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Chick-fil-A’s unique corporate strategy has been embedded in the company since the first store opened in 1967. The Chick-fil-A chain itself is a product of related diversification, born from a single, southern family restaurant. In 1946, founders Ben and Truett Cathy had opened a restaurant called The Dwarf House in Hapeville, Georgia.
The restaurant ran successfully and after Ben was killed in a plane crash, Truett was the sole owner. Truett went on to open two more Dwarf House restaurants, where he created and served his first fried chicken filet sandwich.
This became the prototype Chick-fil-A sandwich that we know today and soon began to outsell their famous hamburgers on the Dwarf House menu. In 1963, Cathy patented the name Chick-fil-A, incorporated the company and began to sell the sandwich to other restaurants.
Worried that a larger chain would take his chicken sandwich idea, Truett Cathy opened the first Chick-fil-A restaurant in 1967. By 1974, there were 21 Chick-fil-A stores in Geogia and the Carolinas alone and each reflected the same four basic tenets.
First of all, the company would grow not by selling franchises, but forming joint ventures with independent operators. This guarantees quality, supervision and motivation of partnership. Second, stores will be operated only in major shopping malls. Obviously this tenet was eventually abandoned, but at the time shopping malls provided the perfect atmosphere for a Chick-fil-A store.
This minimized capital cost per store and maximized exposure to customers, as malls were becoming increasingly popular at this time. Third, financing would come not thru debt, but primarily from the company’s own profits.
This allowed Cathy to keep ownership control and run the business in accordance with his own personal principals. This also forced the firm to be more aware of profits and prohibited the chain from growing too quickly, avoiding the risk of losing operating and quality controls. Chick-fil-A began to grow for growth’s sake, not just for profit. Lastly, and most importantly, the chief emphasis will be on the people. This refers to both the customers and the employees of Chick-fil-A. These tenets have become the core competencies of the company, placing emphasis on what is best for the company and its customers.
Not venturing too far from their roots, the only diversification strategy Chick-fil-A has implemented since the opening of its first store has been the creation of Truette’s Grill. Truette’s Grill opened in 1996 as a 50’s diner themed restaurant, which features the full Chick-fil-A menu as well as items from the original Dwarf Grill restaurant. Truette’s Grill is located exclusively in Gerogia and opened its third restaurant in 2006. A huge part of their corporate strategy is the way they create the joint ventures with their independent operators.
Rather than selling franchises the firm seeks out individuals, often from within the organization, to become an operator. Once approved, the operator invests $5,000 to sublease the restaurant, which Chick-fil-A has already purchased and built. Chick-fil-A provides the operators with training, technology and anything else they need. Each operator is only allowed to operate one restaurant, working full time in the restaurant they built, supervising a loyal team of employees. In 2002, more than half of the Chick-fil-A operators were making over $100,000 a year, with some making as much as $300,000.
Chick-fil-A also offers licensing agreements to open a Chick-fil-A Express in places such as college campuses, hospitals and airports. Chick-fil-A has chosen not to integrate vertically or horizontally, but rather build strong relationships with different suppliers and distributors. Potential suppliers can fill out an inquiry right off of the company’s website, however the approval process is very complicated. If Chick-fil-A sees a supplier as culturally fit and financially sound, they will do follow ups such as on site inspections, audits and sample runs.
If and when a supplier is approved, they will have monthly meetings with the purchasing department and continue to be tested on product quality. Although Chick-fil-A does not own any of its suppliers, they retain high standards and tight control over their supply chain. Chick-fil-A has been working closely with their main distributor, MBM, since 2000. The NC based company has over 34 locations across the US, including a location in Macon, GA that was built in 2007 specifically to better serve one of its main clients, Chick-fil-A.
MBM provides Chick-fil-A with order quantity software and uses the past four weeks average order quantity to predict the next week’s order. The operator can approve the quantity or increase/decrease as much as they deem necessary. These methods of inventory control help to cut cost and reduce waste, increasing profitability. The close proximity of Chick-fil-A stores to their distributors along with their inventory control methods are valuable resources to the chain. Although these resources are not rare, inimitable and there are possible substitutes for both, they add value to the chain and contribute to its success.
Without the favorable locations of the distributors, Chick-fil-A would not be able to have favorable locations of their restaurants. Just as without the technology from these types of inventory control systems, the company would not be able to minimize cost, maximize profit and reduce waste. The Cathy’s have been very smart about the financial performance of their company. By deciding from the beginning that the company would be financed primarily from their own profit rather than by borrowing, the company has been able to inherit as little debt as possible.
The company expects to be debt free by 2015 and claims to have not taken on any debt since 1990. The company also has a record 43 consecutive years of annual sales increase. This strong financial performance and heavy cash flow is also one of the most valuable and necessary resources to the firm. The most valuable intangible resource to the firm is embedded deep within the roots of the company. It is their focus on the human aspect of their business that has given them a sustainable competitive advantage. By focusing on the people, both the employees and customers, Chick-fil-A has set the standards for fast food customer service.
By keeping the company family owned, Cathy was able to ensure that the firm would operate in accordance with his own principals. For example, Chick-fil-A, just like the Dwarf House before it, is closed on Sundays. Though the family was ridiculed in the beginning for losing a day of business, their strong family and spiritual values insisted they reserve this day for the Lord. This was also done out of consideration for employees, giving them a day of rest to spend with their family and to worship if they choose to do so.
Today, Truett Cathy’s two sons, Dan and Bubba serve as COO and Senior Vice President, respectively with their father, now 90 years old, still as CEO. By keeping the business in the family, they ensure trust and experience on the highest level. It is the capabilities of these family members that have brought Chick-fil-A where it is today. To have a board composed of family members who genuinely care about the well being of their business, who have years of experience, managerial skills, trust and trade secrets is the most valuable, inimitable, rare and non-substitutable resource.
However the Cathys have worked hard to instill their principals in all their employees. While dining at a Chick-fil-A restaurant it’s impossible not to notice the manners and southern hospitality of the employees. During training, employees are instructed on how to provide excellent customer service. They are instructed to use phrases such as “My pleasure” rather than “You’re welcome” and ask “May I refresh your beverage? ” rather than “Can I get you a refill? ”. Aside from having good manners, employees are reminded that this is still a quick service restaurant and that speed and efficiency are of the utmost importance.
Every year Chick-fil-A spends $1 million evaluating its service, giving each location a two-page report detailing how its performance compares to the chain’s top performers. This close monitoring of employees not only measures performance but also builds a team environment to become one of the highest performing restaurants. Another important human aspect to consider is the previously mentioned process of selecting a location’s operator. The capability to hire, train, and motivate employees in accordance to the founders principals is extremely valuable, rare, inimitable and non-substitutable.
It is the organizational capabilities drawn from the human resources of all employees, from the executive board to behind the counter, that ensure the high levels of customer service we expect from Chick-fil-A. The firm’s human resources also reflect a high level of social complexity; it is these practices and principals that have given Chick-fil-A its strong brand name, creating a reputation with customers for quality and reliability. The human resources and capabilities of Chick-fil-A are path-dependent; they cannot easily be recreated or imitated by a competing firm, they cannot be bought but must be built over time.