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Chick-fil-A in 2016

Joyce L. Meyer A.J. Strickland The University of Alabama The University of Alabama

“I’d like to be remembered as one who kept my priorities in the right order. We live in a changing world, but we need to be reminded that the important things have not changed, and the important things will not change if we keep our priorities in proper order.” Chick‐fil‐A founder Truett Cathy spoke these words, bringing his personal and business philosophy to life.

Many years later, President Dan Cathy pondered his father’s words as he met with his advisory board. In the midst of lawsuits regarding hiring policies and acts of discrimination, Cathy knew it was time to look at the history of Chick‐fil‐A and compare it with the present day world‐view of the company. Dan Cathy was strong in his religious beliefs, which set the foundation for Chick‐fil‐A’s business practices, but was starting to question their role in a modern‐day business setting. His father, Truett Cathy, outlined many of these beliefs, including closing Chick‐fil‐A on Sundays, in Exhibit One. Despite his father’s firm belief of basing business on Biblical principles, Dan Cathy and his advisory board began to discuss the legality and constitutionality of many of these key issues involving the fusion of religion and business. THE QUICK SERVICE INDUSTRY

A quick serve (QSR), also commonly referred to as a restaurant, is defined as a specific type of restaurant characterized by fast food cuisine and minimal table service. The term fast food more specifically refers to food that can be prepared and served , a term first recognized by Merriam‐Webster dictionaries in 1951 with the opening of Jack‐in‐the‐Box chain restaurants. The quick serve industry commonly served food that included burgers, chicken, , , Mexican, Asian, and .

The market for fast food recession slowed the growth, as the increase from 2007 to 2009 accounted for 39.2 percent of the global fast was only 3.0 percent, but it recovered quickly. In the same food’s market value in 2016. In the United time span, 2009-2011, transactions grew 12.7 percent to reach States, the market for fast food dropped 0.6 a value of nearly 46 billion. percent in 2009, but has since grown by an average of 2.4 percent to its current standing of The chicken segment of the fast food, or quick service, industry $228 billion. While revenues were growing, the accounted for 22 percent of the fast food market with $12.85 number of transactions was also growing. The billion in revenue in 2007. Nearly a decade later, the chicken segment holds only 10 percent of the $228.2 billion Demand For Fast Food fast food market. Between 2005 and 2009, the chicken Buyers of fast food demanded quick service, tasty segment grew from $14.5 billion to $16.1 billion. The food, and low prices. They were typically lunch chicken segment was the slowest growing segment customers, people on‐the‐go, or late‐night diners. of the industry averaging only a 6 percent segment Because there was virtually no cost to the buyer to growth rate in the years leading up to the recession. choose among restaurants, restaurants attempted to The top three competitors in the chicken segment drive demand through differentiation. Companies included KFC, Chick‐fil‐A, and ’s. With attempted to drive demand to their restaurant by combined revenues of $12,415.8 (in millions) in 2014, adding new menu options, additional operating hours, they represented 71 percent of the total revenues of meal incentives, and contests. They also diversified this segment. their products through the range of food offered. Some players offered food in multiple segments, such Today, Chick-fil-A leads the race for revenue and has as chicken, beef, and fish, while others focused only for five years now as KFC cannot reverse its downward in one segment. Because brand recognition was so trend. At $2.434 billion, trails KFC, $4.200 vital to the success of restaurants, heavy advertising billion, by a large margin. The gap created by Chick- campaigns were launched in an attempt to drive fil-A is strong as its revenues reached $5.782 as of demand to a particular restaurant. Buyers were also 2014. The growth of Chick-fil-A put it above Pizza very price sensitive, which forced the restaurants to Hut, the biggest pizza brand in the country. keep their prices low; however, charging low prices could diminish profitability. Since survival in the Going forward, as forecasted by the Federal Reserve, industry was heavily dependent upon profitability, the United States economy can expect continued it became crucial that fast food restaurants keep gradual rates of improvement in the unemployment their operating costs down. Demand was decreased rate and GDP growth, along with a subdued rate of when consumers decided to utilize alternative dining inflation. 2014 unemployment estimates are projected options, such as dine‐in restaurants or home cooking. to fall below 7% in 2014, and then continue to taper The advantage that fast food had over alternatives downward in 2015. GDP, on the other hand, is was that it was more convenient. It was also typically expected to grow at least 2.9% in 2014 and 2015, and more attractively priced; however, dine‐in restaurants inflation is expected to remain very low through 2015. were beginning to challenge fast food restaurants on price by offering price cuts for lunch and late‐ So, not only is the employment rate still significantly night specials. Demand was also affected by the elevated from pre-recession levels, but among those possibility of new entrants. Most operations were run currently employed, a higher percentage are working as franchises, which did not require a large capital part time—for much less money. To place this in outlay. This increased the likelihood that rivals could perspective, some 27.4 million employed adults were enter the industry and intensify competition. Most working part time in July 2013, compared to 23.5 potential threats were deterred by entry barriers, such million in August 2007. Meanwhile, from July 2007 to as retaliation by existing players, low revenue growth July 2013, the number of full-time employed dropped rates, and lack of brand strength; however, there was a from 123.2 million to 117.7 million. strong possibility that entrants could grow quickly and intensify rivalry. This phenomenon helps explain the limited-service restaurant industry’s continued heavy reliance on value pricing—even while the unemployment rate has Suppliers to the Industry improved, many of the newly employed