Chock Full O'Nuts Corp. Business Information, Profile, and History

History of Chock Full O'Nuts Corp.

Chock Full o'Nuts Corp. roasts, packages and distributes a variety of regular, decaffeinated, instant, iced, and specialty coffees to retail groceries and foodservice operations. Chock Full sells its coffees under its own brand name, and through its La Touraine Coffee Company and Cain's Coffee Company subsidiaries. The Chock Full o'Nuts All-Method Grind remains the company's flagship brand, supporting Chock Full's more than 20 percent hold of the Northeastern and metropolitan retail coffee markets. Nationally, Chock Full is the fourth largest seller of coffee--and the leading standalone company--holding approximately three percent of the $7 billion domestic market, behind Proctor & Gamble's Folgers, Philip Morris' General Foods (Maxwell House), and Nestle's Nescafe. Through its foodservice operations, Chock Full supplies chain and independent restaurants, hotel, motels, and other lodging establishments, convenience stores, warehouse and club stores, office coffee and vending machine services, and others with Chock Full o'Nuts, Eppens Smith, and other branded coffees, as well as custom manufactured private label coffees. Institutional sales contribute roughly 30 percent of the company's annual sales.

Retail store operations are a fast-growing segment of Chock Full's business. The company operates a chain of eight Chock Full o'Nuts cafes, primarily in Manhattan, featuring gourmet coffees and upscale fast-food items; in addition, the company operates a string of kiosks and carts, also under the Chock Full O'Nuts name. With its Quikava subsidiary, acquired in 1994, Chock Full is rapidly expanding the Quikava chain of drive-through coffee stores, which target suburban commuters with gourmet coffees, bakery, and other foods suited to eating while driving. Quikava stores are located primarily in New England and on Long Island, New York. As of July 1996, there were approximately 25 company-owned or franchised Quikava restaurants, with plans for 40 to open by the end of 1996, and as many as 70 restaurants in operation by the end of 1997.

A Depression Success

William Black, founder and long-time chairman, did not study to be the leader of one of the New York area's most-loved restaurant chains; instead he studied engineering at Columbia University. But after graduating in 1926 and a lengthy job hunt, Black was unable to find engineering work that suited him. Black decided to start his own business, investing $250 in start-up capital into a 6-by-20 basement space located under the stairs of a building on Broadway and 43rd Street, the heart of New York's theater district. The building's landlord was at first reluctant to rent to Black, agreeing to do so only when Black promised not to sell anything that would compete with a drugstore located at street-level in the same building.

Black decided to sell shelled and roasted nuts. Sold both from the store and from a pushcart, these quickly became a hit with the thousands of theatergoers in the district. In its first year, the store, which Black called Chock Full o'Nuts, earned $20,000. Within six years, Black expanded his stores to 18 locations. A shrewd businessman, Black was even shrewder in real estate: many of his stores' locations were to become among the most valuable in Manhattan, with long-term leases, some for as long as 40 years and more, that gave Black not only low rents, but also favorable renewal conditions. Many of the leases Black negotiated included air rights above the Chock Full o'Nuts locations.

But as the country slipped into the Great Depression, nuts quickly became a luxury food, and Chock Full o'Nuts sales dropped steadily. Black was forced to sublease some of his stores, including one to a vendor selling coffee and donuts. Black quickly recognized the potential of this new business. He bought out the vendor, and, between 1931 and 1933, converted all of his nut stores into luncheonettes--forerunners of the modern fast-food restaurant. All of the restaurants featured the same menu, centered around a five-cent nutted cream cheese sandwich and a five-cent cup of coffee, but also including soups, pies, and later donuts and other items. With no table service, food was served quickly. The cream cheese sandwich quickly became a popular item with the Depression-era patron. The restaurants proved popular also because of Black's insistence on cleanliness. Employees never touched the food with their hands, and food was prepared at the counter, not behind a kitchen door. Even the dishes were washed in full view of the customer. Another feature of the Chock Full o'Nuts restaurant was a no-tipping policy that remained in force until the 1970s. Black incorporated the restaurant chain under the Chock Full o'Nuts name in 1932.

Black was among the originators of the franchising concept, allowing him to expand the number of Chock Full o'Nuts locations beyond Manhattan into other parts of the New York metropolitan area, including New Jersey. Black also pioneered employee-friendly policies, including generous benefits, attendance and other bonuses, and food allowances, that set the chain apart from other similar restaurant chains. In the 1950s, the company even bought its own hotel resort in order to offer low-cost vacations to its employees. Black was also an early practitioner of non-discriminatory hiring practices. Indeed, during the 1950s, the company was accused of reverse discrimination not only at the restaurant level, but at the management level as well. For years, the company's management included famed Brooklyn Dodger Jackie Robinson as vice president of personnel. Employees were also encouraged to buy into the company, with discounts on purchases of the company's stock.

