Country Kitchen International, Inc. Business Information, Profile, and History

Company Perspectives:

Country Kitchen is where our guests feel like they're coming home, th e food is always fresh, the smiles stretch a country mile, and breakf ast can be anytime of the day.

History of Country Kitchen International, Inc.

Country Kitchen International, Inc. (CKI) operates a chain of about 1 70 Country Kitchen restaurants that are located in 26 states. The fir m owns about three dozen of the sites, with the rest held by franchis ees. Country Kitchen restaurants are well known for their breakfasts and feature burgers, steaks, chicken, and more contemporary fare as w ell. Some units also incorporate a Breadeaux Pizza outlet and offer d elivery. The firm's primary customers are blue-collar families, and i ts meals are priced higher than fast food but a notch below casual di ning chains. Most sites are freestanding locations, but some are foun d in strip malls, travel plazas, and hotels. The company has been own ed since 1997 by top franchise owner Chuck Myers.

Beginnings

The origins of Country Kitchen International date to 1939, when Bill Johnson and Bill Goodman pooled $400 in savings and opened a stor efront restaurant in Cincinnati, Ohio. Under the name Country Kitchen , they served hamburgers for five cents and steak sandwiches for a di me. Johnson, who had grown up in Kentucky and quit school in the eigh th grade, had learned the business as a teenager while working at a h amburger stand. His philosophy was to "treat folks special," and that , and the good food he served, led the restaurant to quickly become a popular destination for hungry customers.

In 1942 a second location was opened, and during World War II busines s boomed as the restaurants fed a steady stream of war plant workers. During the 1940s several more Country Kitchen restaurants were added , and in the 1950s the firm responded to the growing popularity of dr ive-ins by offering its own version of "eat in your car" service. In 1958 Johnson decided to franchise the concept, and in the next few ye ars Country Kitchens began to open around the United States. Franchis e fees were relatively modest, and owners of the firm's restaurants w ere often "mom and pop" entrepreneurs who wanted to run a business of their own.

In 1968 Country Kitchen Restaurants, Inc. and Northwest Franchise mer ged to form Country Kitchen International (CKI), and the firm's stock later began trading publicly. In 1972 the corporation's revenues hit $2.8 million, but as expansion ramped up they rose to nearly 6;6.6 million by 1976, with earnings of more than $1 million. The company's locations had by now evolved into 24-hour coffee shops, wi th breakfast items like omelets and pancakes served around the clock.

Sale to Carlson Companies in 1977

In 1977 CKI was acquired by Carlson Companies, Inc., a privately owne d conglomerate whose holdings included several retail firms, Radisson Hotels, and the TGI Fridays restaurant chain. New owner Curtis Carls on was a hard-driving entrepreneur who sought growth in his propertie s, and over the next several years the Country Kitchen chain continue d to expand, reaching a peak of 340 locations by the end of the decad e. Its base of operations was now located in Minneapolis, where Carls on was headquartered.

During the late 1970s sales stagnated as the U.S. economy hit a downt urn and the company's restaurants saw increasing competition from fas t-food and casual dining chains. Over the next several years a number of underperforming locations were closed.

In 1983 McDonald's and Red Barn restaurants veteran Richard Hohman wa s named president of CKI as it was folded into Carlson's new Hospital ity Group, and he quickly began working to improve the bottom line. A variety of measures were taken to standardize operations and boost s ales outside the chain's breakfast stronghold, and alcoholic beverage s were added to some locations. CKI also established a new national a dvertising media fund, which offered rebates to franchisees who spent money on local ads. Although they were required to spend 1.5 percent of sales on advertising, audits by the firm had found that they ofte n did not meet this obligation.

During 1985 revenues for the entire system reached $153 million, up 5.5 percent from the year before, and 16 new restaurants were open ed while only nine closed. In 1986 the chain had a total of 246 outle ts, three of which were owned by the company and the rest by franchis ees. They were spread out over 20 U.S. states and two Canadian provin ces, with about two-thirds found in Minnesota, Wisconsin, and Iowa.

The year 1986 saw the company launch a new print, radio, and televisi on marketing campaign that used the tagline, "The Country's Calling Y ou." CKI customers were typically working-class families, and the ads stressed the food's reasonable prices and country-style taste, as we ll as the firm's hospitality.

