Cooker Restaurant Corporation

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Cooker Restaurant Corporation

2609 West End Avenue, Suite 500
Nashville, Tennessee 37203
U.S.A.
Telephone: (615) 301-2665
Fax: (615) 301-2666
Web site: http://www.the-cooker.com

Public Company
Incorporated: 1986 as Cooker Bar and Grille
Employees: 2,984
Sales: $112.9 million (2001)
Stock Exchanges: OTC-Bulletin Board
Ticker Symbol: CGRT
NAIC: 722110 Full-Service Restaurants

Cooker Restaurant Corporation is a 37-unit casual dining restaurant chain, with locations in Florida, Michigan, Ohio, Tennessee, and Virginia. During the mid-1990s, revenues per restaurant averaged almost $3 million annually, which were among the highest for casual full-service restaurants. In 1996 alone, the company served over ten million meals. Slowing sales during the late 1990s, however, halted the firm’s expansion efforts. Burdened by a heavy debt load, Cooker was forced to declare Chapter 11 bankruptcy in 2001. As part of its restructuring effort, the company closed 26 restaurants in Florida, Georgia, Indiana, Kentucky, Ohio, North Carolina, and Tennessee during 2001 and the first part of 2002.

Traditional Fare in the Mid-1980s

In 1984, The Cooker Restaurant Corporation was founded in Nashville, Tennessee, by G. Arthur Seelbinder, a former Wendy’s franchisee, along with three others—Phil Hickey, Jerry Hornbeck, and trained chef Glenn Cockburn. Cockburn, a graduate of the Culinary Institute of America, who became director and senior vice-president of operations for the company, created most of the items on the Cooker menu. Cockburn developed the home-style recipes that included pot roast, lasagna, soups, meatloaf, fish, steaks, sandwiches, hamburgers, ribs, and chicken—all made from scratch—for their restaurants. Cooker varied its menu with a wide assortment of salads and vegetables but originally set its sites on offering heartier fare with the intention of competing with the leaner menus served in trendier restaurants. They began by offering traditional dining at a moderate price, averaging $8.75 per meal, with items on the children’s menu for $2.50.

In the spring of 1989, an initial public offering (IPO) raised over $12 million, which was earmarked for paying off bank debt, with the balance intended for expansion costs. Within months of the offering, Seelbinder assumed the duties Cooker’s president after a failed buyout attempt by then-president Philip J. Hickey, Jr. (who held a five percent stake in the company) and an outside group. Rajan Chaudhry reported in Restaurant News that “the buy-out proposal called for the resignations of Seelbinder and all other company directors, except Hickey.... In June, Cooker [had begun] trading over the counter, and analysts [were] puzzled by the timing of the bid.” The Wall Street Journal quoted Seelbinder (who owned 16 percent of the company) as stating that there were “differences over control of the company” and long-term strategy. Hickey resigned from the company’s board after a severance agreement was completed wherein Cooker’s employee stock ownership plan bought out 1.1 million shares of the company’s stock at $3.25 per share. Half of the shares were purchased from Hickey, with the remaining shares purchased from Gerald A. Hornbeck, who then resigned as Cooker vice-president of development and became a company consultant. Both agreed to a five-year relinquishment of interest in Cooker and entered into noncompetition agreements, including the stipulation that they not participate in any proxy fight for the company. Speculation over the “management void” led to uncertainty concerning the future of the company, and analysts downgraded investment opinions. Cooker argued that despite the loss of its operations director, they maintained a strong management team capable of competent leadership.

New Leadership in the Early 1990s

New restaurant openings and lower pricing accounted for a 17 percent increase in 1991 sales, attracting notice from Wall Street. The company’s stock price increased more than 300 percent, followed by two splits. Management attributed accelerated earnings to the trimming of labor expenses and the savings gained in efficiency afforded by the chain’s expansion. Cooker experimented with scheduling and profit margins and concluded that service was not compromised by cutting labor in non-peak hours. With labor costs at 34 percent of profits, which are considered high for the industry, Cooker remained committed to its strategy of providing exemplary service. At the administrative level, they found that with new stores opening, no new corporate staffers were needed to handle the higher percentage of sales.

In an effort to increase customer frequency, several value-priced items were added to the menu, including Caesar salad, grilled tuna Caesar salad, and an assortment of sandwiches. Obtaining a full liquor license resulted in boosted earnings that accounted for 14 percent of sales. Cooker’s policy was to offer a money-back, satisfaction guarantee, or to give away free meals if customers were dissatisfied. In 1992, Cooker gave away $750,000 in free meals to back up the guarantee and justified that expense as a positive advertising strategy.

