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Business Observer Friday, Jul. 30, 2004 16 years ago

Welcome to Skip Sack's Neighborhood

Burton 'Skip' Sack made his Applebee's neighborhood restaurants one of the chain's most successful franchises.Now he's bringing his recipe to the National Restaurant Association.

Welcome to Skip Sack's Neighborhood

Burton 'Skip' Sack made his Applebee's neighborhood restaurants one of the chain's most successful franchises.

Now he's bringing his recipe to the National Restaurant Association.

By Sean Roth

Real Estate Editor

Look out Emeril. In late January, the Sarasota Ritz-Carlton will be the stage for the nation's top restaurateurs - from the CEO of the swanky Ruth's Chris Steakhouse to the president of the ever-popular T.G.I. Friday's.

The National Restaurant Association's board - a who's who of the best and brightest in the industry - will meet Jan. 22-26 to discuss the path of an industry organization that impacts 12 million American workers.

Longboat Key resident Burton "Skip" Sack has been the group's chairman of the board since May. He first made a mark on the restaurant industry with the acquisition of the Red Coach Grills chain from Howard Johnson; he was the second person to own an Applebee's International franchise.

Sack's 16 restaurants were so successful in the New England area that in 1994 the franchise giant bought the restaurants in exchange for stock. Sack is now the largest single shareholder of Applebee's stock with about 1.3 million shares worth more than $33 million, according to SEC documents. He is chair and partner of Classic Restaurant Concept, which operates three Irish pubs in the Boston area.

GCBR sat down with Sack at his Longboat Key condo, overlooking the Gulf of Mexico, to talk about what he brings to the chairmanship and what Sarasota can expect this winter when the restaurant giants are in town.

Has there been any discussion about changing the National Restaurant Association's (NRA) initials?

No, we are waiting for the Rifle Association to change. We have been in existence for 75 years. The rifle association does not have as high a profile as 10 to 12 years ago when Charlton Heston was advocating for them.

Twelve million people are employees of about 878,000 food service operations in this country. Of those, 315,000 operations are members. About 36% of the nation's restaurants are members of the NRA. That really is significant and gives us a tremendous amount of influence in Washington. ¦ And there is the fact that this year the food service industry will do $440 billion (in sales). The purchase of food services, china, glass and all the other ancillary expenses amounts to $1.2 trillion, which is 9% of the gross domestic product. So the food service industry is really a vanguard of the nation's economy.

What was your first job at a Howard Johnson like when you were 13?

I liked that job so much I wanted to make to make a career out of managing a Howard Johnson restaurant. That was my goal. When I was 17, I joined the Marine Corps, much to the chagrin of my mother and dad. ¦ I wasn't going to go to college, except I saw how the officers were living so I decided I would go to college.

Who was your mentor?

John Mitchell. He was a manager of a Howard Johnson's restaurant. I was 13 years old. I really liked the way he treated me. He was tough, but he was fair. He was firm, with a smile. I worked for him for three years full time in the summer and part time after school.

After graduating from the Hotel and Restaurant School at Cornell you returned to Howard Johnson in its marketing department. After 20 years with the chain, you were promoted to senior vice president of architecture, design, construction, real estate and corporate development. What made you leave?

I decided I could do a lot and make a lot more money. Besides Howard Johnson never had a retirement program. So I figured I had to do something to prepare myself for retirement.

When I was working for Howard Johnson, we were bought by British in 1980. The British brought in a new CEO of the company, who wanted to divest the company of a chain of restaurants called Red Coach Grills. We had about 15 of them, plus a number of franchise operations. I didn't want to blatantly put them on the market so we kind of surreptitiously let the word get around that they could be available.

I valued the operations significantly more than the offers we got. When I presented the ($6.5 million) offer to the CEO and recommended against it, he said, 'No, let's take it.' ¦ so I said, 'Hell, I'll put a group together to buy it for that.'

I got an investment group out of Cambridge to back me ... we wound up buying the restaurants for $8.75 million. By the time, we closed on the deal we turned around and sold 10 of the restaurants, to the people that were bidding against me, for $8.75 million. That left us with five restaurants basically free and clear.

When we sold them for profits, we probably ended up making a couple million on the deal.

When did Applebee's enter the picture?

As I was in the final stages of disposing of the Red Coach Grills, a friend of mine called and told me that there was a concept in Atlanta that I should take a look at. They had two restaurants; it was called Applebee's. He said it was a really up-and-coming concept. Since I was too young to retire and didn't have enough money to retire, I had to get into something else.

I liked the concept ... liked the niche. I liked the positioning in the marketplace; I liked the people that were involved. I liked the economic ratios. I liked everything about the quality orientation, the training. It was very avant-garde for that time. I just thought it had an enormous amount of potential, so I bought a franchise for the six New England states.

That was only $56,000 at the time. Remember, I was the second franchisee - this was 1984. But I still had an obligation to open 10 restaurants in five years, and, at the time, the restaurants were running about $1.8 million a piece. So I didn't have enough money. It took me a couple of years to get the financing that I needed to get started.

They were ready to take it away from me because I signed a deal and a year-and-half later I didn't have any money to start building.