must subsist Suppliers to the fast food industry supplied food, on part-time wages. This, in turn, creates reliance on packaging, equipment, and labor. The two major US what we have termed “extreme affordability” when suppliers, US Foodservice and Sysco, had substantial using limited-service restaurants, boosting sales of market share and supplied many customers; therefore, menu items on the “value menus” that proliferated they were not dependent upon any individual fast food during the recession and remain a core component of player or chain of restaurants. Because the fast food many QSR menus. industry was labor‐intensive, players were dependent upon employees to carry out the day‐ to‐day separately and charge one dollar per item. By having operations of the restaurant. Employees were typically the items listed separately, consumers were more likely uneducated and low‐ skilled, so they demanded low to purchase multiple items and would actually end up salaries; however, minimum wage legislation regulated spending more; however, since they were only paying the amount that employees were required to be one dollar per item, it was a perceived value. Thus, it paid, so restaurants had little control over employee was considered a win for both sides. compensation. Recent Trends in the Fast Food Key Competitive Capabilities in the Industry Fast Food Industry Fast food brands were among the most recognizable Health brands in the world. Americans spent more money Because of the content and typical portion sizes, each year on fast food than on music, movies, books, fast food was considered the unhealthiest of all food and magazines combined. Because brand recognition options. By the late 1990s, the entire industry came was key to raising awareness and building brand under scrutiny as the party to blame for America’s loyalty, the industry’s major players ensured that weight battle. The claim was that fast food restaurants brands were not only found on packaging and signage, did not give consumers healthy dining choices. The but also found on billboards, print advertisement, food served in a was full of highly and television commercials. Key players invested processed ingredients and additives that enhanced the countless amounts of money seeking to find ways to flavor and helped preserve the shelf life of the food. target children as young as two years old, in an effort It did not contain healthy calories that gave lasting to build brand loyalty at a young age. By offering toys energy, but rather, fulfilled a temporary craving. with meals, major quick serve restaurants ensured that these children wanted to come back from their first Fast food had been linked to obesity‐related diseases, experience eating there. As a result of the race to build such as heart disease and diabetes, and was also found brand loyalty, key players also engaged in advertising to contain pesticides. As Americans, specifically the campaigns that enticed buyers into restaurants and new generation of millennials, became more health kept the brand recognizable. Through clever slogans conscious and began to value healthy eating habits, fast and catchy jingles, fast food restaurants sought to food restaurants began to offer healthy menu options ensure that consumers were always aware of the that were “MSG‐free,” or “organic” with no pesticides brand. Convenience was also an important capability used. These healthier options included , grilled in the industry. Because society was fast‐paced and chicken, and the availability of more fruits and maintained a “want it now” philosophy, players in . These health upgrades represented an the industry had to ensure that they delivered quick increased cost to restaurants, which was a cost that was service and had numerous locations that were easily passed on to the consumer. available to customers. By having multiple locations within the same town, it guaranteed that there was an While adding healthy menu options is essential for available QSR near most consumers, regardless of their menu developers, marketing these dishes can prove location. Additionally, many players began placing fast problematic. Healthy menu claims that speak to food chains inside popular grocery or retail outlets, specific nutritional markers (i.e., fat free, low fat, low which brought an added level of convenience. carb, low calorie, and sugar free) can repel restaurant- goers as these claims can often imply “less flavor” and Another key capability was the ability to offer a detract from an item’s overall appeal. This explains the competitive price. Consumers were price sensitive, so decline in use of these claims by restaurant operators players had to find ways to keep prices low. This led from 2010-2012. However, not all nutritional claims to the introduction of many “dollar menus,” where are met with the same consumer resistance. For restaurants would have ten to fifteen items that were example, organic and all natural speak to overall priced at one dollar each. Players found that they wellness as opposed to being diet-focused. As a result, could charge five dollars for a meal, or list the items menu items with these attributes aren’t perceived as having “less flavor,” and in fact can be championed for grew 12 percent between 2000 and 2004. In 2010, fast providing improved flavor. This explains why menu casual sales were estimated at $23 billion, a 30 percent claims such as farm raised, free range, and grass fed increase from 2006 sales. 2015 marked the seventh are among the strongest gainers from 2010-2012. The consecutive year that fast casual led the restaurant prevalence of gluten free menu items is also on the segments in growth, reaching double digit percentage rise, with the term showing up on almost three times growth in 2014 and 2015. the percentage of QSR menus in 2012 than in 2010. In April 2013, fast casual chain Jason’s Deli even added a Technology Gluten-Sensitive Menu. Harnessing the power of technology is an important consideration for limited-service restaurant As the “clean food” movement continues to emerge, operators, especially given the high concentration of limited-service menu developers are integrating the young consumers these restaurants attract. Specific concept into menu platforms to achieve a positive convenience-driven decision influencers, including health stance. Fast casual operators are currently best mobile pre-order and mobile payment, prove to be suited to attract diners based on clean food eating significant drivers among key demographics, especially principles; Chipotle, , and Jason’s Deli are