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July 2007

Cover Society Interview:
Mutual Benefit

Chain veteran Dick Rivera brings big company experience and industry knowledge to his entrepreneurial company and the NRA.

The former T.G.I. Friday's CEO and Red Lobster president, who appeared on Chain Leader's January 2001 cover, Dick Rivera is now CEO at his own company, Rubicon Enterprises, and chairman of the National Restaurant Association. He shared his opinions on corporate leadership, entrepreneurism, restaurant finance, the state of casual dining and more in an interview with Senior Editor David Farkas at the NRA's Restaurant, Hotel-Motel Show in May.

Hi! My name is David Farkas, senior editor for Chain Leader. With me today is Dick Rivera, president and CEO of Rubicon Enterprises, a restaurant management and investment company. Dick, an industry veteran of 36 years, is the incoming chairman of the National Restaurant Association. Dick, welcome.

Thank you. Dave, when you say it that way it makes me feel tired already: 36 plus years.

It is a long time. Can you begin by talking about Rubicon Enterprises and its involvement in the industry?

Sure. I started Rubicon Enterprises in 2004 after I left Darden Restaurants. And after 30-plus years in the corporate environment, I decided I'd form my own company and made that decision, named it Rubicon after Caesar's crossing the river. When he crossed the river, he said, "The die is cast. There's no going back." And so I said this is Chapter Two for me in the industry.

Rubicon is a small restaurant development company. I have two restaurant operations in Atlanta with a partner, actually two partners, in Atlanta, and then I have a partner in Pennsylvania. We have four T.G.I. Friday's franchises that we operate. So we have six restaurants, expect them to grow this year by another three, and maybe a year after that another three.

What are the two new concepts?

The new restaurants are called Marlow's Tavern. It's really a neighborhood place. Zagat, when they rated us last year, referred to it as an upscale Cheers. So that kind of captures it. Its sort of chef-driven food but in a neighborhood corner bar kind of environment.

All right. And the other--there's two of those?

There's two of those. We're going to develop three this year, and we'll look to do three next year.

You had a fast-casual called Doc Chey's.

I did have Doc Chey's, and we opened one in Orlando and we closed it about 15 months after. That was my PhD in entrepreneurship.

Can you briefly talk about what caused it to be shuttered?

I think there were a couple things at work. One, I think I misjudged the market for starters. And we did terrific lunch business--we got great reviews, people loved the food, and they loved the environment. We weren't doing the dinner business.

It's a fast-casual concept, and a lot of fast-casual entities have suffered at night, and they had to find ways to build that dinner business. We thought we could because of the nature of the food, and it just didn't happen, and the lunch wasn't enough to really sustain it. And you'll see Panera Bread, for example, starting to work hard on the dinner daypart as a way to grow their business. So I think we suffered from that a little

And of course the bankroll is not quite the same as some of the big companies I've worked with, so after 15 months we decided we had enough fun.

Let me turn your attention to a larger issue going back to your time in the corporate world. Investors who acquire now, what, 5 to 8 percent of a restaurant company's stock seem to feel that they're entitled to tell management what to do. We've seen this most recently at Wendy's; certainly at Applebee's it's going on. Has this been good or bad for the industry?

Well, you're asking a long-time corporate officer, so I guess my bias is, it's short-term ownership, and the demands that short-term ownership puts on company leadership in my view is generally not a good long-term development. I mean I think that companies ought to be led strategically. There are times when the market is going to favorable, there are times when it's not. And so my general opinion is that short-term buyers that want to get in, see a quick jump up and sell the stock--not really a healthy thing for corporate America.

On the other hand, I will say that many of them by virtue of their interest have caused certain initiatives to begin, which have led actually to improve the business efficiencies and a stronger company, so I would say the record is going to mixed. Because I think of instances--the Sunbeam Corporation comes to mind, where it really was sort of the--I can't remember the nickname that he got, but it was a pretty colorful one for destroying companies. And so there have been those instances. But there have also been instances where there's been a good effect, and actually this company got stronger. So I think it's kind of a mixed record. I think you almost have to look at the individual case.

Given what you know today, who has the bigger advantage: a large company with all its resources or a small company that can react quickly to customers?

