QSR Pal’s Sudden Service expects and gets outstanding results from a well-trained workforce ofstrategic thinkers.

by Dave Scopinich, Contributing Editor

Pal’s Facts

  • Pal’s has lost just four general managers since 1981—the last one left in 2000 to buy his own restaurant.
  • Pal’s President and CEO Thom Crosby calls today’s young workers "part of the best trained, most highly educated and prepared workforce that America has ever seen."
  • Workers are permitted to stray from Pal’s policy if they think it will meet company goals.
  • On average, roughly 1,500 cars go through each of Pal’s 19 drivethrus each day.

Not too long ago, a soccer mom stopped at a Pal’s Sudden Service (Kingsport, TN) drive-thru on the way home from her daughter’s soccer practice. The woman ordered a milkshake for her daughter. It cost $1.39. Unbeknownst to Mom, though, was the fact that she’d lost her wallet sometime during the course of her day. She realized this after ordering the shake, so she did a quick sweep of her car looking for change and came up with 94′. Embarrassed, she told the window clerk her story and asked her to cancel the order.

"Jennifer, a 16-year-old, was working the window," says Thom Crosby, president and CEO of the fast-food chain of 19 drive-thru-only restaurants. "And Jennifer says this to the woman: ‘Well, you’re lucky because right now, milkshakes are on sale for 94′.’"

Jennifer made Soccer Mom’s day. In fact, Soccer Mom was so happy that she dialed up an old friend to tell him about her experience.

"We were lucky because she knew Pal Barger, our founder," Crosby says. "She says to him, ‘Hey, I just got a milkshake at your place for 94′.’ So Pal says, ‘Well, I thought we got more than that for milkshakes, but that’s good for you.’ She then explained the story to Pal and he relayed it to me."

At Pal’s Sudden Service, 16-year old store clerks are encouraged—no, expected—to make decisions like the one Jennifer made because, as Crosby says, "Today’s employees are part of the best trained, most highly educated and prepared workforce that America has ever seen."

That simple philosophy becomes self-fulfilling at Pal’s because it motivates the chain to put the most resources possible into developing its people and their skills.

"By taking that approach and following it up by giving them lots of responsibility, we put every employee in a state of self control no matter what job or position they hold," Crosby says. "We treat them like world-class individuals."

Pal’s demands its employees to think independently. Depending on the situation, employees can choose to follow the Pal’s process, modify the process or change it if they don’t think it’s meeting the company’s goal.

"Management isn’t going to question them," Crosby says. "Instead, they’re going to ask how they can help. Too often, companies want to bring in people, ‘idiot proof’ the process and manage them. We want strategic thinkers. We want them to be in a state of self-control. We don’t hide sales and profit data and complaint data. It’s all there for our employees to see because we want everyone engaged in the system. It’s like knowing the score of the game. It’s much more fun to play the game when you can see the score."

The score says Pal’s is winning.

"We’re tit-for-tat with the market’s highest-grossing chain stores," Crosby says. "If you look at drive-thru only, our average unit sales are more than double. On average, about 1,500 cars go through each store every day."

Worried about winning
Like most professional sports teams, Pal’s worries about winning. Unlike most professional sports teams, losing players to free agency hasn’t been a problem for the company. The turnover rate is low chain-wide. Among general managers (a.k.a. store managers), it’s almost non-existent.

"Only four [general managers] have left since 1981," Crosby says. "The last time a GM left was in 2000 and he bought his own restaurant. We’ve had two others retire and one who left because of medical reasons."

Low turnover at the general manager level is critical for Pal’s because the chain heaps a lot of responsibility on its GMs.

"We have 761 employees, and all work inside restaurants except the founder, me and [CFO] Rob Thompson," Crosby says. "We are the definition of ‘lean and mean.’"

Since general managers hold onto their top-level jobs so tightly, it would figure that up-and-comer assistant managers would leave Pal’s because they hit the glass ceiling, but that’s not the case.

"When it comes to assistant managers,"-Crosby says, "[our turnover] runs right at 1.89%."

As impressive as they are, those numbers don’t hold a candle to the turnover rate among part-timers: 57%. "When you break out part-time school people, our more permanent employees were at 18%," Crosby says. "School kids were 69%."

Pal’s pays competitive wages, but it doesn’t overpay. Crosby believes there’s a better way to build loyalty and get the best out of people.

