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Chick-Fil-A's Success as a Private Company

2771 words (11 pages) Business Assignment

19th Oct 2020 Business Assignment Reference this

Tags: Business AssignmentsBusiness

Abstract

Chick-Fil-A is a family-held American fast food chain that specializes on chicken meals and sandwiches. Despite being privately held, the company has made great strides and expanded via franchising; so much so that it competes with companies like McDonald's, Burger King and Starbuck's. One reason for the restaurant's success is their strong emphasis on customer service. Recently, the company has been criticized for its stance against gay marriage. Going forward, the company should not self-censor, but be aware that whatever happens in the worldly realm will have no repercussions on the spiritual truth the leadership wants to embrace.

Chick-Fil-A: How to Be Successful as a Private Company

Introduction

Overview of the Organization

Chick-Fil-A (CFA) is an American fast food chain that specializes in the sale of chicken sandwiches. It was founded in 1946 by S. Truett Cathy, first under the name of 'Dwarf House'; more than twenty years later, in 1967, the company rebranded itself under its current name. The restaurant company has over 2,000 locations and serves different menus for breakfast and lunch and dinner - similar to their main competitors, McDonald's and Burger King. Interestingly, Chick-Fil-A has never gone public and instead managed to thrive and expand without additional equity from shareholders. On the other hand, remaining in private hands has likely allowed company ownership more freedom than it would have had if it was publicly traded; importantly, Chick-Fil-A management strives to integrate Christian principles into its operations. For example, the restaurant closes on Sundays and holidays such as Christmas and Thanksgiving. The integration of these principles is likely due to Cathy's leadership, who was a devout Baptist (Cruz, 2019).

Business organization and strategy

CFA pursues an interesting business strategy; while direct competitors such as McDonald's (McD) and Burger King (BK) have shaped the public understanding of Fast Food as a cheap commodity that gets served in a quick and efficient way, CFA has arguably gone in an opposite direction. Their decision to sell only food that is related to chicken can be seen as a niche focus, while McD and BK provide a much wider variety of food choices; furthermore, CFA's prices are also higher than the competition, which means that the company does not follow a pure cost-leadership model. In contrast, CFA can almost be seen similar to Starbuck's (SBUX), in that it provides a refined version of a commodity - though that commodity is chicken, not coffee. Importantly, pursuing a niche focus differentiation strategy when main competitors like McD and BK provide a broad cost-leadership strategy makes sense if we keep in mind that SBUX, which clearly follows a differentiation strategy, actually has market capitalization ($115.83B) almost as large as McD ($164.90B): there is definitely place in the fast food sector to position oneself as a more exclusive option.

The overall business model that CFA follows is that of franchising; CFA provides land and real estate, and the franchisees can buy themselves into the organization for $10,000 and 15% of sales plus 50% of pre-tax profit. However, franchisees cannot open and manage more than one restaurant, which keeps control in CFA's hands and helps keep up standards to the company's wishes; no franchisee will be 'spread too thin' (Peterson, 2019).

It is also important to note that CFA has their own version of corporate culture or governance. The company is built on Christian principles, and one of the key statements by the late S. Truett Cathy that illustrates the company's mission is "we should be about more than just selling chicken. We should be a part of our customers’ lives and the communities in which we serve" (Chick-Fil-A, 2019a, para. 1).

Key players

CFA is family owned; Dan Cathy, son of the late company founder, is chief executive officer (CEO), while his son Andrew Cathy is senior vice president of operations. Furthermore, the company has an executive committee similar to a board of directors, which has a Chief Operating Officer (COO), a Chief Marketing Officer (CMO), a Chief Financial Officer (CFO), a General Counsel and a Chief People Officer (CPO). Thus, even though CFA does not have a public board of directors, the company places a strong emphasis on the maintenance of a positive corporate culture, as evidenced by the existence of a general counsel and a CPO. This suggests that the company takes its mission serious and does not just try to sell fast food as a commodity. It may also explain why the company hasn't gone public at all - first and foremost to keep the franchise in the family, but also, because it truly values its common mission. Such a mission runs the risk of becoming diluted if the company is taken public (Chick-Fil-A, 2019b).

Competitors

CFA's main competitors are, as mentioned above, traditional Fast Food franchises like McD, BK or Kentucky Fried Chicken (KFC), but also restaurant chains with a more differentiated portfolio, such as SBUX. The company is certainly presenting itself in a favorable light, with friendly and helpful employees and clean facilities; as a result of this overall positive atmosphere, the higher prices that CFA charges compared to its competitors actually become a quality landmark; in other words, customers perceive CFA as a restaurant that offers more value in its meals, which is naturally reflected in higher prices (Sheridan, 2010).

Body

Problems, issues, variables and relationships

Despite CFA being a private company without access to equity from shareholders, and despite the strong financial commitment to purchase real estate that gets rented out to very franchisee-friendly conditions, CFA has thrived in the last years; in 2018, the company increased its top-line revenue by $1 billion; with more than $10 billion, CFA is larger than - both publicly held - Chipotle and KFC. Thus, despite a business model that appears expensive for the company, the franchise has thrived so far. The question is, how is CFA able to be that successful despite the high costs it seems to incur?

Symptoms

CFA has several factors that compensate for the high upfront costs. First, as mentioned above, they have an impeccable reputation of a well-run business. The restaurants are clean and have a warm and friendly atmosphere; the staff is friendly and proactive; and the prices tend to be higher than the competition, which works well for CFA, as it fits into its specialty brand - the higher premiums on food and service underscore the high value the restaurant showcases. This also works because the food is of actual good quality (Sheridan, 2010). In addition, CFA often shows strong involvement on the community level, which also serves to make the company more valuable for their patrons, as eating at CFA does not just feel like a transaction; there is a higher purpose that permeates the restaurant, and thus, customers value the franchise more. This sentiment is reflected in a 2018 Harris Poll of fast food clients, which places CFA's reputation among the top 5% of well-known businesses (Maze, 2018).