Yes. [Laughter] I've been on both sides of it, and one of the things this time around as a small-business person that I was amazed at is how tools are available to small-business people today that used to be only in a domain of really big companies. An example of that: very sophisticated POS and software packages to help you track labor, to help you track inventory, cost of sales, product mix. There are packages that are readily available to small operators that didn't used to be there. So a lot of the advantage that used to accrue to big companies is now pretty much an even playing field.

Do you think you'd see some of those packages here at the show?

Oh, absolutely. Oh, absolutely. It's a real focus. We're a business where--our industry has almost a million foodservice operations, and the vast majority of those are single-unit operations, so that's the products that people are looking for.

I think big companies still have an advantage on the purchasing side. And so I thind what you have to make--it's similar to being a franchisee. You pay a royalty. Your company doesn't pay a royalty, they provide some support. So if you match up operations, traditionally franchise operations will run a little bit better food cost, they'll run a little bit better labor cost, and you'll have less overhead to offset the royalty they're paying, so the returns can be similar. And I think that describes this competitive thing. The immediacy of equity, the immediacy of ownership provides for a little bit tighter operation, and an owned or small business unit operation. And yet there are some advantages that accrue to big companies.

Big companies are not as close to the guest. I'm much closer to what's going on in my operations today than I was when I was trying to lead 600 Red Lobsters. And I thought I was pretty close--I always thought I was a pretty hands-on kind of guy. But today I walk in, and I see a guest, and I say, "Bless you. Thanks for being here." I go over and introduce myself. You know I feel it. It's keener. It's a keener feeling.

You anticipate my next question. We all know that key to financial growth is ROI. Again, given your experience in the industry, what's the best way to ROI? A franchise model or a company-owned model?

Well, those are methods, and I don't know that I would say that either one is the best way. They can both work.

I would say the best way to ROI is taking care of your employees first, and making sure that they're taking care of guests. It really is about what's happening within the four walls with the guests. Marketing is a big part, but I learned a big lesson when we opened our first Marlow's. We literally had to go door-to-door introducing ourselves. People didn't know the name. They didn't know the brand. A friend of mine asked me, he said, "Dick, when was the last time that you opened a restaurant that didn't have a nationally or regionally known brand?" I said, "I never have." And he said, "You're about to get an education." And he was right on. It's a kind of thing you have to experience, I think, to go through it.

We started out, we were buying ads in the Atlanta paper, and they were doing nothing for us. They were costing a lot of money. Finally we just started going door to door saying, "Come on down and check us out." And it was day by day, two or three guests at a time, it started to come on.

And so I think the way to get the ROI is to stay in touch with who your guest is, what they're looking for, and make sure you throw your arms around them and welcome them when they come in.

You had mentioned Wednesday night in your talk to the Marketing Executives Group that when you looked at casual dining actually what you saw--as opposed to what the media's been reporting: that casual-dining sector is way down--that half of the companies you looked at were up and half were down. Let me ask you about the half that was down. What do you see as the problems limiting growth for those restaurant companies?

Well, you know the great thing about this, it's all opinions, and so I've given you my opinion. My experience is, and it was interesting to look at who was up and was down within those sets, and without getting into specifics I would say I think this is a difficult time for companies that cannot differentiate themselves really clearly. One of the things that casual dining suffers from, and I've seen this research over the years, is there's a lot of me-too in casual dining.

For example, when I was at Friday's, we would do a lot of research and we would ask people to talk about the differences between Chili's and Applebee's and Friday's and Ruby Tuesday's. They couldn't tell you much about difference. And you'd ask them about pricing. They said they're all about the same. You'd say about execution. They're all about the same. And so there was this me-too sameness. And I think in an environment today when QSR and fast casual continue to get better at what they're doing, the sort of quick occasion and the to-go occasion is being attacked by increasing quality and variety on the fast-casual side. And then you've got this so-called casual plus--say the Cheesecake Factories of the world, the Houstons--attacking it on the up side. If you can't differentiate yourself and get out of that middle where everybody says they're all about the same, you're going to be in a very difficult position.

Any ideas on how you would--did you apply any of those--what's different about Marlow's Tavern?

