Carl Icahn and some of his peers aside, you’re unlikely to hear a lot of strong language in public from the C-suite of corporate America. It’s even more rare to see a CEO break from the shackles of corporate speak and label the organization he leads mundane, sleepy or tired.
But here was a guy from Long Island calling it like he saw it when talking to trade publications, saying the seafood chain he had been hired to lead needed a thorough overhaul. Phil Greifeld arrived at Captain D’s in September of 2010 with a mandate from the company’s new owners to shake up things. He now ran a company — founded in 1969 by the legendary Ray Danner and beloved by generations around the region — where sales had slid for years on end.
They had done so because taking care of guests had lost its primacy and operational discipline had slipped under successive private-equity owners. For crying out loud, Captain D’s had hiked prices during the early days of the recession, essentially driving away business. No wonder the new boss had some choice words.
“I don’t think I knew what changes were needed,” Greifeld says.
But he quickly saw that those changes would need to be rapid and drastic. And his bosses agreed wholeheartedly.
“This was a business that needed to be grabbed by the scruff of the neck,” says Chris Metz, managing director at Sun Capital Partners, the firm that had bought Captain D’s in the spring of 2010. “It needed a strong leader.”
Greifeld was that guy and he brought in strong deputies. In the 15 months after starting, he overhauled most of the leadership team around him. On came Chief Marketing Officer Jonathan Muhtar, CFO Laurie Lawhorne, operations chief Michael Lippert, purchasing VP Janet Duckham and operations integration exec Larry Jones, who had been consulting with the company.
The new crew and those who remained from the Sagittarius Brands ownership era set about rebuilding from the bottom. The year 2011 and early 2012 were about getting back to the basics of a better inventory management system, building a strategic marketing plan and refining procurement practices.
“We weren’t trying to get quick fixes,” Greifeld says. “We had to stabilize the situation before we could grow.”
Stability soon was replaced by momentum. Captain D’s in 2011 posted its first same-store sales bump in eight years. Last year, the company sailed onward and upward: The average unit volume at its restaurants, which had slid 8 percent since 2004 to about $830,000 in 2010, rose almost 8 percent to about $920,000, a record high. Same-store sales soared more than 9 percent at company-owned stores and 7.5 percent at franchised locations.
That growth — an almost unheard-of pace for a concept launched more than 40 years ago — outpaced the quick-service and fast-casual restaurants sectors by several points and is making Metz and his team very happy.
“He has grabbed a hold of this thing and taken it to another level,” Metz says. “It’s been a terrific investment for us.”
Turnaround, take two
In some ways, Greifeld trained for the top job at Captain D’s at his previous employer. He spent more than a decade at Georgia-based Huddle House, a chain of about 200 restaurants that plays in the same space at Cracker Barrel Old Country Store. He arrived the company as CFO in 1995, a year after Pauline Sparks, wife of the late founder John Sparks, had sold the company to a private-equity firm.
The Sparks’ influence was still palpable and the company — then with about 200 units — was still profitable, but Greifeld said its systems left a lot to be desired. He was a key part of the team that improved operations and, after being named CEO in October of 1998, set about growing the concept.
In January of 2000, he was on the cover of Franchise Times accompanied by the headline “Greifeld Wakes Up A Sleepy 24-Hour Chain.” In the two years that followed, the store count would balloon to 355 before growing at a more measured pace and being sold to another private-equity firm. By the time Greifeld resigned his post in September of 2010, Huddle House had 425 restaurants and annual sales of $225 million.
At Captain D’s, his revival plan came with a twist. Getting things back on the right track in 2011 also meant quickly reaching out to the company’s franchisees, the small-business owners still sweating the details even if the company they represented had been slacking off. For Bill Nelson, a three-decade company veteran and its vice president of franchise operations since 2000, it was a breath of fresh air at a company that had years before lost focus on the blocking and tackling of running a restaurant chain.
“That was probably the smartest thing they could have done,” Nelson says. “It wasn’t long until franchisees were telling me, ‘You all are doing the right things for the brand.’”
