RTM Restaurant Group

5995 Barfield Road
Atlanta, Georgia 30328
U.S.A.
Telephone: (404) 256-4900
Fax: (404) 256-7277
Web site: http://www.rtmrestaurantgroup.com

Private Company
Incorporated: 1973
Employees: 25,000
Sales: $751 million (2003 est.)
NAIC: 722211 Limited-Service Restaurants

Atlanta, Georgia-based RTM Restaurant Group is the largest operator of Arby’s restaurants, with more than 780 franchised stores. In addition, RTM owns or has financial interests in approximately 275 Mrs. Winner’s Chicken & Biscuits and Lee’s Famous Recipe restaurants. Altogether, the company operates in 42 markets and 22 states. Led by its inspirational founder, Russ Umphenour, who started out in the franchise food industry working an Arby’s counter, RTM has developed a formula for success by providing employees with opportunities to rise within the company. Hard work and achieving results is recognized and rewarded, so that workers who become store managers can become area supervisors, managing as many as 13 stores, and ultimately rise to district partners and have a chance to invest in the stores they supervise. In essence, they graduate to become part-owners. Most of RTM senior executives have been with the company for more than a 12 years, a clear indication that the RTM (which stands for Results Through Motivation) approach is more than mere platitudes.

Russ Umphenour Becomes Involved with Arby’s in the 1960s

RTB’s founder, Russ Umphenour, was born in San Francisco in 1944 and raised in Nebraska. His father was of an Assembly of God minister. In the early 1960s, he attended Evangel University in Springfield, Missouri, but was unable to settle on a career and changed his major several times. Dropping out of school, he picked up a low-paying, one-semester stint as a special education teacher in Flint, Michigan. To supplement his income he found a job at a local McDonald’s but never started work, opting instead to take a part-time position at an Arby’s restaurant, which had just opened. Arby’s was a new chain, the novelty of which appealed to Umphenour. The founders of Arby’s, brothers Forrest and Leroy Raffel, had started out in the restaurant equipment business but soon gravitated towards the burgeoning fast food industry. Rather than serving hamburgers, as McDonald’s and others did, the Raffel brothers chose the roast beef sandwich to anchor their fast food concept. Originally they wanted to call the chain “Big Tex,” but the name was owned by an Ohio businessman who refused to sell the rights. Instead, they coined Arby’s, an allusion to the initials for “Raffel Brothers” and not, as many assumed, the initials for roast beef. The company was founded in 1964 just three years before Umphenour went to work for a Flint, Michigan, outlet.

Umphenour worked the Arby’s counter three nights a week at $1.50 per hour and was soon promoted to night manager. The licensee of the Flint Arby’s, Steven Smith, was impressed with Umphenour and eager to retain him. He offered the young man a job as assistant manager, and Umphenour accepted, deciding to devote himself to the food business rather than teaching. Smith would prove to be a major influence on Umphenour, providing him with a basic understanding of business. Umphenour also became a voracious reader of business and self-help books, which he admitted in a 1997 Restaurant Business profile “is probably driven because I never graduated from college. I always felt there’s been a catch-up from a business knowledge point of view.” Whatever he may have lacked in business education, he more than compensated with drive and hard work. In 1968, he helped to open six new restaurants for Smith while serving as a roving manager. A year later, he became a regional supervisor for the Michigan cities of Midland, Bay City, and Saginaw.

In the fall of 1969, Umphenour was transferred to Birmingham, Alabama, in anticipation of a merger between Smith and Louisville, Kentucky-based Vineyard Village, Inc., a major Arby’s operator. Umphenour began to manage three Vineyard Village Arby’s, and when the merger ultimately fell through he elected to stay with Vineyard Village. He was named director of operations in January 1970, and over the next three years succeeded in dramatically growing sales. As a reward, he was allowed to purchase 20 percent of Vineyard Village’s stock.