The Chock Full o'Nuts restaurants, most of which were located in high-density areas, quickly became a popular New York fixture. By the 1950s, there were 27 restaurants in the chain. In order to service the restaurants, the company built its own bakery in Harrison, New Jersey, and its own commissary in New York. Despite the fact that nuts formed little to no part of the menu, Black kept the Chock Full o'Nuts name.

The Heavenly Coffee of the Fifties

By the 1950s, Chock Full had grown to a $25 million company. Its chain of restaurants sold some 40 million servings per year, including 50,000 cheese sandwiches, 50,000 donuts, and more than 100,000 cups of coffee. By the early 1950s the restaurants' coffee, in fact, had become its largest customer draw. The popularity of its coffee encouraged the company to expand into a new direction. "Many customers like our coffee and wanted to know where they could purchase it for home brewing," Black told the New York Times.

In 1953, the company introduced its Chock Full o'Nuts brand of vacuum-packed coffee into New York area stores. In the following year, distribution was expanded into Philadelphia, New England, and upstate New York. Originally, Chock Full had outsourced its coffee roasting, though the company selected and blended its own coffee. But in 1954, the company brought roasting in-house, opening a Brooklyn-based roasting plant. Within two years, the plant was operating on a 19-hour-per-day, six-day-per-week schedule, prompting the company to invest $500,000 in new equipment to keep up with consumer demand. With consumer demand rising, Black took a calculated risk. He discontinued the company's three traditional coffee blends--for regular, drip, and percolator coffee-making methods and bet instead on a new type of roasting technique that allowed for an all-purpose grind. The coffee's name was changed to Chock Full o'Nuts All-Method Grind.

The new Chock Full grind, packed in the black-and-yellow design found in its restaurants, proved an instant success with retail customers. The company's jingle, sung by Black's second wife, Jean Martin, a popular nightclub singer, became a favorite of a generation. Dubbed the "Heavenly Coffee," the jingle boasted "better coffee Rockefeller's money can't buy." In response to requests from the Rockefeller family, the lyrics were later changed to "a millionaire's." But sales climbed, and Chock Full quickly became the New York area's dominant brand, a position it would hold through much of its later history. Sales expanded beyond the Northeast into eastern and central Pennsylvania, Maryland and Washington, DC., and to the Midwest, principally Cleveland and Chicago. Meanwhile, the company continued to expand its locations, including the purchase of a prime Wall Street site. Black was also active on the philanthropic front, founding, in 1957, the Parkinson's Disease Foundation, with an initial grant of $100,000. In 1960, Black donated $5 million to fund a new medical research building at Columbia University, then the largest single donation by a living person ever received by the university. In later years, Black's donations sometimes took the form of gifts of company stock, a practice that would come to haunt him in the early 1980s.

The Troubled Years: the Sixties and Beyond

Black took the company public in 1958. Over the next several years the number of restaurant locations rose to 41, and to over 100 by the end of the 1960s. Sales for 1961 climbed to $33.7 million, and by 1965 had risen to $48 million. Yet profits were dropping, bringing Black, who continued to hold tight control over nearly every aspect of the company's operations, into conflict with a growing base of shareholders, many of whom had purchased their stock at an inflated 51 times earnings in 1961. In response to their complaints, Black told Forbes, "I agree that people who bought the stock [then] are jackasses. But I didn't ask them to buy it." Black began avoiding stockholders' meetings.

Chock Full's earnings problems stemmed from a series of bad decisions made during the early 1960s. The company rolled out an instant coffee, but its initial packaging in cans, rather than jars, caused it to underwhelm consumers. Next, Chock Full spent $1.5 million building a frozen donut plant, a product that met with little success. In 1963, the company attempted to re-enter the nut market, spending $525,000 to roll out a line of dry-roasted peanuts, almond, cashews, and mixed nuts. This, too, performed poorly. At the same time, the company had embarked on a series of acquisitions, draining the company's bottom line. In 1962, Chock Full purchased Sol Cafe Manufacturing Corp. of Jamaica, Long Island for $900,000. In 1964, the company spent several million dollars more acquiring three coffee companies, Old Judge Coffee Company of St. Louis, Nash's Coffee Company of St. Paul, and Boseul Coffee & Tea Inc. of Philadelphia. These purchases expanded Chock Full's distribution base into 30 states. But the company's earnings fell, from a high of $2.4 million in 1962 to $2.3 million in 1965.