under-35s, students, less affluent, and non-whites. good examples of leading fast casual operators already Keeping up with the demands of an increasingly doing so. However, clean positioning can take many mobile society also means that limited-service forms—leaving the door open for fast food operators operators should remain forward thinking in terms to create a healthy halo based on these principles. of technological advancements, otherwise risking QSRs can play to this trend with transparent becoming irrelevant to their core on-the-go consumer. menus, food sourcing to showcase food safety and integrity, and promoting food in a way that makes Self-serve kiosks or point of sales systems are consumers feel good about their choice by using menu terminals where orders can be entered and then descriptors such as all natural, organic, gluten free, no managed. This type of technology is a good match preservatives, etc. For example, Chick-fil-A introduced for limited-service restaurants, although the industry its three new premium salads and an improved wrap is slow to adopt it. Restaurant operator examples: by using #FreshMade along with the tagline “Take and Sheetz. Restaurants are beginning your taste buds to greener pastures.” to incorporate tablets as a way to take advantage of technological opportunities. While the trend is more Globalization prevalent within the full-service restaurant realm, Another trend in the industry involved increasing the trend is definitely on deck for limited-service globalization. As the market became more saturated operators to improve speed of service and accuracy. in the US, rivals began to open locations overseas. Restaurant operator examples: Stacked and McAlister’s With many European countries having an affluent Deli. Restaurants are widely using social media like population, US players began to tap into these markets Twitter and Facebook to increase brand awareness. to pursue growth opportunities. Developing countries, Further, Mobile devices have become an essential part such as China and India, also provided opportunities of everyday life, making mobile marketing an essential for US fast food players, as their countries became component of restaurant marketing strategies. adoptive of American brands. When entering an international market, the restaurant could tailor their Factors Influencing the Decision to operations, and even their menu, to meet specific consumer preferences in those areas. The growth of go to a Fast Food Restaurant fast casual restaurants was also a trend in the fast Among limited-service restaurant users, low price, food industry. These restaurants included the option quality of food, and convenient location are the most for customers to sit down in a more traditional influential factors driving their restaurant choice. The restaurant setting, but still enjoy the quick service narrow separation between these attributes exemplifies and low prices of popular fast food restaurants. The the strength of fast food’s core equities. Among units were considered a hybrid between fast food and consumers, the availability of a promotion/discount/ dine‐in restaurants. Sales of fast casual restaurants coupon is also highly effective, with 55% citing this as influencing their decision to go to a fast food restaurant and 14% citing it as the most important THE CHICK-FIL-A STORY influence. This suggests that value menus coupled Chick‐fil‐A was founded in Georgia by restaurateur with promotional offers could be a highly effective Truett Cathy in the early 1960s. Credited with marketing strategy. inventing the boneless chicken , Cathy opened the first Chick‐fil‐A establishment in a High-quality food emerges as the most important shopping mall in Atlanta, Georgia in 1967. Since that attribute for a full third of limited-service users—a time, the chain restaurant grew to become the largest higher percentage rate attributed as “most important” quick service chicken restaurant chain in the United than any other attribute. The proliferation of fast States, with over 2,000 restaurant locations in 43 states. casual concepts has helped to perpetuate quality food Chick‐fil‐A claimed 48 consecutive years of positive perceptions available at limited-service eateries. As a sales growth in 2015. result, traditional QSRs are upping the ante in terms of quality to better compete. Chick‐fil‐A’s website stated that sales in 2015 surpassed $6 billion, approximately a 4 percent increase from the Although convenient location influences 67% of users previous year. choice in fast food restaurant, only 18% cite is as the most important attribute. The ubiquitous presence of Chick-fil-A claims to have invented the chicken fast food operators likely decreases the influence of sandwich, and has used this as its point of location as the most important driver. differentiation in the quick-service market. Chick- fil-A is also distinguished from other QSR companies Other convenience-related attributes also emerge as by its tradition of closing its restaurants on Sunday. fairly influential—quick service (56%), drive-thru The company has come under fire for integrating its window (41%), and on-the-go friendly foods (36%). Christian beliefs as part of its business practices. But While technology is important and can enhance despite all of the hoopla and controversy, Chick-fil-A convenience perceptions (i.e., 47% indicate the ability sales have risen sharply during 2010-2012. A look at to pay with credit card/debit card influences their Nation’s Restaurant News’ Top 100 restaurant chains restaurant choice), the convenience of mobile phone reveals that 2012 Chick-fil-A foodservice sales growth technology in terms of ordering and paying remains outpaced all but 12 of the other 99 chains on its list. a bottom dweller. However, as mobile phones and related payment technology continue to entwine Exhibit 1 shows the locations, as of 2013, of Chick‐ themselves into consumer lifestyles, we expect their fil‐A restaurants and Exhibit 2 shows the trend of influence on the fast food decision-making process to growth in sales per store in recent years compared to grow. that of KFC. Menu variety also proves to be a fairly important driver in restaurant selection, with 59% user Business Model participation. It’s clear that menu variety must include Chick-fil-A boasts a menu based on chicken products Better For You options, as nearly half of users are and fresh ingredients and “hand-made” preparation influenced by availability of healthy menu items. techniques for many products, such as its hand- Importantly, 14% say that this is the most important breaded chicken, made-from-scratch salads and driver in restaurant selection—giving it rank equal freshly squeezed lemonade. The menu offers a variety to the availability of promotional/discount/coupons. of choices that fit into any healthy, well-balanced This suggests that launching healthy menu options diet. Even so, Chick-fil-A launched new menu items with a price promotion could significantly help drive targeting health- conscious consumers. Chick-fil-A’s awareness and acceptance of the item. menu is dominated by entrée items (51% share), of which combo meals account for a large share (27%). Once again, this speaks to the value proposition that is expected at QSRs. The company’s menu is somewhat differentiated by its larger share of side dishes (16%). Exhibit 1: 2013 Chick-Fil-A Locations

