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What are the different ways sit-down chain restaurant companies are organized (e.g. Applebee's, Chili's, Cheesecake Factory, TGIF, Olive Garden etc.)? What are the pros and cons of the different organizational models used by these companies?
Hello! It is my pleasure to respond to your query about how sit-down chain restaurants are organized and the pros and cons of the different organizational models.
To best answer your question, I have provided some basic background information on the management hierarchies / structures seen in most casual dining restaurants. Then, I have provided detailed outlines of two separate organizations that have similar-but-different organizational structures. For each of these, I have identified how those models have proven successful for the companies, as well as the lessons they learned about their organizational and management models – and how they have applied those lessons to their organizations to achieve greater success. It is my hope that this information serves your purposes.
CORPORATE RESTAURANT MANAGEMENT HIERARCHIES / STRUCTURES
YourBusiness reports that the organizational structure of a restaurant or group of restaurants will vary based on the size of the establishment(s) and the functionality needs of the organization. Typically, all restaurants have similar organizational structures, however, they vary based on each company’s corporate-level beliefs, policies, and discretion. According to the article, “Independent restaurants commonly have either a single owner, an owner and several investors or a small group of people who share ownership. Medium and large chain restaurants are normally either structured as corporations or are owned outright by a larger parent company. There are five different types of legal structures restaurants may follow, according to Forbes.com: a limited liability company, known as an LLC, sole proprietorship, partnership, S corporation or C corporation”.
According to SmallBusinessChron, “The management hierarchy under the corporate restaurant system is much like any other franchise system”. Corporate executives run the governing business – including a Chief Executive Officer, a Chief Financial Officer, a Board of directors, and a President. Additionally, these corporate groups typically employ an Executive Chef (or more than one).
Below the executive staff are the regional and district managers. These individuals oversee operations in specific territories or locations, and serve as liaisons between corporate offices and individual restaurants. For corporate-owned locations, next in line are the restaurant managers who manage, control, and lead the restaurant’s day-to-day operations. Below this position are the assistant managers, like those for the Front of the House/service (FOH) or kitchen (Back of the House – BOH).
For franchise-owned restaurants, franchise owners are overseen by regional and district managers, and restaurant managers are overseen by the franchise owners. Franchises are provided with brand management policies and procedures that “ensure that everyone in the corporation is following the same standards”.
OUTBACK FAMILY OF BRANDS
The first Outback Steakhouse opened in Tampa in March 1988 and has since grown to 755 stores in the United States and 239 internationally in 2016. Additionally, HBR notes that the concept grew into a family of brands including “Bonefish Grill, Carrabba’s Italian Grill, Cheeseburger in Paradise, Fleming’s Prime Steakhouse & Wine Bar, Lee Roy Selmon’s, Paul Lee’s Chinese Kitchen, and Roy’s,” collectively known as Bloomin’ Brands. The corporate executive leadership team includes the following positions:
• Chairman of the Board / CEO
• EVP, Chief Brand Officer
• SVP, Chief Human Resources Officer
• EVP, Chief Financial and Administrative Officer
• SVP, Chief Global Supply Chain Officer
• EVP, Digital and Chief Information Officer
• EVP, Chief Legal Officer
• EVP, Global Chief Development & Franchising Officer
• Additionally, each restaurant concept has a President.
The business model is based on fun Australian-themed casual dining experiences with a “strong focus on quality food and service,” according to their website. They operate on the “premise that nothing stands in the way of pleasing the customer”. HBR reports that they are “fiercely growth-oriented” and serve to make their restaurants places where employees can spend their careers. The owners state that, “Giving them [employees] good working conditions, so they’ll want to stay, and opportunities to become owners themselves, if they so desire, has proved to be good business.”
HBR notes that Outback’s organizational model puts restaurant managers at the forefront of decision-making, and allows them to reap the rewards or “live with the consequences”. Their restaurant-level management staff has served every position within one of their restaurants and has come up through the brand’s ranks. They’ve taught others the jobs and had ingrained in them the core “principles and beliefs” of the brand.
As reported by HBR, in the 1990s when the chain reached 20 stores, they experienced a “wobble” period – where the high numbers of new hires were causing some disruption among the core principles and beliefs – and in the way the restaurants were being managed and staffed. This led them to return to their company constitution – to fully develop it and ratify it – and present it to all employees in training. This ensured that the concepts were instilled in all employees – and helped the company maintain the clarity of vision that has propelled them to success. However, during this time, restaurant managers were themselves allowed to determine to what extent they wanted to adopt those principles. The executive staff believed that giving the management staff that level of leeway showed confidence in their abilities and allowed them to run their businesses the best way they saw fit.
Research on this new training and organizational / management approach showed that those employees who held stronger positive attitudes (and more often practiced) the company’s principles and beliefs had significantly less turnover. Additionally, customers at those restaurants whose management and employees strongly agreed with the principles and beliefs were five times more likely to return than customers at those restaurants who did not. “At the strongly agreeing group’s restaurants, revenues were 8.9% higher, cash flow was 26% higher, and pretax profit was 48% higher.” With these results, the chain implemented mandatory adherence to the company’s core principles and beliefs.
Innovations in the company often come from restaurant-level staff. They suggest their ideas to restaurant managers who can choose to “adopt it on an experimental basis”. If the trial proves successful, the lead manager delivers the idea to the regional manager, who may send it to the corporate food technology department for adjustment/perfecting. Once the idea meets company standards, training materials are provided to regional managers and the policy is instituted. According to the article, “In most cases, buy in from the managing partners has to be close to universal before an innovation becomes a policy”.
