McAlister's Corporation

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McAlister's Corporation

731 South Pear Orchard Road, Suite 51
Ridgeland, Mississippi 39157
U.S.A.
Telephone: (601) 952-1100
Fax: (601) 957-0964
Web site: http://www.mcalistersdeli.com

Private Company
Incorporated: 1989
Sales: $126 million (2003 est.)
NAIC: 722211 Limited-Service Restaurants

McAlister's Corporation, based in Ridgeland, Mississippi, operates fast-casual restaurants under the McAlister's Deli, McAlister's Gourmet Deli, and McAlister's Select names. There are more than 100 units in the chain, one-quarter of which are company owned. They are located in 16 Southern and Southwestern states and Ohio, primarily in college towns. McAlister's menu offers approximately 100 items, concentrating on sandwiches, salads, baked potatoes, desserts, and the chain's signature sweet ice tea. The company pays higher wages than most restaurants, allowing it to implement a no-tipping policy. Any tips that may be left by customers are donated to charity. The family-oriented chain also maintains a no-smoking policy and does not sell alcohol.

Origins

McAlister's was founded by Oxford, Mississippi, dentist Don Newcomb. He grew up in Ripley, Mississippi, where as a teenager in the 1950s he gained his first experience in the restaurant business while working at the only soda fountain in the county. Newcomb earned a degree in dentistry from the University of Mississippi, followed by a stint in the military that included time aboard a navy aircraft carrier and work in a veterans hospital. Upon his discharge he decided to return to Mississippi to set up a dental practice and settled on the thriving college town of Oxford, home to the University of Mississippi. There, his business interests expanded beyond dentistry. He developed rental properties, catering to the student population, and in the early 1980s he once again became involved in restaurants, launching franchise operations for the Sonic's and Danver's chain.

Ever since his days as a soda jerk, Newcomb had wanted to start his own restaurant, something more upscale than his fast food franchise ventures. In 1987, he recognized a opportunity to realize that dream when a movie, The Heart of Dixie, was filmed in Oxford and an old gas station, located about a mile from the university, was turned into a 1950s diner and hangout. After the production company was finished with the site, Newcomb bought the property, turned the movie set into a real restaurant, and along with his dentist office manager, Debra Bryson, and two sons, Chris and Neil, opened a sandwich shop called "Chequers" in 1989. To avoid confusion with the Checkers chain of restaurants, the name was soon changed to McAlister's Gourmet Deli. McAlister was the last name of his wife's parents.

The McAlister's format was simple yet engaging. The menu was presented on large boards that hung above the cashier station and meals were served in baskets with plastic utensils. In the beginning, the restaurant's line of sandwiches and salads were assembled from precooked ingredients and heated in Lincoln steamers, the bread was toasted in rotary toasters, and potatoes were baked in convection ovens. The restaurant's distinctive decor, for which Bryson was responsible, featured exposed ceilings, a garage door, and many local artifacts.

Branching Out in the Early 1990s

The McAlister's format proved especially popular with college students, and, building on the success of the Oxford restaurant, Newcomb and his team opened a second location in 1992 in another college town, Hattiesburg, Mississippi. Newcomb was so convinced that McAlister's was a winning concept that he also closed his dental practice in 1992 to concentrate on his restaurant business. A year later, he opened another McAlister's Gourmet Deli in Tupelo, Mississippi, where the University of Mississippi maintained a branch campus. In 1994, McAlister's expanded to another college town, Jackson, Mississippi. At this point, management decided to build McAlister's into a chain by way of franchising. The company turned for help in navigating the legal and business process issues to Chicago-based Francorp, a franchise consulting firm. Newcomb told the MississippiBusiness Journal in 1995, "We quickly saw that this was totally different from opening and operating a sandwich shop or two locally.… In franchising, our job as the management team [was] to teach potential franchise owners everything we know about how to operate the business successfully while maintaining McAlister's standards for quality." He said his top priority became maintaining quality control, making sure that "franchise owners receive all the training and support they're going to need to implement our system in their own locations."

Many of McAlister's early franchisees were strong believers in the concept because they were first satisfied customers of the restaurant and then became interested in the franchising opportunity because of their positive dining experience. As McAlister's evolved into a franchise operation, the management team took on clearly defined roles. As Newcomb explained to the Mississippi Business Journal, Bryson was an excellent organizer, his son Chris was a strong operations person, and Neil proved to be an effective communicator with franchisees, "making sure they [did] things right." Neil was also in charge of new store development. As for Newcomb, according to Bryson, he was the visionary of the group. He was responsible for applying lessons learned about teamwork in his dental practice to the restaurant business. "With each dental case," he explained to the Mississippi Business Journal, "you foster teamwork by sitting every member of your staff down and discussing each case in minute detail. With sandwich shops, customers want to get in there, get quick service with a smile, and get out on time with exactly what they ordered. That takes a lot of time and effort in training our employees and taking good care of them, because they really are our most important asset." To support that conviction, McAlister's paid higher-than-average restaurant wages, and for employees working 35 hours a week, medical coverage was included, a rarity in the industry.

McAlister's enjoyed such strong growth that during the mid-1990s it made Inc. magazine's list of the 500 fastest-growing companies in back-to-back years. In the fall of 1997, McAlister's added some outside executive talent, hiring attorney Patrick Walls from Francorp to serve as general counsel. He had worked with McAlister's for the previous three years as the company launched its franchising efforts. At this point, the McAlister's chain numbered 27 restaurants in nine states, with 13 located in Mississippi, and another 50 under development. To spur internal growth, McAlister's now began to offer catering services. In addition to hiring Walls, the company also hired a marketing team to help build name recognition and to develop new menus and promotions. It was also interested in adding further to the management team to facilitate faster growth.