Critical issues

It is difficult to think that despite the through-and-through positive feedback, CFA may have engendered some negative social perceptions. As the chain was founded by S. Truett Cathy, who was a devout Christian, CFA's corporate values are socially conservative. However, since the company is privately owned, it has not been forced to adjust its stance on social issues, especially LGBTQ rights. In 2012, CEO Dan Cathy made several comments that were perceived as hostile to gay, lesbian and transsexual individuals; later in the same year, it was discovered that the company was donating money to conservative causes not in favor of the LGBTQ community (Collier, 2012). As a consequence, activists called for a boycott of the chain, while CFA proponents countered those protests by demonstrably siding with the company. On the short run, the controversy seemed to have helped the company, who gained an additional 12% or $4.6 billion of top-line revenue during that year. Of course, it is more difficult to say what sort of damage the company's reputation took in the long run (Collier, 2012).

SWOT analysis

A strength, weaknesses, opportunities, threats (SWOT) analysis is an important tool for determining the challenges the company faces and deciding on the right business strategy going forward. Ideally, the SWOT analysis lets stakeholders double down on their strengths while avoiding their weaknesses - to take on opportunities and avoid threats. Table 1 shows the SWOT analysis done for Chick-Fil-A.

Strengths

  • good customer service and atmosphere
  • family leadership with a strong mission
  • high prices underscore high value

Opportunities

  • increasing demand for healthier food
  • good service engenders loyalty

Weaknesses

  • no international expansion
  • high prices not recession-proof

Threats

  • chickens are sensitive towards infections, e.g. salmonella
  • conservative social views may become anachronistic

Table 1. SWOT analysis Chick-Fil-A.

One of CFA's central strengths is its customer service and warm atmosphere; moreover, family ownership creates close bonds over the business. The company can therefore deliver higher value fast food items that have a higher price, which is part of what makes the brand believable. One of CFA's weaknesses, however, is that the company is not expanding significantly on the international level. It may well be that the company would have to go public after all if it wanted to have the funds for an international expansion. Moreover, the high prices the company charges put it at a disadvantage during recessions, as people choose cheaper alternatives. On the side of opportunities, there is an increasing demand for healthier food in society, on which CFA could capitalize - chicken is already perceived as healthier than beef. In addition, it is conceivable that the premium customer service will help engender more brand loyalty among customers. Of course, chicken are especially sensitive towards pathogens, which could become a problem; a salmonella outbreak in CFA restaurant, for example, would deal a significant hit to CFA's brand value. Lastly, company leadership's socially conservative views could become an anachronism as going forward, society is becoming more and more open and less and less conservative.

Closing

Summary

Chick-Fil-A is a successful fast food company in the United States that is still privately held, and despite the lack of shareholder's equity, is able to open new locations, expand and thrive. Part of CFA's recipe for success is the strong customer service and the fact that the company is still family-owned, so that a coherent business strategy can be applied; Christian moral convictions may play an additional role in ensuring the company stays aligned with its purpose. That way, CFA uses its assets in efficient ways, and is able to be successful without additional equity.

Alternative solutions and potential improvements

To allow the company to stay competitive in the long run and to resolve potential threats from negative public reactions towards the company's criticism of the LGBTQ community, the company should first make it clear that it tolerates gay, lesbian and transsexual individuals, and that its opposition to LGBTQ groups stems from a personal conviction, that is not seen as moral blueprint for society at large. Importantly, the company could pounce on the opportunity of increasing demand for healthier food and use this to communicate the importance of stewardship for our planet. This would allow the company to stress out their Christian convictions in the context of environmentalism, away from contentious social issues.

Christian and ethical repercussions within the context of the case

As mentioned above, CFA's central case was the outspoken rejection of LGBTQ-friendly principles and the speculation that God would judge gay individuals negatively, compared to straight people (Collier, 2012). Comments like those can contribute to creating an atmosphere that may one day lead to discriminations against customers that belong to the LGBTQ community. On the one hand, it is good to have Christian and, in general, moral convictions, as the business will have a much stronger purpose, which contributes to its long-term success. On the other hand, if at one point a strong moral stance leads to discrimination of CFA's staff against an LGBTQ individual, it will be detrimental for the business, as discrimination on the basis of gender has been rules unconstitutional. The business may get sued, lose customers and generate higher costs; in the end, both bottom line net income and top-line revenue would suffer.

On the other hand, embracing a way of life that is at odds with the company's moral convictions would be detrimental to the business as well.

Recommendations

We can get a recommendation directly from the Bible. When asked whether it would be permissible for a Christian to pay taxes and thus recognize state authority instead of God's authority, Jesus answered "render to Caesar the things that are Caesar's; and to God the things that are God's" (Matthew 22:21, KJV). If we apply this to CFA, company leadership should simply be aware that obeying state and Federal authorities does not mean for Christians that they endorse their views. This notion could simply be added to the guidelines and protocols that specify the company's conduct. If a contentious social issue comes up in the future - for example, a client feels discriminated against in a CFA branch on the base of his or her gender, CFA should be free to enter negotiations and lawsuits with the goal of striking a still beneficial compromise without the need to adhere to specific moral codes that may be determined by passages in the Bible. Whether such a measure is ultimately successful, however, can only be determined by increases or decreases in the number of patrons.

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