Arby's

The concept for Arby's, as it later became called, was a bigger success than even the Raffel brothers had imagined. It seemed clear to them and other fast-food industry observers that the chain was destined to join the ranks of the fast-food mega-giants like McDonalds and Burger King. To make that quantum leap, however, the brothers needed cash. They had gotten by during the late 1960s with bank loans and help from individual investors. To sustain growth in the 1970s, they would have to take the company public. They registered for an offering in 1970. The new issues market was thriving at the time and the Raffels expected to generate a big cash war chest through the offering. Unfortunately, a Securities and Exchange Commission accounting rule change made at the time forced Arby's to delay its offering until April. In an incredible twist of fate, Arby's initial public offering (IPO) was rescheduled for April 24. It was on that day that the new issues market virtually collapsed. Stunned, the Raffel quickly aborted the stock sale. As a result, they were left stranded without the money that they had expected to garner from the offering. Suddenly, they were in a position in which they were unable to pay their bills. The banks that had previously loaned money to Arby's quickly swooped in to protect their investment. They effectively took over the company, fired 125 of the 150 employees who staffed the firm's headquarters, and slashed services to the franchisees that were operating the Arby's outlets. Frustrated franchisees, feeling duped by their parent company, stopped paying royalties. In November 1970 the company was forced to file for Chapter 11 bankruptcy. Despite the blistering setback, the Raffels managed to regain control of Arby's five months after the company entered bankruptcy. They spent the next few years restoring it to profitability and getting back to the place they were at before the failed IPO. They also tagged on a number of new franchised outlets. By 1975 they were operating nearly 500 outlets throughout the United States. Still, the Raffels needed more money for expansion. Rather than attempt another stock offering, they decided to find a larger company with which they could merge. The parent company could then fund their expansion. In 1976 the Raffels reached an agreement with Royal Crown Cola to sell the Arby's chain for $18 million. Arby's, still under the direction of Leroy and Forrest, continued to flourish under the Royal Crown umbrella. Another 300 units were added to the chain between 1976 and 1979. Importantly, Arby's generated big profits and solid sales gains during this period. In 1979 Royal Crown moved its prosperous Arby's subsidiary to Atlanta. The Raffel brothers decided it was time to jump ship. They retired as millionaires, leaving a legacy of more than 800 Arby's restaurants scattered throughout the United States. Roberts' overall strategy proved successful. During the mid-1980s Arby's raced near to the front of the fast-food pack, opening hundreds of stores throughout North America and even a few in Europe. At the same time, per-store sales increased, partly because the company launched an aggressive advertising campaign and pioneered unique customer service concepts like accepting credit cards and allowing customers to order by computer. By 1989 the Arby's chain had ballooned to 2,100 restaurants that were capturing annual sales of more than $1 billion, figures that made Arby's the twelfth-ranked fast-food chain in the industry. While Arby's achieved huge gains during the late 1980s, however, trouble was brewing behind the scenes. Roberts had become dissatisfied with Posner's control. He felt that Posner was hindering Arby's growth by bleeding its cash flow, rather then reinvesting income to expand the chain at a faster rate. At one point, according to Roberts, Posner had withheld bonuses from middle managers for two straight years. In fact, several of Posner's holdings were in trouble