Summit Family Restaurants Inc.

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Summit Family Restaurants Inc.

440 Lawndale Drive
Salt Lake City, Utah 84115-2917
U.S.A.
(801) 463-5500
Fax: (801) 463-5585

Wholly Owned Subsidiary of CKE Restaurants, Inc.
Incorporated: 1963 as JB’s Big Boy Family Restaurants, Inc.
Employees: 5,000
Sales: $121 million
SICs: 5812 Eating Places

Summit Family Restaurants Inc., formerly known as JB’s Restaurants Inc., is one of the nation’s top 100 restaurant chains., Although at one time the chain included a few units in the East, in the 1990s it had about 100 restaurants in the western states of Utah and Arizona (its two main markets), New Mexico, Wyoming, Idaho, South Dakota, Colorado, Montana, and Washington. Summit serves hungry local residents and travelers in three kinds of establishments. Its core JB’s Restaurants are designed to provide a wide variety of menu choices at a modest cost. Since about 1990, the firm had diversified to include two other types of restaurants as well. It operates several all-you-can-eat HomeTown Buffet restaurants and a few Galaxy Diners for those who enjoyed a nostalgic 1950s eating environment. Summit’s history illustrates the difficulty of operating restaurants and making them profitable over the long term. The firm’s leaders for over three decades have tried just about everything to remain competitive, investing in new menu choices, inside and outside remodeling, advertising, and even for the right to try new franchising concepts, as well as hiring managers from some of its main competitors. Some strategies worked and some did not. However, in the end the firm was not able to remain afloat as an independent corporation, so in 1996 it was acquired by a new owner, CKE Restaurants, Inc.

1960s Origins as a Big Boy Franchise

Summit Family Restaurants was founded as JB’s Big Boy by Jack M. Broberg (JB), a graduate of the University of Southern California who had worked as a Lockheed sales engineer and sales account executive. In 1961 he opened the first JB’s Big Boy in Provo, Utah, at 500 West 200 South. Later he gained the Big Boy franchise rights for Utah and opened his second Big Boy in Ogden, Utah. By 1965, the company operated its fourth store at 400 South State Street in Salt Lake City, which also contained its general office.

By 1967 the Marriott Corporation completed its purchase of Robert C. Wian Enterprises, the Los-Angeles based firm which owned or franchised more than 500 Big Boy restaurants. Marriott paid almost $9 million in stock for the Wian businesses, which brought in annually about $15 million in sales or franchise income. Marriott Corporation was run by its founder Bill Marriott, the CEO and board chairman, and his son Bill Marriott, Jr., president of the firm since 1964.

Jack Broberg continued to expand his particular Big Boy franchise in the late 1960s. By 1969, he had added JB’s Big Boys in Idaho Falls and Twin Falls, Idaho, and Logan, Utah. The Broberg franchise in 1970 operated 18 Big Boy restaurants. This expansion was marked by a move in 1970 to new company headquarters at 3300 South West Temple in Salt Lake City.

In 1971, the growing chain celebrated its tenth anniversary by offering the public Big Boy Hamburgers for 25 cents. Also that year, Clark Jones joined the board of directors, an association that would continue into the 1990s.

After the company became a public corporation in 1972, it continued its expansion and also began diversifying in terms of different types of restaurants in different areas of the nation. In 1974 JB’s acquired eight Big Boys in Arizona and two in Seattle, while also opening a new restaurant, called Scoreboard, in Glendale, California.

In 1975, with sales of $24.5 million at 57 restaurants, the company suffered its first financial setback in 14 years. Management attributed the losses largely to its unprofitable New England Big Boy. That year the firm’s leaders sold its New Jersey Big Boy to the Marriott Corporation. Although the company generally named its eateries JB’s Big Boy Restaurants, one exception was its three remaining New England stores, which operated in 1977 as Lobster Huts. Also during this time, to diversify, JB’s introduced a specialty restaurant in Salt Lake City. Originally called Granny’s Pies & Sandwiches, the name was changed to Apple Butter Farms, a family restaurant offering pricier menu selections than those of Big Boy’s.