Source: http://www.chick‐fil‐a.com/Documents/Chick‐fil‐A_Message.pdf

Convenience & Ease, Variety on a Budget, and EXHIBIT 2: Chick‐fil‐A Yearly Revenue per Weekend Cooks are the most likely users of Chick- store compared to KFC 2004-2013 fil-A; yet, high-frequency users from the Variety on a Budget cohort significantly over index in usage. Chick- fil-A attracts these frequent restaurant goers through the brand’s strong association for fresh and healthy QSR fare. Their interest in gourmet good—as long as it fits in their budget—is a perfect match for Chick- fil-A’s premium products and unique and side options. Additionally, the fact that this cohort has their own appreciation of the relationship between food and good health likely gives Chick-fil-A an advantage as a first mover in nutrition transparency. Some 17% of adult consumers aged 18+ are using the brand. Although overall guest traffic isn’t as high as other leading QSR companies, Chick-fil-A is clearly moving in the right direction. “Any” usage has increased almost 20% during 2011-2013. It is also one of the few major brands under review to improve usage frequency across demographic lines. However, higher- frequency usage (6+ visits per month) has dropped by almost 20%. By demographic, trouble spots include declining high-frequency users among women, 18-24s, blacks, and lower incomes HHs. Unlike many of its competitors, Chick-fil-A has yet to implement a . Undoubtedly, this type of menu expansion would help increase patronage among these price- value conscious demographics. In 1996, in celebration of Truett Cathy’s 50th Anniversary as a restaurateur, Truett’s Grill was Chick‐fil‐A operated through a unique business opened in Morrow, Georgia. The grill was a full‐ model. The restaurant had mall locations, free service ‘50’s themed diner concept that featured the standing restaurants, drive‐thru only restaurants, Chick‐fil‐A menu, as well as menu items from the and licensed, non‐ traditional units. Shopping mall Dwarf House. Similar to the Dwarf House, Truett’s restaurants were the first type of restaurant offered by Grill gave diners the option of choosing counter Chick‐fil‐A; its first location in 1967 was in Atlanta’s service, seated dine‐in service, or drive‐thru service. Greenbriar Mall. Since that time, approximately A second location of Truett’s Grill was opened in 334 shopping mall locations were opened. When McDonough, Georgia in 2003, and a third was opened consumers began to demand greater convenience in 2006 in Griffin, Georgia to celebrate Cathy’s 60th and access to restaurants, the company responded year in the restaurant business. There were also ten by opening free‐standing restaurants in high traffic satellite “lunch counter” concepts in operation that areas. These restaurants were first opened in 1986, allowed customers in high‐traffic areas or office but grew to over 938 units. The drive‐thru only units locations to receive fast service during peak lunch were located near the shopping mall units and served hours. as a satellite location to the parent restaurant inside the mall. The number of drive‐thru units grew above Chick‐fil‐A restaurants were operated through 300 nationwide. To ensure customer service stays franchise agreements. These Operator Agreements top-shelf, Chick-fil-A establishes dedicated drive-thru allowed franchisees to sub‐lease a chain for $5,000. teams who are consistent and work well together. Each month, the Operator paid Chick‐fil‐A corporate Recently, Chick-fil-A also implemented a new “face- 50 percent of net profits and 15 percent of gross sales to-face ordering” component in which employees line- as a franchise fee. In the same way that Chick‐fil‐A bust using tablets in the drive-thru lane. The strategy analyzed potential employees—it also analyzed first started among local operators in , but is potential Operators. Operators would wait for up now rolling out to Chick-fil-A locations nationwide. to a year before they were approved because Chick‐ “Face-to-face ordering allows us to use technology to fil‐A wanted to ensure that it had the best and most increase speed, and to leverage our greatest asset: our committed workers. The company often looked to Chick-fil-A team members who are interacting with its 50,000 team members for potential Operators. customers in the drive-thru line,” he says. On top of Approximately 60 percent of the restaurant’s Operators face-to-face ordering, Chick-fil-A is employing more had previous team member experience with Chick‐ double drive-thru lanes to avoid bottlenecking in the fil‐A. The company’s thorough analysis of potential drive thru and also tested a new outside payment Operators proved to be successful, as there was only a process last year that it will soon roll out nationwide. 5 percent turnover rate among Operators. Compared with a national fast food average turnover rate nearing Licensed, non‐traditional units represented over 270 200 percent, Chick‐fil‐A had employee retention down of Chick‐fil‐A’s locations. These units were established to a science. on college campuses and in airports, hospitals, and business to allow licensed partners to serve Chick‐ Hiring practices were a major focus when Chick‐ fil‐A in non‐ traditional locations. The company also fil‐A opened new franchises. Each new franchise opened 11 Dwarf House restaurants, all located in operator completed a six‐week training period at the metro Atlanta area. Dwarf House was the first the company’s corporate headquarters, including restaurant opened by Truett Cathy in the late 1946. traditional classroom training and well as operational Named for its small size, the original restaurant hands‐on experience. During this training, operators operated out of Hapeville, Georgia. Dwarf House were taught the four