Well, I think that Marlow's is sort of a whole different thing…

Well, that's good then, right?

Let me talk about the Friday's. I think our focus at Friday's--we're big believers in the Friday's brand. It's got great recognition, and they've got a great leadership team. Our focus in our individual units is all about hospitality and the guest experience. The brand great, the menu is great. What we've got to do is execute every day. We've got to have what I call that immediacy of ownership in the minds of our people, and I think it gets down to as simple as--and as difficult as--every day you've got to show up on the balls of your feet and you've got to be ready to go play. I think oftentimes we don't have that sense of urgency, we don't have that sort of "let's go make it happen" that sometimes emerging brands have because they really are going day to day in a survival mode.

Is Marlow's Tavern a casual plus, fine dining, what is it?

Marlow's Tavern is different in the sense that we think of it as a corner bar. We started out and said we want people eating in our bar not drinking in our dining room. And it stemmed from what marketing people say don't ever do. Stemmed from our personal likes and desires. We said when we go to a Houstons, when we go to a Carrabbas, we almost always sit in the bar or we sit at the counter because we like the energy, we like the buzz, we talk to the people preparing the food. And so we said let's create a neighborhood place like that where you have that sort of interaction with the people there, and so that's what we did.

It's a limited menu, 25 items, and it's casual-dining food but with a chef's twist. It's all house-made food, and one of my partner's, a CIA graduate, he's the food guy. We got a great food emphasis, but we have a great bar, great cocktails, and a really nice environment and entertainment. It's a place you can come to after you come home from work and not have to get dressed up and go out to a fancy restaurant, and yet get chef-driven food and get a great bar environment.

So it's a casual plus?

I would say it's a casual plus although the price points are right in the casual-dining category.

The check average is?

The check average on the food, lunch time about $10 to $11; dinner time, $14, $15.

OK. Without beverage.

Correct.

Let me ask you a tough question here, and this is on immigration reform. And I might as well just ask you point blank. In Atlanta there are a lot of Mexican/Americans, a lot of undocumented workers. Do you have any working at Marlow's Tavern?

You know, to our knowledge we don't. We are actually pretty thorough going on the whole I-9 process and checking documentation. It could be that we have people who have fake documentation. I'm not sure we'd have a way of knowing that.

I know you and the NRA have an opinion on the immigration reform. Do you support a pathway to citizenship for illegal aliens who are law abiding and employed?

Absolutely. I do personally, and the NRA does. Look, here's the thing. We have an industry where the job demand, the requirement for employees, is growing at twice the rate that it is in the rest of the country. In other words, we're creating jobs that much faster. And the age group that we primarily draw from is going to be flat in terms of growth over the next 10 years. And so do we need the workers? Absolutely.

So our whole notion is, we ought to have guest worker permits, give them ID's, should be able track them from a security perspective--that's not an issue. Let's give them the guest worker permits and allow them to work, and let's provide a pathway to citizenship.

I have a little bit different point of view. Of all the developed countries, we are the only one that has a birth rate above sustaining our population. Everyone else is in a declining state--Germany, England, France, you name it. Why is that? Because we have immigration, and the immigrant population is growing at a slightly faster rate, and it enables us to continue our population growth. That's important for a couple of reasons. You know that's the future workers of America. But even more than that, it brings an energy and a creativity and a drive that has always been associated with immigrant populations. And we need that if we're going to maintain our economy and maintain our pre-eminent place in the world.

Of course not everybody shares that opinion, and let me ask you this question: How do you answer the AFL-CIO's John Sweeney, who has said a pathway would give employers a labor pool to exploit, and I quote, "To exploit and drive down wages, benefits, health and safety protections…"

Well, I would just site some examples. Three out of four foodservice managers, when they entered the industry, began at the starting wage. The average foodservice manager today makes a little more than $45,000 a year, which puts them in the top half of all household incomes in the country. So I would say, these are not dead-end jobs, they're starting jobs. Most of the people who come in our industry, it's their first job; they're learning about standards, quality, teamwork, discipline--who's teaching them is the employer. They're starting jobs. If they want a career they could have it, and when they do they make good money. That's what I would say.

Dick, thank you very much for joining us here at Chain Leader. Appreciate it.

Thank you.

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