Don Ikeler, Director of Development and Construction, West Region, Chick-fil-A

Guest: Don Ikeler, Director of Development and Construction (West Region), Chick-fil-A

Host: Chris Hatch

Listen on Spotify

Summary

Chris Hatch talks with Don Ikeler, who leads development and construction for Chick-fil-A's West region. Don joined from Carl's Jr. 18 years ago, when Chick-fil-A stores out West did under $2 million, and has watched average freestanding volumes climb to almost $9 million. He walks through today's roughly 6,000-square-foot prototype, 30-to-40-car stacks, the drive-thru door, and why the kitchen keeps growing. He explains the 38-month path from deal approval to selling chicken, how to turn a city from "no" mode into problem-solving mode, Chick-fil-A's $10,000 owner-operator model, and what it took to build in Hawaii. He also shares his best and worst day at the company, stories about Dan and Andrew Cathy, the Atlanta concept stores, and where the brand goes next, including international growth.

Key Takeaways

• Chick-fil-A buys or ground leases its sites and builds them itself, so it runs an in-house development and construction team supported by long-term architect, engineer and contractor partners.

• The current prototype is about 6,000 square feet on 1.5 to 2 acres, with a targeted 30-to-40-car stack so the line never backs into the center or the street.

• Growth in third party, mobile and drive-thru channels has made the kitchen the part of the building that grows most; seating has held at about 100.

• In the West, it takes about 38 months from internal deal approval to opening, with entitlements and permitting each running six months to a year.

• Getting cities into problem-solving mode, with creative fixes like walls, hedges or drive-thru structures, is how tough approvals happen.

• Treat every site as a 30-year decision. Most owner-operators have one location, and their livelihood depends on it.

• Owner-operators pay a $10,000 refundable fee; Chick-fil-A finds the site, builds and owns the building and equipment, and splits profits 50/50 after rent.

• Being privately held with no debt lets the company skip deals that don't make sense, even when it has an opening target.

• Building in Hawaii takes about 40 months and costs roughly 30% more; rural mountain markets like Montana can also run far above Denver or Salt Lake.

• International growth (Canada, Puerto Rico, the UK and Singapore) is the next growth curve, with new challenges like limited electrical power.

Transcript

[01:45] Chris Hatch: Well, welcome back to the Dirt Dog Pod. We're super excited to have our guest today, Don Ikeler, director of development and construction for the West region for Chick-fil-A.

[01:53] Don Ikeler: Thank you for having me. Excited to be here.

[01:56] Chris Hatch: Happy to have you here. It's our pleasure here at the Dirt Dog Pod, isn't it, Porter?

[02:01] Don Ikeler: Well, I told you I'm already a big fan. I've listened to almost all the podcasts. Very interesting, all the different guests, everything from food to gyms. I've very much enjoyed it.

[02:12] Chris Hatch: Glad you're enjoying the pod. We are huge fans of your restaurants. In fact, when we chose to locate the office we're recording this in, we chose it on purpose for the walkability to the Sugar House Chick-fil-A in Salt Lake City.

[02:27] Don Ikeler: It's a great area. And yes, I had the pleasure of working on that location, so I know it well.

[02:34] Chris Hatch: It's such a joy when you get to design them with a new urbanism overlay. Isn't that nice?

[02:41] Don Ikeler: Yes, yes. These cities must all go to the same conference. But I have to confess, I'm coming clean here. This is a safe space, right? I feel safe here at the Dirt Dog Pod. My undergrad is in urban and regional planning, city planning. So I get it. I understand it, and I can say I've been on the other side of that counter and understand what they're thinking to some degree.

[03:10] Chris Hatch: The store functioned so haphazardly until they finally fixed the entrances. That's been the best move ever. I've got to imagine volume reflected that.

[03:20] Don Ikeler: Yes, it did. It's doing very well. And we appreciate your business.

[03:27] Chris Hatch: What's it like running the West region for development and construction?

[03:31] Don Ikeler: It's been a wild ride. I've been with the company 18 years. When I started with Chick-fil-A out West, in Southern California, people didn't know what Chick-fil-A was. They just hadn't experienced it. There were some malls, and when I started there was a handful of locations in Southern California. In those early days, the volumes were lower. We were under $2 million. I came from Carl's Jr., and much of the industry is pretty happy with something close to $2 million, but for Chick-fil-A, that's not where they wanted to be. It's been an interesting journey. Some of those early franchisees, what we call our owner-operators, weren't making a lot of money, honestly; some not at all. But we doubled down and opened more restaurants, which helped. I think it's counterintuitive, right? Sometimes you think, "We need to pause. We need to wait." We were just talking about this for Hawaii, where people said we needed to wait. But the reality is more locations actually helped. And obviously, most importantly, it was the work our operators do with customer service and the great food. That's obviously the biggest difference.

So it's been a wild ride these last 18 years, seeing it grow. In the West we were doing a couple of stores a year, then a half dozen, and now this year we'll do 35 restaurants in the West and about 175 nationally.

[05:01] Chris Hatch: Wild. So you're responsible for getting 35 restaurants built.

[05:04] Don Ikeler: Yes.

[05:05] Chris Hatch: And how big is your team?

[05:08] Don Ikeler: Right now I have 13 people on my team. That includes development, construction, and specialists, which some people might call coordinators. And then there's a separate real estate team and strategist team.

[05:20] Chris Hatch: So just to walk through it at a base level: Chick-fil-A doesn't do build-to-suits with landlords. The preferred deal structure is to purchase or ground lease.

[05:31] Don Ikeler: Correct.

[05:32] Chris Hatch: And that's why you inherently have an internal development team like yours.

[05:36] Don Ikeler: Correct. But we need a whole bunch of other people who help with our entitlements and permitting and with the design, obviously outside architects and engineers. In fact, that's one of the reasons I was attracted to Chick-fil-A. I was at a conference, and there was a gentleman named Greg Lawless, who's still with the company, talking about how they treat their contractors, architects and engineers. So many people in the industry, I hate to say it, just treat GCs, architects and engineers as a commodity. And he talked about how they're partners, and how we have long-term relationships with these architects, engineers and contractors. Because of that, we started a conversation, and a year later I was at Chick-fil-A.