"We view and treat them as world-class individuals," he says. "We think the quality of training is important to low turnover."

General managers at Pal’s restaurants use a training and management software program called Sysdine throughout the hiring and training process. Sysdine (www.sysdine.com), which was developed by Silver Creek Technologies, is based on concepts of the Pal’s program.

Pal’s relationship with Silver Creek Technologies began in 1999, the same year the Sysdine People Resource Management software helped Pal’s win a coveted Malcolm Baldrige National Quality Award in the Small Business Category. (Baldrige was a well-respected Secretary of Commerce in the Reagan Administration who died in a rodeo accident in 1987.) Pal’s was—and still is—the only foodservice company of any size to ever win the award, which was presented to Pal’s personally by President George W. Bush at a special ceremony.

"We were looking for someone to help us get a digital system in place for HR," Crosby says. "Silver Creek did the software for free because then they had something they could sell to other companies. If someone wants to look at how the system works, check out Sysdine.com and basically, you’re reading what the Pal’s perspective is on building a robust HR system."

The software is so advanced that if "Johnny Job Candidate" skims by page 10 of the online training, Sysdine records the "time spent" on that training section and tattles on the trainee. ("This way," Crosby says, "we can go back and challenge them on things that are on that page.") But Pal’s hasn’t reinvented the Training Wheel; the chain follows a simple process consisting of four common steps: Show, Do It, Evaluate and Perform Again.

"We have unique approaches within-those four steps," Crosby says. "We partner each employee with a coach/mentor. We have in place a very rigorous system that checks the training to verify in the field that this person is doing everything 100% correct."

Pal’s views its workforce as being smart, so the chain teaches at a higher, more detailed level than most foodservice or convenience store chains. For example, while training to properly pour a fountain soda, Pal’s employees also learn about the science behind carbonation.

"You buy a carbonated soft drink," Crosby says. "You get home and pour it over ice. It foams up real tall and that’s a process called ‘boil
off’ because the ice cubes are too cold and the reaction of the carbonated water is to create a thick head of foam. That takes out some of the carbonation, and that’s why it tastes a little flat."

Pal’s keeps its ice at 30 degrees to ensure optimal carbonation and taste.

"So if we run out of ice, we can’t just buy ice from a convenience store and use it," Crosby says. "We have to run sinks of warm water and submerge the ice until it’s about 30 degrees before we can load it and use it. Otherwise, we’d be giving a junk piece of product to our customer because that ice is about 0 degrees, which is about 30 degrees too cold. We teach our employees about this. We want them to get this image in their mind that they have to know every detail about how our processes impact our customers’ lives."

Changing policy
Another focus of Pal’s training, Crosby says, is to "catch" employees doing good.

"Most management systems have a focus on finding things that are being done wrong and changing them," he says. "We look for people doing things right, congratulate them and ask them to do more."

Sometimes, when an employee is "caught doing good," he or she unknowingly changes company policy.

One of Pal’s stores in Johnson City, TN, is in close proximity to several hospitals and Eastern Tennessee State University. Someone from the hospital placed a large order with Pal’s and picked it up to bring back to the hospital. When he got back, he realized that there was a bag of fries missing.

"The customer called and our employee apologized," Crosby says. "Then our employee said, ‘We like to make sure everyone gets to eat at the same time and that everyone has a hot meal, so we’ll replace the whole order and we’ll deliver it to you.’"

Still, there was a problem: The employee realized that if one person left to deliver the food, it meant that other customers were going to get slow service.

"So they called a taxicab company and negotiated for them to deliver the food so that none of the Pal’s employees would have to go," says Crosby. "The world is full of brilliant people. Now, our operations manual says that if you need to replace an order and no one can leave, call the local cab company and negotiate a delivery fee. It’s become a successful part of what we do."

Most foodservice businesses would have sent over a bag of fries. But Crosby says it’s worth it to treat even minor complaints seriously.

More importantly, it’s critical to know about every complaint. That’s why Pal’s tracks customer complaints meticulously. The chain averages one complaint for every 3,300 customers. These aren’t "Enron numbers," either. Everything that can possibly be logged as a complaint is logged as a complaint. If a customer asks for extra napkins and then asks for more because Pal’s definition of "extra" wasn’t enough, it’s logged as a complaint. In fact, anything that could possibly be categorized as a complaint is logged into a system.