critical success factors that Chick‐ restaurants allowed customers to choose between fil‐A used to conduct efficient and effective business table service, walk‐up counter service, or drive‐thru practices. These factors were: satisfied customers; sales window service. and brand development; motivated, effective people; and financial return for its business. This emphasis on hiring developed and efficient workers helped Chick‐fil‐A to flourish as a successful quick service individuals. Company meetings opened and closed restaurant with satisfied and well‐trained employees. with prayer, and company retreats revolved around An interviewed Chick‐fil‐A employee praised the Biblical principles. While these practices could have company for its extensive training methods, and said opened the door for discrimination lawsuits, there that it contributed to her happiness and success as a were no laws that prohibited companies from asking team member with the company. questions about marital status and religion in an interview. Also, because the company was privately Mission, Purpose, and Business held and operated by independent franchisees, it was not subject to the same laws as publicly traded Principles corporations. Chick‐fil‐A’s mission was to “Be America’s Best Quick‐ Service Restaurant.” The company sought to live up to Community Involvement this mission by serving high‐quality, delicious food, Chick‐fil‐A sought to enhance community and promoting community involvement through involvement through sponsorships, scholarship, and sponsorships, scholarships, outreach, and programs other outreach programs. One of the company’s core for children. It aimed to enrich the lives of customers, values involved “making a positive impact on our employees, families, and friends because managers communities and the people in them.” As a result of knew that “a little chicken goes a long way.” While its this value, Chick‐fil‐A became a corporate sponsor mission was to enrich lives, the company’s purpose of the Southeastern Conference (SEC) and Big 12 was to glorify God. The purpose stated: “to glorify God Conference and lent its name to such events as the by being a faithful steward of all that is entrusted to us. Chick‐fil‐A Bowl, Chick‐fil‐A College Kickoff, Chick‐ To have a positive impact on all who come in contact fil‐A Kyle Petty Charity Ride Across America, and with Chick‐fil‐ A.” Cathy believed that business BETWEEN THE LIONS on PBS. should be based on biblical principles “because they work.” As a result, all Chick-fil-A restaurants were Through its sponsorship of the SEC and Big 12 closed on Sunday to give employees time to rest, go to conferences, Chick‐fil‐A reached out to fans of church, and spend time with their families. collegiate football through onsite marketing at collegiate championship events. The states included in The company focused on recruiting and retaining loyal these conferences allowed Chick‐fil‐A to reach over 80 employees that had some sort of religious background. percent of its restaurant footprint with marketing at Potential employees were subject to intense screening events. The Chick‐fil‐A Peach Bowl was a post‐season to ensure that their values aligned with those of the collegiate bowl game that featured an ACC (Atlantic company. While it was not a requirement that an Coast Conference) vs. SEC match up. It was played in applicant be Southern Baptist to work at Chick-fil-A, the Georgia Dome in Atlanta, Georgia and typically almost all employees practiced some form of Christian attracted over 70,000 people. Each year, the Chick‐ faith. As one Chick-fil-A employee stated, “Christian/ fil‐A Peach Bowl generated more money in charitable Biblical principles are a foundation of the Chick- donations than any other bowl game. The 2015 game fil-A business model; while being Christian is not a alone generated $1.58 million in charitable and requirement of working for Chick-fil-A, management scholarship donations. The Chick‐fil‐A College Kickoff prefers to hire people who exhibit Christian was a premier, season‐opening collegiate football game characteristics in their everyday lives. Even from a played in the Georgia Dome in Atlanta, Georgia. The logistical standpoint, this makes sense: it involves less Chick‐fil‐A Kyle Petty Charity Ride Across America training before an employee is ready for the job of was a charity bike ride that raised money for the serving others.” Victory Junction Gang Camp. The camp, founded by Kyle Petty and his wife, Pattie, served children The company sought to hire employees that were with life‐threatening or chronic illness by providing not looking for temporary employment, but rather, memorable and fun camping experiences. The ride looking for life‐long employment. The company typically included more than 7,000 riders who logged targeted married individuals because it believed that more than 11 million miles and raised more than $16 married individuals were more loyal than non‐married million for the camp. BETWEEN THE LIONS was an award‐winning, children’s television series on PBS that The WinShape Foundation, Chick‐fil‐A’s charitable helped children learn to read. The show was consistent arm, was created in 1984 to help “shape winners.” with Chick‐fil‐A’s Kid’s Meal Programs’ goal to “Grow The program focused on the growth and leadership Kids Inside and Out.” development of youth through education and support. The foundation supports a long‐term foster care Truett Cathy started the Team Member Scholarship program, a summer camp for children, a scholarship program in 1973 to encourage restaurant employees to program, and marriage enrichment retreats. pursue higher education. At the time, it was the only program offered by a quick‐service restaurant chain. Much controversy erupted surrounding the WinShape In 1996, the Team Member Scholarship program was Foundation and its denouncement of gay marriage replaced by the Leadership Scholarship program, and same‐sex couples when the foundation was found which put more emphasis on an employee’s leadership to support many anti‐gay groups in late 2010. The abilities and community service efforts. Through WinShape foundation supported the Ruth Institute, the program, Chick‐fil‐A has offered more than $30 a group that advocated a traditional heterosexual million in scholarships to more than 30,000 restaurant marriage and openly spoke out against gay and lesbian employees who have attended 2,138 colleges, relationships. This controversy sparked outspoken universities, and other educational institutions comments from many gay and lesbian alliance nationwide. No other company comparable in size has groups, and greatly angered many students on college given as much in scholarships as Chick‐fil‐A. campuses. In particular, Indiana University students requested to have a Chick‐fil‐A restaurant removed Chick-fil-A announced a new initiative that will from campus after learning about the company’s ties more than double the company’s investment in to the anti‐gay movement. Other schools across the team members’ college educations—providing $4.9 nation, including Duke University, North Carolina million in scholarships in 2017 alone, as well as State University, and University of Illinois, made access to tuition discounts and other benefits at more statements such as “we are reviewing our relationship than 70 colleges and universities nationwide. While with Chick‐fil‐A,” with many campuses believing that Chick-fil-A has offered scholarships for more than Chick‐fil‐A no longer belonged in their universities. 