[06:24] Chris Hatch: I love that. So you're responsible for getting 35 restaurants built. I'd assume there's some pretty intense pressure to get stores open, especially with the volumes you guys are at, because you're no longer at $2 million a unit.

[06:41] Don Ikeler: No. It's funny, sitting in those meetings back then, they were talking about the types of increases they wanted to see. And quite frankly, I was like, "Hey guys, the McDonald's and In-N-Outs of the world at that time are doing maybe high twos, $3 million." So I was almost like, "What are you guys talking about?" And now the average unit volume for a Chick-fil-A freestanding restaurant is almost $9 million. That is unheard of in the industry. So we're extremely blessed. That's the interesting part of the growth.

[07:22] Chris Hatch: Some magic has obviously happened during the 18 years you've been at the company. You guys have become the absolute cool chicken spot. When do you think that occurred? When did you notice it?

[07:36] Don Ikeler: Well, I think it started before. People who grew up in the South, in Georgia and Texas, knew it, but we didn't know it out here. After I first went to Chick-fil-A and experienced the hospitality, and also when I went to the home office for those first interviews, when I still wasn't sure I was going to take the job, the people I met were so committed to the brand. The retention rate for staff is almost 98%. People don't leave. But the magic goes back to Truett, and first of all, it starts with servant leadership. We are there to serve our operators, our franchisees.

And of course, great food and great service. But that's easy to say, right? It's a whole other thing to do it, for instance in the hiring. You go into our restaurants, and a lot of the time you see younger kids in there, 18, 19. It might be easier to hire someone who's going to stay for a long time, because a lot of those 18- and 19-year-olds go off to college. But it's those hiring practices, entrusting them and putting values in them that they'll learn. They learn customer service. Dan, who was Truett's son and ran the company after him, talked about how we get to grow these people who may not know how to do customer service, may not even know how to look people in the eyes and greet them, and train them in how to greet customers and interact with them.

[09:18] Chris Hatch: It's amazing. It's such an unreal company from the customer service perspective. It's so infrequent that you have a dining experience there that isn't a good experience.

[09:27] Don Ikeler: It is. In past lives, most of the comments we got were on the negative side. And at Chick-fil-A, most of the comments we get from friends who dine in are positive. In the QSR business, that's just unheard of. I'm very grateful, and it goes back to the training of those team members.

[09:56] Chris Hatch: Somewhere in there, when the magic turned on and Chick-fil-A became the chicken concept, did your day job get easier? Was it easier to get through a city, do you feel like?

[10:07] Don Ikeler: Out West, I didn't totally feel that. I think the cities are very challenging. When our volume started to jump, there were some cities that really wanted us. I don't know if you remember the Krispy Kreme phase, when cities wanted Krispy Kreme. They were the darling for quite a while. But for us it was actually somewhat the opposite, because of the traffic. As we went into areas like Washington, the first few openings were so big that it caused the opposite reaction. We had a lot of trouble getting through the entitlement process, because the cities knew. The traffic was talked about on TV.

[10:49] Chris Hatch: Never a good sign.

[10:51] Don Ikeler: No. But we were fortunate to work with those cities and make it happen with their traffic departments, things like that.

[10:59] Chris Hatch: It's wild. I remember when In-N-Out opened their first Denver location, maybe two years ago, people were lined up, and the line was so long that you could fly to Las Vegas, get In-N-Out and fly back in the time it took to get through the drive-thru.

[11:20] Don Ikeler: That's a great story. They're such a beloved Southern California brand. That was all over the news.

[11:29] Chris Hatch: So of all your openings, what's been one of the most remarkable? What was an explosive opening?

[11:38] Don Ikeler: There's probably that one in Bellevue, Washington. It was a smaller site, and it was so big that it backed up off the site and onto the freeway. When we went there, we did our studies: "Hey, do they know about Chick-fil-A?" And there was some awareness, but pretty low brand awareness. So we were not expecting that. In Bellevue, Washington, our first openings up there, we also opened one in Tacoma and one up in Lynnwood at about the same time. All of them were just off the charts. Unbelievable.

[12:15] Chris Hatch: Good chicken market up there. I hear that from a lot of your peers.

[12:20] Don Ikeler: It's been a great market. It's challenging from a cost perspective on construction; they have a tax on construction in Washington. But yes, it's a great market.

[12:30] Chris Hatch: The model has changed. The floor plan has changed quite a bit in that time period. What's the current prototype, and what are you trying to build? What size building?

[12:43] Don Ikeler: Believe it or not, it's around 6,000 square feet. In the QSR business, that's pretty large. Most of our competitors are probably at 3,000 to 5,000, so we're pushing 6,000. We're actually looking to reduce it a little. During COVID, a lot of the folks with drive-thrus were thinking, "Hey, there's so much business. How do we get them through? What does the dining room look like?" And now it's the channels, right? You have so many different channels people are coming in through. You have third party, Uber Eats, those sorts of things. Of course, the drive-thru. You have people who come in and just want to take the food to go using our app. Designing the restaurants to accommodate that is a big thing. And then continuing to improve the drive-thru. We've done things a lot of our competitors have done, like the canopies over the drive-thrus.

One that sounds pretty basic but has been really interesting to me is having a door in the drive-thru. I've got to admit, when we first started talking about that, I'm like, "Why are we doing a door there? Why do we need to do that?" But I'd say two things. One, obviously, efficiency, by being able to hand-deliver the order to the customer. And it's another opportunity to engage that customer, because the drive-thru is so transactional, right? Hopefully we're helping that by having order-takers outside, but it's very transactional: pay your money, get your food. With that door, it removes a barrier, so you're able to engage the customer. When I went and saw it for the first time, I think we went out to Texas, I was a little skeptical. But once I experienced it, it was such a difference. I asked the team members, and they said, yes, the engagement with the customer was such a differentiator. And they could actually get more food out there quicker; trying to get your hands and things through a window is a little different. So that's what's changed. The biggest thing is all the different channels. People aren't just coming to the counter and going through the drive-thru. We have all these different channels we're trying to accommodate at these volumes, and it makes it difficult.