The ambiance of the Old West was the distinctive feature of the Old Salt City Jail, a restaurant purchased by JB’s in 1980. Two years later the company opened a second Jail restaurant, this time in Tucson, Arizona. Furthermore, in 1981 it acquired Sun City, Arizona’s Suntowner Restaurant, which catered to the many senior citizens in that community.

Downturn in the Late 1970s

Although the firm had diversified, in the late 1970s it experienced a serious decline. Quoted in an article on the firm in the January 1, 1983 issue of Restaurant Business, Clark Jones, who had been JB’s financial vice-president in 1979, stated: “When the downturn came in the spring of 1979, we were not overly alarmed. From our contacts with other Big Boy operators around the country, we knew that nearly every operator was down. [At the end of September] for the first time in our history we did not exceed our prior year’s sales volume. We realized then that it was not just the gasoline shortage that was causing our problems.”

The nation’s gasoline shortage caused by import restrictions especially hurt the 20 percent of JB’s units that depended on tourists. Rising food costs and increasing competition also hurt JB’s. Main competitors during this time included McDonald’s, Pizza Hut, Denny’s, Sizzler, Burger King, and others.

However, those external factors beyond JB’s control were compounded by its own internal weaknesses. For example, its television advertising was spotty or even totally absent in some of its markets. In addition, JB’s had not changed its basic menu in many years. It still featured the popular Big Boy hamburger, but relied heavily on fried foods, losing popularity among increasingly health-conscious diners. The lack of menu diversity, plus noisy cooking areas and inconsistent store policies, turned off some customers. In addition, Clark Jones stated that “While our outside signage said we were a family restaurant, we were really a coffee shop.” In other words, Big Boy still catered to many lower-income singles who ordered just a cup of coffee and other low-cost items.

Retooling in the 1980s

Following this diagnosis, JB’s management made some major changes. First, it consolidated its chain by eliminating 14 units in Nebraska, Nevada, Washington, and South Dakota. The cash derived from those sales allowed the firm to upgrade its remaining restaurants.

Moreover, the company’s menu changed significantly. In 1980, all JB’s units received charbroilers to cook for the first time New York strip steaks, in order to compete with budget steak houses like Sizzler. At the same time, JB’s diversified its menu by offering all-you-can-eat salad bars that featured over 30 items. Several new salads, particularly taco salads, increased the menu’s appeal to a wider audience. In the early 1980s, JB’s also began offering its all-you-can-eat breakfast and fruit bar. To change from being a coffee shop to a family restaurant, it converted from plastic furnishings to all glass and chinaware, used better quality flatware, and made sure that its steak platters were hot and its salad bar plates were chilled.

Remodeling its remaining units inside and outside was another priority for JB’s. The traditional outdoor signage featuring the Big Boy character holding a burger plate, which fit the old coffee shop image, was eliminated in the early 1980s. Improved landscaping and wood siding made more attractive the restaurants’ exteriors. One major inside change was to remove all counter seats, which for years had been part of the coffee-shop decor. Other inside modifications included new carpeting, improved lighting, and room dividers to create more intimate dining spaces. JB’s remodeled units cost an average of $150,000 per unit, but management found that such efforts increased their annual unit sales 40 to 80 percent.

In addition to the menu upgrades and remodeling, JB’s made two other improvements in the late 1970s and early 1980s. First, it increased its promotional efforts with the help of Dave Asay, who in 1978 was the company’s first formally trained marketing executive. Instead of focusing on discount coupons, Asay emphasized the chain’s upgraded menu and value-added items, such as a free dessert added to a steak dinner. JB’s concentrated its advertising in its five main markets: Salt Lake City, Tucson, Phoenix, Albuquerque, and Boise, while using spot ads in other markets.

Second, JB’s implemented programs to help improve the knowledge and abilities of its managers and employees, while decreasing the company’s high employee turnover rates. The four-step plan included better company benefits and pay, improved personnel screening, more growth opportunities, and formal training programs instead of the casual methods of the past.

The results of these various changes were dramatic. Between fiscal years 1978 and 1980 the company’s revenues had declined 15 percent and net income decreased 53 percent. The following two years saw revenues rise 52 percent and incomes increase 175 percent, prompting one industry observer, in Restaurant Business, to write, “It is indeed impressive that JB’s Restaurants… has been able to do what so many others have not—turn around in a down economy—which makes their achievement so much more noteworthy and newsworthy to us.”

