Post Office Box 100
Ryan's Family Steak Houses, Inc., one of two successful restaurant chains founded by Alvin McCall, competes by selling high-quality food at modest prices. Ryan's, which operates over 225 restaurants in the southern and midwestern United States, has been consistently recognized as one of the best small companies in America by Forbes and Business Week magazines.
Ryan's founder, Alvin A. McCall, Jr., was born in 1927, ninth in a family of 11. His parents worked at a mill in Pelzer, South Carolina, and he and his siblings grew up poor. His entrepreneurial bent showed itself at an early age as he recruited his sister Martha to help him raise chickens, peppers, and tomatoes for sale. As a teenager McCall delivered newspapers and also cleaned a movie theater and worked in a couple of grocery stores, including a Dixie Home Store, one of the forerunners of the Winn-Dixie chain.
After graduating high school, McCall served a stint at a mortuary owned by the father of a friend. After serving a year in the Navy at the end of World War II, he studied business and accounting at schools in Greenville, South Carolina, and Johnson City, Tennessee. He also moonlighted as a bookkeeper for a restaurant and a gas station, both of which provided practical perks. When he returned to Greenville, he joined an accounting firm and married. He continued his habit of moonlighting, which earned him more than his regular salary.
The restless McCall next began to build houses. His initial success prompted him to quit his accounting job to form McCall Construction Co., which, according to McCall, showed a $43,000 profit its first year, 1958. This led to property development; eventually he built and ran a Volkswagen dealership in Sumter, South Carolina.
McCall's search for interesting businesses to run brought him to restaurants. In 1970, inspired by the successful Ponderosa chain, he started his own, Western Family Steak House, most of which took the name Quincy's in 1976. The first restaurant was on Wade Hampton Boulevard in Greenville, built by employees from his contracting business. After the hired manager lost $50,000 in three months, McCall took the reins and developed a formula based on principles of quality he had learned as a contractor. Quality at his steak house began with using fresh meat, not frozen.
In 1977, McCall sold his interest in Quincy's to what would become Trans World Corp., but he retained the freedom to compete. He started Ryan's the same year and the first restaurant opened in 1978 on Laurens Road in Greenville. Sales for the first year were $568,000. Although the restaurants, which numbered seven by 1981 (including one franchisee), were successful, growth was limited by the structure of the company, which put profits back in the hands of the partners, not into the business. At the end of 1981 (when sales were $8.1 million) the partnerships were consolidated; Ryan's first public stock offering raised $4 million.
Unfortunately, there was initially a small obstacle to expansion and the stock offering. The name "Ryan's" had been chosen because it was short and recognizable, with a wholesome and frugal Irish ring to it. However, the registration of the trademark was opposed by John Rian, owner, through Rian's Inc., of ten restaurants in the metropolitan Portland area of Oregon. In order to speed its 1982 initial public offering, McCall agreed not to use the name "Ryan's" west of the Mississippi except for in Texas, Oklahoma, and Louisiana. In 1987, to clear the way for westward expansion, Ryan's paid Rian $150,000 for use of the name in the remaining United States.
Once these hurdles were cleared, Ryan's growth was impressive. A share of stock, worth $9.25 originally, rose to over $30 at its peak. Ryan's never paid dividends and was thus able to use all of its profits for expansion. Fred Grant, a finance officer, explained in 1991 that issuing a 25-cent dividend would cost $13 million, enough to start six restaurants. The company maintained that its policy helped secure stock prices in a highly leveraged industry. In the 1990s, Ryan's opened approximately 20 new restaurants each year, peaking at 30 in 1993. This performance flew in the face of emerging concerns over the health risks related to the animal fat and cholesterol in beef, or the "beef scare" of the 1980s. The variety found in the Mega Bar helped satisfy wider crowds; the restaurants also sold a few à la carte fish and poultry dishes.
McCall relied on conservative methods to maintain control of the restaurant's destiny. Although he tinkered with franchising in the beginning, McCall found it left him unable to ensure consistent quality from store to store. However, franchises did come to contribute a significant portion of company revenues, though not without some difficulties. When Family Steak Houses of Florida, Inc., Ryan's largest franchisee, fell behind in royalty payments in 1993, Ryan's restructured its agreement. Family Steak Houses, based in Neptune Beach, lost $2.1 million in 1993, largely due to the closure of unprofitable stores. The company, which went public in 1986, was founded by Eddie Ervin, Alvin McCall's brother-in-law, owner of Margate, Florida's Rustic Inn Crabhouse. The first Ryan's in a foreign country was a franchised restaurant, which opened in Ballarat, Australia, in 1994.
