Country Kitchen International, Inc.

views updated

Country Kitchen International, Inc.

801 Deming Way
Madison, Wisconsin 53717
U.S.A.
Telephone: (608) 833-9633
Fax: (608) 826-9080
Web site: http://www.countrykitchenrestaurants.com

Private Company
Incorporated: 1939
Employees: 10,810
Sales: $234.9 million (2004 est.)
NAIC: 722110 Full-Service Restaurants

Country Kitchen International, Inc. (CKI) operates a chain of about 170 Country Kitchen restaurants that are located in 26 states. The firm owns about three dozen of the sites, with the rest held by franchisees. Country Kitchen restaurants are well known for their breakfasts and feature burgers, steaks, chicken, and more contemporary fare as well. Some units also incorporate a Breadeaux Pizza outlet and offer delivery. The firm's primary customers are blue-collar families, and its meals are priced higher than fast food but a notch below casual dining chains. Most sites are freestanding locations, but some are found in strip malls, travel plazas, and hotels. The company has been owned since 1997 by top franchise owner Chuck Myers.

Beginnings

The origins of Country Kitchen International date to 1939, when Bill Johnson and Bill Goodman pooled $400 in savings and opened a storefront restaurant in Cincinnati, Ohio. Under the name Country Kitchen, they served hamburgers for five cents and steak sandwiches for a dime. Johnson, who had grown up in Kentucky and quit school in the eighth grade, had learned the business as a teenager while working at a hamburger stand. His philosophy was to "treat folks special," and that, and the good food he served, led the restaurant to quickly become a popular destination for hungry customers.

In 1942 a second location was opened, and during World War II business boomed as the restaurants fed a steady stream of war plant workers. During the 1940s several more Country Kitchen restaurants were added, and in the 1950s the firm responded to the growing popularity of drive-ins by offering its own version of "eat in your car" service. In 1958 Johnson decided to franchise the concept, and in the next few years Country Kitchens began to open around the United States. Franchise fees were relatively modest, and owners of the firm's restaurants were often "mom and pop" entrepreneurs who wanted to run a business of their own.

In 1968 Country Kitchen Restaurants, Inc. and Northwest Franchise merged to form Country Kitchen International (CKI), and the firm's stock later began trading publicly. In 1972 the corporation's revenues hit $2.8 million, but as expansion ramped up they rose to nearly $6.6 million by 1976, with earnings of more than $1 million. The company's locations had by now evolved into 24-hour coffee shops, with breakfast items like omelets and pancakes served around the clock.

Sale to Carlson Companies in 1977

In 1977 CKI was acquired by Carlson Companies, Inc., a privately owned conglomerate whose holdings included several retail firms, Radisson Hotels, and the TGI Fridays restaurant chain. New owner Curtis Carlson was a hard-driving entrepreneur who sought growth in his properties, and over the next several years the Country Kitchen chain continued to expand, reaching a peak of 340 locations by the end of the decade. Its base of operations was now located in Minneapolis, where Carlson was headquartered.

During the late 1970s sales stagnated as the U.S. economy hit a downturn and the company's restaurants saw increasing competition from fast-food and casual dining chains. Over the next several years a number of underperforming locations were closed.

In 1983 McDonald's and Red Barn restaurants veteran Richard Hohman was named president of CKI as it was folded into Carlson's new Hospitality Group, and he quickly began working to improve the bottom line. A variety of measures were taken to standardize operations and boost sales outside the chain's breakfast stronghold, and alcoholic beverages were added to some locations. CKI also established a new national advertising media fund, which offered rebates to franchisees who spent money on local ads. Although they were required to spend 1.5 percent of sales on advertising, audits by the firm had found that they often did not meet this obligation.

During 1985 revenues for the entire system reached $153 million, up 5.5 percent from the year before, and 16 new restaurants were opened while only nine closed. In 1986 the chain had a total of 246 outlets, three of which were owned by the company and the rest by franchisees. They were spread out over 20 U.S. states and two Canadian provinces, with about two-thirds found in Minnesota, Wisconsin, and Iowa.