40 years, the enhanced initiative, called Remarkable Futures, increases the amount of funding per The many issues stemming from this debate also recipient, allowing students to receive up to $25,000 in included bad press for Chick‐fil‐A and its owners scholarships to be applied at any accredited institution and managers. Dan Cathy, the president of Chick‐ of their choice, including online and on-campus fil‐A, was denied a speaking appearance with a local formats, and can be combined with tuition discounts Missouri chamber of commerce due to his company’s and other educational benefits at participating perceived anti‐gay agenda. Cathy responded by saying institutions. that the company was not anti‐gay, but simply adhered to biblical principles that were the historical basis of This investment in Chick-fil-A team members the company. represents a significant, industry-leading initiative, both in the number of scholarships given (more than Advertising 1,850 expected in 2017) and total financial investment Truett Cathy knew that advertising was important for in team members ($4.9 million). Chick-fil-A success, so he made a practice of dressing his children scholarship recipients have the flexibility to apply the in mascot uniforms to promote his restaurants. Dan funds at the traditional campus or online institution and Bubba Cathy would dress in dwarf costumes of the student’s choice, and there is also no length-of- to promote the Dwarf House and dress as Doodles service requirement associated with eligibility. Because the Chicken to promote Chick‐fil‐A. In 1995, an the goal of this initiative is to build community advertising agency out of , The Richards leaders, scholarships will be awarded based on factors Group, developed the Chick‐fil‐A cow campaign. The like leadership and community involvement, in campaign was a billboard campaign that featured cows addition to academic achievement. that encouraged the public to “ Mor Chikin.” The a voice mail message was promptly sent to all 2,000 cows served to convince the public to refrain from restaurant locations. Employees also kept a close eye eating beef and to eat chicken instead. The cows had on speed. The goal was to have a customer served no names and never spoke or endorsed Chick‐fil‐A at the counter in less than 60 seconds, and served directly; rather, they promoted chicken in an act of in the drive‐thru in under 90 seconds. There were self‐preservation. The success of the Chick‐fil‐A cows timers that would flash on the computer screen to let led the company to create merchandise bearing the employees know how close they were to their specified cows’ images. The famous Chick‐fil‐A cow calendar time limit. Each year, Chick‐fil‐A spent more than $1 is in its 19th iteration for 2016, now a staple of million evaluating its customer service. It conducted the company’s marketing tradition. The company traditional focus groups as well as telephone surveys promoted cow coupon books, t‐shirts, coffee mugs, with customers to ensure that it was exceeding and even Cow Appreciation Day. Cow Appreciation expectations. Cathy referred to the company’s service Day was an annual promotion that gave a free meal to as “servant leadership,” and believed that employees’ customers who came into any Chick‐fil‐A restaurant behavior was a reflection of the company’s core dressed as a cow. If a customer came in wearing a cow Christian values. He believed that by living Chick- tie or other article of clothing bearing the cow image, fil-A’s values every day, managers do not have to they received a free entrée. The campaign encouraged constantly instruct employees on how to behave. As a customers and employees to dress up, have a little fun, reflection of this detail‐oriented attention to serving and eat more chicken. Most recently, Chick‐fil‐A was the customer, Chick‐fil‐A won the 2010 J.D. Power presented the 2010 runner up for the Advertising Age and Associates Restaurant Satisfaction Study “Top “Marketer of the Year” award in honor of its hugely in Customer Satisfaction” award for successful 15 year “Eat Mor Chikin” campaign. its outstanding customer service practices.

Much of the advertising focus in 2016 has turned Awards and Recognition focus towards Chick-fil-A’s mobile phone application, Chick‐fil‐A received numerous awards for its business Chick-fil-A One. The app competes with many fast practices. It has repeatedly won the Business Week/J.D. food restaurant mobile ventures that allow customers Power “Customer Service Champs” award, receiving to order from their smart phone and pick up orders in high marks for premium service and promoting a stores or at drive-thrus. The app has a loyalty program “family dynamic.” The Today Show, in conjunction built in and remembers customer orders to make the with the Zagat survey, ranked Chick‐fil‐A first in ordering process more convenient. Chick-fil-A has overall service, as well as first in the chicken restaurant introduced packaging with the app logo (pictured category. Chick‐fil‐A has received that prestigious below). “Choice in Chains” Customer Satisfaction Award (Chicken Category) every year since 1994. QSR Customer Service Magazine awarded Chick‐fil‐A the “Best Drive‐Thru In the fast food industry, customer service is often in America” award for food accuracy, menu board overlooked because the focus is on speed; however, appearance, and employee smiles. this was not the case with Chick‐fil‐A. Customer service was more than a commitment—it was a The company has received the Men’s Fitness “Fit 15” priority. While employees also had to be mindful of award for its focus on employee health and