Company Perspectives:

“Summit Family Restaurants is committed to optimizing its value through continued growth in select family restaurant concepts and by continuously fine tuning its operations to maximize it operating efficiencies and unit margins. Summit is dedicated to increasing guest counts by assuring guests of the very best in family dining through consistently providing high quality food, great prices, and friendly and quick service.”

Challenges as an Independent Corporation

Bolstered by the success of their own management, JB’s leaders soon became frustrated with the parentage of Marriott Corporation. In December 1984, JB’s sued Marriott in Salt Lake City’s Federal District Court to end their franchising agreement. JB’s cited Marriott’s unwillingness to let it expand beyond its designated territory and Marriott’s failure to adequately oversee and promote their restaurants. This lawsuit was a real threat to Marriott, which earlier had seen two of its franchises leave the system (Nashville-based Shoney’s and Wheeling, West Virginia-based Elby’s).

In February 1985 Marriott settled the lawsuit by agreeing to let JB’s expand into five more states: Oregon, Washington, Hawaii, Nevada, and most of northern California. JB’s committed to open 100 new restaurants over the next ten years. As part of this settlement, which cost JB’s $7 million, JB’s also purchased from Marriott 29 additional Big Boy Restaurants, mostly in California. In February 1985, the company became incorporated in Delaware under the name JB’s Restaurants, Inc., thus distancing itself from the Big Boy name. That year JB’s also sold its two Old City Jail restaurants.

In 1987, Marriott ended its control of the Big Boy system, selling the system to Elias Brothers, a franchisee operating 283 Big Boy’s Restaurants at that time. The following year, for the first time in its history, JB’s, with its 107 restaurants, became a company independent of the name Big Boy. Board chairman Clark Jones, in Nation’s Restaurant News, explained that’ The only benefit we’d obtain if we stayed in the system would be the Big Boy name. And now with Marriott saying it’s pulling out, that’s not as much of a plus anymore.” JB’s of course saved the annual franchise fees, which in 1987 ran about $1 million, based on one percent of its sales.

To diversify, JB’s Restaurants in November 1990 announced that it had completed an agreement to become a franchisee of Sbarro eateries. Based in Commack, New York, Sbarro operated Italian fast-food outlets located mostly in shop-ping malls. JB’s purchased two Sbarro units in Phoenix and Scotsdale, Arizona, and gained the right to start Sbarro outlets in Phoenix and Portland.

An even more significant diversification came in December 1991, when JB’s announced it had agreed to invest $3.8 million in San Diego-based Americana Entertainment Group, Inc., the parent company of HomeTown Buffet, Inc. JB’s thus gained HomeTown Buffet franchise rights for Utah, Arizona, Colorado, and New Mexico as a way of competing with other increasingly popular all-you-can-eat buffets.

In 1991, following a three-month trial run in Tucson, Arizona, JB’s Restaurants began installing on-site bakeries in order to offer its customers several fresh baked items. By May the firm had added its Baker’s Corner concept to 21 units. Cookies, muffins, and pies were baked on site, a practice also used and proven successful by Perkins, Baker’s Square, and Denny’s restaurant chains. In a 1991 issue of Nation’s Restaurant News, JB’s President Fred Gonzales explained that the on-site bakeries were one part of the company’s strategy since leaving Big Boy. “We’ve been trying to broaden our image from the breakfast-coffee shop that we had when we were Big Boy and have customers consider us during dinner time, too.” The company by 1991 had spent over $30 million to remodel its JB’s restaurants using such new concepts.

To finance its conversion of underperforming JB’s restaurants to the more profitable HomeTown Buffets, the company in 1992 sold 23 of its less profitable JB’s Restaurants in Oregon and Washington. It received $4.5 million in this deal from IHOP Corporation, which intended to convert its new units into Inter-national House of Pancakes restaurants.