The year 1986 saw the company launch a new print, radio, and television marketing campaign that used the tagline, "The Country's Calling You." CKI customers were typically working-class families, and the ads stressed the food's reasonable prices and country-style taste, as well as the firm's hospitality.

In October of 1986 CKI rolled out a new menu that emphasized breakfast items as well as lunch and dinner choices like calico bean soup and fried chicken. It was optimized to be easier to prepare for restaurant cooks (who were now proving difficult to hire and retain), and some recently added trendy items were eliminated to focus on classic fare. Restaurant designs were now being updated as well, with seating capacity increased and interiors revised to feature homespun prints and pastel colors.

In 1987 Carlson unveiled a new budget lodging concept called Country Inn that featured a Country Kitchen restaurant and a limited service hotel. The first unit opened in Minneapolis in the spring, but afterward most Country Inn hotels were built without restaurants. An agreement had earlier been reached with a hotel firm called Dillon Inn Co. that had begun to add Country Kitchen restaurants to a small number of its properties as well.

As it sought to upgrade the brand, CKI now began moving beyond the "mom and pop" franchisees of earlier years to look for operators willing to open multiple restaurants in a particular geographical area, as well as to sub-franchise units for the parent firm. Deals of this type were soon struck in Colorado and Texas, with others under consideration. The firm charged a franchise fee of $25,000 plus a 5 percent royalty on gross sales and 3.5 percent for local and national advertising. Total development costs of a new restaurant were put at between $750,000 and $850,000. Sales had now increased each year for five years running, and the firm's new menu had helped boost the average check total by 61 cents to $3.50.

In 1989 CKI head Richard Hohman died of cancer at the age of 56, and his place was taken by Frank Steed. Under Steed the firm's headquarters staff was trimmed by a third and menu items were made more spicy and flavorful, while new dishes like Shrimp Scampi and Fajitas were added. Food in the family dining category was seen by many as somewhat bland, with the lack of seasonings and spices attributed to the large proportion of senior citizens who were customers. With the baby boomer generation now starting to age, the firm began adapting to their more adventurous dining choices. New desserts and seasonal menu specials also were added in an attempt to lure in new customers, some of which (including a $9.95 USDA choice steak) cost more than the firm's typical entrée maximum of $5.95. The new menu was advertised with the tagline, "American Favorites, Yesterday and Today," and cash sales incentives were offered to waitstaff who sold the most desserts. Some franchisees were now beginning to grumble that too many changes were being made for them to keep up with, however.

Franchising Extending to Puerto Rico in 1991

In 1991 the company announced that ten franchised restaurants would be added in Puerto Rico, with one opened in a Travelodge hotel in November and another in a closed Wendy's restaurant at San Juan International Airport several months later. Systemwide sales were $178 million for 1991, although the number of units now stood at slightly more than 230. The firm had sold or de-licensed more than 70 restaurants over a three-year period, which did not meet its new operating standards, and as a result per-unit sales were up.

In 1992 CEO Frank Steed left the company to head the Bonanza steakhouse chain, and his position was taken by TGI Fridays vice-president Curtis Nelson. Efforts to improve performance were ongoing, and the firm soon unveiled a new restaurant design that resembled a country farmhouse complete with dormer windows, a porch, and red awnings. The company was striving to carve out a niche for its restaurants as an improvement over fast food but a cheaper alternative to casual dining restaurants like Olive Garden and Red Lobster.

In 1994 CKI opened its first restaurant in a truck stop, in Wyoming, added a 220-seat outlet in Jakarta, Indonesia, and signed an agreement to convert 19 Captain Pancake restaurants on Long Island into Country Kitchens. The year also saw introduction of a new child-themed promotion, "CK Junction," which used activities like coloring books and posters of a train engineer bear character.

Growth continued over the next several years, with the restaurant total sliding back up to 250 by 1996. In January 1997 the firm named a new president, Charles Foster, who had most recently been a vice-president at TGI Fridays. In March he announced plans for further expansion at the firm's annual franchisees' meeting, while some of the company's restaurants began offering prepackaged take-home meals to go.

Company Perspectives:

Country Kitchen is where our guests feel like they're coming home, the food is always fresh, the smiles stretch a country mile, and breakfast can be anytime of the day.