Umphenour and Partners Launch RTM in 1973

By 1973, Umphenour was ready to take the next step in his career, admittedly influenced by his reading of Richard Bach’s popular novel Jonathan Livingston Seagull, an allegory about a gull with ambitions beyond trolling for crumbs. He traded his stock for 11 underperforming Arby’s restaurants located in Georgia and Alabama. He also took on two partners, Ted Papit and Mike Losey. They named the new venture RTM Restaurant Group, the RTM standing for the first names of the three men: Russ, Ted, and Mike. Within months, however, Umphenour bought out his partners and devised a new rationale for the RTM name: the Results Through Motivation mantra. As a restaurateur, Umphenoun enjoyed immediate success, quickly turning around the fortunes of his portfolio of Arby’s units, which generated $2.8 million in sales and a $182,000 profit. He also came close to experiencing failure. In 1974, he bought 13 California Arby’s restaurants, transforming RTM into a two-region company. Umphenour established lofty goals; in five years, he wanted to own 72 units and generate annual sales of $25 million. However, a softening of the economy soon cut into the business, and the company came perilously close to bankruptcy.

Umphenour managed to repair the damage caused by overex-pansion and stabilize the business, so that by the late 1970s RTM was once again ready to grow through acquisitions. In 1978, the company acquired a hamburger chain and converted it to Rusty’s, a concept similar to Wendy’s. Ultimately the units were turned into Arby’s restaurants. Also in 1978, RTM took the first step in computerizing its operations. A year later, RTM launched a major expansion in the Atlanta market, adding nine restaurants to the fold. In 1979, which marked the end of the five-year plan Umphenour set for his company, RTM operated 70 restaurants, two shy of the targeted level, while its revenues of $26.5 million exceeded the $25 million mark. The company now established a 20-year goal—to be a $1 billion company by 2001.

As was the case in the early 1970s, lofty ambitions almost resulted in the ruin of RTM. In 1981, the company acquired a number of Arby’s restaurants in Texas and South Carolina, and once again a dip in the economy pushed the company to the edge of bankruptcy. In order to survive RTM was forced to throttle back on growth and trim expenses. In 1982, it sold six Atlanta restaurants, but by 1984 RTM was able to resume its growth pattern. In that year, it bought 36 restaurants in Indiana, Kentucky, Michigan, and Ohio, becoming Arby’s largest franchisee. To facilitate further growth, RTM refined its decentralized approach to organizing the business, establishing subsidiaries run by operations partners.

In August 1989, RTM expanded beyond its portfolio of Arby’s restaurants when it sold most of its Los Angeles units to finance the purchase of Mrs. Winner’s Chicken & Biscuit. The chain had been launched in Atlanta a dozen years earlier as “Granny’s” and in 1979 was bought by Volunteer Capital, which changed the name to Mrs. Winner’s and relocated its headquarters to Nashville. In the first half of the 1980s, the chain spread through franchising but by 1986 fell victim to overexpansion. RTM applied its successful Arby’s formula to Mrs. Winner’s and began to improve the chain’s profitability. The fortunes of Mrs. Winner’s was further buoyed by the introduction of a new fried chicken recipe in 1992.

Not all of RTM’s efforts were successful, however. In 1988, the company tried to diversify beyond Arby’s by opening Fajita Junctions restaurants in San Francisco and Atlanta, but the effort failed. An attempt to add rotisserie skinless chicken to Mrs. Winner’s concept did not take hold, as did a bid to launch a catfish restaurant chain. In 1992, RTM opened four Checkers restaurants in Dallas that also failed to take root. In the mid-1990s, RTM bought 42 Shoney’s restaurants, the company’s only foray into full-service dining. The units were sold off two years later. According to Restaurant Business, Umphenour appeared to be “proud” of these setbacks: “He cites a quotation: ’Failure is nature’s plan to prepare you for great responsibilities.’ ”

Umphenour often used quotes to inspire RTM employees, drawing on a wide range of sources, from Calvin Coolidge to Danielle Steele. He developed and refined a business philosophy which formed the spine of the RTM handbook: “Dream Big, Work Hard, Get It Done, Play Fair, Have Fun, and Make a Difference.” Umphenour also compiled a recommended reading list for all levels of the organization to reinforce these points. Not content to merely issue pronouncements from his corner office, he was heavily involved in personally leading many training classes. One RTM colleague described the experience of simply chatting with Umphenour in the following terms: “It’s almost like you were in a pew on a Sunday Morning.” By all accounts, Umphenour remained unspoiled by his success. For example, he continued to answer his own phone to maintain his commitment to accessibility. His devotion to helping employees maximize their potential trickled down through the organization and was ultimately reflected in RTM’s healthy balance sheet. Able to finance expansion through credit lines, the company felt no need to go public.

Company Perspectives

Our Vision. … To be the premier quick service food company in the world. Our Mission. … Quality Food, Fast and Friendly. Our Purpose .… To make money, have fun and make a difference in people’s lives.