[15:08] Chris Hatch: So with the 6,000-foot floor plate, did you go with two cook lines, with one dedicated to the dining room and third-party delivery and one dedicated to drive-thru?

[15:20] Don Ikeler: No, it doesn't work that way. That's what I thought we'd be doing. If we go way back to when I started, we had what's called the L kitchen, which was single-sided prep. And then we had what we call the center line, dual-sided prep. Some of the restaurants run it that way, but in most cases, no. They're running both sides, and food can go out either through the drive-thru or the front counter or third party.

[15:46] Chris Hatch: So the additional area is really just seating room?

[15:49] Don Ikeler: Well, to answer your question, the kitchen's grown the most. In terms of the number of fryers, our pressure cookers back there, storage, freezer space... really, the engine has gotten bigger so it can handle quite a bit of capacity. Our seating has stayed at about 100 seats. We actually went lower than that coming out of COVID, when people were wondering whether people would come back to the dining room. To me it seemed obvious: yes, people are going to come back. They don't want to sit in their car and eat a sandwich. They want to come in and enjoy it. There's also more room for team member space, where they can sit and take a break, things like that. So the kitchen really continues to grow.

[16:38] Chris Hatch: That makes total sense. Your volume is three or four times what it was when you started.

[16:45] Don Ikeler: Of course. I don't even know how they do it sometimes, the number of transactions that go through there. I'm so impressed with our operators and team members and how they make that happen. It really is mind-blowing.

[16:57] Chris Hatch: When you think through the volume, it seems like about 18 months ago in Texas, from my perspective, you were taking perfectly good, viable restaurants doing really good volumes and saying, "Hey, let's just double the size of it and go down the street." A lot of people were talking about that. Is that still kind of the move: go back and look at some of these legacy assets that might've been a 3,500-foot restaurant and increase the size if you can move them?

[17:30] Don Ikeler: Yeah, if we can move it or rebuild it, yes. Depending on the age of the asset, we tend to look at it in two different segments. At about seven to 10 years, we take a look at it and do a refresh. That's mostly interior, counter forward. And then the next big one is at 15 to 20 years, where we look at whether we're going to relocate it or rebuild it. Many times we need to upgrade the kitchen. And maybe the market has moved, right? At one time you were at Main and Main, but now the center is someplace else. So do you build a second location there, or do you relocate? So there's a lot of that going on, as you talked about, with stores that have been around 20 to 30 years.

[18:17] Chris Hatch: So you have a 6,000-foot floor plate and a big drive-thru lane. Is there a targeted car stack you're looking for?

[18:24] Don Ikeler: Yeah. That was very interesting to me when I came on board, and it's continued to grow. We like to have a 30-to-40-car stack, which seemed crazy when I came over; it was much less than that. But we need it. We want to make sure we're not backing up into the centers. The big boxes don't want us blocking anything, and we don't want to, right? We don't want to back up onto the street. We want to be good neighbors. When I first came over, we had just a single-lane drive-thru. Then it went from dual ordering lanes merging to a single lane. Now, in many cases where we can, it's dual all the way around, where they're actually delivering to that outside lane.

[19:09] Chris Hatch: So what size lot are you finding the prototype fits on?

[19:14] Don Ikeler: Years ago, we probably would have said an acre to an acre and a half. Now it's probably an acre and a half to two acres, assuming no cross parking and things like that.

[19:25] Chris Hatch: I was recently on a hunting trip with one of my Twitter friends, Ken Ashley, just outside of Atlanta, and I got to go see the Elevated Drive-Thru concept.

[19:35] Don Ikeler: Okay, good.

[19:35] Chris Hatch: Which was fascinating.

[19:36] Don Ikeler: It is. I think you have to try things. We even had a location up in New York where there's actually nobody there. All you do is order and then pick up. So we're trying that. But back to your location: yes, very interesting. That one does have two prep lines, so it's got a huge amount of capacity. You always have to be trying something new. You're innovating, trying to figure out what the next big thing is. Sometimes it might not work, and we've looked at where we've gone and decided we probably pushed the limit on lot sizes that were too small. But if you're not pushing that edge, you're probably not trying new things. So that's a great example of saying, "Hey, what can we make work here? How are we going to innovate?"

[20:31] Chris Hatch: So you're out hunting for an acre and a half to two acres, prime corners, prime spots. You find one. Walk us through the typical process to get a Chick-fil-A constructed and open there.

[20:43] Don Ikeler: Obviously, there's finding the location, the real estate. We have market strategists, which I think is a little bit of our secret sauce. It used to be that the real estate person, along with their broker, was it. And now we have market strategists who do the analytics. I think it's that right brain, left brain. A lot of good real estate guys and ladies know good real estate, but then you back it up with analytics. So, yes, the right location, obviously.

And then some of the biggest challenges are really with the cities. In a lot of these cities, especially out West, we very rarely build a prototype. We either have to modify the exterior in some way, the aesthetics, or the layout. Many, many times the layout isn't ideal. Sugar House is a good example. When we first laid that out, it wasn't laid out that way. But with new urbanism, they want to pull the building toward the street.

[21:44] Chris Hatch: At least in this location, I'll say people are actually walking there. My favorite is when they want to do that in front of a Home Depot. Like someone's buying two-by-fours and then walking over.