Luckily, I was on the board of a subsidiary of a public company. I was at a board meeting one day, and the fellow who was chairman of the board, asked me what I was doing. I told him I was trying to raise some money, and I told him about it. He said, 'Well, make me a proposal.' I gave him the most equitable deal I could. My partner and I were putting $250,000 - $125,000 each. So I told him that if he put up $250,000, I would give him an option to acquire 50% of the company. That $250,000 was interest free. And the only other obligation he had was to continue to guarantee the bank loans as long as the restaurants were profitable on the operational level.

We opened our first restaurant and it was very successful. We opened our second restaurant and it was extraordinarily successful. And we opened our third restaurant, and it was very successful.

I told my partner, who had one-third interest in the company. He was my roommate in college, and he was the president of a major airline. He didn't want to get involved in operations, but he was an excellent passive investor.

What happened was we were going very, very strong. I told my partner that I had made basically a bad deal. The good news is we wouldn't be where we are if I hadn't made the deal; the bad news was that it was a very attractive deal to the other party. It was just a question of time before they would decide to exercise their right to take 50% of the company. Fifty percent of the company was worth a hell of a lot more than the $250,000 they had invested.

By a stroke of luck, they decided to take the public company private. Drexel Burnham was their investment banker. It looked at their obligations during the due diligence and didn't like the interest free loan and didn't like the ongoing obligation to collectivize and to guarantee the strategic loans. So they told them to get out of the deal.

I was very, very lucky. So they called and said, 'Skip I hate to tell you this but we are going to have to get out of the deal.' I just had to feign shock and withhold my enthusiasm. As soon as I got off the phone I called my partner and said, 'I can't believe this: They want out of the deal and I've got to give them the $250,000 back.' But I need someone else to guarantee the obligation. My business partner, who was worth a considerable amount of money, said he would guarantee the loan. What I did was I gave him a personal guarantee; I indemnified him. Now, I didn't have the money that he had, but he knew that if it turned bad I was broke.

We went ahead and got (the other partner) out of the deal in 10 days. It was phenomenal. I even gave them $75,000 interest, which they didn't deserve, we were just so happy.

Then we started expanding during the recession in New England in the late '80s, '88 or '89, when the banks and the savings and loans were going under. It was a horrible recession. That was when I started expanding, because that was when we had tremendous cash flow. So we started building restaurants. The cost of building restaurants was actually cheaper in 1988 or '89 then it had been in 1986. Carpenters were working for $7.50 an hour. There was so much unemployment that everybody was anxious to do work. They were under bidding everybody else. So my construction costs were a lot less. Land costs were less. I had great employees because a lot of people were unemployed, so we had the opportunity to pick and choose. My first eight restaurants were all leased; the next eight were in buildings I bought.

In 1994, I was doing $38 million in sales. I think our cash flow was $4.6 million. We had the second highest volume with Applebee's in the system, and we had the most profitable restaurants in the system - in terms of bottom-line profit.

The parent company and I talked about them acquiring us. So we swapped stock. Their stock has done exceptionally well. The deal was I had to work for the company (for three years), and also that I would be on the board of the company. For the first year and a half, I worked in company operations trying to get the company's restaurants to the level of profitability that my restaurants had. Then the last year and a half (1996-1997), I spent internationally. We had restaurants in Greece. We had restaurants in Kuwait. We were in The Netherlands and Egypt. I retired in 1997.

I also I got into the Irish pub business in Boston. I opened up three of those, and my stepson runs those on a day-to-day basis. I am actively involved in the oversight responsibility for the company.

Why did you go into the Irish pub business?

(The Irish Pubs) were a fun thing to get in. A friend of mine was managing director for Guinness Beer. He convinced me to open these. They were opening all around the world, in Germany, in Hong Kong. They don't own them, but they work with people to open these. These are authentic. Everything comes from Ireland. They come over and paint the walls. Except for the union areas like downtown Boston, all our cabinetry was done by people from Ireland.

Compare your current venture to the Applebee's concept from a balance-sheet perspective?

The Applebee's are more profitable. Applebee's is very highly systematized. They have tremendous market awareness. We have critical mass and the convenience of 1,600 restaurants.

They're great restaurants. The food was just great. They are very unusual. In a traditional pub they don't have a dinning room; we have separate dinning rooms and the pub. We have culinary trained chefs in the restaurants. The food is way above what we call typical pub grub.

Any plans to franchise the Irish Pub concept?

We will probably open a couple more over the next few years. But no, this is just a fun thing to do.

What are some of your goals as NRA chairman?

The thrust of the chairmanship is to represent the industry not only in the United States, but also in other countries. I was in Mexico City two weeks ago. I am going to Japan in October.

During the course of the year there will be about 50 occasions where I have to take a trip and make a speech maybe at a fundraiser, at a banquet or at a state restaurant association meeting. It is basically every week. And we talk about what the national association is doing to help further and benefit the industry.

We do a tremendous amount of lobbying in Congress. We have a public affairs conference coming up. Every September, we have people come in from all over the country. Last year, we had 700 people go to Washington, D.C. We spent the first day hearing speeches by members of Congress, the cabinet, presidential advisers, political analysts talking about issues of the day. Then the next day we spent on Capitol Hill talking to congressmen and senators talking about specific issues.

