Frisch’s Restaurants, Inc.

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Frisch’s Restaurants, Inc.

2800 Gilbert Avenue
Cincinnati, Ohio 45206
U.S.A.
Telephone: (513) 961-2660
Fax: (513) 559-5160
Web site: http://www.frischs.com

Public Company
Incorporated: 1947
Employees: 5,500
Sales: $159.6 million (1999)
Stock Exchanges: American
Ticker Symbol: FRS
NAIC: 72211 Full Service Restaurants

Frisch’s Restaurants, Inc., an Ohio corporation engaged in the food service and lodging business, is probably best known for its midwestern chain of Frisch’s Big Boy restaurants. Frisch’s operates a total of 88 family-style restaurants—in Ohio, Kentucky, and Indiana—under the Big Boy name, while another 38 are licensed to outside operators. The company also operates five Golden Corral grill buffet restaurants and plans to expand that chain, particularly in Dayton, Cincinnati, and Louisville. In addition, the company operates two high-rise hotels with restaurants, in metropolitan Cincinnati, a Clarion Hotel and a Quality hotel. In 1999, CEO Craig Maier was at the helm of the company, while his parents, Jack and Blanche Maier, were chairman and corporate director, respectively, and sister Karen Maier served as vice-president of marketing. Forced to restructure by a dissident faction on its board, Frisch’s has sold many of its non-core holdings, such as a 6.6 percent stake in the Cincinnati Reds. The company also plans to divest the company’s Clarion Riverview Hotel and the Quality Central Hotel to strengthen its focus on its core restaurant business.

Early 20th Century Beginnings

The history of Frisch’s Restaurants may be traced to 1905, when Samuel Frisch opened a small restaurant on Freeman Avenue in Cincinnati, Ohio. The venture lasted only five years; when Frisch was earning just enough money to support his growing family, in 1910, he was also ready to find something more profitable. Frisch moved his wife and ten children to the Cincinnati suburb of Norwood to begin a new career in the grocery business. However, he soon returned to the service side of the food industry, opening a café in Norwood. Business was good, and by 1915 Frisch was ready to try a larger operation.

Frisch constructed a new restaurant in Norwood, known as Frisch’s Stag Lunch, and this became one of the town’s most popular gathering places. By the early 1920s, Frisch’s Stag Lunch had moved into a larger building, and Frisch had been joined in the business by three sons, Dave, Irving, and Reuben. Sam Frisch died in 1923, and his son Dave, then only 20 years old, took over the restaurant. The Frisch brothers would continue to work together at Frisch’s Stag Lunch for several years.

Dave Frisch Ventures Out in the 1930s

In 1932, Dave Frisch sold his interest in the Stag Lunch to his brothers and opened his own restaurant, Frisch’s Café, also in Norwood. The new venture was quickly successful, garnering a loyal customer base, particularly among the local auto workers who lunched there. Soon Frisch opened another location. However, in the aftermath of the Great Depression, he was forced into bankruptcy and closed both restaurants in 1938.

Fortunately, Frisch soon received some much-needed moral and financial support in the form of investor Fred Cornuelle, a local businessman. With Cornuelle’s backing, Frisch again opened a restaurant in Norwood, this one called the Mainliner, one of the first year-round, drive-in restaurants in the Cincinnati area. The Mainliner was so successful that Frisch and Cornuelle were able to construct a second Frisch’s restaurant in 1944. Located in Cincinnati, the new restaurant was designed to recall the historic Mt. Vernon home of George Washington.

At an industry convention in California in 1946, Frisch met Bob Wian, who introduced Frisch to the Big Boy, a double-decked hamburger made of two thin patties that cooked faster than one larger patty. Frisch secured Wian’s permission to adopt the concept and began offering the Big Boy at his restaurant in Cincinnati. However, he personalized the sandwich by dressing it with a specially formulated tartar sauce rather than the thousand island sauce that Wian used. The recipe was unique to Frisch’s and became a big hit with Frisch’s customers.