In October of 1986 CKI rolled out a new menu that emphasized breakfas t items as well as lunch and dinner choices like calico bean soup and fried chicken. It was optimized to be easier to prepare for restaura nt cooks (who were now proving difficult to hire and retain), and som e recently added trendy items were eliminated to focus on classic far e. Restaurant designs were now being updated as well, with seating ca pacity increased and interiors revised to feature homespun prints and pastel colors.

In 1987 Carlson unveiled a new budget lodging concept called Country Inn that featured a Country Kitchen restaurant and a limited service hotel. The first unit opened in Minneapolis in the spring, but afterw ard most Country Inn hotels were built without restaurants. An agreem ent had earlier been reached with a hotel firm called Dillon Inn Co. that had begun to add Country Kitchen restaurants to a small number o f its properties as well.

As it sought to upgrade the brand, CKI now began moving beyond the "m om and pop" franchisees of earlier years to look for operators willin g to open multiple restaurants in a particular geographical area, as well as to sub-franchise units for the parent firm. Deals of this typ e were soon struck in Colorado and Texas, with others under considera tion. The firm charged a franchise fee of $25,000 plus a 5 percen t royalty on gross sales and 3.5 percent for local and national adver tising. Total development costs of a new restaurant were put at betwe en $750,000 and $850,000. Sales had now increased each year f or five years running, and the firm's new menu had helped boost the a verage check total by 61 cents to $3.50.

In 1989 CKI head Richard Hohman died of cancer at the age of 56, and his place was taken by Frank Steed. Under Steed the firm's headquarte rs staff was trimmed by a third and menu items were made more spicy a nd flavorful, while new dishes like Shrimp Scampi and Fajitas were ad ded. Food in the family dining category was seen by many as somewhat bland, with the lack of seasonings and spices attributed to the large proportion of senior citizens who were customers. With the baby boom er generation now starting to age, the firm began adapting to their m ore adventurous dining choices. New desserts and seasonal menu specia ls also were added in an attempt to lure in new customers, some of wh ich (including a $9.95 USDA choice steak) cost more than the firm 's typical entrée maximum of $5.95. The new menu was adver tised with the tagline, "American Favorites, Yesterday and Today," an d cash sales incentives were offered to waitstaff who sold the most d esserts. Some franchisees were now beginning to grumble that too many changes were being made for them to keep up with, however.

Franchising Extending to Puerto Rico in 1991

In 1991 the company announced that ten franchised restaurants would b e added in Puerto Rico, with one opened in a Travelodge hotel in Nove mber and another in a closed Wendy's restaurant at San Juan Internati onal Airport several months later. Systemwide sales were $178 mil lion for 1991, although the number of units now stood at slightly mor e than 230. The firm had sold or de-licensed more than 70 restaurants over a three-year period, which did not meet its new operating stand ards, and as a result per-unit sales were up.

In 1992 CEO Frank Steed left the company to head the Bonanza steakhou se chain, and his position was taken by TGI Fridays vice-president Cu rtis Nelson. Efforts to improve performance were ongoing, and the fir m soon unveiled a new restaurant design that resembled a country farm house complete with dormer windows, a porch, and red awnings. The com pany was striving to carve out a niche for its restaurants as an impr ovement over fast food but a cheaper alternative to casual dining res taurants like Olive Garden and Red Lobster.

In 1994 CKI opened its first restaurant in a truck stop, in Wyoming, added a 220-seat outlet in Jakarta, Indonesia, and signed an agreemen t to convert 19 Captain Pancake restaurants on Long Island into Count ry Kitchens. The year also saw introduction of a new child-themed pro motion, "CK Junction," which used activities like coloring books and posters of a train engineer bear character.

Growth continued over the next several years, with the restaurant tot al sliding back up to 250 by 1996. In January 1997 the firm named a n ew president, Charles Foster, who had most recently been a vice-presi dent at TGI Fridays. In March he announced plans for further expansio n at the firm's annual franchisees' meeting, while some of the compan y's restaurants began offering prepackaged take-home meals to go.