One of my goals - in addition to doing that - is to more or less convey to the members of the National Restaurant Association, the tremendous amount of work and effort being done on their behalf by the staff of the organization as well as by the 80-member board of directors. For the most part, these are presidents of large and small restaurant chains as well as independents. We have a woman that has an Ethiopian restaurant; she is on the board. We have a fellow that has three steakhouses in Washington, D.C.; he is on the board. The former vice chairman of the Darden restaurants. The president of Golden Corall. Dick Marriott from Host Marriott. We have Lloyd Hill, president of Applebee's. It is quite a tremendous impressive group of people that give of their time and work hard for the industry.

Being on the board is an honor, but it is not an honorary position. We have a board member from Florida, Bob Leonard, who is president of FMS Systems Inc., which owns over a hundred IHOP pancake houses. He is on the board representing the state of Florida. The people on the board not only attend at least three board meetings a year, but we have other meetings such as executive meetings, committee meetings. They travel at their own expense. Also they are expected to contribute to our PAC fund. They are expected to contribute to our SAF fund, which is Save American Free Enterprise. That is an issues-oriented fund that allows us to give to state organizations that are fighting specific issues that we believe are detrimental and that we fear may move to other states. They are expected to give to our educational foundation. It is a lot of work, depending on how much you contribute to these various organizations and the cost of the meetings and the cost of travel. Board members can spend $15,000 to $20,000 and up to $25,000 a year. That is a lot of money. That is why we have presidents of companies - people that are established.

What is planned for the January board meeting?

We hope to have a cocktail party or maybe a dinner party at Ca d'Zan or the Ringling Museum. We are going to give all of these people a real taste of Sarasota. They are all familiar with Naples and Miami, but not a lot of people are familiar with Sarasota. Between the board of directors of the National Restaurant Association, board of trustees of the educational foundation, the staff of the educational foundation, staff of restaurant association and sponsors -we get a lot of sponsors at these - we will have somewhere between 220 and 250 people here for a three- to four-day weekend.

What are your legislative goals?

One of the issues is the obesity issues and the personal responsibility act. Ric Keller (a congressman from the Eighth District) from Orlando had instituted a bill in the U.S. House, which we call the personal responsibility bill. If you eat a hamburger and French fries three times a day, seven days a week over three years and you get fat, you can't sue us. He introduced that bill and he wound up because of our public affairs conference last year getting over 100 co-sponsors, because everybody said,'This is a no-brainer.' The bill passed the House by significant margin, but it is languishing in the Senate. One of the reasons is there are a lot of lawyers in the Senate, a lot of the people in the senate are supported by lawyers and so it might not get out of the Senate this year.

While we are striving to get federal legislation, there are 26 states that have introduced this at the state level, and 12 states have passed this. One of those states is Florida. We are also fighting for tort reform.

We are also fighting for the permanent repeal of the estate tax because it adversely affects small businesspeople. A person, who has a couple of restaurants, when they die most of the time their family has to sell the businesses in order to pay the taxes. It is very disruptive.

Anther issue we are working with is getting at least 80% deductibility for business meals. Right now, it is 50%. I tell people when we go to Congress with this, 'I can charter a plane from Florida. That would cost $10,000; it is 100% deductible. I could stay in a $3,000 a night suite and that is 100% tax deductible. Rent a limo for $1,200 a day, that is 100% tax deductible, but if I take you to lunch, it is only 50% tax deductible. It doesn't make sense; we have been singled out for some inexplicable reason.

We are also looking for Congress to allow associations, like the National Restaurant Association, to come up with an association health plan for all of our members ... a plan that would be more economical and more beneficial than the plans that are currently available.

Do you have any plans for one of your Irish pubs in Sarasota?

No. I mean if we are going to do a few more it will be up in Boston, where we have management. ... Where we have more of a year-round market. There is a huge Irish community up there. And Irish pubs are common in the Boston area.

In the restaurant business, one of the critical things you look for is critical mass. You need to have a number of restaurants in the same market, so you can save on marketing and can amortize your management over several units rather than the shotgun method. Would I like to have a restaurant here? Sure, I would love to have a restaurant in Sarasota. Will I do it? No.

Is there a hole in the restaurant market in Sarasota or Manatee counties?

There was a niche that was vacant but a couple of people came into town and filed it. I always thought there was a market for a steakhouse that was more upscale than Outback but not as upscale as Fleming's or Ruth's Chris. Now you've got concepts like Stonewood Grill that are fitting into that market.

Other than that, I think Sarasota has a plethora of various food-service operations and is becoming more and more of a real dinning town. You look at Ruth's Chris, which is doing tremendous business. Fleming's, which opened three months ago ... they do a fabulous job. Stonewood Grill now has two operations. There are also a tremendous number of chef-owned operations throughout the city. That is very impressive to have so many chef-owned facilities, whether it is Paul Mattison (of Mattison's City Grille, Mattison's Steak House & Wine Cellar and more) or Tommy Klauber (of Pattigeorge's).

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