TWST: Could we start out with a brief overview of Quality Dining, Inc.?Mr. Fitzpatrick: Quality Dining has two major business lines, a quick
service business, operating 71 Burger King restaurants as a franchisee,
and a full-service business with three full-service concepts. They
include: 31 Chili's franchise restaurants and two other concepts,
Grady's American Grill, a 36-unit, high-end dinner house, and eight Papa
Vino's, Italian dinner house restaurants.TWST: Are you nationwide?Mr. Fitzpatrick: We operate in 17 states.TWST: Do you have plans for further geographical expansion?Mr. Fitzpatrick: No, there is no driving geographic strategy. Our main
focus is to continue building our two franchise concepts, Burger King
and Chili's.TWST: Can you tell us about Quality Dining's competitive advantages?Mr. Fitzpatrick: We are 100% focused on being a great operator. One of
the things we do as well, or better than anyone, is produce strong
restaurant level margins. On a comparative basis, I think our
performance is upper quartile or decile. This is a result of the
significant operating disciplines that we maintain. We have a strong
bias for narrow spans of control with our multi-unit supervisors. As an
example, in our Burger King business, we have a ratio of three
restaurants for every multi-unit supervisor, where we believe the
standard practice in the industry is perhaps double this. This ratio
contributes to higher average unit volumes and profitability. Our
average unit volumes in Burger King are substantially higher, for
example, than it is for the Burger King system as a whole. We experience
other benefits too, such as higher margins, lower turnover and we are
able to better maintain relationships between our supervisory people and
restaurant teams.TWST: Where would you like to see Quality Dining three years from now?Mr. Fitzpatrick: We are one of those companies that probably is viewed
as a little bit boring. We are focused on basic day-to-day execution. We
have a simple formula: optimize our income and cash generation and use
it to moderately grow and de-leverage. People who look at companies to
see basic cash flow growth will be attracted to us. In the last few
years reportable earnings have not been very important. We have been
engineering a turnaround. We were one of the companies involved in the
bagel business, which had negative and significant consequences for our
company. We have turned our balance sheet around, and we have our P&L
pointed in the right direction. Accordingly, with a focus on our cash
flow, we will grow, reduce leverage and repurchase shares, all designed
to drive long-term shareholder value. We are not a company that anyone
should be looking to invest with a short-term view. Our shareholder base
is comprised of shareholders oriented for long-term, and we hope they
will be rewarded for their investment and patience. Three years from
now, we should have a strengthened balanced sheet, a predictable income
stream and a company that will be a steady, although fairly moderate
grower.TWST: What are your sales and marketing strategies?Mr. Fitzpatrick: As a franchisee of Burger King and Chili's, we fit
underneath the templates of those national concepts and their approach
for a brand-strategy and marketing. With regard to our full-service
concepts, each concept has its own niche. We are focused on delivering
within those niches. We will not turn the formula on its head and do
something that is not in sync with the consumer's expectation. Our
fundamental approach is to produce a great product, high on flavor
profile and portion size, deliver great value with an attractive price
point, and serve the guest in a comfortable manner.TWST: What major changes do you expect in your markets or in your
industry over the next several years?Mr. Fitzpatrick: Everything starts with the consumer. Although I do not
know how long this economic expansion has been going, perhaps eight to
10 years, we have benefited from a consumer who has lots of cash. I am
concerned that the consumer will maintain their strong cash position
driven by robust disposable income. If this economy stumbles, there will
be a problem for us all. We must remain competitive, we must pursue
initiatives that keep our restaurants interesting. We have to execute
well. But essentially, our success will be affected by the economy and
being able to meet the consumers needs: as they change, we have to
change with them.TWST: Is there anything that keeps you awake at night about the company?Mr. Fitzpatrick: Not really. We have a high quality and deep bench of
management talent, so we do not have any internal concerns. Clearly, the
economy is a concern. As long as the economy does not have any major
hiccups, we should be fine.TWST: Are these all franchised?Mr. Fitzpatrick: No. We own the Grady's and Papa Vino's concepts. The
Chili's and Burger King restaurants are all franchised.TWST: How is the company taking advantage of the Internet?Mr. Fitzpatrick: We really are not taking advantage of the Internet at
all, candidly. I am not presently certain how we would exploit this. Our
priorities have been on those things that I have already mentioned, and
we are probably a little bit more primal, trying to make sure that we
are on top of where we need to be with our guest and the concepts that
we have.TWST: How about some new restaurants ' Chili's, Grady's?Mr. Fitzpatrick: We are a moderate grower with two or three casual
dining restaurants and three or four Burger King restaurants a year. We
may also supplement growth on the Burger King side through acquisition.
