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1992: changing the way they do business.

1992 Changing the Way They Do Business

In today's volatile economy, where market conditions can fluctuate with the rapidity of a mercurial summer storm, many companies must make fundamental changes in the way they have traditionally conducted business in order to survive.

Increasingly, global competition, tightening of financial markets and a drop in defense spending are only some of the specters being faced by Utah businesses. It's a "survival of the fittest" scenario, and those companies which adapt and evolve to meet new challenges are most likely to endure and prosper.

Some notable companies which call Utah home will be forging ahead with new business strategies or continuing with recently implemented plans this year. Whether it's in response to downturns in their respective industries or a proactive approach to competition, 1992 will for many mark a transitional year.

Broadening the Base: JB's Restaurants Inc.

In September of 1988, when Salt lake-based JB's Restaurants Inc. severed its ties with the Marriot Corp.-owned Big Boy franchise, upper management breathed a sigh of relief. Marriot's sale of the franchise allowed JB's to walk from its agreement without financial penalty and to abandon a concept that was suffering from image problems and loose organization.

At the time, JB's operated 115 restaurants, the first of which was launched in Provo in 1961. Today, having implemented upgrades in the facilities, service and menus of its flagship chain, now grown to 136 in 10 states, JB's is looking to new restaurant concepts for increased profitability, according to David E. Pertl, vice president and chief financial officer.

"We will continue to work toward improving sales volume and profits at JB's, but we won't be opening additional locations," Pertl said. "As a corporation, we've had to look hard at financial returns, and they were low for JB's compared with others in the industry. We began investigating restaurant concepts that would provide a higher return on equity and sales, and we believe we've found them in Sbarro and Home Town Buffet," he added.

Sbarro, a chain of fast food restaurants which offer a variety of pizza and pasta products, operated primarily in food court locations at regional malls. JB's entered a franchise development agreement in November of 1990 to open at least 24 outlets over a three-year period in Utah, Arizona, and Oregon, and has launched four thus far. Plans call for an additional nine locations in 1992, Pertl said.

In the fall of 1991, JB's also inked a franchise pact to develop a minimum of 12 Home Town Buffet restaurants in a four-state territory including Utah within the next three years. The agreement followed a $3.8 million investment to acquire a one third interest in Americana Entertainment Group Inc., parent company of the chain, which offers made-from-scratch quality products in an upscale "scatterbar" buffet environment.

In addition to its new ventures, JB's is continuing a series of changes to its its--namesake restaurants to improve image and quality. The coffee shop concept was discontinued in favor of open, family-style scating arrangements as restaurants were remodeled. Popular salad and sundae bars have been installed, and the menu is constantly evolving to introduce new products, the latest being a line of pasta dishes and friattas. The company is also introducing JB's Bakery displays in all of its stores.

"We have a lot of confidence in all three concepts," Pertl observed, noting new development and upgrades of existing locations will fully utilize both management skills and available capital in 1992.

Technology and Transition: Evans & Sutherland

Change isn't new to Evans & Sutherland Computer Corp. As a designer and manufacturer of visual simulation systems, high-end-purpose workstations, and specialized application software and hardware, the company is a vanguard for new technology and, as such, is experienced in creating and entering new markets for the first time.

"We're almost always in transition." noted Susan Mickelsen, vice president of corporate relations for E&S. "We develope technologies that haven't been used before, so it's common for us to be in new territory."

However, the weak U.S. economy, coupled with a slowdown of orders from the commercial aircraft industry, and the military, chemistry, and automotive industries (all of whom use E&S visual systems to model the real world for training and engineering) show the wisdom of the company in having a broad-based market approach.

Increased sales in foreign markets, where E&S has been concentrating aggressive marketing programs over the past two or three years, are maintaining company growth during the national recession. Although business with the U.S. government and civil airlines is expected to remain soft through 1992, Mickelsen said, military growth in other countries should fuel strong sales abroad.

E&S is also working toward making its visualization systems more affordable in order to broaden their use. "This will allow us to go into new markets that couldn't justify the $20 million cost of previous simulations, but can justify $500 thousand or $1 million," Mickelsen said. "As the technology improves and costs come down, it becomes more affordable for use in driver training, the entertainment industry, and gunnery training."

Market conditions have also prompted the company, which Mickelsen described as being traditionally conservative on fiscal matters, to reduce expenses, improve margins, and keep a close eye on new hiring. As a matter of policy in a high risk industry, E&S has and will continue to operate with a high degree of liquidity, she said.

Pioneering Partnership: Flying J Inc.

Flying J Inc., headquartered in Brigham City, has built its business upon being self-sufficient. "Fully integrated," are the oil and gas industry buzzwords that describe the company's policy of producing, refining, and marketing its own products.

