I had the opportunity to listen to a live webcast of a talk given by Chick-fil-A founder and Chairman Truett Cathy this afternoon at the National Press Club. Chick-fil-A President and CEO Dan Cathy, Truett Cathy’s son, also appeared at the event. Chick-fil-A was a subject of a recent article regarding businesses that manage to maintain a dominant competitive position despite a Sunday closure policy.
Chick-fil-A was founded in 1946 by Truett Cathy when he opened a restaurant named Dwarf House in a suburb of Atlanta. Today, the fast food chain has 1,475 locations in 38 states. The company has developed a loyal following with many fanatic customers who camp out overnight when a new store opens in order to win free meals for a year. According to a National Press Club article, the private company is on track for a 9% increase in sales this year. Revenues are expected to reach $3 billion for 2009.
Buy Six Pack of Coke for a Quarter, Sell Each Bottle for a Nickel
Truett Cathy’s “up from the bootstraps” life story is inspirational and instructive for those interested in how to succeed in business. “I had the privilege of growing up in poverty,” he said. “The blessing is you have to work for a living.” Mr. Cathy spoke about his early years buying six packs of Coca Cola for a quarter and selling each bottle for a nickel, thereby making a five cent profit per six pack. Sound familiar? This is the same story that Warren Buffett has told on many occasions.
I took note of some other comments made by Truett and Dan Cathy:
- Truett Cathy has always tried to avoid debt because it makes him more comfortable to know that little or nothing is owed to outsiders. While the company can currently secure bank loans at a 2.5% interest rate, they seek to eliminate even this cheap financing and intend to be debt free within three years.
- The estate tax is a serious impediment for family owned businesses and can result in families losing control. However, Chick-fil-A has taken steps to maintain family ownership and has no plans to become a public company.
- Chick-fil-A has a strong customer service culture and believes in treating customers with more courtesy and respect than they might expect at a fast food chain. This increases customer loyalty over time.
- The company is expanding into the Chicago area next year. In addition, growth opportunities remain in several parts of the country. Twitter and Facebook campaigns have been set up by customers asking Chick-fil-A to open restaurants in their cities.
- The average Chick-fil-A store operator can expect to earn as much as $150,000 which is far above market. This permits operators to have a very comfortable life for their families and is a strong part of the culture.
- While the founders and executive management of the company have strong religious convictions, their mission is to serve as many people as possible regardless of faith. They do not discriminate based on religion when it comes to employees or to restaurant operators but they do insist on common underlying values of honesty, hard work, and commitment to the customer.
Click on the image below or on this link to view the full presentation:
It is hard to avoid the observation that Chick-fil-A would make for a dream acquisition that Berkshire Hathaway might want to consider. In the past, many Berkshire acquisitions have been made for family run businesses that wish to retain an established culture and deal with estate tax problems. R.C. Willey is a good example that was recently discussed here. However, as Mr. Cathy stated several times, the family intends to keep the company private over the long term.
Anyone interested in starting a new business or improving an existing company can learn a great deal from Mr. Cathy’s life story. Investors should look for companies exhibiting these characteristics when evaluating investment candidates.
Truett Cathy is 88 years old but had this to say about retirement: “Why would I want to retire from something I enjoy doing?”