Shortly after their initial meeting, Frisch and Wian entered a franchise agreement under which Frisch would become the exclusive franchisor of Frisch’s Big Boy restaurants in Ohio, Kentucky, Indiana, and Florida. Frisch incorporated his business in 1947 and the following year opened his first Big Boy restaurant in Cincinnati. During the same time period, Frisch’s new son-in-law, Jack Maier, began working at the Mainliner.

The 1950s-70s

The double-decked Big Boy hamburgers, served at drive-in restaurants, were an instant hit. Over the following three decades Frisch’s business grew steadily. The Big Boy concept was becoming immensely popular throughout the Midwest and South, with other restaurateurs establishing Big Boy chains of their own and generations growing up recognizing the front entrance statue of the chubby Big Boy character with jet-black hair and checkered overalls. New Frisch’s Big Boy restaurants were constructed and franchised at a rapid pace.

Frisch’s went public in 1960, its common stock selling for $12.75 a share on the over-the-counter market. By 1961, the Frisch’s chain had expanded to 140 locations, including franchises, which offered Big Boy hamburgers, Brawny Lad steak sandwiches, and Buddie Boy ham and cheese sandwiches. In 1966, Frisch opened a more formal restaurant in the Cincinnati area, called Annette’s, after his wife.

In the late 1960s, the Big Boy concept was acquired by the Marriott Corporation, and most of its franchisors enjoyed remarkable growth. Another industry-wide trend among the Big Boy owners was to enter the hotel business as a complement to the restaurant holdings. In 1967, Frisch’s entered the lodging business with the opening of Quality Hotel Central in Norwood, across the street from the original Stag Lunch. Five years later, a second hotel was built in Covington, Kentucky, featuring a revolving restaurant on its top floor.

Dave Frisch died in 1970 leaving behind a company with $30 million in annual sales. Jack Maier, who had by this time had been with the company for 23 years and had worked his way up to become executive vice-president, was named president and chairman.

Continued Growth through the 1980s

Under Maier, the company experienced another period of remarkable growth, expanding its Big Boy holdings to Texas, Oklahoma, and Kansas through the purchase of the Kip’s Big Boy franchise. Frisch’s also entered the fast-foods market during this time, adding another Marriot Corp. franchise to its holdings, that of Roy Rogers Roast Beef restaurants. With the economic slowdown of the early 1980s and consequent high interest rates, Frisch slowed its expansion plans somewhat. However, by 1986, the company owned 105 Big Boy restaurants, 19 Roy Rogers restaurants, and three Prime ‘n Wine restaurants. In 1987, it acquired the rights to develop Big Boys in parts of Georgia and Tennessee in addition to the rights already secured in Florida, Indiana, Kentucky, Ohio, Oklahoma, Texas, and parts of Kansas.

In 1989, Craig Maier was tapped as president and CEO of Frisch’s. The younger Maier had started with the business as a manager trainee at a restaurant; he had gone on to own and operate a franchise in New Richmond, Ohio, before being named a divisional vice-president for both Frisch’s and Kip’s Big Boys. During the period from 1989 to 1991, under Craig Maier’s leadership, Frisch’s sold or reorganized company-operated restaurants in Florida, Oklahoma, and Texas, preferring to focus on Ohio and neighboring states for restaurant expansion. Moreover, Frisch’s began phasing out its fast-food holdings. In 1990, when Marriott Corp. sold Roy Rogers to Hardee’s, all but one of Frisch’s Cincinnati area Roy Rogers outlets was converted to a Hardee’s restaurant. By mid-year, Frisch’s had reduced its Hardee’s restaurants to seven. The company continued to operate 101 Big Boys, two Prime ‘n Wine restaurants, and two Quality Hotels.

As it reduced some food service holdings, Frisch’s also began to diversify, acquiring stakes in a wide variety of businesses, including a horse farm in Kentucky and a stake in the major league baseball team the Cincinatti Reds. In the meantime, critics alleged, the company took on a debt burden and neglected its restaurants.

Restructuring in the 1990s

Between 1993 and 1996, Frisch’s opened 30 restaurants in Ohio and in neighboring states. During this time, however, the company experienced a huge decline in net income, which management attributed to increased labor costs and overly rapid growth.