In 1966, Chock Full moved to bring its restaurant operations nationwide, with a Chock Full o'Nuts "Fairs" franchise concept that would help increase the company's restaurant operations to more than 100 units by the end of the decade. Yet Chock Full was already being battered by the surge in fast-food restaurants then sweeping the country. With their old-fashioned and, according to some, "stodgy" restaurant design, Chock Full found it increasingly difficult to compete with the more modern concepts of McDonald's, Burger King, and Kentucky Fried Chicken. Revenues began to fall, dropping to $42 million by 1968. Within the company, Black's insistence on controlling even the most minute details of operations had led to seven presidents in 10 years, including Black himself. Black also became known among advertising agencies as a difficult client; he would write copy for the company's advertisements. Chock Full went through a number of agencies before bringing advertising in-house. By 1970, with revenues of just under $50 million and poor earnings results, Black faced such pressure from shareholders that he vowed never again to attend a stockholders' meeting; a promise he would keep until his death in 1983.

Fomenting a Shareholder Rebellion

A new difficulty awaited the company in 1974, when the company acquired failing Rheingold Breweries from PepsiCo for $1 dollar and assumption of the brewery's $10 million in debt. The acquisition, made more for sentimental reasons--its strength as a regional brewer rested almost entirely in the New York area, and Chock Full would claim it made the acquisition in order to save the brewery's 1,500 jobs&mdash′oved costly to the company. During the three years Rheingold operated as a Chock Full subsidiary, it cost the company more than $21 million in pretax losses. In 1977, Rheingold was sold to C. Schmidt & Sons.

Added to the difficulty was the company's struggling restaurant chain. Despite changes in the menu, including adding hamburgers, salads, and breakfast dishes, as well as introducing table service, the restaurants increasingly failed to compete with the new fast-food giants. The attempt to take the chain national had failed, and the chain slowly lost restaurants, dropping to 26 and posting a $1 million loss by the early 1980s. Nonetheless, Black refused to shut down the division, again, in part due to sentimental reasons. As one analyst told Advertising Age, "Bill Black refused to close the restaurants for what could be called patriotic reasons. Woody Allen comes to New York to shoot a movie, and when he wants to make sure people know it is in Manhattan, he shoots in a Chock Full O' Nuts."

Rrevenues began a steady decline into the 1980s. Coffee sales slid as more and more consumers turned to colas and other soft drinks, pushing Chock Full's revenues down from $131 million in 1978 to $116 million in 1982. Profits also slid, from $10 million in 1978 to $3.7 million in 1982. By then Black, whose health was failing, had not been seen in the company's headquarters for more than a year. Yet he continued to control the company's operations through memos.

In 1982, the eighty-year-old Black faced down a shareholder rebellion led by well-known New York businessman Jerry Finkelstein. Within two years, Finkelstein had managed to gain control of some 14 percent of the company, and, at the company's annual meeting, sought to oust Black and his management team. The public contest that followed quickly turned bitter. In the end, however, Black prevailed. He died in March of the following year.

Black's place as chairman was taken by Leon Pordy, a cardiologist and Black's personal physician for many years. Under Pordy, the company moved to discontinue its restaurant operations, selling off its leases to Riese Organizations, which ran the Godfather's Pizza and Roy Rogers franchises, among others, for a minimum of $1.8 million per year for 25 years. Riese Organizations began converting the Chock Full of Nuts restaurants, closing the last in the early 1990s.

Perking Up in the Nineties

By the late 1980s, Chock Full seemed ripe for a takeover. In 1986, however, Chock Full moved to enter the institutional foodservice market by acquiring Greenwich Mills Co. and the La Touraine brand for nearly $42 million, and quickly achieved a strong market share. In just five years, the company's retail sales, which had accounted for 85 percent of company revenues, accounted for only 30 percent. In 1991, the company acquired Hillside Coffee Co. of Carmel, California for $24 million, bringing Chock Full into the increasingly popular whole-bean retail market. The rejuvenated Chock Full saw its net earnings jump to $4.4 million on sales of $245 million in 1990. The following year, earnings doubled to $8.8 million.

Sales held steady for the next two years. Then, in 1994, Chock Full decided that it was ready to re-enter the restaurant business. The company sold off its Hillside division to Gourmet Coffees of America, Inc. for $38.5 million in cash. It next completed the acquisition of Quikava, then a small specialty coffee franchise with only four restaurants, for $467,000. While pursuing plans to expand the Quikava chain, Chock Full moved to open a new chain of Chock Full o'Nuts restaurants, cashing in on the sudden surge of gourmet coffee bars, such as Starbucks, that swept the United States in the 1990s. By 1995, Chock Full's sales had jumped to $328 million, for a net income of nearly $5 million. For the future, Chock Full will have to overcome a somewhat "old hat" image; yet the Chock Full o'Nuts name has remained a strong source of goodwill.

Principal Subsidiaries: Chock Realty Corporation; Chock Coffeemaker Acquisition, Inc.; CFN of New York, Inc.; Cain's Coffee Co.; Cain's Holding company; DB Private Brands, Inc.; Quikava, Inc.