wellness. quick service, they were required to give excellent It has also received the “Madison Avenue Advertising customer service. Walk of Fame” award for its popular Chick‐fil‐A Cows Rather than receive a head nod or “you’re welcome,” advertising icons. Other recognitions include being the words “my pleasure” were often echoed after inducted into the 24/7 Wall Street Customer Service receiving a “thank you” from customers. The extra Hall of Fame. Consumer Reports also named the touches that customers would not expect from a fast Chick-fil-a Sandwich as the tastiest on the market in food chain are what set Chick‐fil‐A’s customer service 2014. Also notably, Dan Cathy received the “Golden apart from the rest. Whenever Cathy, or one of his Chain Award” from the Nation’s Restaurant News operators, developed a new twist on customer service, twice for Chick-fil-A’s commitment to excellence. With awards for food quality, customer service, employee support, health and wellness, and advertising hand‐written recipe is kept in a locked vault at KFC COMPETITION corporate headquarters in Louisville, . It is a closely guarded secret, with only two corporate officers Kentucky (KFC) having knowledge of the recipe in its entirety. With annual sales of $4.2 billion in 2014, Kentucky Fried Chicken has fallen from glory. KFC used to hold KFC’s most famous menu items were the fried the top spot among chicken restaurants, but Chick- chicken and sides—, , french fil-A has overtaken it, and now KFC stores are being fries, mashed potatoes with gravy, biscuits, baked closed more frequently than new ones open. The last beans, macaroni and cheese, rice, steamed vegetables, time KFC lead the chicken segment was 2011. In fact, and corn on the cob. The chain also offers chicken KFC has not posted a growth in systemwide sales in a sandwiches, chicken fingers, chicken wings, chicken decade (2006). poppers, chicken wraps, and potpies. Internationally, some locations served non‐chicken dishes such as The chain was based in Louisville, Kentucky and , pork, ribs, or fish. Because the majority offered chicken sandwiches, salads, and wraps, but of the food offered was deep‐fried, it contained high was most known for its famous fried chicken. The levels of trans fat, which increased the risk for heart company was founded in 1952 by Colonel Harland disease. In late 2006, the company announced that it Sanders, who had served his fried chicken in the 1930s would begin to deep‐fry its chicken in trans fat‐free at a gas station he owned in North Corbin, Kentucky. oil; however, sides such as mashed potatoes, macaroni The restaurant was so successful that the Governor of and cheese, and biscuits still contained trans‐fat. In Kentucky, , awarded Sanders the title of mid‐2007, the company began using trans fat‐free honorary for his contributions to oil in an effort to reduce the amount of trans the state’s cuisine. In 1940, Sanders created what came fat found in the majority of its food. to be known as his Original Recipe, and in 1952, he opened his first Kentucky KFC’s advertising focused on the Colonel. In the with partner, in South Salt Lake, . 1980s, commercials began to focus on humor, with By the 1960s there were over 600 franchised Kentucky cartoon‐like, clay images illustrating the poor quality Fried Chicken restaurants in the United States and of competitors. By the 1990s, an animated version of Canada. the Colonel was used in advertisements, and remained in use in 2007. The signage bore his image and the Sanders sold the entire KFC operation in commercials always featured the Colonel in some 1964 for $2 million. After 1964, the chain was sold capacity. The first advertisements featured the Colonel three more times, and after 1997, remained a wholly licking his fingers and talking about his secret recipe. owned subsidiary of Yum! Brands. The original In 2011, KFC changed its slogan for the first time from “it’s finger-lickin’ good” to “so good.” The idea was to bring attention away from the greasy chicken and recognize the healthy additions and changes to the menu. By 2016, KFC stopped using “so good” in its TV commercials and returned the Colonel to its ads along with his age-old slogan.

Most KFC locations after 1997 were co‐located with another Yum! Brands restaurant, such as , Bell, or Long John Silvers.

Popeyes Chicken Popeyes Kitchen has built a solid position in third place on the chicken segment podium. It has always trailed Chick-fil-A and KFC, but has put $1.2 billion in systemwide sales between themselves chains separately. In 2004, AFC sold Church’s Chicken and fourth place competitor, Zaxby’s. Steadily, the to , but retained ownership of Popeyes. brand has elevated sales every year to its 2014 total of $2.4336 billion. Popeyes’s most notable menu items were fried chicken, Cajun foods, and biscuits. Customers could choose Al Copeland opened Popeyes Chicken in 1972 in from fried chicken, chicken sandwiches, chicken wraps, Arabi, Louisiana. The chain was opened as “Chicken chicken biscuits, or chicken bowls with sides of Mashed on the Run,” but business was slow in Arabi, a suburb Potatoes, Cole Slaw, and Cajun items—Red Beans & of , and Copeland realized that in order Rice, Cajun Battered Fries, and Cajun Rice. In 2006, to increase sales, he’d have to spice up his recipe and Popeyes introduced a trans fat‐free biscuit and trans fat‐ give New Orleanians the flavor they were used to free fries as customers became conscious of trans in having. Copeland soon reopened the restaurant as deep fried foods. Popeyes, named after the character Popeye Doyle in the movie “The French Connection.” In the late 1970s, Popeyes’s advertising centered on the company’s Cajun Copeland began franchising the restaurant. Within and Creole background. Advertisements featured 10 years, there were over 500 franchised outlets. In New Orleans‐style Jazz music and the restaurant’s 1984, Popeyes expanded globally into Canada, and in interior décor featured images of popular New Orleans 1989, Popeyes merged with Church’s Chicken through landmarks. Popeyes was always branded without an parent company AFC Enterprises, who operated the apostrophe, because Copeland claimed that he was “too Exhibit 3: Chicken Industry Sales poor” to afford an apostrophe. After beating KFC in a nationwide taste test, Popeyes launched a campaign claiming “America’s Fried Chicken Champ—The Spicy Taste That Can’t Be Beat.”

In its 2015 finance report, Popeyes claimed 1,900 United States restaurant locations in 48 states, as well as nearly 600 overseas stores in 27 foreign countries and three territories.

