By The Numbers

How Ryan's makes more than the competition.

Tweet

CONTROLLED GROWTH

Unlike many a fast-food chain whose too-rapid proliferation of franchised and company-owned restaurants has resulted in earnings slowdowns, losses, and sometimes bankruptcies, Ryan's Family Steak Houses Inc. builds its own units at a carefully considered, cash-on-the-barrelhead pace, and has ceased adding franchisees. Not only has Ryan's always been profitable, but revenues, earnings, and new units are all growing at about the same pace, on an annual five-year compounded basis.

HIGH QUALITY

"We've got the highest food cost in the industry, in excess of 45% for the past four years." For most chief executive officers, that statement would be a ticket to a long vacation. But uttered by Ryan's Alvin A. McCall Jr., it's a challenge to the competition to spend as high a percentage of sales on quality food and still earn about 10% net margin, a figure that is more than double the median of all U.S. restaurant chains. By comparison, last year 488-unit Sizzler Restaurants International Inc., a Ryan's competitor, which serves alcohol as well as steaks, spent around 34% on food and beverages and netted only 6.2%.

VOLUME

There is no magic in how Ryan's turns lower gross margins into higher earnings. It does it by volume. Each of its 27 company-owned units built before 1985 cost less than $900,000 on average, and in 1985 returned average annualized sales of $1.3 million. But that sales-to-investment ratio of 1.5 to 1 is history. What with larger kitchens and more equipment, Ryan's admits to paying a good $1 million for its new units today. Thanks to its expanded salad bar, which is attracting customers at what used to be marginal dining hours, per-unit revenues have passed $2 million. The resultant annual sales-to-investment ratio for a restaurant of 2 to 1 is "probably the highest in the United States right now," McCall claims. Restaurant analyst Hardy Bowen, of Arnold & S. Bleichroeder, agrees: "The company has the highest sales-to-capital-costs ratio among self-service restaurants."

Against those revenues are comparatively low operating expenses of 39%, with a labor component that is about 3% below the competition's. That is not because Ryan's pays less per hour, but because payroll does not rise in direct proportion to volume. Once you have a staff in place, you don't have to increase payroll to do additional business. Nor can the opposition catch up without a struggle. For one thing, they would have to increase volume to recover costs, and most competitors' restaurants have fewer than half the seats that Ryan's has -- 150 or so versus Ryan's 325."They can't make it work," McCall concludes. "They think about cutting costs, but that's where they're wrong. They should be increasing costs 6% or 7%. But if you look at their bottom lines, they're not making 6 or 7%."