Buffets, Inc.

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Buffets, Inc.

10260 Viking Drive
Suite 100
Eden Prairie, Minnesota 55344
U.S.A.
(612) 942-9760
Fax: (612) 944-7362

Public Company
Incorporated: 1983
Employees: 10,500
Sales: $247.5 million
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Buffets, Inc. is one of the most successful businesses in the restaurant industry, operating 166 eating establishments that serve more than 8,000 customers weekly. Among the company’s best known restaurants is the Old Country Buffets chain, which pioneered several important concepts in buffet dining.

Buffets was founded by Roe Hatlen in 1983. Hatlen, a veteran of the restaurant industry, had spent nine years with International King’s Table, Inc., an Oregon-based chain whose revenues were boosted to an annual $40 million with Hatlen’s help. In 1982, Hatlen moved to Minnesota, where he took an executive position at the publicly held Pizza Ventures chain of restaurants. After only eight months at Pizza Ventures, however, he was let go when the company was acquired and reorganized by Godfather’s Pizza.

During this time, Hatlen contacted his friend and former colleague at King’s Table, C. Dennis Scott, an experienced restaurant operator responsible for running 22 King’s Table restaurants. Hatlen persuaded Scott to leave the financial security of King’s Table to pursue a new restaurant venture.

Hatlen and Scott decided to open a buffet style operation, which they expected to prove economical both for themselves and their customers. Without wait staff and bartenders, the buffet would necessitate a lower payroll than more formal operations and might appeal to customers who preferred not to’ pay gratuities.

The partners divided responsibilities along the lines of their expertise, with Hatlen handling financial matters and Scott overseeing the details of restaurant management. Hatlen was able to purchase Pizza Ventures’ discarded computer system for five cents on the dollar and tapped his network of acquaintances in the restaurant business for investment capital, amassing nearly about three-quarters of a million dollars by the time Buffets, Inc. was incorporated on October 13, 1983.

Scott planned the restaurant’s menu, designing a series of menus that centered on typical American favorites, such as fried chicken, baked fish, and hamburgers. With particular attention to the value-conscious diner, he made sure that each meal included salad and dessert. Also featured were pasta dishes and other fare that could be prepared fresh in small batches throughout the day by cooks rather than by highly trained and expensive chefs.

With a staff of 29, The Old Country Buffet opened in March 1984 in a small strip mall on the outskirts of Minneapolis. There, customers encountered a plain but comfortable decor, a buffet station with lines at either end, affording the customer a view of all food items, and a generous and varied menu. Customers prepaid the fixed rate before lining up at the buffet.

The restaurant was an instant success. Hatlen’s and Scott’s initially cautious projections for sales of $1 million during its first year were doubled by the end of 1984. By October 1985, nine Old Country Buffet restaurants were in operation around Wisconsin, Illinois, and Minnesota, requiring a total of 687 employees and netting sales of $59.5 million. Moreover, several investors were encouraging Buffets, Inc. to go public, which it did that year with an initial offering of 525,000 shares.

The cash flow generated by the offering allowed the company to expand over the next few years. By 1987, the Old Country Buffet chain had grown to include 11 restaurants in Minnesota, seven in Wisconsin, four in Illinois, and the remainder in new territories, including Missouri, Nebraska, Pennsylvania, and Oklahoma.

Public recognition of Old Country Buffets steadily increased. Moreover, Restaurants and Institutions, a food industry trade magazine, praised the buffets as “shipshape” and “financially responsible.” The reviewer also observed that buffets were beginning to offer strong competition to the country’s cafeterias.

While buffets and cafeterias offered similar menus, the buffet featured a fixed rate policy, which proved less costly to the customer than the pay-per-item policy common in cafeterias. Moreover, buffets began to offer an alternative to the standard straight-line cafeteria layout. Old Country Buffet restaurants adopted a new layout that featured individual food islands throughout, a system that hastened the self-service process and thereby allowed each restaurant to accommodate more customers. The number of restaurants in the chain rose to 70 by the beginning of 1990.

Buffets also became known for providing employment opportunities in the early 1990s, when economic recession led to high unemployment rates on a national level. During this time, Buffets placed a series of newspaper advertisements targeting potential managers seeking long-term employment. Emphasizing the rapid growth and continued success of Buffets, the copy received widespread attention and garnered the company the Personnel Journal’s Vantage Award for 1989.

In an effort to maintain employees knowledgeable in food production and personnel management, and to help curb its high employee turnover rate, Buffets opened a training center for managers at their Eden Prairie headquarters in Minnesota. There, employees underwent five weeks of seminars and three weeks of hands-on training in the headquarters restaurant.

Though at least 75 percent of Buffets employees were on part-time schedules in the early 1990s, graduates of the eight-week program helped established a solid managerial framework in almost all Old Country Buffets. Each restaurant retained two managers: one associate manager and one general manager in charge of operations. To maximize the profitability of each unit, the company based 50 percent of the general manager’s annual salary on the profitability of his or her establishment.

In addition to enhancing the company’s workforce, founder Hatlen also focused on procuring new restaurant locations left by unsuccessful retailers, whose incomplete leases gave him considerable negotiating power with desperate landlords. These cheaper rents helped make 1990 the seventh record year for earnings; sales soared 26 percent to $145.2 million, up from 1989’s total of $115.4 million.

By the mid-1990s, Buffets operated a total of 90 restaurants, including those under the direction of two new subsidiaries. Gateway Buffets, acquired in 1989, came with a purchase price of $1.9 million, which the company was able to pay in cash. Evergreen Buffets was purchased for $1.7 million from C. Dennis Scott, who had left the company a couple of years earlier.

Firmly established as a leader in the restaurant industry, the company earned its fifth accolade from Forbes magazine as one of the 200 best small companies in America in 1992. Buffets’ gross sales for 1992 reached $247.5 million, a figure that was bolstered one year later when the company discontinued its policy of employees with free meals. Charging employees $2 per meal, Buffets’ added $300,000 to the sales total. Reforms in the American health care system were expected to affect operations at Buffets in the 1990s. If required to provide part-time workers with coverage, the company could offset increased costs by merging and eliminating its thousands of part-time positions.