By 1993, despite sluggish same-store sales trends, the company optimistically moved ahead with its restaurant expansion drive, concentrating six new locations in its already established regions, with plans for an additional 25 to 35 openings within the following five years. Eight to ten new restaurants were scheduled to open the next year in the cities of Ann Arbor, Michigan, and Cincinnati and Columbus, Ohio. Cooker decided that it needed to aggressively compete with other casual dining restaurants such as Applebee’s, Chili’s, and Lone Star Steakhouse that were moving into the upper midwestern region. By the fourth quarter, however, company officials admitted that the timing of the new stores was off and the corporation had stretched itself too thin. In its haste to expand, Cooker purchased some unprofitable real estate. Officials admitted that the goal of 50 percent growth was overly ambitious, determining that 20 to 25 percent would have been more realistic.

The company completed a $23 million convertible debenture offering to finance the openings and to make improvements in existing locations. A company official told Rebecca Walters of Business First that “the combined effects of lower sales and higher operating expense related to Cooker’s expansion program caused the decline in earnings.” But another official told Walters that the new units were placed in new market areas that were not performing to expectations. Walters reported that also affecting earnings was the “one-time, non-cash charge of between $800,000 and $900,000 to cover operating expenses for new store openings from 1991 through 1993.” With approximately $200,000 needed to open a new store, the company planned to pay off future store openings in 12 rather than 36 months. Walters explained that costs that remained from 1991 and 1992 would be paid off concurrently with 1993’s pre-opening costs, effecting a write-off that would help future earnings.

The short-term effect of the company’s too-rapid expansion into untried regions was reflected in decreased earnings, causing its stock to sink to a new low. The company then began buying back Cooker stock, paying about $6 million for 500,000 common shares, feeling that the lower stock price did not reflect the company’s actual value. Officials reasoned that by decreasing the available stock, earnings per share would increase as profits were spread over a smaller number of shares and confidence would be restored. The company also blamed the decline in earnings on higher labor costs and severe weather in the majority of its markets, which caused several units to close due to power outages.

Glen Cockburn explained to Marjorie Coeyman of Restaurant Business that the company “started as a mom-and-pop kind of place. It was casual and homey, but it wasn’t attracting the kind of clientele we wanted. It wasn’t profitable enough.” Pricing was too low, management thought, and its valued servers were leaving because their tips were based on checks averaging less than $9. The company instituted a more upscale menu and interior appearance. Explained Cockburn, “Low-voltage lighting replaced the warmer, pink lights of earlier units. Old-fashioned black-and-white photos aimed at evoking a cheerful, nostalgic tone gave way to starker art photos of, for instance, a lone tomato. Customers didn’t like it. They looked at it and said, ‘that looks too expensive.’” As a result Cooker got burned by going too upscale, which alienated former customers.

New Recipes For Mid-1990s Growth

Company Perspectives:

100% Satisfaction Guaranteed. Yes, that’s exactly what we mean. Your satisfaction is guaranteed by all of us at Cooker. That means a quality meal, friendly and efficient service in a comfortable, clean environment. If you find we haven’t delivered on any of these, please let us know. If we fail to make you happy, then we don’t expect you to pay. It’s that simple. We value you as a guest, and providing you with a pleasant dining experience is our only goal.

The company made changes in its 1994 development schedule following a 52 percent plunge in profits and targeted only six new sites for the year from its previous target of 12 stores. Cooker began a retraining effort for management and serving staff in an attempt to restore service standards and levels of ambiance which had faltered following cost cuts. “We’ve had to retool a bit,” Glenn Cockburn told Bill Carlino of Nation’s Restaurant News. He continued, “But we’ve had tough times before. You can say we’ve recommitted ourselves to the basics.” The marketing team spent more than $100,000 on a radio and print campaign, deviating from the previous word-of-mouth promotional strategy, and introduced a new menu. Then, in November, Cooker began organizing a new management team beginning with the selection of General Mills’s China Coast Division operations vice-president Philip L. Pritchard as the new company president, a newly created position. He had been a Darden’s Red Lobster Restaurant executive vice-president from 1986 to 1992 and was credited with successfully implementing their rapid growth before moving to General Mills, where he worked until taking the Cooker position. His strengths earned him a reputation as a manager who could handle aggressive expansion. A new human resources director, Jeff Karla, was recruited from McDonald’s, and Dave Sevig became CFO, leaving his controller’s post at Red Lobster. A new director of real estate was also hired to seek out new Cooker sites, relieving Seelbinder from that additional responsibility. The year 1995 also marked Cooker’s move from Ohio to its new headquarters in Palm Beach, Florida, home to many of Cooker’s executives and a region targeted for new expansion. At the time, the company operated its headquarters in the areas it wished to penetrate. Cooker bought the 32,000-square-foot building out of foreclosure for $1.9 million, a considerable bargain price for the area.

The company continued its efforts to refinance its debt in order to strengthen existing operations. Finally, by the second quarter of 1995, Cooker managed to increase net revenues 8.9 percent over that earned in the previous comparable quarter, despite rising general and administrative costs. The company’s reliance on attentive service and fresh ingredients came at a high price and Pritchard trimmed food costs through pre-portioning with vendors and encouraged servers to promote appetizers and desserts, which provided healthier profit margins. He maintained that Cooker should still set itself apart from other casual dining restaurants by staffing for heavier traffic than the competition might employ, justifying the tactic of one-on-one advertising to increase the customer base by impressing diners with heightened service and quality levels. Cooker cut managers, who can earn over $85,000 including bonuses, from 8.3 per store down to 5.8, basing numbers of managers on store volume, which led to an average reduction of three managers per unit.