Sale to Kitchen Investment Group in 1997

In the summer of 1997 Carlson Companies agreed to sell Country Kitchen International to its largest franchise owner, Kitchen Investment Group, Inc. of Madison, Wisconsin. Headed by 20-year franchisee Charles Myers, Kitchen Investment Group owned 35 restaurants and sub-franchised 22 others. Like company founder Bill Johnson and recent owner Curt Carlson, Chuck Myers was a born entrepreneur, having formed a vending machine business in high school and then become the owner of a Country Kitchen restaurant at the age of 21, after which he built up a chain of the restaurants in Wisconsin and Illinois.

Myers knew the business well, and he immediately began working to reorganize the firm in a way that made sense to franchisees. The 100-item menu was made more upscale without compromising the basic value its customers expected, while a new tagline, "It's Different in the Country," was added. Food ordering had heretofore been fragmented, and it was now consolidated with a single source. To improve employee recruitment and retention, the firm's training process also was streamlined.

In 2000 CKI redoubled its promotional efforts with a new television ad campaign that touted the firm's "Real Meals" as a better alternative to fast food, and launched a line of $4.99 bread bowl lunches that were guaranteed to be ready in five minutes or less. For 2000 the system, still with about 250 restaurants, had sales of $223 million.

Over the next year the company continued to expand its menu to include more upscale choices like lobster ravioli and stir-fry dishes, and boosted the frequency of special meal promotions from four per year to six. In 2002 a new Wisconsin Cheese Skillets menu was introduced that was a co-promotion with the Wisconsin Milk Marketing Board.

The same year saw CKI begin trying to position itself as a national brand with the "Taste of America" promotion that featured regional dishes from around the country. The firm also sent cease-and-desist letters to about 350 restaurants that used the words "country kitchen" somewhere in their name, but were not franchisees. Many of the small restaurants affected had been in business for years, and some changed their names, while others ignored the warning. In the summer, one of the firm's major Ohio franchisees went out of business, causing the closing of a number of restaurants there.

In 2003 CKI unveiled a new logo and also reached a co-branding agreement with Breadeaux Pizza of Missouri to offer the latter firm's pizza in its restaurants and for home delivery. The company was again shrinking, and the number of locations dipped below 200, with all non-U.S. operations now shut down or sold.

In the fall of 2005 CKI announced the development of a new concept called Peppermill Grill. A casual dining restaurant that served alcoholic beverages, its dishes would be seasoned by "Flavor Ambassadors" who brought an array of spices and a large peppermill to the table. Décor would evoke the flavor of a spice marketplace. The firm integrated the idea into one of its Country Kitchen sites during the year, and began preparations to open a prototype restaurant in Madison in 2006. After the menu and other details were finalized, it would be available to franchisees for integration into their existing restaurants, for full conversions, or to build new outlets.

More than 65 years after its first restaurant opened, Country Kitchen International, Inc., continued to offer quality food at an affordable price to customers in its stronghold of the Upper Midwest and around the United States. Since its acquisition in 1997 by veteran franchisee Chuck Myers, the chain had shrunk in size as it sought to standardize operations and fend off fierce competition. The firm had high hopes for its new Peppermill Grill concept, which was set to debut in 2006.

Principal Competitors

Shoney's, Inc.; Denny's Corporation; The Restaurant Company; CBRL Group, Inc.; VICORP Restaurants, Inc.; IHOP Corporation; Bob Evans Farms, Inc.; Golden Corral Corporation.

Key Dates:

1939:: Bill Johnson opens the first Country Kitchen restaurant in Cincinnati.
1942:: The second restaurant is opened; others follow.
1958:: Johnson begins selling franchises.
1968:: A merger with Northwest Franchise creates Country Kitchen International.
1977:: Carlson Companies acquires the firm.
1983:: The new president, Richard Hohman, begins efforts to revitalize the chain.
1997:: Top franchisee Charles Myers buys the company from Carlson.
2003:: Cobranding with Breadeaux Pizza brings new delivery and takeout options.
2005:: The company begins developing the Peppermill Grill casual dining concept.