[21:57] Don Ikeler: At some intersection with 100,000 cars a day. Yes. This one makes sense. But yeah, working with the cities... I really think that's the magic, when you start to work with the cities and approach it without a transactional mindset. We've been in cities where they told us, "You're not going to get a drive-thru here." We had one in Laguna Hills, Southern California, where they said, "You're not going to get a drive-thru here." But we have good folks who work with the city, both on our staff and our consultants. You engage with them and start having a dialogue. "No, no drive-thru along the street." That's what we get a lot. "Okay. Well, why not? Let's walk through that." "Well, we don't want the drive-thru right along the street." "Okay. Well, you want our building against the street, so the drive-thru probably has to be there as well."

So you walk through it and get creative. In many cases, we've actually built structures up against the street. Easy things are hedges and walls and things like that, but we've gotten more elaborate. We have one in Phoenix where it's almost a full tunnel that you drive through, open on one side. Those creative things happen when you start to have that dialogue, going back and forth on how we can solve this. When you get the city into problem-solving mode instead of "no" mode, I think that's the magic. Those are the best days: when you've been told by a city, "You're not going to get approved here. This isn't going to happen," and then a couple of years later you've started selling chicken.

[23:45] Chris Hatch: Is there a Chick-fil-A in Laguna Hills?

[23:47] Don Ikeler: There is. Yes.

[23:48] Chris Hatch: So you prevailed.

[23:49] Don Ikeler: Yes. Actually, the funny story about that is the mayor really liked Chick-fil-A, because he went all the time to one of our other locations. So I think that helped.

[24:01] Chris Hatch: Nothing wrong with getting the mayor on board, or a couple of key council members.

[24:06] Don Ikeler: Yes, exactly.

[24:07] Chris Hatch: That's funny. So you work your way through the process. What are you typically finding with cities these days? Say you aren't doing a rezone or a replat, so you're zoned for drive-thru, maybe with a conditional use. How long is site plan approval taking these days? Is that a six-month process for you?

[24:31] Don Ikeler: Well, the total process, if we don't have major hurdles like a replat or rezoning, is usually about 38 months in the West, from when we get the deal approved internally and the LOI signed to when we're selling chicken. So over three years. Within that, the entitlement process with the city is running six months to a year, and the same for permitting. It continues to extend. Obviously, when you get into LA and some of the Bay Area cities, it becomes more challenging. But that's the timeframe it takes.

[25:03] Chris Hatch: It's just wild how long it takes to get through the process sometimes, isn't it?

[25:07] Don Ikeler: What's funny is when you talk to people who aren't in the industry, they don't understand. They're like, "Why does the city care? Why do they push back?" And I always think that you have to have owned your own business at one time, or have had to get something approved by a city, to truly understand it. I think most politicians should have to do that to understand the other side of the counter. In any case, it's very challenging. But we also love what we do. I was recently talking to someone on my team, Christine, who's working the Bay Area on very challenging projects with the cities and communities. And I said, "Are you tired of working the Bay Area?" And she goes, "No, I love it." People who do what we do love the challenge. They love the negotiation of the real estate, finding the real estate, building it. Those challenges are what we get up in the morning and love to do.

[26:08] Chris Hatch: That's good. It just shows you're in the right spot if that's what you like.

[26:14] Don Ikeler: Amen.

[26:14] Chris Hatch: One part of that whole timeframe that blows me away, and this touches on your urban planning degree: I don't need a degree to do what I do for a living, but architects and engineers sure do. And our city planners need some version of a background, whether it's urban planning or something else, because those are the folks doing the technical work of "here's exactly what you need to build." And then the city side needs to review it. By the way, if any of our architects, engineers or city people are listening, please move faster.

[26:52] Don Ikeler: Yes.

[26:52] Chris Hatch: However, I do understand why that part takes time. But it's never that part that takes the time. It's everything else. That's the part that kind of blows me away. Have you seen that change over 18 years?

[27:06] Don Ikeler: Yes. It's just continued to extend out. I think the requirements placed on us in the building industry have continued to grow. It's funny: you think about all the things that have changed, going from AutoCAD to Revit and some of these other tools, which were all supposed to make it quicker, but the process continues to take longer. And to be fair, a lot of these cities are understaffed. Especially since COVID. You talk to others in the industry and they say the same thing: staff are working remote and things like that, and it's hard to get in touch with them. They're doing the best they can, right? You've got to think the best of people. They're trying to work through the system, but they're short-staffed a lot as well.

[27:51] Chris Hatch: That's been one gap post-COVID, I think. Land sellers in general never really adjusted the timeframes in which they want you to buy their land. And meanwhile, it's like, right, Ted reviews every single submittal that comes in for a whole city of 500,000 people. So Ted is quite busy. It might take us eight months to get Ted to even recognize we're here.

[28:16] Don Ikeler: It's amazing. Yeah. I'm going to send this over to our real estate folks so they understand, and to some of our landlords. It's challenging to explain why it takes that long. If you think about it logically, it shouldn't take that long, but it does. It's a bureaucracy, and you're working through it.

[28:39] Chris Hatch: I always just say good things take time, right? And especially when you're doing the kind of volume you're doing, you've got to take your time and really think it through, because this thing is going nowhere once it's open. You'd better make sure you open it right.

[29:01] Don Ikeler: We always talk about this being a 30-year decision. What we're planning, how we're laying it out, the back and forth with the city when we disagree with something that's going to hurt us operationally: it's a 30-year decision. So let's get it right. It's worth getting it right the first time, so we don't have to come back and make changes, and so we make sure the operator is set up for success. Because many of our operators only have one location. That's different from past lives at McDonald's, Carl's or other franchises, where they might have 10, 20, 30, 50 locations. Our operators have one location, maybe two, and for the vast majority, their sole income comes from one location. I was at a dedication dinner last night down in Costa Mesa, California, thinking about that operator and how he's trying to provide for his family. One location, that's it. So we'd better get it right.

[29:54] Chris Hatch: I like that, though, because his or her whole livelihood is attached to that store, right? The success is largely dependent on that person showing up and driving the team.

