VICORP Restaurants, Inc. - Company Profile, Information, Business Description, History, Background Information on VICORP Restaurants, Inc.

400 West 48th Avenue
Denver, Colorado 80216

History of VICORP Restaurants, Inc.

VICORP Restaurants, Inc., is a U.S. operator and franchiser of more than 400 Village Inn and Bakers Square family restaurants. The Village Inn chain consists of both corporate-operated and franchised restaurants, which are located primarily in the Central and Rocky Mountain regions of the United States. The smaller Bakers Square chain, concentrated in California and the upper Midwest, is entirely operated by the corporation. The two chains are purveyors of pies and other fresh-baked products as well as in-restaurant meals.

The origins of VICORP lie with two Coloradans, James Mola and Mertin Anderson, who in the late 1950s opened the first Village Inn restaurant in Colorado Springs. In 1959 the partners sold this original location and moved north to Denver, where they opened a new Village Inn at the corner of East Colfax Avenue and Yosemite Street. In December of that year Mola and Anderson incorporated under the name Village Inn Pancake House, Inc. New buildings and acquisitions in the 1960s and 1970s allowed the corporation to grow steadily, with several Village Inn locations added in the Midwest and Mountain regions.

During the 1980s VICORP acquired restaurants from competitors and expanded its business into new sectors. The May 1983 buyout of Poppin' Fresh Pies, Inc., a subsidiary of the Pillsbury Corporation, provided VICORP with 59 new restaurant locations in the Midwest and a baking facility outside Chicago. These restaurants were to become the nucleus of a new VICORP chain, Bakers Square. Emerson B. Kendall, who had served as president of Poppin' Fresh Pies since 1975, was kept on as president of the new Bakers Square division, which was operated out of an existing office in Matteson, Illinois.

1984 was a huge growth year for VICORP in terms of restaurant acquisition, but rapid expansion also saddled the company with many unforeseen problems. In February the company acquired 71 restaurants from the Continental Restaurant Systems division of Ralston Purina and incorporated them into its growing specialty restaurant group. In October the corporation made another large acquisition, this time of 175 restaurant locations in California, Florida, and Arizona operated under the name Sambo's. The restaurants, which were slated for conversion either to Village Inn or Bakers Square establishments, proved be a huge headache for the company. Long-range plans called for a relatively smooth conversion process to be completed within two years of the buyout. Instead, the process dragged on for almost four years and resulted in an overall decline in management quality as midlevel managers were relocated to far flung and struggling establishments that were already experiencing falling levels of food and service quality. Management also cited the smaller size of many Sambo's locations--some as much as 20 percent smaller than the average Village Inn, which seats approximately 150 and covers 5,000 square feet&mdash another roadblock to quick conversion. The net effect for VICORP was a serious drop in profits that extended well into the 1980s.

VICORP experienced its greatest problems in Florida, where the acquisition and conversion of several Sambo's locations seriously depleted the company's resources in that region. In 1989, after closing 15 of the converted restaurants and threatening to do the same to the remaining ones, President and Chief Operating Officer Robert S. Benson summed up the situation in the Nation's Restaurant News: "We shot ourselves in the foot in 1985, pushing too many people into outlying Sambo's locations, which proved non-viable.... Then we compounded this judgment error by papering over these problems, sometimes recycling failed units to new franchises." Benson had joined the company in the fall of 1987 and hoped to slow its rapid expansion by instead focusing resources on existing units, as well as more clearly defining a market strategy to combat sluggish sales.

The following year, Benson named James Carter president of Village Inn, hoping to provide renewed leadership for the foundering company. With one third of its Florida establishments closed and put up for sale, VICORP cut its operating losses in that division to $1.3 million in 1989 (down from $2 million the previous year) and also tightened the reins on franchises, with the corporation taking at least temporary control of nearly 20 restaurants in the same period. Elsewhere, Village Inn West, which included all of the Village Inn locations outside of Florida, demonstrated sales gains of 5.6 percent in 1988 and continued strength into 1990.

The other side of VICORP's holdings, the still-young Bakers Square restaurant group, proved to be a mirror image of its sibling, Village Inn. Like Village Inn-Florida, the Bakers Square-West division, consisting of approximately 80 former Sambo's establishments spread throughout California, suffered in the late 1980s, particularly feeling the effects of labor shortages and high costs in the West. Under the leadership of Benson, VICORP reacted with a new emphasis on personnel and management training in an effort to stem high employee turnover in the region. The initiative showed some tangible success, but California, like Florida, continued to be carried by the company's strongest division, Bakers Square-Midwest. In the late 1980s the 62 restaurants of the Great Lakes region provided the company with an average annual gross of $1.9 million, nearly double the volume of similar units in California. At the same time VICORP also drew profits from its six Taste of Bakers Square establishments, which provided the same fresh pies and baked goods as Bakers Square restaurants, but for carry-out only.