On the front line, too, there was fixes to be made. The company had lost touch with the 11,000 employees in its company-owned and franchised restaurants. Greifeld looked to rebuild that connection by asking a simple question, both at the home office and in the field: “What can we do better for the guest experience?”
When the feedback came — improve the core product, make our fries better, etc. — and some changes were made, Greifeld says workers started believing that change could stick.
Another of the things Greifeld did early on was roll out employee surveys to reconnect and get some buy in from those workers. Among the changes that process produced were smaller, intra-year raises for hourly workers, a gesture that didn’t cost the company any more money but acknowledged good work months before it normally would have been.
Both measures helped deliver the “Wow, they’re listening!” message to the entire team and helped put a spring in many people’s step. It didn’t take long for enthusiastic workers from all levels of the company — no longer oppressed by the company’s “mundane” or “tired” culture — to step forward with ideas and commitments to be a positive part of the changes in the works.
“This was a turnaround in some respects,” Greifeld says of the company’s operations and financials. “But the biggest issue was the lack of passion for the brand. Some of our people didn’t believe we could get back to the glory days.”
Aiming up the ladder
The early returns show that Captain D’s is taking big strides. The impressive 2012 sales numbers were posted in large part because of higher traffic: The average customer visited a restaurant 2.4 times a month last year, up from 1.7 times in 2011. Staying on the path to renewed glory includes adding an element of upscale to Captain D’s. A new store prototype has been finalized that whispers laid-back beach bistro rather than screaming quick drive-thru stop on the road home. And the menu has been expanded to include a range of grilled products such as an Alaskan salmon plate and a surf-and-turf combo.
In the fast food universe, seafood isn’t as constrained as burgers and pizza. Restaurant consultant Aaron Allen, who once worked on a Huddle House project for Greifeld, says fish comes with a higher perception of value and is seen as healthier. And with the economy still not giving most consumers enough confidence to spend a lot more on dining out, concepts that offer value with an option to go a bit more upscale will benefit.
“The more stressed we become, the more we will indulge ourselves a little bit,” Allen said.
The Captain D’s grilled products have the higher price points — more than $7 for a combo in some cases — that speak to that indulgence factor but higher prices are not the be all and end all for Greifeld.
“These options further crystallize that this is not fast food,” he says. “We will continue to overdeliver with our $4.99 meals. But customers will give us credit for higher-priced $6.99 items versus other meals.”
In essence, Greifeld is trying to take the Captain D’s brand up a notch on the food chain in the way Panera has done with bagels and Chipotle with burritos. If he’s successful, he’ll not only bump up the average Captain D’s ticket from its current $6.50, but he’ll also be able to bring in new diners.
“If you have a great brand — and Captain D’s is that — you don’t ever want to vacate your core,” Sun Capital’s Metz says. “But with the step-up products, we can take away the veto vote and appeal to mom, dad and the kids.”
Greifeld late last year told his franchisees he’s aiming to lift average unit volumes to $1.1 million by 2016. That equates to growth of a little more than 5 percent per year, more in line with the fast-casual sector as a whole.
“The hard part has not been done,” he says. “We fixed so many things so quickly, but now we get to capitalize on a lot of the strategic opportunities we’ve been working on.”
The most prominent of those is a franchising push set to launch later this year that will sell the new store prototype and the concept’s recent growth. Also coming later this year are new menu boards and a test of new reusable plates and silverware, both efforts that will further reinforce the fast-casual feel Greifeld wants.
Consultant Allen says Captain D’s can help itself along the way by continuing to roll out and promote new products. Limited-time offers that goose consumer interest still work, especially in the still-soft economy.
Greifeld bought himself some breathing room with the turnaround his team has produced in the past two years. But he’s no fix-it guy and, just as he stuck around at Huddle House after fixing the immediate needs, he says he “would love to still be at D’s in five years” because the untapped potential of the business.
And that’s just fine with his investors.
“We’re ahead of plan,” Metz says. “We feel like we’re just in the third of fourth inning.”