We have traditionally been a grower rather than acquiror, but there may
be deals that will become available.TWST: What benchmarks or milestones can investors use to judge the
progress of Quality Dining over the next two years?Mr. Fitzpatrick: I think, principally, our growth of EBITDA and de-
leveraging. This is a company whose leverage was well above 6:1 just
three years ago. Now, our leverage ratio, debt to cash flow, is less
than 4:1, and it is continuing to go down. I think if people looked at
our growth of operating cash flow and reduction in leverage, they will
see a hell of a lot of progress. We have made progress in the last few
years and there is much more to come in the next few years.TWST: As Chairman, President and CEO, where are you spending your time
in the company and what are you concentrating on now?Mr. Fitzpatrick: I am focused on the operating and execution within our
restaurants. I am spending some time looking at acquisition
opportunities. However, I am better served by insuring the day in and
day out operating base of the business is on track. Once again, nothing
too sexy and romantic, just basic management.TWST: What kinds of programs have you put in place to attract and keep
good people in this high employment environment?Mr. Fitzpatrick: Like many of our peers, we have tried a lot of things.
At the end of the day, we are focusing on what I call professional
intimate relationships. The point is people do not work for companies,
they work for people. In my view, we can have a company culture, mission
and a company soul, but this is about the relationship that individuals
have with one another. In the expanse of that professional, intimate
relationship, we focus on each individual's needs, one to the other,
learning how to work together, communicating, finding a mutuality of
goals, plans, aspirations, helping one another, supplementing strengths
and weaknesses and more. We try to match people of different strengths
so that when you put them together they form a pretty good team, they
can compensate for one another's weaknesses and leverage on each other's
strengths. When I say that there is not a lot of 'sexy things' going on
with our company, it is because we are spending time doing the basics.
The results are there to demonstrate that this is working. I spend a lot
of time doing things that are fairly mundane like talking to restaurant
managers, and visiting restaurants, and finding out if people's problems
are being addressed, and whether or not they have all the resources they
need to do the job that will optimize every opportunity that comes
along.TWST: About how many employees do you have now?Mr. Fitzpatrick: We are in the 7,000-8,000 employee range.TWST: How do you feel about your current stock price?Mr. Fitzpatrick: Probably like all CEOs of publicly held companies, it
is never high enough. For a long time, we were a company the Street
focused on. Then we got involved in the bagel business and we were
punished for that investment, perhaps too harshly. On the other hand, we
had a company that was extremely highly leveraged a few years ago. We
have not been aggressive with the Street, as we would rather let our
performance speak for itself. We perhaps suffer from not doing as good
of a job as we should be communicating with the Street. We are not
focused on getting fully valued, rather fairly valued. I cannot manage
the Street and the investment community. What I can do is manage our
company and at some point in time the Street will figure out that our
company generates a lot of cash and uses it in a judicious manner, and
we will be rewarded for that over time.TWST: Can you give us two or three additional reasons why long-term
investors should buy stock in Quality Dining today?Mr. Fitzpatrick: I think that we are in a relatively stable business.
The restaurant industry is not an annuity for sure, but some of the
brands that we operate are quite reliable, where cash flow over extended
periods of time has been fairly predictable. We have an experienced
management team that has been here for a long time, whose performance is
well known. This is a company that is rapidly de-leveraging, so I think
the risk factor of our ultimate success is being mitigated
appropriately. We have a lot of upside in front of us.TWST: Thank you. (RF)DANIEL B. FITZPATRICK
Chairman, President & CEO
Quality Dining, Inc.
4220 Edison Lakes Parkway
Mishawaka, IN 46545
(219) 271-4600
(219) 243-4377 - FAXEach Executive who is the featured subject of a TWST Interview is
offered the opportunity to include an Investors Brief or other highlight
material to be provided and sponsored by and for the company.Copyright 2000 The Wall Street Transcript Corporation
All Rights Reserved
Restaurants >> CEO Interview >> January 1, 2001
Daniel Fitzpatrick
DANIEL B. FITZPATRICK is Chairman of the Board, President and Chief
Executive Officer of Quality Dining, Inc. Quality Dining, since its
founding in 1981, has evolved from a small two-unit Burger King
restaurant Franchisee to a diversified restaurant holding company which
operates four separate restaurant concepts... More