In June 1993 the firm announced that President/CEO Fred Gonzales was resigning. The company’s board of directors had become frustrated with lack of progress in implementing the new HomeTown Buffet concept; by June, the third quarter of fiscal year 1993, the company had opened only one of the eight to ten new HomeTown Buffets it had planned for that year. Following several months during which Clark Jones served as interim president, in December 1993 the firm announced a new president and CEO: Don M. McComas, a former executive for the El Tori to chain of Mexican restaurants.

Meanwhile, JB’s made yet another shift in its attempt to remain competitive. In the fall of 1993 it decided to abandon its Sbarro franchise. Seven of its 13 outlets were sold back to the parent company, while its other six were simply closed. Be-cause of limited resources, JB’s felt it should concentrate on promoting the more profitable HomeTown Buffets. Outside analysts agreed with that decision, especially after HomeTown Buffet Inc. went public on September 22, 1993.

In 1994, after three straight years of losing money and also three consecutive years of declining sales at its JB’s Restaurants, the company made several efforts to reverse the situation. While striving to improve its core JB’s Restaurants’ management, menu offerings, and marketing, the company attempted to expand the number of JB’s Restaurants franchises, open new HomeTown Buffets, and convert some unprofitable JB’s Restaurants into Galaxy Diners, which featured a nostalgic 1950s atmosphere complete with jukeboxes and soda fountains.

Toward the 21st Century

On April 4, 1995, the firm changed its name to Summit Family Restaurants Inc. to reflect the fact that it now oversaw not only the familiar JB’s Restaurants (82 company-owned and 22 franchised), but also 14 HomeTown Buffets and four Galaxy Diners. The corporation’s trading symbol on the NASDAQ exchange was changed from JBBB to SMFR.

When fiscal 1994 did not bring forth the anticipated reversal in JB’s financial picture, Summit’s directors hired Piper Jaffray, an investment banking firm with knowledge of the restaurant industry, to provide outside assessment and advice. The next month Piper Jaffray concluded that Summit could not continue as an independent public company and that it should seek a buyer.

In August 1995, Summit was first contacted by CKE restaurants, Inc. about a possible acquisition. Based in Anaheim, California, CKE operated, franchised, and licensed a total of 667 Carl Jr.’s fast-food establishments in California, Nevada, Arizona, Oregon, Mexico, and the Pacific Rim. CKE had in 1994 become a holding company for Carl Karcher Enterprises, Inc., which was founded in California in 1966. By September 1995, CKE had offered what Summit considered the best acquisition terms, so Summit’s attorneys drew up a draft merger agreement.

Meanwhile, in the fall of 1995, Summit was approached by another firm interested in acquiring the struggling restaurant chain. Stella Bella Corporation, USA, a coffee company based in San Diego, offered $7.25 per share to purchase Summit, but Summit turned down this and another Stella Bella offer a few months later. These failed attempts were significant, or at least quite interesting, because Stella Bella’s president was Jack Broberg, JB’s founder who had served as its chairman, president, and CEO until he retired in 1987. However, he was still a member of Summit’s board of directors at the time of Stella Bella’s attempted acquisition.

The CKE-Summit negotiations continued in 1996, and after Summit’s stockholders approved an agreement at a special meeting in Salt Lake City on July 12, 1996, the merger was complete. Summit’s stockholders received cash and CKE common stock after the merger.

CKE intended to gradually sell the HomeTown Buffet restaurants in order to raise cash to expand the Galaxy Diner units. CKE’s chairman and CEO, William P. Foley, II, felt that Galaxy Diners had the potential to be successful, especially in rural areas. CKE also planned to sell or close poorly performing JB’s Restaurants and upgrade the more profitable units.

One of the reasons for this merger was to save management expenses of running two firms. So during the negotiations in April 1996, Summit terminated its contracts with President/CEO Don M. McComas and four senior vice-presidents.

With this latest agreement, Summit Family Restaurants’ history carire full circle. Originally a franchise and part of a larger company, the original JB’s Restaurants then became independent, but in 1996 the newly created Summit Family Restaurants again became part of a larger corporation. With CKE’s re-sources and new leadership, Summit gained a chance at long-term success. But the restaurant industry’s competitiveness and frequent acquisitions and mergers suggested that Summit’s future would hold several challenges.