At Outback, the restaurant manager is called the “managing partner” and must invest $25K of their own funds into the restaurant. Outback believes their “financial contributions make them committed investors in the businesses they’ll be running”. These individuals sign five-year contracts, are given about 1000 shares of stock (that vest at the end of the five years). They are compensated with a high annual salary and 10% return of the cash flow of their establishments. About 95% of the company’s managing partners are invited to re-up or manage a different restaurant at the end of the five years.
The regional managers are called “joint venture partners” and are required to invest $50k of their own funds. In return, they receive 10% of the cash flow from the restaurants in the region they oversee. These individuals “focus on monitoring performance, finding and developing new locations, controlling quality, and identifying and developing new managers, managing partners, and JVPs like themselves. No matter how strong their financial results, neither managing partners nor JVPs get to move or expand unless they have identified and developed lower-level managers deserving promotion. Although we’re a company with more than 80,000 employees, the JVPs are the only management layer between the six operations executives at headquarters and the managing partners at the individual restaurants.”
Additionally, Outback has a variety of other management and organizational strategies in play that have proven that their methods are successful. They learn from their mistakes – and provide extensive leeway to managing partners in the best ways to run their own establishments – all within the standard corporate framework. Although a bit dated, the HBR analysis on Outback’s management and organizational structure is extremely detailed and could provide you with other useful information not briefed in this report. It is the most-detailed report publicly available on this company and is from a highly-reputable organization, so it was included as a source.
LETTUCE ENTERTAIN YOU ENTERPRISES
KelloggInsight reports on Lettuce Entertain You Enterprises which owns a variety of restaurants like Shaw’s Crab House, Mon Ami Gabi, and Frankie’s 5th Floor Pizzeria. The article notes that the company “has structured its operations, and its growth strategy, on the unique appeal of its various restaurants”. Their success can be attributed to the company’s “organizational architecture, which combines centralized management with a diverse network of partners, allowing the company to experiment without disrupting its core business”. Their “attitude of constant reinvention” includes a strong learning mindset – which has shown to be integral to their growth.
Lettuce centralizes some parts of the business operations and allows individualization in other parts. They have a centralized management infrastructure that deals with administrative concerns and staffing, though their individual restaurants utilize a shared management with the on-site partner/manager and the parent organization. Restaurant partners are given profit-sharing benefits and a high annual salary in exchange for this relationship. The article notes that, “This partnership structure, combined with regular information sharing, allows for an effective balance between competition and cooperation. It also allows the parent organization to establish common standards while at the same time working with restaurant partners to bring creative ideas to life”.
The human resources aspect/division of the company is centralized, but the restaurant managing partners are given significant autonomy to run their own restaurants. Restaurant managers hold regional meetings where they share best practices, new ideas, and results of trial innovations. The result of these meetings “is that everyone—both individual restaurant managers and Lettuce’s executive team—becomes more adept at responding to the dynamics of the restaurant industry and at observing customer trends as they reveal themselves throughout the network”.
They have learned from their mistakes – through both Café Ba-Ba-Reeba and Hat Dance, as examples, and turned those restaurants from near-failures into repositioned successes. The company’s readjustments are often based on customer feedback – and this is viewed more strongly at the corporate level than what the chefs want / believe / think.
Additionally, their learning mindset has allowed them to pace themselves ahead of the rapid changes in the restaurant industry, including offering mini desserts, as well as healthier, trendy dishes. They’ve also noted the trend “toward restaurant dining as the main event of an evening out,” and have shifted their restaurants to respond to this trend. The company leadership highly values individuality in their restaurants, so they did not create a single supply chain, but instead relies “on a diverse group of suppliers from restaurant to restaurant”.
ADDITIONAL INFORMATION
This report from ResearchGate is a bit dated (2007), but provides a detailed case study on the key success factors in multi-unit management in the casual dining restaurant industry, if you’re interested.
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SUMMARY
The organizational structures of casual dining restaurants will vary based on the size of the establishment(s) and the functionality needs of the organization. These also vary based on the beliefs, policies, and discretion of those at the corporate level, and how those are instilled in restaurant-level managers and employees. Corporate restaurant hierarchies include a corporate-level executive management team, regional and district managers, and restaurant-level managers. Restaurant groups with franchises also include franchise owners and managers.
Outback Steakhouse / Bloomin’ Brands has a large corporate executive team, and each brand / concept also has a President. Their restaurants all function under the corporate umbrella principles and beliefs, though restaurant-level managers have discretion in the levels to which they apply those core concepts. Outback has a variety of other management and organizational strategies in play that have proven that their methods are successful. They learn from their mistakes – and provide extensive leeway to managing partners in the best ways to run their own establishments – all within the standard corporate framework.
Lettuce Entertain You Enterprises has an organizational structure that combines a centralized management team with a network of restaurant management partners. This allows them to be innovative and growth-oriented without deterring from their core corporate concepts. Their HR functions are centralized, but restaurant managers are given extreme leeway and autonomy in running their own restaurants. They hold a constant-learning mindset that has proven to be very successful in helping them grow their business.
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Thank you again for your question, and I hope this information gives you what you need. Please contact Wonder again for any other questions you may have!