"We call it our ‘opportunity chart’ because they’re not complaints; they’re opportunities to do better," Crosby says. "We had a person drive up to one of our drive-thrus and he was absolutely livid about a mistake made on his lunch order. The employee listened, apologized and didn’t get defensive. He simply told the customer that Pal’s wanted to replace the man’s order and refund his money. After the employee made this decision, the guy hands over the burger and the employee realizes it’s not a Pal’s burger."

Even though the burger was from another fast-food joint and the customer must have been confused, the Pal’s employee still replaced the burger and gave a refund. The window clerk explained to the customer that, while

Pal’s didn’t make the mistake, the company knows how frustrating it is when a customer’s order is incorrect. The only thing the employee asked the customer to do was to stop by Pal’s for lunch sometime.

"These are the type of people who we put on our shoulders and parade around our company," Crosby says. "If you think about it from a marketing standpoint, an average check for us is about $4, so we gave him back $4 and replaced the meal, which costs us another $2 or $3. I look at that as being the best marketing money we’ve ever spent."

Learn the secrets of Sudden Service

Any time a company receives as many accolades as Pal’s Sudden Service has, people are going to ask them how they do it. Instead of just answering the question, Pal’s developed the Business Excellence Institute (BEI), which is Pal’s main way of sharing information about Pal’s with other companies. The BEI features courses that teach techniques used by Pal’s and others that have generated great results.

"I’m not telling you how we cook a burger and what’s in our secret spices," says Thom Crosby, president and CEO of Pal’s. "But we would like to see all American businesses apply these principles to their businesses because it will motivate us to step it up even further. Also, because the more robust the business world is, the more money people will have to come and eat at Pal’s."

Pal’s charges for the courses, but the company doesn’t keep any profit. "The instructors get a fee and with the money that’s left over, we invite local nonprofits, schools and churches to come in and learn what’s taught in the BEI," says Crosby. "Our goal is to make performance excellence pervasive in all organizations everywhere because we know how important it is to drive business forward."

Some of the courses taught at Pal’s Kingsport headquarters include:

  • Pal’s Performance Excellence Systems: An in-depth look into Pal’s world-class systems, the logic behind them and how it all fits together.
  • Manufacturing Principles Applied to QSR and Other Non-Manufacturing Organizations: Learn the principles and how Pal’s applies them, then tour Pal’s stores to see the results first hand.
  • Human Side of Leadership: Discover how to unlock the effort necessary to do a world-class job, and create an environment where people "want to" do the right thing rather than "have to."
  • Pal’s HR Practices and Processes: See how HR systems enable a small company, even one with limited resources, to create world-class people performance that produces benchmark HR and business results.
  • Beyond "Thank You": Learn how to apply the proper use of rewards and recognition, and how to use positive reinforcement to unlock that extra effort.
  • Driving Customer Growth and Satisfaction: See how Pal’s created and executed a marketing and sales program that will help other companies grow sales by targeting the right markets and customers.

An ‘A-Ha!’ moment at Pal’s burger factory

To be considered for a Malcolm Baldrige National Quality Award, Pal’s CEO Thom Crosby and his colleagues had to fill out a very detailed application that forced them to take a critical look at their business and how it is run. The application process helped Pal’s improve its speed of service.

"It gave us an ‘a-ha’ moment when we realized we were really in the manufacturing business," Crosby says. "Ford Motor Co. manufactures trucks and cars, and we manufacture burgers. It’s the same principle. So we asked ourselves ‘What approach would a large manufacturer take?’ When we thought about it that way, the layout of our stores changed to make for a much more efficient product flow.

"[Each of our restaurants] is a manufacturing plant," he continues, "so you have to make the product flow and be sure the
re are no back steps. When the product comes into the back door, it constantly moves forward to the drive-thru window where it will be delivered to the customer."

‘Don’t be afraid – you can call me.’

All Pal’s employees have a copy of the company’s "Yeller Pages"— an internal resource guide where an employee can find a number to reach anyone in the chain. And, if need be, any employee can call Thom Crosby 24 hours a day, seven days a week on his cell phone.

"Having my cell phone number," Crosby says, "is part of the training manual." The company also has an Intranet site (a private site that only Pal’s employees can access), where news, information and customer service success stories reside.


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