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August 11, 2003 12:00am
Hooters: A Case Study
Source: Fortune
by: John Helyar

Some corporate slogans speak to improving the human condition (DuPont: "Better things for better living through chemistry"). Some speak to elevating human relations (Hallmark: "When you care enough to send the very best.") and then there's the Hooters restaurant chain, which cheerfully admits to no higher calling than lowbrow pleasure: "Delightfully tacky, yet unrefined."

So how on earth, in such a politically correct age, in such a failure-prone business, could Hooters have reached age 20 and still be busting out all over? From a single Florida beach bar, Hooters has expanded to 342 locations (27 of them, ahem, abroad), four lines of retail food, one golf tour, and two car-racing circuits (stock and drag). If you laid out the 30 million pounds of Hooters wings served each year, they'd encircle the globe at the equator. If you piled up the 15,000 current Hooters Girls ... well, they'd really be stacked.

Even the sky is no longer the limit: Hooters Air started flying in March. It provides service from Newark, N.J., Baltimore, and Atlanta to Myrtle Beach, S.C. Painted in the corporate colors of orange and white, the four 112-seat jets are airborne billboards, with the trademark Hooters owl roosting on their tails. Two Hooters Girls are aboard each flight, emceeing trivia games, hawking Hooters merchandise, and on the whole acting a lot perkier than flight attendants on other airlines who've just taken 20% pay cuts.

Is this any way to run an airline? Well, considering that many experienced operators are trying to recover from record-breaking losses, Hooters could hardly do worse. But then Hooters Air is more about building the brand than becoming a serious player in aviation. Hooters' flights of fancy have already brought in reams of free publicity. "You're here, aren't you?" notes Bob Brooks, the man who has sent Hooters soaring.

We are at one of his restaurants in Atlanta, sitting amid a swirl of Hooters Girls serving the lunchtime crowd. Brooks hardly seems to notice them. There have been 200,000 Hooters Girls over the years, after all-and the chairman of Hooters of America is no Hugh Hefner. Brooks, 66, is a Methodist family man who grew up on a South Carolina tobacco farm and today lives in a modest home in Myrtle Beach (that, and the area's golf attractions, explain the Hooters hub). His voice is so quiet it's hard to hear in the midday din. But he is no pushover. He has fought diabetes, overcome a stroke, and endured the death of a son, Mark, in a plane crash that also took the life of Alan Kulwicki, a Hooters-sponsored NASCAR driver. He has a simple view of the restaurant business: "Good food, cold beer, and pretty girls never go out of style," says Brooks, who sees great augmentation in Hooters' future. It is already America's tenth-largest full-service restaurant chain, with 2003 revenues estimated at $750 million, and Brooks thinks the country can support 1,000 Hooters.

That may be stretching it as much as a Hooters Girl's tank top, says Chicago restaurant consultant Ron Paul. The only two comparable chains that have more than 800 locations (Applebee's and Chili's) draw a large number of women and families. Hooters' relies on 25- to 54-year-old males, who account for 70% of business. On the other hand, "nobody's trying to do what they do," Paul says. "It allows them to stand out in a crowded field."

The history of Hooters has more curves and swerves than one of its waitresses wending her way across a crowded room-and is considerably less appealing. For years Brooks and the founders of Hooters fought over everything from menu items to whether Lycra was part of the Hooters ethos. For all the acrimony, which ended in 2001, everyone agrees that Hooters began with a beach bar in Clearwater, Fla., in October 1983. They also agree that the ball got rolling when a restaurant executive named Hugh Connerty wandered in one night in 1984.

The six friends who launched Hooters were not seeking to create an American icon. They were a bunch of fun-loving Midwestern transplants who wanted to create their kind of place and who scraped together $140,000 to do it. Three were tradesmen-L.D. Stewart, a painting contractor; Ken Wimmer, his partner; and Dennis Johnson, a brick mason. The others were Ed Droste, a real- estate executive; Gil DiGiannantonio, a liquor salesman; and William Ranieri, a retired service station owner who went by "Uncle Billy" because he was a good 30 years older than his thirtysomething partners. The six didn't know much about the restaurant business, but they knew what they liked: finger food, girls, and golden oldies on the jukebox.

Connerty was in Florida scouting locations for a steak house chain he'd started, Colorado Joe's, but he abruptly changed plans after a night at Hooters. The place was lots of fun and, he thought, had loads of potential. He would give the six co-founders $50,000; they would continue to own the trademark and get 3 cents on every dollar the Hooters Girls brought in. They would also keep the rights to build more Hooters locations in a six-county area of Tampa Bay. (They later added the Chicago metro territory.) for his $50,000, Connerty got the right to build Hooters everywhere else in the U.S. He was required to stay faithful to every aspect of the original, right down to the secret wing sauce.

The deal was very much in the early Hooters spirit: Originally drafted on a napkin and considered over pitchers, it was sealed days after Connerty proposed it. Beginning in 1985, he took Hooters to other Florida cities and then to other Southeastern markets. But it was soon clear that he had more vision than capital. So Connerty approached Bob Brooks, a business acquaintance, for loans. Brooks was rich, and he knew the restaurant business because some of the big chains bought from his food-service company, Naturally Fresh. He was also tough. In 1988, Brooks called the notes, and when Connerty couldn't pay, took over the Hooters development rights. Connerty's consolation prize: ownership of Hooters restaurants in Jacksonville and Tallahassee. (He no longer owns them and today has no connection with Hooters.)

Brooks' takeover stabilized one end of the business but unsettled relations with the founders. There was Hooters Inc. In Clearwater, the corporate entity owned and run by the original six. And there was Hooters of America in Atlanta, owned and run by Brooks. He had the capital to push Hooters into new states, which the founders liked, since they got a piece of every chicken wing sold. But he also kept pushing the restaurants to buy huge quantities of items like salad dressings from Naturally Fresh. The Hooters Six bridled, believing that their version of blue-cheese dressing was sacred. They prevailed in that battle, but the war was on. "You had one group that had the power," says Jim Hammond, an early Hooters executive and now a franchisee with restaurants in three states. That was Hooters Inc., whose trademark ownership restricted what could be done under the Hooters name. Then there was Hooters of America, "which had the money and didn't want to be told what to do."

Part of the problem was that Hooters wasn't just about the externals of blond wood and blond bombshells. It was about the subtleties of its leering yet giggling essence. When co-founder Ed Droste started the Hooters calendar in 1986, he made sure it was very good cheesecake but also very funny. The months were out of order, each day had a joke, and the whole month of March was devoted to Iowa humor-e.g., "You know you're from Iowa if you consider being called a Pork Queen an honor." (Droste and Dennis Johnson both hail from Waverly, Iowa.)

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