[30:05] Don Ikeler: It is. That's the secret to it. When Truett first started his first diner, if you will, back in 1946, he worked it every day. That's also why we're not open on Sundays. He joked, "I don't want to wash dishes on Sunday, and I don't think the team members should either." That's the way it started, and that was the secret sauce. He understood the value of a local owner-operator. Take Eric, who you have down the road at Sugar House. He lives in the community, so he runs into his customers every day. His livelihood comes from that one location, so he puts everything into it. And the bond he has with his customers and his team members is unlike anything I've ever seen. Last night, the operator was tearing up talking about his team members and what they meant to him, and the leaders in his business. You don't get that a lot. You just don't. But again, that's the care for the community.

[31:11] Chris Hatch: You certainly don't get the passion, right? And the commitment. How cool is that? Tell us: if I want to go rogue today and say, "All right, I'm done trying to build buildings," because, as you well know, it's not that fun right now, "and I want to go be the operator of a Chick-fil-A," how does that work?

[31:35] Don Ikeler: We get a lot of what we call expressions of interest; people just submit something online. We'll get 20,000 to 30,000 expressions of interest in a year, for locations where we may only give out 125 to 150, partly because some operators move around and things like that. But the cool thing is, it's only $10,000. Chick-fil-A does the lease, we do the purchase. The equivalent of a franchise fee at Chick-fil-A is 10 grand, $10,000, which is refundable if they ever leave. So it's $10,000. We find the land and the location; other franchisors make the operators do that, but we do it. We build the building, design it, build it, buy the equipment; we even own the equipment. With a lot of other franchisors, you have to have capital, right? Sometimes it's $100,000 or $200,000; with McDonald's, maybe a million dollars. So for us, it's not about whether they have cash, because they don't really need it. It's the character of the people. We're looking for people who want to invest in and be a part of the community. It's surprising how big a part of being a Chick-fil-A owner-operator that is: how much they want to engage in the community. We do a lot more national marketing now, but it's still a smaller portion compared to some of our competitors.

[33:21] Chris Hatch: What's an example of engaging with the community?

[33:24] Don Ikeler: That's a great question. What it looks like is they're engaged in their local churches and AYSO soccer. They're with the local high schools, where the high school comes in one night and a portion of the proceeds goes back to the school. That's what engaging with the community looks like. Ultimately, we want someone who's ready for that, because that's the marketing, and the long-term investment in the community.

[33:53] Chris Hatch: It's probably the best grassroots marketing you could ever have.

[33:57] Don Ikeler: It really is. It's magic, and it's an investment. I think the community wants to know that you care, right? There are a lot of brands that say they care, and a lot of companies that do amazing things. But that expression of engaging with the community is magic that pays dividends long term, because ultimately people want a business that feels like it cares about them and is a part of the community.

So, $10,000 up front. We own the building and everything. And then after rent, we split the profits 50/50. That allows people who maybe just came out of college, who worked at Chick-fil-A, went to college and are looking for something to do in the business afterward, to get in. We have a lot of people who come out of the military, for their second career. Maybe they'd go down the road and try to get another franchise and wouldn't be able to do that. But with Chick-fil-A, it's an opportunity.

[35:05] Chris Hatch: You have background experience with other companies that use leverage to grow, and sometimes they're taking stockholder money, sometimes they're doing other things. Your company is so unique in that there is no debt, and there are no stockholders other than family members.

[35:22] Don Ikeler: Yeah, the family members account for those.

[35:24] Chris Hatch: How do you find that? Does it help? Does it hurt?

[35:28] Don Ikeler: I think it helps, especially in being able to think long term. For instance, let's say our target is 150 openings for the year, but those last few deals just don't make sense to do, or it's not the right time to open them. We can make the right long-term decisions, the right long-term investments. I've been in places in the past where you have shareholders and you have to meet those obligations. They want to see that return. And if you don't hit it, the share price goes down and everybody's losing money. Those things are in conflict sometimes, right? The short-term versus the long-term. The right short-term decision may not be to reinvest in the business. And we do a lot of reinvestment; it's a whole separate group. We reinvest probably sooner than a lot of our competitors do, because we want to make sure all of the locations continue to look good. It's just a different perspective that is very helpful. Much like the rest of the industry right now, construction costs are so high that we're making sure we keep relooking at how we can spend our money most efficiently.

[36:53] Chris Hatch: Is the company owned in the same structure that the real estate is owned in? The Cathys own...

[37:00] Don Ikeler: Yes, the company owns the properties. So it's all under one umbrella.

[37:06] Chris Hatch: It really does put you in a much better position. I'm sure you can think way more clearly. Anytime you have clear thought without outside pressure or influence from shareholders, partners or private equity, it's interesting what you're able to accomplish.

[37:24] Don Ikeler: It is. I think we still have that mindset of stewardship. It's in our corporate purpose: to be good stewards of all that's been entrusted to us. So as we go about our work, we're able to do that with a long-term perspective, versus being good stewards for just the next 12 months. It's balancing both of those: what's good long-term for the brand and for the operator. Because when the operator is doing well, everybody's doing well.

[37:54] Chris Hatch: That's an interesting perspective to have. What are the various Cathy family members like to work with? It still has a true family office feel.

[38:02] Don Ikeler: It does. There are really only two offices: the big support center office in Atlanta, and Irvine, in Southern California. There are about 75 of us in the Irvine office. Truett is the founder. Dan, his son, was the CEO after that. And now Dan's son, the founder's grandson, is in charge of the company. And I had the pleasure, when I started, of Andrew actually coming out West and working with us. Andrew is amazing, and I have no doubts about the company, given who he was in the office. I've got to tell you, if it were me out there... Andrew liked to surf; when he was out West, he got a love for it. I've got to admit, I'd be like, "Hey guys, I'm going surfing. I'll see you in a couple of hours, and maybe I'll come in." But Andrew was the first one in. He worked hard, and he was a part of the team. Just like the team did, we'd tease each other and he was a part of that. But he was learning, too. He was learning the business. So I have no doubts there. I'm grateful I got to experience that and see who they are. That's what I go back to with the Cathys: servant leadership.