Financial turnaround for VICORP was also promoted in the 1980s with the help of a long-term plan to cut company debt and spending. Operating margins for the corporation had peaked in 1984 at 14.5 percent, and, after a low in 1986 of 4.8 percent, hovered around 9.8 percent for 1988. The sale of 15 Village Inn restaurants in Florida also provided VICORP with a substantial write-off for 1988. Capital expenditures were curtailed by 62 percent between 1986 and 1988, reflecting VICORP's initiative to control growth and focus on better management. This allowed the company to cut its long-term debt from $110.5 million in 1986 to $40.6 million at the end of 1988.

In 1990 VICORP was the object of a class-action suit. On November 1, 1990, the company became aware of what it called accounting "irregularities" and disclosed a statement reassessing its earnings for the year at a value $4 million less than had been expected. The resulting plunge in VICORP stock, a dive from 13 1/2 to 6 3/4, led to a shareholder outcry spearheaded by Florida stockholder Martin Kaplan. Kaplan had spoken with VICORP treasurer Peter Doane on October 30 and was assured by him that the company's financial position was sound. Soon after, Kaplan filed a lawsuit in the U.S. District Court of Denver. The case was settled in the spring of 1992, with Kaplan and approximately 3,500 other investors receiving a total of $6.5 million in damages from the company. VICORP, however, denied that it had intentionally mislead its shareholders. Doane stated that he was unaware of the problem at the time he spoke with Kaplan, and had revealed the information as soon as it was made available to him. The accounting problem itself was traced to two accountants, both of whom were fired. As Doane explained in Restaurant Business, "They were hiding costs in inventory accounts, and yes, the effect was to make the company appear to be doing better than it was. There was no theft involved." Doane also argued that "the market overreacted to the news." He added, "It took our net income down a total of $4 million over two fiscal years, but we were still a very healthy and profitable company in those years, and the market quickly came around to that. The stock was back up to $9 the next day, and within two months it was back to where it was."

Despite the brief setback of the Kaplan suit and with the financial outlook looking brighter after the mid-1980s slump, VICORP moved aggressively into the 1990s. The company carried on with, and improved, many of its capital and employee investment plans and devised several inventive renovation and advertising strategies for the new decade. Perhaps the single most important individual in overseeing these plans was James Caruso, named president of Village Inn in 1991. Caruso had brought 15 years of experience with Denny's restaurants to VICORP in 1990, when he was hired as vice-president of company operations. In an interview with the Nation's Restaurant News Caruso explained his outlook on the company after his first year, "We have some very talented people here," he remarked. "We've demonstrably improved operations over the past year and are now concentrating our efforts into our management programs and maintaining consistent levels of service." Caruso solidified these management training efforts in the new Village Inn Training and Leadership Program, or VITAL, which put each management trainee through an 8-week, hands-on rotation of every employee station in the restaurant. In addition, the program was designed to focus on individual career paths for restaurant managers in hopes of keeping employees at the management level with the company over the long term.

Caruso also had his hand in another change undertaken in the early 1990s, the large-scale renovation of the Village Inn chain, including interior and exterior remodeling. Outside upgrades were designed to make each unit more visible and visually appealing, and included neon lighting and signage, as well as the construction of green mansard roofs. Inside, decorators provided each restaurant with a lighter color scheme and new carpeting. The cost for the remodeling ranged between $200,000 and $300,000, but showed some positive effects in terms of sales and served to project a new and more vital image for the Village Inn.

In terms of marketing and advertising, the early 1990s proved an exciting period of experimentation and change for VICORP. Village Inn, attempting to strengthen its lunch and dinner business, offered several new salad and sandwich choices on its menu and tested other dinner possibilities such as lasagna and pot roast. In 1994 the chain also expanded its line of hamburgers, hoping to take a portion of the lunch market from fast-food competitors. With the tagline "Open Wide," Village Inn launched its All-World Double Cheeseburger and an assortment of other specialty burgers. The slogan was devised by the Denver-based Henry Gill Silverman advertising agency, which took the Village Inn account from the Minneapolis firm of McElligott Wright Morrison and White in mid-1992.

