Execs with financial experience take CEO reins at restaurant chains

Execs with financial experience take CEO reins at restaurant chains

Current restaurant company chief executives Charlie Morrison of Pizza Inn, left, Jeff Warne of O'Charley's, center and Michael Woodhouse of Cracker Barrel all have chief financial officer listed on their resumes.
By DANNY KING
(June 29, 2009) Ask Jeff Warne if his being a certified public accountant precludes him from being a true “restaurant guy,” and the recently named chief executive of O'Charley's Inc. scoffs at the notion.
“I worked literally in every position in every type of restaurant putting myself through college,” said the 48-year-old Warne, who graduated from St. Cloud State University in Minnesota before getting his MBA at the University of Chicago. “Host, bartender, dishwasher—I've done every job.”
While operations remains the most common route to the corner office, CFOs turned CEOs say you can't underestimate the benefits of knowing your way around a spreadsheet, especially during an economic downturn that has restaurants scrambling to control costs. About six out of 10 restaurant companies reported same-store sales declines in April, which was the 11th straight month the industry as a whole had a comparable-store sales drop, the National Restaurant Association reported in May.
From dealing with activist investors and private-equity firms to selling and buying subsidiaries, conducting regression analysis to uncover areas of poor performance, and having an intimate knowledge of securities regulations, the advantages of a financial point of view are numerous, according to CFOs turned CEOs.
“You have to look at the business daily,” said Charlie Morrison, chief executive and former CFO of Pizza Inn, a 320-unit chain based in The Colony, Texas. He noted that items like labor hours and food waste need to be constantly tracked.
“Those disciplines are necessary to maximize profit when revenues are soft,” he said. The image of a financially trained restaurant operator is a far cry from iconic restaurant figures like Ray Kroc, Carl Karcher and Norman Brinker—operations-oriented people who founded restaurant chains McDonald's, Carl's Jr. and Steak & Ale, respectively, between the 1940s and the 1960s and grew them broadly enough to take the brands public.
To this day, restaurant companies run by former financial chiefs are the exception, not the rule. Among the industry's largest foodservice companies, only a few are led by ex-CFOs, including Burger King's John Chidsey, Aramark Holdings' Joseph Neubauer, Sonic Corp.'s J. Clifford Hudson and Darden Restaurants' Clarence Otis.
Other CFOs turned CEOs include Sally Smith at Buffalo Wild Wings; Michael H. Magusiak of CEC Entertainment, parent of Chuck E. Cheese's; and Tom Baldwin at Morton's The Steakhouse.
“People started out maybe being a little skeptical” of his finance background, Warne said. “But I've been blessed with working with intellectually curious people who want to learn more about that approach.”
Warne worked for T.G.I. Friday's parent, Carlson Cos., for 16 years, including a stint as its CFO, before joining Nashville, Tenn.-based O'Charley's in 2006. O'Charley's operates or franchises 372 units under the O'Charley's, Ninety Nine Restaurant and Stoney River Legendary Steaks brands.
Financial experience comes in handy for companies like Cracker Barrel Old Country Store Inc., whose Cracker Barrel Old Country Store concept includes a large retail component as well as food and beverage. Mike Woodhouse, who joined the Lebanon, Tenn.-based company as CFO in 1995, was promoted to chief executive eight years ago. In 2006, he oversaw the $486 million sale of the company's Logan's Roadhouse chain.
“Having both restaurant and retail operations within one company makes for an extremely complex business,” said Woodhouse, 64. “So, yes, a background as CFO helps. You're already up to speed on so many details and financial processes.”
“As a CFO, I had been able to relate to their understanding of return for the business and the financial metrics in which the business is managed,” said Morrison, 40, who was CFO for Steak & Ale. “That's a clear distinction that a financial background brings.”
With that in mind, former CFOs use financial tools that may make an “in-the-trenches” operator cringe. Warne points to regression analysis, where menu items, franchise-store sales and other metrics are statistically analyzed to help uncover areas of poor performance that need improvement.
Still, with plenty of operations knowledge to back up their respective financial backgrounds, Morrison, Warne and Woodhouse all stress that a restaurant executive can't fake hands-on experience, especially when dealing with franchisees who are trying to withstand the effects of the recession.
With all but three of Pizza Inn's units franchised, Morrison, whose company's same-store sales fell just 1 percent for its most recent quarter, constantly works with restaurant owners to prevent what he called “knee-jerk reactions that sacrifice customer service.”
Likewise, Warne and Woodhouse said that, financial background notwithstanding, chief executives looking to save their way out of an earnings slump would be making a big mistake.
Woodhouse said Cracker Barrel, whose same-store sales for its most recently completed quarter also fell just 1 percent, has been able to keep revenue fairly steady by maintaining portion sizes and quality standards. Meanwhile, Warne said O'Charley's, whose corporate units posted a 2.9-percent same-store sales drop for its most recent quarter, boosted its guest-satisfaction levels in the second half of last year by revamping service standards, calling the approach “old-school hospitality 101.”
“I know that you might generally expect a former financial person, a ‘bean counter,' to focus only on cost-cutting and containment, without regard to the effect on quality or the guest experience,” Woodhouse said. “But I also know that is not the path to success.”
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