I'll never forget, when Dan was in charge, he was out West one time and we were walking through a parking lot at a Home Depot. He just wanted to go look at it. And on his way in, he's picking up trash, and not in a showy way. I've been around people who do that just to say, "Hey, I'm picking up trash." That's not Dan. He picks up trash on his way, and of course at the restaurants, and encourages everyone to do that. That's just who he is. In fact, at one point, it was funny: we were going to drive and look at some other locations, and he insisted I sit in the front seat. I said, "Dan, you haven't seen this; you should sit in the front." Finally I said, "Okay, Dan, I'll sit in the front seat." He then went and buckled my seat belt for me. A little awkward, I'll admit. But that's just who he is. He is a servant leader.

And a funny story, if you don't mind me sharing my best and worst day at Chick-fil-A.

[40:23] Chris Hatch: 100%.

[40:24] Don Ikeler: Okay. It was an opening, the one closest to my house. I'd only been on board for a year or two.

[40:31] Chris Hatch: Why is it always the ones closest to your house that turn into the nightmare?

[40:38] Don Ikeler: My boss's boss was in town, so he was going to be there. Back then we did the First 100. We don't do that anymore; now we give to what we call heroes in the community. But at that time, we did the First 100, where people would camp out the night before, and the first 100 people got free Chick-fil-A for a year. So it was a big deal, and everybody's camping out there. A few of my neighbors are there. My wife and family stopped by. And Dan, at that time, was on a kick where he was going to every opening. Not only that, but Dan would sleep overnight there. The CEO of the company is sleeping there, and I don't mean he sneaks off to a hotel. No: in a tent, in a sleeping bag, in the drive-thru.

Well, this was a conversion, a Wendy's conversion, and someone says, "Hey, Don, there's a problem in the back." So I go back and take a look, and I realize some of the floor sinks and the toilets are starting to back up. Immediately: there's a sewer problem. We've got 100 people in the parking lot sleeping there, and the toilets don't work. Dan Cathy's there. The local pastor, Pastor Rick Warren, who has a big church out there, stopped by. And I remember, with all this going on, my wife, who'd stopped by, comes up. She could tell something was wrong. She goes, "Are you okay?" And I'm like, "No, babe, I'm trying to deal with something."

There's a Chili's next door, so first we start sending people to the bathroom at the Chili's. This is over a couple of hours, while we're trying to get a plumber out there. Then finally Chili's says, "No more." So we start sending them to Target, and then Target says, "No more." We did finally get the sewer line unclogged. But here's the key part: Dan never asked me what was going on. He just said, "I know you've got it handled." And he kept going about that whole evening like nothing was going on. Who does that? I would have fired me. I would have fired me on the spot. But he didn't.

[42:50] Chris Hatch: Let you solve it first, and fire you the next day.

[42:55] Don Ikeler: Yes. But I say that was my best and worst day at Chick-fil-A. Obviously, you can see why it was the worst. But it was the best because I learned the true character of the company, and of Dan. Pressure situations are where you find out people's character. Again, if I'd been in his shoes, I would have come unglued, but he didn't. He just let me handle it and let us deal with it, and went about things like he normally does. At that time, he would invite in the people who wanted to come, and throughout the night they'd serve food. And he'd say, "Hey, we're going to do some devotionals inside," and he did a little Bible study. All of that was going on at the same time. And my boss's boss was there, and he let me handle it too. Who does that?

[43:41] Chris Hatch: Isn't that one of the most remarkable traits of a leader: entrusting their team, when it gets messy, to just let them do their thing?

[43:50] Don Ikeler: That's the truth. You said it very well. That's a true test. When you're under pressure, that reveals character.

[43:58] Chris Hatch: Right. And I think it also reveals the kind of people and team members Chick-fil-A has, top to bottom.

[44:04] Don Ikeler: Yes. A lot of trust is placed in people. That's one of the things I noticed when I came over. At Carl's, I was a vice president, overseeing facilities and new construction. When I was going through the decision process to come over, I was basically becoming a project manager, taking a bunch of steps back in position. But I was so excited about the brand once I got to know the people. And back to your point about trust: I saw a whole different level of trust than I'd seen in my past life. They put trust in everybody to make decisions. And in what we do, it's not tens of thousands of dollars; it's hundreds of thousands of dollars in decisions we make, and they trust that. We still do that today. We trust the team. You've got to make sure you hire the right people and trust them.

[44:59] Chris Hatch: What a fun culture. One of the stores you've built that I think is one of the most remarkable, from my perspective, is the one in Maui. It's probably because my family enjoys going to the islands, especially during the cold winter months. Sometimes we like to get over there for a little warmth. And it's the first stop after you land. All the kids are cranky, you're in the rental van, everybody's yelling at each other. It's like, "All right, let's just hit a quick Chick. Let's give everybody some fries. We've got a real hangry situation on our hands." What is it like to build a store in Hawaii?

[45:37] Don Ikeler: That was an interesting process. As you know, you really have to learn that everything gets there by boat, right? Everything is shipped there: the food, everything. And it's very much a family culture, which matches what we do. It's this idea of family, ohana. Part of that is using local folks. So we have local contractors, local architects and local engineers who are part of that community. The overall process was very interesting, obviously figuring out where we were going to go first. And then as we built it, the process there, as you can imagine, is slower. It's a slower pace. That was a big learning. And I actually learned a lot more from our supply chain folks about getting food there. You have to have the right folks to get food there. That was something I never really had to deal with in the past, because as the construction guy, the development guy, the food's going to get there when it gets there. We're worried about whether we can get switchgear there. Those are the things that have been challenging, especially the last couple of years. But it was very interesting to see how they went about that. It takes years in the making. Before the first one opened, we were five years out. Now we're fortunate: on Oahu we have three open, and two more under construction as we speak. And then the Maui location. So we appreciate you stopping in there when you arrive.

