
Donald Slater, who his just been named Benningan’s general manager, started nine years ago as a Steak & Ale manager-trainee in Atlanta. Jeff Shearer, who moves from Bennigan’s general manager to general manager of the projected new Charlie’s seafood chain, started as a Steak & Ale waiter 11 years ago. Michael Donovan, Steak & Ale general manager, is an 11-year veteran who began as a trainee in Houston. Dennis Hood, Muggs’ general manager, began as a Florida trainee.
“I honestly believe that the quality and depth of the people remaining at S & A are so great and the spirt so strong there that Steak & Ale and Bennigan’s will thrive as never before,” declared Brinker, now a competitor of S & A’s J. J. Muggs upscale burger chain.
Brinker’s charismatic industrywide image was replaced by a somewhat lower-key approach during Smith’s S & A reign, and now an even lower-key approach by Smith’s successor, Jenkins. But though there is less charisma at S & A, Jenkins has quickly and obviously gained the full support and loyalty of S & A’s remaining veteran executives–a loyalty that some feel Smith, 38, never was able to obtain because Brinker leaprogged him from a regional vice president over a number of executives to make him S & A president and chief operating officer in 1980.
Smith joined S & A in 1971, a year after Jenkins, also 38. Jenkins started as a waiter in Steak & Ale’s Woodland Hills, Calif., unit and worked his way upward through the entire system.
Furthermore, no interruption looms in the 18 years of constant earnings increases that S & A has enjoyed since its 1966 founding as Steak & Ale. S & A is believed heading for 20% earnings and sales increases for its first half, ending Nov. 30, and is confident of surpassing those 20% gains in the second half. Nobody at S & A or Pillsbury is willing to give the slightest indication of the actual annual S & A earnings.
But it is known that Pillsbury’s restaurant group of S & A and Burger King achieved $187 million in pretax operating profits for the fiscal year ended May 31. Indications are that the surging $3 billion-volume Burger King accounted for about two-thirds of this, thus giving S & A $60 million to $65 million in pretax operating profits–a strong profit margin, but one that Pillsbury and S & A are working hard to raise even higher.
Average unit volumes for the 12-month period ended Aug. 31 can be read either as positive signs or as warning signals, depending on one’s inclination. Steak & Ale dinner-houses showed a sharp average per-unit sales rise to $1.51 million and an 8% rise in comparative same-unit sales. The 170-unit chain plans to resume expansion with eight new ones projected. But cynics say the chain’s increases were recorded because of a disappointing 1983 base, and they note that Bennigan’s has got to be the growth vehicle.
Bennigan’s was flat for the 12 months mentioned, staying at an average $2.306 million average-unit sales. And S & A executives seem happy “to keep the sales at that same high level” while planning to add 30 more Bennigan’s on top of the current 165.
Meanwhile at least 10 more Muggs–refined “to give it an individual niche beyond Chili’s”–are planned on top of the current seven.
S & A also is testing the Charlie’s “upscale” seafood restaurant it acquired in Houston, as a forerunner of a possible new chain. Earlier S & A tests of various dinner-house concepts did not yield anything fruitful.
Pillsbury vice chairman Winston Wallin, who is at least temporarily chairman of S & A Restaurant Corp., asserted, “Sure, we didn’t want to lose Brinker or Smith [or the others], but we were prepared for these departures with strong people from within S & A.
“We’re going to give Norm Brinker a run for his money,” Wallin added (an apparent reference to the Muggs-Chili’s competitive battle).
“We enjoyed our best year ever after Norman left,” Jenkins asserted, “and that really is a tribute to the way Norman built this organization to continue growing and persevering without him and others.”
Brinker himself thinks that the seven executives who joined him at Chili’s “were motivated by the entrepreneurial spirit that I represented” rather than by any personal loyalty (to Brinker).
Three Bennigan’s executives–general manager Chris Sullivan, operations vice president Robert Basham and Southeast development vice president Eugene Knippers–left in September 1983 as partners in a Chili’s Atlanta joint deal. Ron McDougall moved from BK marketing vice president (he had been S & A markting director since 1974) to Chili’s executive vice president; Richard Spellman, from S & A legal counsel to Chili’s legal counsel, and Eddie Palm, from S & A design director to Chili’s.
Brinker then signed an agreement with Pillsbury in October 1983 not to hire any executive directly from S & A for a two-year period. Smith was able to “circumvent” the agreement legitimately by resigning from S & A in August and then later working out terms with Brinker.
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