Innovation and Expansion in the 1990s and Beyond

In 1993, RTM became one of the pioneers in the dual-brand concept when it opened its first combination Arby’s and Mrs. Winner’s restaurant in Atlanta. The idea was to join complementary restaurants under one roof to save on overhead while also offering choice to consumers, especially useful in overcoming the “guest veto vote” of groups going out to eat. The right combination of brands also provided a steady stream of customers, with one brand stronger than another during different parts of the day, and resulted in higher per-store revenues. In addition to fried chicken and roast beef, RTM decided to try melding fried chicken with Mexican food. In 1995, it formed a partnership with the Del Taco chain, pairing it with Mrs. Winner’s. Later, participating in an Arby’s program, it joined some of its Arby’s stores with P.T. Noodles and others with TJ. Cinnamons.

RTM added to its chicken business in 1995 when it acquired 60 Lee’s Famous Recipe restaurants from Shoney’s Inc. Lee’s founder, Lee Cummings, worked with Colonel Harlan Sanders and served as the president of Kentucky Fried Chicken when it began franchising in 1959. After the chain was sold, Cummings developed his own ’’Famous Recipe” chicken and began franchising Lee’s in 1966. Shoney’s acquired the franchise rights in 1981.

RTM’s mainstay remained its portfolio of Arby’s restaurants, but changes within Triare Cos. Inc., the chain’s parent corporation, led to discontent among all franchisees. Triare acquired Arby’s, along with a number of other assets, from DWG Corp in 1993 and installed Don Pierce, a former PepsiCo executive, to “resurrect” Arby’s. Bringing with him more than two dozen vice-presidents, Pierce pumped about $100 million into the brand over the next four years, but in the view of franchisees much of the money was wasted on the salaries of a top-heavy corporate staff. Franchisees were also disaffected by a failed acquisition of the Long John Silver’s chain. More importantly, they were upset by Pierce’s pet project, to convert all Arby’s restaurants to his new “Roast Town” concept, similar to Boston Market. Umphenour voiced his disagreement with the initiative, but Pierce pressed on. By early 1997, however, the idea was dropped following poor market tests. Pierce and his team were also on their way out. Moreover, Triare decided to become a pure franchiser and sell off its company-owned stores. RTM quickly arranged to purchase the entire slate in a $71 million deal, some 354 units in all, which expanded the company’s territory by seven states as well as Canada. RTM now owned 22 percent of the Arby’s chain, 668 of the 3,000 total units. As part of the arrangement, Arby’s would use RTM restaurants to test new products and dual brand concepts and as a training ground for new franchisees. Moreover, RTM agreed to open 400 new Arby’s restaurants over the next 14 years.

Aside from opening new Arby’s restaurants, RTM acquired several smaller Arby’s operations in the late 1990s, and the 2001 purchase of Franchis Associates, Inc. and its 59 Arby’s restaurants further strengthened its hold on the brand. In 2002, however, RTM was unsuccessful in buying the second largest Arby’s franchisee, the 293-unit Sybra Inc., which had fallen into bankruptcy. The successful bidder was Triare, which decided to once again run a slate of company-owned restaurants. According to observers, Triare did not want RTM to become larger by a magnitude of 240 stores. Said one industry analyst: “There’s only so big you want them to be.” On other fronts, in 1999 RTM formed a partnership with a Fleet Bank division, BankBoston Development Company, to fold its two chicken chains into a new operating company, Winner’s International, which would be better able to build on the brands and franchise the concepts domestically and internationally. RTM also opted to back away from the dual-brand idea with Arby’s, believing that the chain’s new quality line of “MarketFresh” sandwiches provided sufficient differentiation in the fare they offered to offset the guest veto vote. Although RTM would open no new dual-brand restaurants, it planned to continue running its current operations.

In the early 2000s, RTM instituted changes in the ranks of upper management. In January 2000, long-time RTM executive Dennis E. Cooper replaced Umphenour as chairman, a change which merely reflected realities. Umphenour continued to focus on the operational side of the business, retaining the titles of president and CEO. In 2003, in conjunction with the company’s 30th anniversary, Tom Garrett, with a 23-year tenure at RTM, succeeded Umphenour as president. Regardless of titles, there was no doubt that Umphenour continued to be the driving force behind RTM.