In the ensuing years, Silverman was allowed to break Village Inn out of its purely traditional image. The firm produced adds promoting the restaurant's line of healthy foods. Spandex-clad chickens on treadmills in one television ad, for instance, demonstrated a new and humorous approach for the chain. Silverman also wrote the song "Drop on In. How Ya Been? Village Inn," which won an International Broadcast Award in 1992. He summed up his agency's contributions to Village Inn in the Nation's Restaurant News as follows: "We've managed to capture the kind of neighborly, folksy image they already have in the eye of the consumer.... We've contrasted this warm, sincere music," he continued, "against some wacko humor and great food photography. Those three things add up to a very human, memorable kind of place." The results of this approach continued to be positive, with the campaign increasing sales by an estimated $20 million between the years 1991 and 1993, to a level of approximately $240 million.

Bakers Square, likewise, made some advertising and marketing adjustments in the 1990s. In 1992 the chain launched its "Square Deal Meals" as a response to relatively lower prices among competitors in the mid-range lunch and dinner market. The company also hoped to muster more broad-based appeal and create a marketing edge with a new slogan, "Nobody goes further than fresh," devised by CME KHBB Advertising of Chicago in 1993. The chain continued to struggle, however, in the 1990s. Declining sales--not only in California, but also in the Midwest division--culminated in the firing of President Emerson B. Kendall and Executive Vice-President of Marketing J. D. "Jim" Fisher in November 1993. Kendall was replaced with James Caruso, whose success with Village Inn had put the chain back on the expansion track by mid-1993, with plans to open 30 new stores over the next two years.

Placing Caruso at the head of the struggling Bakers Square, however, had little effect over the short term. Continued declines in profits for the division, which fell an estimated $1 million over the course of 1993, brought about the resignation of VICORP president Robert Benson in July 1994. Benson, who had been with the company for seven years, explained to the Nation's Restaurant News soon after his departure, "Our results have been disappointing, and in an organization where we stress accountability, I'll live up to those principles." Meanwhile, the company as a whole undertook a reassessment of its position, with its board of directors authorizing the repurchase of 500,000 shares of common stock, bringing the number of outstanding shares of VICORP stock to approximately 9.5 million.

Despite these problems, 1994 also saw a new innovation for VICORP, a concept called Angel's Diner & Bakery. Essentially a converted Village Inn restaurant decorated with neon and stainless steel to resemble a postwar diner, the first Angel's location saw a near tripling of weekly sales in its first few months of operation. The Angel's Diner appeared to be a promising investment for the company, especially as an alternative to sluggish sales in the Bakers Square-West division. Still, VICORP remained cautious about the Diner, opening only a handful in 1994 and waiting to see if the conversion paid off in the long-term. The company saw modest overall growth in the early 1990s and, though still plagued with financial troubles in Florida and California, continued to focus its attention on innovation, renewal, and--with the help of Angel's Diner--growth.

Additional Details

Further Reference

"Bakers Square Corners 'Fresh' in New Ads," Nation's Restaurant News, July 5, 1993, p. 12.Carlino, Bill, "Bakers Square, Village Inn on the Prowl for New Ad Agencies," Nation's Restaurant News, May 4, 1992, p. 12.------, "New Prexy Caruso Steers Village Inn Back to Value Track," Nation's Restaurant News, December 16, 1991, p. 3, 61.------, "VICORP Fires Bakers Square President, Marketing Head: Headquarters to be Consolidated as Parent Plans 'Fresh Start' for Struggling Chain," Nation's Restaurant News, November 29, 1993, p. 1, 4.------, "VICORP Ponders Future of Angel's Diner," Nation's Restaurant News, March 21, 1994, p. 3, 72.------, "VICORP President, COO Benson Resigns Post," Nation's Restaurant News, July 11, 1994, p. 1, 119.Chaudhry, Rajan, "VICORP Gives Florida Units Last Chance," Nation's Restaurant News, January 23, 1989, p. 1, 82.------, "VICORP Looks to Prosperous '89: Cuts Debt, Raises Earnings, and Trims Spending," Nation's Restaurant News, January 30, 1989, p. 64.Howard, Theresa, "Village Inn Joins Fast-Food Fray with Hamburger Line," Nation's Restaurant News, April 11, 1994, p. 12.Sokolove, Michael, "Phone Call Costs VICORP $6.5 Million: Angry Florida Shareholder Spurs Call-Action Suit," Restaurant Business, July 1, 1992, p. 22.Van Warner, Rick, "VICORP Hitting Comeback Trail: 'Samboless' Company Getting Back to Basics," Nation's Restaurant News, April 24, 1988, p. 87."Village Inn Says, 'How Ya Been?' to Dinner Daypart," Nation's Restaurant News, August 30, 1993, p. 14."Village Inn to Open 15 Units in 1 Year," Nation's Restaurant News, August 9, 1993, p. 18.

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