We Grew Earth Fare From A Hippie’s One Store To $100 Million In Revenue.

Ryan’s Family Steak Houses, one of the best performing stocks on the NASDAQ from 1981 to 1987, was a KPMG client of mine. Founder Alvin McCall had been a building contractor engaged to construct a steak house for a client. Before the store opened, the client went bankrupt, and Alvin found himself in the steak house business. Based on the store’s success the first year, he opened several more restaurants. Ultimately he sold the small chain, which today is Quincy’s Family Steakhouses.

Having perfected his pioneering casual dining format, Alvin started a new chain. On most days at lunch during this time, Alvin was in the first booth of Ryan’s #1 on Laurens Road in Greenville, SC, quietly watching employees serve customers as they dined.

In the mid-1980s, Ryan’s Family Steak Houses was expanding from their South Carolina base into Atlanta. The company developed a very clear demographic profile of their customers─families of upper blue collar workers, married, children, overweight. (OK, that last one is a joke.)

On the top floor of their corporate headquarters was a “war room” covered in maps. Executives would travel around Atlanta and note intersections they intuitively felt were good locations. Back home in the war room they would pin these locations on their maps and order the demographics around them. Where the art of their intuition matched the science of the demographics, they built a new store. I had a number of conversations with real estate professionals in their war room about their model. They opened dozens of new stores without a failure, which is why they were one of the most successful public companies at that time.

Because of his intimate knowledge of his customers and his operations, Alvin confidently made several important changes to Ryan’s store format. He nurtured the evolution of the industry standard salad bar into the Megabar, a full smorgasbord of meats, vegetables and deserts which significantly enhanced revenue per unit and made Ryan’s stock price soar. Alvin built a fortune of several hundred million dollars on a simple, compelling insight.

Fast forward ten years. I was running the angel investment group Capital Insights and was invited to tour Earth Fare, an organic grocery store in Asheville, North Carolina. I noticed a special on soy milk, which was stacked almost to the ceiling at the front of the store. Founder Roger Derrough explained that Earth Fare sold more soy milk than any store in North Carolina, so they bought it in bulk and sold it at a discount. Hmmm, I thought, this is just a grocery store focused on a distinctive customer.

When we got to the produce section, I picked up an organic tomato. “Gosh, Roger, this is expensive; how do you get this price for a tomato?” “Well, John, you have to understand that half of our customers have a vegetarian in the family. If you are a vegetarian, produce is what you eat so you are willing to pay for higher quality merchandise. Plus, they don’t buy meat, so their total cart price is probably less than yours.”

“Half your customers are vegetarians? Is that right?” I was whisked back to the Ryan’s war room a decade earlier. This was a different demographic, but I could see rolling out a chain of grocery stores based on a real estate model similar to Ryan’s. On the way down the mountain from Asheville, NC back to Greenville, SC, where I lived, I called Ryans former head of real estate who was now a consultant. “Jack, I don’t know how to locate new stores but you do.”

Greenville was about an hour and a half drive from Asheville. In the course of further due diligence, I spoke with the wife of a Greenville physician who said she was a vegetarian. I told her that she would have to join me on an upcoming trip to visit a cool organic grocery store I had found.

“Oh, I shop at Earth Fare all the time,” she said, to which I replied, “You drive an hour and a half to go grocery shopping?” I imagined the number of conventional grocery stores this Greenville resident must pass to shop an hour and a half away in Asheville. “Why?” I asked. She answered, “Because no grocery store close has anywhere near the selection of natural and organic merchandise I prefer.” “Wow!”

The insights from these conversations validated a customer’s need not well served by traditional grocery stores and led to our investment in Earth Fare. The key was finding capabilities to satisfy the need I had identified. One of the Earth Fare directors I recruited was also a director of Ryan’s. I engaged the former head of real estate at Ryan’s who was a consultant. Our dirty secret was Earth Fare’s organic grocery store local model was basically the Ryan's Family Steak Houses store location model with the demographics changed.

From one grocery store with $7 million in revenue, we grew Earth Fare to a chain of fourteen stores with $100 million in revenue before selling it to a private equity firm. The 8X multiple on our investment made Earth Fare Capital Insights’ most profitable investment.
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This is a lesson from my career about seeing around the corner to find opportunity in the turbulent times we are living through. How can my experience help you take your organization to the next level by defining what is essential, attracting an outstanding team, holding them accountable, and letting go? Contact me at j3warner@gmail.com and let’s find a time to talk. John Warner

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John Warner

John Warner

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Serial entrepreneur sharing 40 years of insights to control your destiny in our turbulent times