Borrowing also surrendered control of the company, and Ryan's developed a habit of relying on cash, not credit. In fact, it gained a reputation for extraordinary promptness in paying its vendors. In the late 1980s the company did begin to borrow to fund expansion. Inside the restaurants, Ryan's did not accept credit cards until 1991.
In some ways, the company took an unconventional approach. Besides its lukewarm embrace of franchising, at least in the early days, it also disdained advertising, even for store openings. The company did not run a significant advertising campaign until 1994, when it bought television and radio spots in Charleston. By 1996 the company planned to support one-third of its stores with $1.7 million of advertising, a great deal for a chain that for years relied exclusively on word of mouth.
While most restaurants invested three to four percent of sales in advertising, Ryan's, according to company officials, preferred to apply the money towards what it stated were the highest food costs in the business, hoping that would bring back customers. The high costs made high volumes critical to the success of the restaurants. Ryan's stores also boasted twice the volume of others in its segment, about $2 million each in the 1980s.
In May 1986, McCall's son T. Mark McCall was named president of the company, after shepherding the introduction of the "Mega Bar." These offered salads, entrees and vegetables, and desserts. After just one year, the buffet bars accounted for nearly half of Ryan's total sales, and pushed same-store sales up 50 percent to 2.5 times the industry average. At the same time, bread-baking ovens were installed, allowing the chain to offer fresh rolls made from scratch (the recipe was developed with help from General Mills). In 1986, annual sales were up 99 percent to $103.3 million; profits rose 92 percent over the previous year.
Mark McCall faced difficult times in his tenure as president. In October 1987, the company's stock fell, as did the stock of just about every other company in the wake of the stock market crash. The average restaurant stock fell 42 percent during this time. This prompted company officials to think about the possibility of a takeover for the first time. The success of the Mega Bars drew many imitators, which flattened sales.
In June 1988 Alvin McCall resumed his role as CEO as his son Mark left the post to start a restaurant chain in Texas. Greenville accountant Charles Way took over as CEO in 1989 after serving as controller since the company was only two years old. Way, whom Alvin McCall described as his protégé, had already been serving as president. In 1992 he became board chairman as well.
In 1990, a Restaurants & Institutions survey named Ryan's the best steak house in the United States. Nevertheless, the company slowed its expansion temporarily around this time and hired more staff to improve service. It also made retention of managers (who typically worked 14-hour days) a top priority, feeling that consistency in management helped reduce employee turnover. The pay of managers and supervisors was heavily tied to performance, and generally exceeded the industry average, although high volumes made payroll consume a lower portion of sales.
In 1991, "Bakery Bars" were added to Ryan's restaurants, offering desserts baked in the store. They were successful in boosting sales, but start-up costs and a poor economy prevented them, at least initially, from increasing earnings. The Mega Bar concept was revitalized in 1993, when it was changed from one central station to five buffet stations, known as "scatter bars," which reduced traffic congestion and increased variety. Expanded installation of the scatter bars in 1995 helped Ryan's turn around sales declines. In 1993, the company experimented with a higher priced weekend buffet bar, which featured seafood, prime rib, and Virginia ham. The new bar, which cost $11 per plate--nearly double the usual check average--was an attempt to increase declining same-store sales.
In order to create tax savings and in preparation for more growth, Ryan's created three subsidiaries in 1993. Ryan's Properties would manage Ryan's trademarks and service marks. Ryan's Family Steak House East operated the restaurants. Ryan's Capital Holding Corp. would deal with debt financing. Another subsidiary, Big R Procurement Co., had already been created in 1992 to purchase supplies.
In the mid-1990s Ryan's searched for ways to diversify in light of fierce competition in the family dining segment. In 1994, it began talks with Frankie's Food, Sports, and Spirits, an Atlanta sports bar. The company also built its own Caliente Grill, a Tex-Mex restaurant, in Greenville and operated it on a test basis. Another casual dining concept being tested in 1994 was an upscale Western-style steak house, the Laredo Grille, which opened in Plano, Texas, at the site of an existing Ryan's. Both of these casual dining restaurants offered alcoholic beverages, unlike Ryan's steak houses, and featured full service dining as opposed to Ryan's order line and buffet tables. Observers cited these forays into casual dining as evidence of Ryan's mature management team.
Principal Subsidiaries: Big R Procurement Co.; Ryan's Properties; Ryan's Family Steak Houses East; Ryan's Capital Holding Corp.