Sizzling Returns

After a near-death experience and strategic transformation, Thompson Hospitality proves it�s cooking up the right recipe for diversification and growth

A new diversified business model helped Thompson's company generate increased revenues. (Photo by Lonnie C. Major)

Thompson hospitality was in crisis mode. Founded a few months earlier in 1992 when CEO Warren M. Thompson negotiated a leveraged buyout of 31 Big Boy restaurants from Marriott Corp., the fledgling company was neck-deep in debt. Herndon, Virginia-based Thompson Hospitality Corp. (No. 12 on the be industrial/service companies list with $321 million in revenues) acquired the Washington, D.C., Maryland, and Virginia restaurants for $13.1 million. THC also raised $1.9 million in capital from about 25 investors, and Thompson anted up about $100,000 of his own cash to convert the locations into Shoney’s restaurants. But the transaction wasn’t going according to plan.

It sounded like a good idea at the time. Shoney’s was a brand with household name recognition, and THC would repay Marriott in interest and principal over a six-year period. And Thompson had plenty of relevant experience. In his nine-year career at Marriott International, he held a number of positions within the hotel giant, from assistant manager at one of its Roy Rogers restaurants to vice president of operations for the East Coast division of Host International, where, at the age of 29, he oversaw dining facilities at 18 airports. “I hired everybody younger than I was at the time,” recalls Thompson. “We called ourselves The Renegades. We were going to change the way people ate in airports. We put the first Pizza Hut at JFK. In 500-square-feet, we did about $2.5 million to $3 million a year.”

But as an entrepreneur, Thompson wasn’t faring as well. Shoney’s parent company was facing major problems, probably the most notorious being a class-action lawsuit that alleged racial bias against African Americans. The allegations, which dogged the company for years, caused irreparable damage to Shoney’s reputation in the marketplace. The franchises started losing revenue, and so did THC. It was apparent that converting the rest of the locations might sink Thompson. THC had to get out fast.

In the midst of all this, Thompson’s father and mentor, Fred, passed away. With the loss of the man who taught him about both life and business, he needed to regroup. “I got away one weekend, reflected on my life, the company, and putting all of that together, I came back in and said to the team, ‘We are now going to move into the contract food service area,’” Thompson remembers. “I rallied the team together, decided yes, we are going to move into that area full force, and we did. That is actually what kept us afloat during those difficult times.”

THC’s original business plan called for the company to shift into contract food service in five years. Essentially, the plan was to diversify operations from strictly retail restaurants to include managing cafeterias for educational institutions and corporations. Crisis mode produced greater urgency. So within 10 months of its inception, Thompson and his team took on the painstaking effort of redefining the business. During the course of nearly eight years, THC sold all 31 restaurants and extracted the intrinsic real estate values of the properties, allowing the company to pay back some of the $25 million it lost in the deal. “It put us in a very difficult position in that we were heavily leveraged starting out,” recalls Thompson. “I did start to question whether I could really pull this off. Could I do what it is that I set out to do or would I need to go back to corporate America?”

Business improved. In 1993, THC landed its first contracts, with Baltimore City Community College and Saint Paul’s College in Lawrenceville, Virginia, and used profits to pay off its debt. While selling off the Shoney’s and Big Boys, Thompson would successfully transition THC from a restaurant operation to a food service company with contracts with corporate giants such as IBM and American Express as well as more than 90 educational institutions, including 19 historically black colleges and universities. The company invested more than $15 million to develop food service contracts during the transition.

Along the way, THC has generated double-digit revenue gains each year, growing from a $37 million business in 1993 to a powerhouse projected to generate nearly $375 million in revenues for 2010. And in 2009, when most companies saw revenues plummet, THC’s top line grew 15.5%.  For its phenomenal financial performance in one of the nation’s worst economic downturns and successful positioning as a high-growth company, black enterprise has named Thompson Hospitality Corp. as our 2010 Industrial/Service Company of the Year.

BEATING THE RECESSION

THC’s diversification has helped the company weather the unforgiving downturn of the past few years. The strategy has given the company maximum flexibility because if one business line has been hit, another has offset. “Generally speaking, the restaurant industry has been down 15%, but THC has done much better than the industry average,” says Ali Azima, THC’s chief financial officer. “Part of 2008, part of 2009 were really tough from the sales perspective. But we have also added some new contracts [for the food service business] that we have been awarded that helped increase our revenue.”

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