[47:09] Chris Hatch: Well, like I said, when you've got that hangry situation, it's a quick cure. Throw some fries at everyone. So if you're seeing a 34-to-35-month timeframe from REC approval to serving chicken on the mainland, I assume it's longer in Hawaii?

[47:25] Don Ikeler: It is longer. A lot of our projects there don't have entitlements, right? It's just permitting, but the permit process there is very long. So yes, it's taking a little longer. We're probably looking at closer to 40 months, so almost four years for that process. And the build time is a little longer.

[47:43] Chris Hatch: And more expensive, right?

[47:46] Don Ikeler: Everyone told us. I talked to others in the industry before we went, and they all said the same thing: "It's going to take longer, and it's going to cost more."

[47:55] Chris Hatch: And it's not like you're building in an inexpensive place already. You're building in LA, you're building in the Bay Area. And you're still finding cost increases as you go to the islands?

[48:06] Don Ikeler: Yep. It's very much a premium to build there.

[48:09] Chris Hatch: 20, 30%?

[48:10] Don Ikeler: It's probably 30%. 30% more.

[48:13] Chris Hatch: So that's expensive. But interestingly enough, on the mainland, Montana has been one of the most expensive markets to build in. I know you said you guys are doing work there. We were shocked. Our last few buildings that we've priced through Wyoming and Montana, you get the numbers back and you're like, "This is 50% more expensive than it would be in Denver or Salt Lake. What on earth?" There's land there. There are people there.

[48:46] Don Ikeler: It's a labor issue.

[48:47] Chris Hatch: It's a labor issue. And I guess with some of those materials, you've got to get them there. To your point, in Hawaii everything arrives by boat. When you're in the mountains and you're rural, it arrives by truck.

[48:58] Don Ikeler: Yes. It's got to get there. So it is a longer haul. But it's a labor issue, for sure.

[49:06] Chris Hatch: You said there's permitting in Hawaii, but no entitlements?

[49:11] Don Ikeler: There's permitting, and it's actually through the county there. But there aren't entitlements where we have to go through special hearings for drive-thrus, that kind of thing.

[49:20] Chris Hatch: Interesting. What an interesting process. Have you been back and seen all the stuff around Atlanta, like the concept stores? I don't know if most people even understand that stuff exists: the museum, Truett's Grill, those kinds of things. But first, you're in a Chick-fil-A restaurant how many days a week, do you think?

[50:17] Don Ikeler: Two or three days a week, when I'm looking at sites or construction sites.

[50:21] Chris Hatch: All right. So you've explored the entire menu. Is that safe to say?

[50:25] Don Ikeler: Yes, I have.

[50:27] Chris Hatch: So you're there at lunchtime. What's your go-to?

[50:30] Don Ikeler: The spicy chicken sandwich is my go-to, for sure.

[50:33] Chris Hatch: Grilled or fried?

[50:34] Don Ikeler: Fried. I love it. But I'll tell you, when we do the limited-time offers, we have a spicy grilled that is really good too. And right now the Smokehouse BBQ is excellent. But the spicy fried is my favorite menu item.

[50:48] Chris Hatch: One of my favorite things about Chick-fil-A is that I have celiac, and it's one of the spots on earth I can go where I literally cannot count a single time I've ever gotten sick from eating at a Chick. It's fantastic. I love that they've got fried and grilled, but they also appeal to that crowd.

[51:09] Don Ikeler: My wife is similar; she can't have gluten either. She's appreciative that we have grilled nuggets, and the grilled sandwich, where you can get an alternate gluten-free bun. So that's very helpful.

[51:21] Chris Hatch: I'm a grilled nuggets and kale salad guy. That's my go-to.

[51:24] Don Ikeler: You're much healthier than I am. I just love carbs.

[51:28] Chris Hatch: Yes, it's a weird problem. When I bend my elbow and there's a carb in my hand, it just goes in my mouth. And you've probably built your points status up to some epic levels, then.

[51:41] Don Ikeler: We were talking about this earlier. I don't get them very high, because my family uses them and brings them down.

[51:48] Chris Hatch: It's always fun to see where you're tracking on the points. I feel like your social media team needs to dive in and figure out who the lifetime points leader is in the whole chain.

[51:59] Don Ikeler: That's a great idea.

[52:02] Chris Hatch: Or even the top 10. It would be wild to highlight some of those people, because some of the point totals are crazy. My lifetime points are at like 88,000, which is cheating; we have seven people eating under one number, right? When we go through the drive-thru, it's never a $12 order. It's a lot more than that. It's funny, though: I'll tweet, "Here's my point total," and then people come in out of left field like, "Oh, I have 200,000 points." And you're like, "Do you eat Chick-fil-A every meal of your life?" It blows my mind.

[52:39] Don Ikeler: We're grateful we have fans who come so often. We're very thankful for that.

[52:44] Chris Hatch: A loyal following. Did you create the cow campaign?

[52:47] Don Ikeler: Yeah, that was me. No. But I have to admit, full disclosure again: when I first came, I was like, "I don't get it." The cows saying, "Eat more chicken." I'm a construction guy. But it's been a huge win, and they've been very creative with it.

[53:09] Chris Hatch: It's such an unbelievable marketing campaign. Whoever came up with that deserves a couple of bonuses, I feel like.

[53:14] Don Ikeler: Agreed, agreed. That's been a good one.

[53:19] Chris Hatch: I had no idea until I went and checked out the Elevated Drive-Thru concept, and talked with my friend Ken, who's friends with the Cathy family, that there were all these concept stores in the Atlanta area.

[53:34] Don Ikeler: Yeah, it's something we don't see out here. We have Truett's Grill, which is a Chick-fil-A combined with Truett's original design, because he originally ran a diner. So it's a combination of those two. We also have what's called Truett's Luau, which most people don't know about. It's a Hawaiian-infused concept, so you can get pineapple variations of things.