The Future Truett Cathy was proud of the success that his Chick‐fil‐A restaurants had achieved over the years. EXHIBIT 5 Truett Cathy’s Five Step Recipe for He was pleased that the chain was recognized for Business Success its superior customer service, high quality, delicious food, employee support, advertising excellence, and Chick-fil-A, the second-largest quick-service chicken community outreach; however, he knew that there was restaurant chain in the country, gives all employees opposition to the Christian principles that governed Sunday off to spend with family, to relax and to express his business. He also knew that in order to stay their faith if they choose to do so. Yet, Chick-fil-A competitive, he would have to find new ways t grow generates more sales in six days than most national the company. He had contemplated going public in chains produce in seven. Closing on Sunday is just one the past, but was reluctant to give up control because of the “principles before profits” ingredients in founder multiple owners could make changes that were not Truett Cathy’s inspiring recipe-for- success. Following based on Biblical principles. He contemplated how to – in his own words* – are five basic principles upon maintain his personal values in a corporate setting, which Cathy successfully built the Chick-fil-A chain. when societal values had become so different. 1. CLIMB WITH CARE AND CONFIDENCE Remembering his father’s legacy and the foundations “Every day, a framed poster of a mountain climber on which he built his hugely successful business, Dan given to me by my daughter Trudy reminds me to Cathy pondered the words of his advisory board and ‘climb with care and confidence.’ I wholeheartedly listened to their many suggestions on how to move believe in this philosophy, which is why in all my Chick‐fil‐A forward from such negative press. Despite years in the restaurant business, I have never tried to a large increase in sales volume for the previous year, overextend. I’m satisfied stepping from one plateau Cathy worried about the company’s overall future to the next, making sure we’re doing everything right in light of the economic crisis and whirlwind media before moving on. That way of thinking has allowed surrounding many ethical issues. As Cathy looked us to grow steadily into a 1.98 billion-dollar business ahead to the future, he marveled in the success of with more than 1,240 restaurants, while responding his business, and began to make important decisions to the needs of people around us. I know the best towards furthering its financial, ethical, and legal way to grow our business is to climb with care and position in the domestic and global economy. confidence.” • With over 2,000 Chick-fil-A restaurants in 43 states and Washington, D.C., Chick-fil-A is the largest quick-service chicken restaurant chain in the nation, based on annual sales.

2. CREATE A “LOYALTY EFFECT” “Our people are the cornerstone of all that we do at Chick-fil-A. As a chain, we believe that attracting great people helps create an unforgettable experience for our customers. It requires a lot of time and effort to make 4. PUT PRINCIPLES AND PEOPLE AHEAD OF sure you have the right people working the right jobs, PROFITS but we believe this is time well spent. The bottom line “I’d like to be remembered as one who kept my is that our people, from our restaurant Operators to priorities in the right order. We live in a changing the team members they hire, enjoy their work. Fewer world, but we need to be reminded that the important than five percent of our franchise Operators leave the things have not changed. I have always encouraged chain in any given year. The more we can foster the my restaurant Operators and team members to give feeling that we are a group of people working together, back to the local community. We should be about depending on each other, the more likely we are to be more than just selling chicken, we should be a part of loyal to each other. our customer’s lives and the communities in which we s e r v e .” Customer satisfaction is the payoff for spending the • Through the WinShape Centre Foundation, time to search for the best employees. Our restaurant Truett operates foster homes for more than 150 team members have proven time and time again that children and sponsors a summer camp for more going out of your way to make sure our customer has than 1,800 children each year; in addition, a pleasurable dining experience will build customer he provides college scholarships for Chick-fil-A loyalty.” restaurant employees (more than $30 million • “This loyalty effect, the full range of economic awarded since 1973). and human benefits that accrue to leaders who • Chick-fil-A partners with nearly 1,200 treat their customers, Operators, and employees elementary schools nationwide by providing in a manner worthy of their loyalty, is at the core the Core Essentials Character Education of most of the truly successful growth companies Program, which teaches students one value trait in the world today. And there is no clearer case each month. Additionally, Chick-fil-A study of the loyalty effect than Chick-fil-A.” –Fred restaurants are involved in the local community Reichheld, Harvard Business Review and author with activities such as blood drives, school of The Loyalty Effect. Truett Cathy’s 5 Step Recipe fundraisers, family nights and children’s sports for Business Success. sponsorships.

3. NEVER LOSE A CUSTOMER 5. CLOSED ON SUNDAY “Ever since I was a teenager delivering newspapers (for “I was not so committed to financial success that I was seven straight years), I have tried not to lose a single willing to abandon my principles and priorities. One customer. I treated each one like the most important of the most visible examples of this is our decision person in the world and delivered each paper as if I to close on Sunday. Our decision to close on Sunday were delivering it to the front door of the Governor’s was our way of honoring God and of directing our mansion. The key to succeeding with a paper route and attention to things that mattered more than our the restaurant business, I would later learn, is to take business.” care of the customer. Whether on the paper route or • Chick-fil-A is the only major fast-food restaurant in my restaurants, I have found that the most effective chain to be closed on Sundays, one of the busiest way of promoting my business didn’t cost me anything days of the week in the restaurant business. but a little kindness to my customers.” Despite being closed on Sundays, Truett Cathy • In 1935, at age 14, Truett delivered the Atlanta has led Chick-fil-A on an unparalleled record of Journal newspaper to residents of America’s first 48 consecutive years of sales increases, with its public housing project, Atlanta’s Techwood core free-standing restaurants achieving higher Homes and developed his “people first” business sales per unit in six days (with shorter operating philosophy. hours) than most major chains in the industry. • Chick-fil-A’s commitment to this principle is reflected in its mission statement to “Be America’s Best Quick-Service Restaurant at Winning and Keeping Customers.”