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No Chicken When It Comes to Innovation

“No Chicken When It Comes to Innovation”

S. Truett Cathy devises plucky approach to franchise growth.

Founder of Atlanta-based Chick-fil-A Inc., S. Truett Cathy has won acclaim not only for building America’s No. 3 fast-food chicken chain with some 840 restaurants, but also for his unique approach to expansion.

Rather than franchising his business — as did many of his competitors — Cathy devised a different type of operator agreement that allows interested parties to open a Chick-fil-A restaurant for a one-time, $5,000 fee. In exchange, they receive a fully stocked restaurant, advertising assistance, a trademark, four weeks of training at company headquarters and a week of field training.

Cross-Promoting ‘Clusters,’ Commitment

Traditional franchising agreements promise "protected territories," which guarantee that another unit will not be established within a designated geographic area. However, Chick-fil-A’s operator agreement offers no such guarantee. That has allowed the chain to grow in clusters, which Cathy believes proves more successful than opening isolated properties.

Franchisees are generally not required to spend any time in their restaurants. In contrast, Chick-fil-A operators take a true hands-on approach to management, working with their hourly crews, getting to know their customers and ensuring quality of service.

The benefits of the arrangement are not reserved solely for the corporation, by any means. Operators receive a guaranteed base salary of $30,000 and get to keep 50% of the store’s net profits. According to Cathy, the average operator income stands at $82,000, while some have been known to earn as much as $290,000 a year.

Each Chick-fil-A operator agrees to abide by Cathy’s rules, which include a strict "closed on Sunday" requirement. Any operator who is found to have knowingly broken this tenet is immediately removed from the Chick-fil-A family.

Something to Crow About

Chick-fil-A has achieved remarkable retention rates in an industry where management/operator turnover runs as high as 35%. In 1998, Chick-fil-A lost just 2% of its operators. Says Cathy, "Loyalty of your people is a key to most any business success."

Chick-fil-A expects to hit the $1 billion sales mark in 2000. In spite of that immense success, Cathy prides himself in running his mighty empire much like he did his original tiny Dwarf Grill back in 1946.

"Even though you are operating a big business, you need to run it as a small company and take advantage of the small things," he says. "There are some changes that have to be made when you get large, but remember, it’s a series of little things that make a company work."

Writer: Julie Cook