Company Perspectives:

Our mission is to be a respected leader in the food service and hospitality industries. We guarantee our customers quality products that provide real value, “with the service they expect, in clean, pleasant surroundings. We dedicate ourselves to sound management practices and effective human relations, while returning maximum earnings to our stockholders.

In 1996, two non-management investors, calling themselves Wolverine Partners, launched a proxy fight to gain themselves and two other non-management investors seats on the board of directors of Frisch’s Family Restaurants. Their goal, according to industry analysts, was to break the hold of the Maier family on the chain, which they claimed was dragging down the company’s profitability. In the ensuing battle, stock prices dropped below their 1960 initial public offering price, and Jerry L. Ruyan and Barry S. Nussbaum, together owning an eight percent stake in the chain, drafted a management plan that required Frisch’s to pay off its debts through the sale of its non-restaurant assets. The Wolverine Partners claimed that the immediate sale of those holdings could generate $20 million to $30 million, which could then be used to eliminate Frisch’s long-term debt (approximately $20 million), invest in restaurant improvements, and buy back stock. Wolverine also proposed revamping the company’s board of directors, giving the majority voice to non-management directors and requiring the entire eight-member board to be reelected annually.

Frisch’s management maintained that many of the changes proposed by Wolverine Partners had already been considered by the company. Restaurant improvements, a computer system in particular, had been slow in development; the Cincinnati Reds investment was once profitable and could become so again; the farm and hotels operated at a profit and would be sold upon receipt of a suitable offer. Management was also non-receptive to the board restructuring recommendations. Moreover, the Maier family alleged, the goal of the Wolverine Partners was only to realize short-term gains on their investments.

Frisch’s management firmly held that the loss of profitability over the previous few years was due to overzealous expansion in a competitive environment. The company had opened 30 restaurants, primarily in Indianapolis and in Columbus, Ohio, which overextended their management resources. Frisch’s also pointed out that it had indeed been receptive to selling its peripheral assets, and had done so with the Hardee’s and Prime ‘n Wine chains.

Nussbaum and Ruyan were elected to Frisch’s board in 1996 for two-year positions (though shareholders would vote to replace them at the company’s 1998 annual meeting). During their tenure, the company sold its horse farm, 15 under-performing Big Boy restaurants in Indiana, and its 6.6 percent share of the Cincinnati Reds baseball team. Moreover, Frisch’s reached a development agreement with Golden Corral Restaurants to operate more than 20 of the casual steak-buffet restaurants in Cincinnati, Dayton, and Louisville. Golden Corral gave Frisch’s the opportunity to expand without extending outside its geographic parameters. During this time, Frisch’s also began installing pointof-sale computer systems for its 88 Big Boy restaurants, thereby finally introducing computerized workstations at the drive-thru windows, carryout counters, and dining areas. At the end of 1999, the company’s board of directors announced the approval of an additional repurchase of up to 200,000 shares of its common shares. This approval supplemented a previous authorization in 1998 to purchase up to 500,000 shares.

Frisch’s performed strongly as it closed out the 1990s, with reports of record sales. On March 14, 2000, Frisch’s announced that its board had voted to divest the company’s Clarion Riverview Hotel and the Quality Central Hotel. This decision, Maier asserted, was consistent with earlier declarations made by the company to maintain focus on Frisch’s core restaurant business.

Principal Subsidiaries

Frisch Kentucky, Inc.; Frisch Indiana, Inc.; Frisch Germantown Road, Inc.; Frisch Florida, Inc.; Kip’s of Oklahoma, Inc.; Frischs Ohio, Inc.

Principal Competitors

Shoney’s Inc.; Advantica Restaurant Group, Inc.

Key Dates:

1905:: Samuel Frisch opens a restaurant in Cincinnati.
1921:: Frisch manages a chain of three restaurants and his sons join the business.
1946:: Dave Frisch is introduced to the Big Boy double-decked hamburger.
1947:: Frisch’s Restaurants is incorporated.
1960:: Company goes public.
1970:: Upon Dave Frisch’s death, son-in-law Jack Maier is named president and chairman.
1989:: Jack Maier’s son, Craig, is named president and CEO.
1998:: Company begins divesting its non-core assets in order to refocus on restaurants.