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The Cooker Restaurant Corporation is a 52-unit casual dining restaurant chain, with locations in Florida, Indiana, Kentucky, Maryland, Michigan, North Carolina, Ohio, Tennessee, and Virginia. Revenues per restaurant average almost $3 million annually, which establishes it among the highest for casual full-service restaurants. In 1996 the company served over ten million meals and net income reached a $100 million-plus milestone, gaining 52 percent over the previous year's revenues. Competing with chains such as T.G.I. Friday's, Chili's, and Applebee's, Cooker has grown from two to 52 locations in just 12 years, despite the economic recession of the early 1990s. The company has plans for further expansion into new market areas.
Traditional Fare in the Mid-1980s
In 1984, The Cooker Restaurant Corporation was founded in Nashville, Tennessee, by chairman and CEO 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 including 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 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 of Cooker President after a failed buyout attempt by then-president Philip J. Hickey Jr. (who held a 5 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), saying 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 non competition 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.
Under New Leadership--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 on efforts to trim labor expenses and the savings gained in efficiency afforded by the chain's expansion. Cooker experimented with scheduling and profit margins, and concluded that by cutting labor in non-peak hours, service was not compromised. With labor costs at 34 percent of profits, they were considered high for the industry, but remained committed for the time 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, Cincinnati, and Columbus. 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, 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 unreasonable, 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,"' he said. As a result Cooker got burned by going too upscale, which alienated former customers.
New Recipes For Mid-1990s Growth
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-only 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 Dardon's Red Lobster Restaurant Executive VP 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--a southeastern region targeted for new expansion. The company continues to operate its headquarters in the areas it wishes 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 in 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. 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, Chesapeake, Virginia; and Tampa, Florida. Eleven new Cooker restaurants opened in 1996&mdash⁄owing 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 entered two new markets: Johnson City, Tennessee, and Boardman Township (Youngstown), Ohio, and closed one underperforming unit. Cooker Restaurants felt the impact of decreased sales for awhile, which were blamed in part on consumer focus on the 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 2 percent of Cooker's outstanding stock, indicating an insider vote of confidence in the company, and a move inconsistent with the trend away from investing in the consumer product sector. Mr. 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 diet appears more than ample.