More than just supplementing McAlister's management team, Newcomb was interested in finding someone with enough experience to take the chain to the next level—moving from a successful entrepreneurial company to a professionally managed organization. Newcomb interviewed a number of CEO candidates, and in early 1998, at a technology conference, Newcomb found his man in Michael J. Stack, a 35-year-veteran in the restaurant business. Over the years, Stack had held important management positions at Host International/Marriott Corporation, Pizza Hut, and Western Sizzlin', as well as spending time as a Chi-Chi's franchisee. Since the mid-1980's, Stack had run his own LaJolla, California-based consulting firm. Initially, Newcomb approached Stack to ask for some advice about buying a point-of-sale system. Stack admitted that he took Newcomb for a "small timer," but when he heard the volumes McAlister's was enjoying, in excess of $1 million per restaurant, his interest was piqued. He went to work for the chain on a consulting basis for six months and became convinced that the McAlister's concept was "a rare find." Newcomb then interviewed Stack for the CEO position, and like the other candidates Stack wanted a piece of the business. Unlike the others, however, Stack wanted to lead a management buyout, an idea to which Newcomb was receptive.

New Ownership in the Late 1990s

In October 1998, Stack accepted the CEO position and moved along with his wife from Los Angeles to Mississippi, a relocation that was actually not that drastic for him. His wife came from Mississippi, and they had paid regular visits to the state for 30 years. He also coaxed an ex-partner, Phil Friedman, to join him as president and chief operating officer. Friedman, who held an MBA from the Wharton School of Business, was strong in financials and was an experienced restaurant man. Together they formed a holding company, Mississippi Holdings Inc., and raised $8.3 million, much of its coming from local insurance companies, to buy a 70 percent stake in McAlister's. Newcomb stayed on as a director of the company and held the exclusive franchise rights to Kentucky. Stack took on the additional post of chairman, while Friedman became president and chief financial officer. Chris and Neil Newcomb retained their management positions.

Stack and Friedman initiated a number of changes following the buyout. Foremost, they recognized that the chain did not have the necessary infrastructure in place to support rapid growth in franchising. As a result, they opted to step back, regroup, and bolster the chain's training program. They also became more restrictive about whom they accepted as franchisees. Previously, McAlister's franchisees may have had business experience but little prior involvement with restaurants. Now the chain was interested in attracting larger players, people who were interested in a second concept as a way to grow market share. The new owners also hired an experienced restaurant designer, Scottsdale, Arizona-based Kathy Diamond, to bring some continuity to the look of the McAlister's locations. Architect David Cromley was also hired to shrink the chain's prototype, which was too large and costly. The one area that Stack and Friedman were reluctant to change was McAlister's culture, which had been a major part of the chain's success.

Company Perspectives:

People today crave fresh tastes, quick service and a welcoming friendly atmosphere where they can relax for hours or eat and run. And that's precisely what McAlister's Deli delivers, with a special touch that's uniquely our own.

By the end of 1999, McAlisters generated sales of $46.3 million from 42 units, 11 of which were company owned. A year later, revenues improved to about $65 million. In 2001, McAlister's reached a major milestone when it opened its first nontraditional store. While the chain had enjoyed a great deal of success over the years in college towns, it now opened its first restaurant on campus, located in the student center of the Appalachian State University in Boone, North Carolina. As had been the case with many of the early franchised operations, this restaurant resulted from a customer's firsthand experience with McAlister's. The school director of foodservice was introduced to McAlister's while visiting his daughter at the University of North Carolina in Chapel Hill. They ate a meal at a McAlister's and he was impressed with the large number of students, the upscale decor, and the quality of the food. Appalachian State became a franchisee and operated the unit with university employees.

In early 2002, McAlister's began a process of restructuring and, in a surprise move, Stack decided to step down as CEO, turning over the reins to Friedman. Just a month later, Chris Newcomb also quit the company, although he maintained that his decision had nothing to do with Stack's departure. He, along with his father and Debra Bryson, decided to become involved in a different restaurant venture, this time as franchisees for a new fast-casual restaurant concept, Moe's Southwest Grille, which featured Mexican food and a fun atmosphere. Two years later, the three partners would once again try their hands at launching a restaurant concept, opening Newk's Express Café in Oxford, serving sandwiches, gourmet pizzas, and salads.

Friedman, along with Walls, who became chief administrative officer, carried on growing the McAlister's chain. There was some talk of taking the company public, but those plans failed to materialize. In 2002, sales topped the $100 million mark as the chain continued to add new locations, expanding concentrically from Mississippi into surrounding states. For the first time, in 2002, McAlister's opened a food court prototype, McAlister's Select, which debuted in the Northpark Mall in Ridgeland. The hope was that the smaller design would open up more possibilities in colleges where food courts were located and the McAlister's concept was strong.

The McAlister's chain continued to grow in 2004 and appeared poised to expand well beyond its southern roots. One of the chain's major franchisees, the Bistro Group, announced it would significantly increase the number of McAlister's Delis it planned to open in the Cincinnati area. Bistro was also interested in moving into other Ohio cities, as well as Pennsylvania.