Sale to Kitchen Investment Group in 1997

In the summer of 1997 Carlson Companies agreed to sell Country Kitche n International to its largest franchise owner, Kitchen Investment Gr oup, Inc. of Madison, Wisconsin. Headed by 20-year franchisee Charles Myers, Kitchen Investment Group owned 35 restaurants and sub-franchi sed 22 others. Like company founder Bill Johnson and recent owner Cur t Carlson, Chuck Myers was a born entrepreneur, having formed a vendi ng machine business in high school and then become the owner of a Cou ntry Kitchen restaurant at the age of 21, after which he built up a c hain of the restaurants in Wisconsin and Illinois.

Myers knew the business well, and he immediately began working to reo rganize the firm in a way that made sense to franchisees. The 100-ite m menu was made more upscale without compromising the basic value its customers expected, while a new tagline, "It's Different in the Coun try," was added. Food ordering had heretofore been fragmented, and it was now consolidated with a single source. To improve employee recru itment and retention, the firm's training process also was streamline d.

In 2000 CKI redoubled its promotional efforts with a new television a d campaign that touted the firm's "Real Meals" as a better alternativ e to fast food, and launched a line of $4.99 bread bowl lunches t hat were guaranteed to be ready in five minutes or less. For 2000 the system, still with about 250 restaurants, had sales of $223 mill ion.

Over the next year the company continued to expand its menu to includ e more upscale choices like lobster ravioli and stir-fry dishes, and boosted the frequency of special meal promotions from four per year t o six. In 2002 a new Wisconsin Cheese Skillets menu was introduced th at was a co-promotion with the Wisconsin Milk Marketing Board.

The same year saw CKI begin trying to position itself as a national b rand with the "Taste of America" promotion that featured regional dis hes from around the country. The firm also sent cease-and-desist lett ers to about 350 restaurants that used the words "country kitchen" so mewhere in their name, but were not franchisees. Many of the small re staurants affected had been in business for years, and some changed t heir names, while others ignored the warning. In the summer, one of t he firm's major Ohio franchisees went out of business, causing the cl osing of a number of restaurants there.

In 2003 CKI unveiled a new logo and also reached a cobranding agreeme nt with Breadeaux Pizza of Missouri to offer the latter firm's pizza in its restaurants and for home delivery. The company was again shrin king, and the number of locations dipped below 200, with all non-U.S. operations now shut down or sold.

In the fall of 2005 CKI announced the development of a new concept ca lled Peppermill Grill. A casual dining restaurant that served alcohol ic beverages, its dishes would be seasoned by "Flavor Ambassadors" wh o brought an array of spices and a large peppermill to the table. D&e acute;cor would evoke the flavor of a spice marketplace. The firm int egrated the idea into one of its Country Kitchen sites during the yea r, and began preparations to open a prototype restaurant in Madison i n 2006. After the menu and other details were finalized, it would be available to franchisees for integration into their existing restaura nts, for full conversions, or to build new outlets.

More than 65 years after its first restaurant opened, Country Kitchen International, Inc., continued to offer quality food at an affordabl e price to customers in its stronghold of the Upper Midwest and aroun d the United States. Since its acquisition in 1997 by veteran franchi see Chuck Myers, the chain had shrunk in size as it sought to standar dize operations and fend off fierce competition. The firm had high ho pes for its new Peppermill Grill concept, which was set to debut in 2 006.

Principal Competitors: Shoney's, Inc.; Denny's Corporation; Th e Restaurant Company; CBRL Group, Inc.; VICORP Restaurants, Inc.; IHO P Corporation; Bob Evans Farms, Inc.; Golden Corral Corporation.

Chronology

• Key Dates:
• 1939: Bill Johnson opens the first Country Kitchen restaurant in Cincinnati.
• 1942: The second restaurant is opened; others follow.
• 1958: Johnson begins selling franchises.
• 1968: A merger with Northwest Franchise creates Country Kitche n International.
• 1977: Carlson Companies acquires the firm.
• 1983: The new president, Richard Hohman, begins efforts to rev italize the chain.
• 1997: Top franchisee Charles Myers buys the company from Carls on.
• 2003: Cobranding with Breadeaux Pizza brings new delivery and takeout options.
• 2005: The company begins developing the Peppermill Grill casua l dining concept.