Paul Hollands sells nostalgia. As CEO of the A&W fast food chain in Canada, he shamelessly evokes a simpler era of drive-in restaurants and rock 'n' roll - before life got so complicated with credit default swaps and climate change. But there is nothing backward-looking about his strategy, which means pushing hard on expansion in the teeth of an economic storm. We caught him just as 53-year-old A&W Food Services (which is entirely independent from the U.S. chain) was opening its 701st restaurant, in Surrey, B.C.
So you are still in a growth mode?
If anything, we're pressing harder to open new restaurants. We'd like to double our rate of new restaurant growth over the next few years. Our view is that recession is a fantastic time to build a retail chain if you are well-positioned.
Why is that?
What happens is a number of retailers just pull in their horns. They're not in a position to continue to expand. So that means there is less competition for good retail real estate, and this is a business, like many other retail chains, that is all about location, location, location.
One, you have less competition for great retail sites; two, you actually see lower construction costs; three, you usually see rental rates drop a bit; and currently interest rates are low and stable. So you can really set a platform for the long run. We're rubbing our hands and asking, 'How can we go faster?' Ontario is the biggest piece of our growth right now. We have 150 restaurants in that market. But we can double the number of stores and still have room to grow. Right behind that, Quebec is another great market.
You're still pursuing the baby boomers?
That's the top dead-centre customer for us. They've been with us since the drive-ins and they continue to patronize us. But we have a very broad appeal across all age groups.
If people go on your website, they will see a big burger with three words - cheddar, bacon, sirloin. That's not a strong pitch for nutrition.
What it is about is quality, and the reality is that for many people, we're a little indulgence in their whole day. We want to make sure that if they have a little indulgence, it's the best it can be.
Why don't you match the other chains in pushing nutrition more?
We have absolutely adapted our menu in that regard. We have a great salad program so if you wanted your combo with salad instead of fries, we've got a great salad to replace that. We have a grilled chicken sandwich and we have the best veggie sandwich, I believe, in the industry.
The reality is that consumers see us as the best-tasting hamburger and as frosty mugs of root beer. We do that very well but we know we need to take care of those other interests people have around food consumption. We've got that covered.
Doesn't much of the industry today revolve around selling a $1 burger?
That's not what we're about. You've got to be price-competitive in the marketplace, but we can't play in the $1 hamburger game. We're about quality and ingredients and care in preparation.
How often do you eat at your restaurants?
I'm in our restaurants once or twice a week.
You're not overweight?
I'm in great shape. People ask this question about quick-service [restaurants] all the time. The vast majority of our customers eat in our restaurants once in a while. We're part of their busy lives. We're not the only thing they eat in their lives and at the end of the day it's just a hamburger, without overstating it all. It's made with good basic ingredients and there is nothing wrong with that as food.
Is it hard to run a national chain from the West Coast?
For our team in Vancouver who travel a lot, it is a little harder work - because it is retail and you've got to be in the markets all the time. Having said that, if we lived in Toronto we'd be travelling just as much, just to different parts of the country. Whether you're getting on a plane in Vancouver or getting on a plane in Toronto, you're still getting on a plane.
How much time do you spend on the road?
I probably travel three times a month. It's not three straight weeks but on average it's something that looks like that. Because it's retail, it doesn't happen in head office.
But isn't this the basic question: How do you beat McDonald's?
At the end of the day we don't think about beating McDonald's. Obviously they are a fantastic business and you pay attention to a competitor like that. But for us it is doing what we do, which means: What does our customer want today, next week or next year? If we keep focused on that, that will be the measure of our business. The moment you get focused on what your competitor may or may not do, versus what you are doing for the customer, you run the risk of losing your way fairly quickly.
Over 29 years in the business, what is the most important thing you've learned?
It's the importance of 'climate' - what other companies may call values or key behaviours. For over 30 years it has been right at the core of how we run this place. We hold climate meetings, we train in climate, it is implemented right to the restaurant level.
It is a statement of seven specific behaviours, which we update every six to seven years. For example, they include: 'We respect and listen to each other.' 'We recognize and celebrate our big and small wins.' 'We support and challenge each other to work together as partners to achieve shared goals.' Every work team in the organization would sit down twice a year for half-a-day with those climate goals, rate their own performance as a group and make commitments about things they will do better in the next six months.
Where will you drive this company?
I've said consistently that we should be at least 1,000 restaurants in the next few years. Ontario and Quebec will be the place we make that stand. Our view is we're going to transform this organization in really creating a dominant presence in those markets in the next little while.
Your operating company is part of an income trust structure. With the 2011 tax change approaching, will you convert to a corporate structure?
At this point we haven't landed on the clear path forward. We've looked at all the alternatives. Turning the trust [A&W Revenue Royalties Income Fund ] into a dividend-paying corporate structure is one of those alternatives, but it is not immediately clear that this is the right one or even the only one we might consider.
What else might you consider?
Just leaving the trust in place is one perfectly acceptable outcome. In terms of taxation in the hands of the pocket of the investor, it doesn't actually change whether it is a dividend-paying corporation or a trust. There are costs and complications in making the conversion and you want to be sure that is the right thing.
The market will tell us what the right structure is - I'm convinced of that.
******
Paul Hollands
TITLE / President and CEO, A&W Food Services of Canada Inc., Vancouver
BORN / Nov. 19, 1956, in Corner Brook, Nfld.
EDUCATION / Bachelor of Commerce, Sauder School of Business, University of British Columbia
CAREER HIGHLIGHTS:
1979:
Out of university, spent a year with Shoppers Drug Mart
1980:
Joined A&W Food Services
1995:
Named executive vice-president and chief operating officer
2002:
Promoted to president
2005:
Appointed chief executive officer
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