Cooker concentrated efforts on selecting sites in close proximity to office and retail centers. The company’s expansion plans also continued to involve the opening of new restaurants in regions where Cooker restaurants already existed. The new operational strategy soon paid off. In 1996, the company acquired six former China Coast Restaurants from Darden Restaurants, Inc. (owners of Olive Garden Italian Restaurants) with the intention of converting them to the Cooker concept in the areas of Saginaw and Grand Rapids, Michigan; Cincinnati, Ohio; Chesapeake, Virginia; and Tampa, Florida. Eleven new Cooker restaurants opened in 1996—showing strong performance—and plans were implemented for the opening of another dozen or so by the end of fiscal 1997. According to an interview in Financial News with Nashville analyst Jonathan Ruykhaver, “Not only have they [Cooker] gotten preopening expenses and labor costs down, but they’re continuing to improve unit volumes, and every extra sales dollar on top helps those margins.”

Net income for 1995 rose 49 percent from the previous year’s performance and grew another 52 percent in 1996. That performance attracted investors to Cooker’s secondary offering, which raised $34.7 million for the chain. After paying off its $29 million credit line (leaving approximately $15 million in outstanding debt), the remainder would fund further unit development, along with another $10 million or so from cash flow. The company also entered two new markets: Johnson City, Tennessee, and Boardman Township (Youngstown), Ohio, and closed one underperforming unit. For a time, Cooker Restaurants still felt the impact of decreased sales, which were blamed in part on consumer focus on the 1996 Olympics. Dinner-oriented businesses were mainly affected, although successes at new Cooker unit openings offset its losses.

In July 1996, with restaurant stocks again slipping, Cooker president Pritchard increased his stock holdings to approximately two percent of Cooker’s outstanding stock, indicating an insider vote of confidence in the company, a move inconsistent with the trend away from investing in the consumer product sector. Pritchard told a Wall Street Journal reporter: “I put my money where my mouth is.” With Cooker’s steady growth commitment, and gains of over 20 percent in sales over 1995 figures, his confidence appeared more than justified.

Bankruptcy in the Late 1990s and Beyond

Unfortunately, Cooker faced problems in the late 1990s and was once again forced to pare back its expansion efforts. While sales reached an all time high of $160.5 million in 1998, net income remained flat. Cooker’s finances began to feel the pains of mounting debt, slowing sales growth, and falling customer traffic brought on by increased competition. In attempt to give its menu new life, Cooker added new items that included bruschetta, oriental chicken salad, and roasted portobello grill to its offerings. The company also decided to update its menu three times per year.

Hoping that some new blood would bolster Cooker’s operations, the company named Henry Hillenmeyer chairman and CEO in August 1999. The new leader faced challenges, however, as the first years of the new century proved to be a financial challenge. Sales fell to $147 million in 2000 and then dropped to $112.9 million in 2001. Under his leadership, the firm began selling off its stores in the south. Company headquarters were then moved from Florida—an unprofitable region for Cooker—to Nashville, Tennessee. Store count fell from 66 in ten states in 2000 to 50 in five states by mid-2001. In May of that year, Cooker was forced to declare Chapter 11 bankruptcy.

“The thing that pushed us to this point was a battle with the banks,” claimed Hillenmeyer in a June 2001 Business First article. He went on to explain that Cooker had borrowed $42 million in 1998—as part of a stock buyback program—which pushed its debt up to $70 million. By mid-1999, sales had fallen off, leaving the company unable to meet its debt load. By the time the company filed for bankruptcy protection, its debt had grown to $115 million.

Key Dates:

1984:: Arthur Seelbinder establishes Cooker Restaurant Corporation.
1989:: Cooker goes public.
1993:: The company launches an aggressive expansion plan.
1994:: Profits tumble and force Cooker to pare back new store openings.
1996:: The firm acquires six former China Coast Restaurants from Darden Restaurants Inc.
1999:: Henry Hillenmeyer is named chairman and CEO.
2001:: Cooker declares Chapter 11 bankruptcy; company headquarters are moved to Nashville, Tennessee.

As part of its reorganization efforts, Cooker began to focus on strengthening its relationship with its customers. As such, it revitalized its “100% Satisfaction Guarantee” and also focused on friendly and fast service, along with serving its customary large portions. The company also brought in industry veteran Dan Clay as vice-president and chief operating officer and co-founder Jerry Hornbeck, whose responsibility included revamping the menu.

Cooker filed its reorganization plan in July 2002. If approved by the Bankruptcy Court, the company would emerge as a private entity owned by a group of investors. While sales continued their downward trend, Hillenmeyer and his management team remained optimistic about Cooker’s future. Whether or not the restaurant chain would be able to weather this financial storm, however, remained to be seen.