[53:58] Truett was always reinventing things. Think about it: from his first location in 1946 to 1967, when we opened the first Chick-fil-A in a mall, he was failing a lot. I think people forget how much he was failing, and failing forward, right? He was constantly trying. He built a second restaurant at one point, and it burned down right after. He said that was God's way of saying he shouldn't have a second location. He tried a lot of different things. He tried to franchise the sandwich. He tried to sell the sandwich. He tried a bunch of different things, and that was a 20-year period. People think Chick-fil-A is just amazing for what it's done, but Truett was always that way. He was always trying to reinvent things. Even before he passed, he started a pizza concept. It's no longer there; it didn't make it. Might be because they didn't serve alcohol. A lot of people want pizza and beer, so I think that might have been it. But ultimately, the point is he was always trying something new, even later in life, sitting on a $20-plus billion company. "Why are you trying new things?" But that was him. He was really into real estate. He was always looking for a deal. And he was into cars. At the home office, the Batmobile is there.

[55:22] Chris Hatch: Yes.

[55:23] Don Ikeler: So he was very much into cars and deals. He always liked a good deal. Those concepts back in Atlanta are very interesting, and we're not aware of them out West. And then there's a museum as well. At the home office, there's a museum you can walk through and learn from. You can do what we call the Backstage Tour. If you're ever interested, you can actually sign up on the app to take a tour. The Batmobile is there, and some of the other cars he had are there as well.

[55:58] Chris Hatch: Listen, I'm certain there are a few special personalities who like our podcast, myself included, who would really nerd out at a high level on a backstage tour of the Chick-fil-A headquarters. That's going on my bucket list.

[56:11] Don Ikeler: You guys are welcome. I'd love to host you out there.

[56:14] Chris Hatch: We'd love to do that. Unbelievable. Well, as we wrap up, can you give us any insight into where Chick-fil-A is headed from here? You're the market leader in the QSR world. You've got the highest volumes out there. You came down a little bit year over year, according to the FDD that just went out, but you were in step with what most concepts experienced, right? It was a softer market for fast food last year. Where are you headed from here?

[56:41] Don Ikeler: Well, we still have plenty of runway in the U.S. We have 3,000-plus locations, and some of our competitors have 14,000. I think it's about the right kind of growth. Coming out of COVID, there was so much volume for a lot of us with drive-thrus that we felt like building close to existing stores was what we needed to do, just to help those restaurants, because they were bursting at the seams. I think we've pulled back from that. That's somewhat what we're seeing now: "Okay, let's not impact existing locations."

But the bigger picture is really about international as well. We're in Canada now, and we're in Puerto Rico. We just opened in the UK recently, and we're starting to look at Singapore. That's a whole different group. We talk about these growth curves in our company. The first one was really when we got into malls. The second was freestanding restaurants in the '80s, when we started building freestanding stores with drive-thrus. You hear the stories; back then they were very nervous about the first ones, and looking back, you say that was obviously a success. Some people say another growth curve was third party and things like that. But really, the next one is going to be international. And the groups working on that are amazing. We're still trying to do it the traditional way, with an owner-operator. So it's hard, when you go international, to pair that with finding people, developing those areas, new laws and how you get through those things. So that's where we're headed, and that's what I'm excited about for our company: to see what that looks like.

[58:22] Chris Hatch: It'll be interesting to see how the international customer responds to your chicken as well. It's such a unique taste, the way you do the brining. It's very unique.

[58:31] Don Ikeler: A lot of other places, especially when you think of Asia, like bone-in. So it'll be interesting, to your point, to see how they react. But it's amazing to me. Hawaii is not international, but before we started developing Hawaii, we were going out there scouting, and I was at the rental car counter. They saw on my profile that I was with Chick-fil-A, and they go, "Oh, I love Chick-fil-A." I said, "How do you know Chick-fil-A?" We think "island," but the reality is they're coming out West. They come to Las Vegas, especially. They go to college here. They have family here. I think the same will be true for Europe: people have come here, and they know people in the U.S. But yes, it'll be interesting to see how that flavor profile adapts in those countries.

[59:23] Chris Hatch: No doubt. I went through a drive-thru Starbucks in London last summer, mostly just because I had to. And you go through in the other direction, which always throws your brain off.

[59:33] Don Ikeler: Yes, it does.

[59:34] Chris Hatch: So your international team's got to flip everything.

[59:37] Don Ikeler: Yes, flip it the other way. But they're doing some exciting work, with challenges we don't think about, like the amount of power. In the UK, and even as we're talking about Singapore, they don't get the amount of power we're used to getting here. It's very limited in some of these spaces. Most of our freestanding restaurants have 1,200 amps, which is higher than others in the industry, because all of our cooking equipment is electric. We don't have any gas cooking. Anyway, the point is, you've got to adapt to that, and to the construction techniques. In Puerto Rico, we were building the canopies we have here over our drive-thrus, which are metal, and it was actually more cost-effective there to make them out of concrete. Things you wouldn't think of. You've got to adapt to what they're used to building there.

[1:00:28] Chris Hatch: Is it any easier to get switchgear and transformers and panels in those other countries? We're all ordering our switchgear a year out.

[1:00:42] Don Ikeler: That's a good question. I'll have to ask them.

[1:00:45] Chris Hatch: I've got to tell you, every time I turn on any social media channel or any news source whatsoever, you hear "AI, AI," and I'm thinking, there's no more electrical production being built. Could somebody start building some more factories, please? We are going to have a real bottleneck here.

[1:00:57] Don Ikeler: HVAC and switchgear are the ones that are finally coming back under control. But those have been our heartburn for the last couple of years.

[1:01:01] Chris Hatch: Well, the entire office is a super fan of your concept, and we all appreciate being able to walk to Eric's store here. Thank you for coming on the Dirt Dog Pod with us today.

[1:01:06] Don Ikeler: It's my pleasure. Like I said at the beginning, I've enjoyed listening to the variety you've provided. I think all of us development and real estate nerds love it, because that's what we talk about all the time. So I appreciate you providing this avenue. Thank you.

[1:01:14] Chris Hatch: Thank you.