Personal Effects
Phil Hickey is all about high touch when it comes to running restaurants.

By David Farkas

Philip J. Hickey Jr., winner of this year’s Chain Leadership award, has been managing restaurants since the early 1970s, when he ran a cafeteria at Michigan State University. Since then, the Detroit native has climbed the foodservice ladder, co-founding Cooker Bar & Grille and running the Rio Bravo division for Applebee’s along the way.

Today, he is chairman and CEO of Rare Hospitality, an Atlanta-based multiconcept company that operates 293 restaurants. Analysts expect revenues from Rare’s three brands—Longhorn Steakhouse, Bugaboo Creek Steak House and The Capital Grille—to reach $1 billion in 2006.

We caught up with 51-year-old Hickey in Jacksonville, Fla., where he was attending an annual gathering of restaurant company executives, and grilled him in a Longhorn Steakhouse restaurant about where his leadership abilities worked best in growing the business.

Have consumer fears about rising gas prices and the economy affected your business?

Perhaps there is less disposable income going around right now because of gas prices and going into winter because of higher natural gas prices. Both affect the discretionary income bucket.

If the consumer is eating out slightly less frequently, the challenge is who’s going to get the occasions when they do go out to eat. Our charge is, we want to be one of those winners. And in this situation, the guest has to feel that you want their business, both from what you offer and the attitude with which you offer it.

Is pricing part of the “offer” strategy?

We consider pricing as part of an overall value strategy. We believe the guests assess value on their own. The advantage in the steakhouse segment is that people understand the value of steak. They know what it costs at the grocery store. They know what they pay for it in the restaurant. We try to add value to that equation by making sure we serve an extraordinary product. We also believe from a service side, the value equation can be enhanced greatly by personalizing the experience as much as possible. Has that been accomplished at Longhorn?

The lessons that we’ve learned came from Capital Grille, the high end of dining. We’d gotten pretty close to an extraordinary level of service in Capital Grille. And then we broke the dining experience into components and realized there was a lot of opportunity for improvement.

Remember that Dave George, our president at Longhorn, came from Capital Grille. Dave and Wilson Craft have taken the Longhorn service experience and broken it down into its components, asking, how can we make the experience even more compelling? We will also continue to upgrade our facilities; we’re spending a lot of money on capital improvements.

Panera Bread recently won a customer service award from Fast Company for its free Wi-Fi. What are your brands offering that guests feel is a real value?

What we try to do is personalize the experience. If you were to come in more than once, we try to learn your name and your preferences. If we can anticipate that and recognize you and know that you’ve got 25 to 30 minutes for lunch, we can bring your iced tea and your burger out quickly. We might also know that when you come in for dinner, you like a slower pace, that you will want high touch, like having the manager stop by.

You’ve often referred to the table as the “9-square-foot battlefield” on which customers are won or lost. What exactly do you mean by that?

Focusing on the basics of the dining experience. Is there a friendly person on the front door who’s good with names and resilient to pressure and able to handle a large crowd. Then having that same person say, “Please come see us again.” And if there is any hint of dissatisfaction, the person jumps all over it and fixes it right away.

There’s also the servers’ ability to read a table. This isn’t new stuff. A lot of what we’ve been doing at Capital Grille over the last three years has been improving the details of a great dining experience.

Capital Grille certainly gets its share of praise, but you’ve managed to grow all three concepts effectively. What kind of leadership does it take?

I was talking to a CEO of a private company. He was articulating an accelerated growth plan for next year. And I questioned that. I showed him ours from last year. We said we’d open as many restaurants as we can effectively. That means the restaurant opens well, in a good location and with a great management team and establishes itself for a successful 20-year run.

We do not become overly enamored of target growth numbers. We let it bubble up and say, “How many can we do well?” My first year [1997], we opened up 17 Longhorns. In 1998, we opened nine.

The reason being...

The question was, how many can we open that will have a 20-year success pattern? The answer was a lot less than 17. So we got down to a number we could manage.

How do you forecast out 20 years?

We do the best job picking out a growth site that has economic viability, both from a macro and micro standpoint. We try to build a quality building that will stand the test of time. And then we hire a great crew and establish habits and expectations.

That’s worked for Capital Grille and Longhorn, but Bugaboo Creek has been a challenge, hasn’t it?

It has been more challenging than the other two, that’s for sure. Let’s look at Capital Grille first. It has done very well for a couple of reasons. One of them is the president, John Martin, who has been with the concept since the first one opened in 1990. His No. 2 has been in place for about eight years. There are a number of very long-term general managers and regional managers. We’ve done extraordinarily well in promoting stability and competency.

Longhorn has had good stability. Dave George has been around almost 10 years.

For the first seven-and-a-half years that we owned the Bugaboo brand, we kept the headquarters up in New England. We came to believe that was not the best course and brought the headquarters staff to Atlanta to enjoy the synergies.

Why did you change Bugaboo Creek’s leadership a year ago?

We changed leaders with the goal of consistency of execution. We did not have a concept problem. It was more of an execution problem. We feel good about Bugaboo’s long-term prospects.

Execution is your bailiwick. What kind of marketing leadership can an operations-oriented CEO be expected to provide?

CEOs have to know their strengths and shortcomings. And in that case, Gene Lee, our president, is very strong in marketing. And we have a number of very bright marketing people in the company.

An organization moves to hire to its strength. I believe any successful company has to have a balance between good operations and marketing. One without the other doesn’t work.

You changed advertising agencies last year and cited problems, at least initially, with the new agency. What happened?

In the first quarter of this year, we were trying to establish a rhythm with the new agency. Anytime you begin a new relationship, there’s a lot of mutual discovery, assessment and research. We started a little out of rhythm, but we feel great about where they have evolved to.

Isn’t rhythm a lot to expect in a multibrand environment?

It is. Their learning curve was significant. Now we really like the Longhorn ads.

Can you talk about the new slogan, the “New West in town”?

The intent was to signal to the consumer that we are continuing to evolve. We were the pioneer of the Texas-style steakhouse. When it came to peanut-shell carpet and country music and longneck beer, we were the first out there.

What does “New West” mean?

It means we’re a little more contemporary as opposed to [servers in] T-shirts and 100 percent country music. We have evolved the interior package away from barnyard country to more ranch house. Menu offerings used to be just a piece of protein on the plate with a little bit of starch. Now we’ve added a little more class and style and flavor. We see that as a permission to keep expanding the menu in a couple different categories.

Rare is also evolving financially. What are the implications of being a cash flow-positive company by the end of next year? Will shareholders receive dividends?

Our cash flow will be more than enough to build new restaurants. That means we won’t need to take on any more debt or equity to grow effectively.

Dividends?

No, not anytime soon. We are still early in our growth to provide a dividend. Because we are cash-flow positive a little bit doesn’t mean we are flush with cash.