But it was the 1991 formation of a joint venture with Houston-based Conoco that has allowed the Utah company to expand beyond its own capabilities. In fact, as a result of the partnership, Flying J ushered in 1992 ranked as the largest interstate and oil marketer in the country.

"We began getting aggressive about expanding our interstate market in 1987, but we needed $1 billion in additional capital to accomplish our goals," Flying J president J. Phillip Adams explained. The joint venture agreement calls for the development of a national chain of full-service travel plaza-truckstops along the U.S. interstate system. In exchange for a 50 percent interest in the existing Flying J network, Conoco agreed to participate in construction of an indefinite number of additional units.

The companies plan to develop between 12 and 20 interstate properties and four to five regional properties in 1992, Adams noted.

Finding creative solutions to competition has long been an integral part of Flying J's agenda. Founded by jay Call in 1968, the company began as a self-service gasoline marketer but entered the wholesale and transportation arenas of the business when product shortages occurred five years later.

The company built its first travel plaza in Ogden in 1979, and has used the operation as a prototype for development of an entire network of interstate properties. In 1980, Flying J acquired the U.S. refining, retail, wholesale, and distribution operations of a Canadian corporation, followed by the purchase of three refineries and 25 interstate properties from Husky. Its latest acquisition included a natural gas processing plant near Roosevelt and productive oil wells in the Uintah Basin.

Although Flying J is now focused on interstate development, it stands behind its position as a fully integrated regional oil company supplied by its refinery located in Salt Lake City. "We've made a commitment to the Salt Lake refinery and to the crude oil production necessary to feed it," Adams observed.

He indicated Flying J is also committed to taking a proactive position involving the environmental concerns inherent to the industry. The company has spun off a new corporation called Enviro-Vault that will deal in distribution of environmentally sound housings for underground storage tanks, and it plans to begin marketing efforts this year.

Frustrations in Financing: The Price Cos.

Diversification has historically been heralded as one of the best hedges against downturns in any one particular industry. Salt Lake-based Price Cos. maintains diverse interests--in commercial real estate development, broadcasting, fast food restaurants, polyethylene packaging, and steel production. But with the exception of its investment in steel manufacturing, the company has been hit hard by the shrinking availability of financing throughout the U.S.

The current unwillingness of lenders to extend loans to credit-worthy businesses concerns company president John Price beyond the scope of his own company's difficulties. "The viability of the entire country is at risk if mid-sized companies can't borrow. They provide employment and an important tax base that can't be ignored. But today, lenders regard any leveraged business as suspect."

Price's business strategy to weather what he perceives as a crisis in American industry involves among other factors the sale of certain assets. The company has entered an agreement to sell 10 of its 13 radio stations, and is in the process of divesting itself of some of its real-estate holdings.

The sales agreements, however, are predicated in part upon the buyers' ability to arrange financing, and Price indicated he can't be certain they'll close until the proceeds are in the bank. And in the case of commercial real estate, financing is becoming so scare that most sales are to institutional investors such as insurance companies and pension funds.

In 1992, Price Cos. will downsize and continue protective measures to ensure its future viability. No new projects are being developed, and those already underway are being curtailed. The company has already streamlined its staff by 10 to 15 percent, Price said, and new capital investments will also be eliminated.

Marketshare Momentum: System Connection

System Connection, a manufacturer and distributor of computer cabling based in Utah County, has experienced whirlwind growth in its six years of business. Founded by then-BYU student Richard McClosky, the company has grown from a corner in his studio apartment and first year sales of $100,000 to new 37,000-square-foot quarters in Provo's East Bay Industrial Park and 1991 sales of $6.7 million.

In fact, System Connection's explosive growth was recently heralded by Inc. magazine, which ranked the Utah firm at number 40 on its annual listing of America's 500 fastest-growing privately-held companies. With such an extraordinary track record, how does the company plan to sustain its momentum in 1992?

By launching new marketing channels and increasing its share of the international market, answered company president Jon Tingey. "For a long time we struggled with who we were, and with defining our mission and augmenting it with what was realistic. In 1992, we hope to see some of our best-laid plans come to fruition."

Up until two years ago, System Connection was funded entirely by internal capital, embodying Richard McClosky's eschewal of government assistance or preferred programs. Profits were churned back into the company, but it had insufficient capital for large-scale expansion, Tingey said.

In order to augment cash flow, the company began selling computer hardware to dealers and large corporations, a move which generated enough sales to enable System Connection to distribute cabling nationally and to assume its present position as a major provider of conductivity-related products.

This year, the company is in the midst of entering new marketing endeavors that are expected to help boost 1992 sales past the $10 million mark, according to Tingey. While System Connection has heretofore dealt primarily with resellers and manufacturers, it plans to enter the mass retail channel with sales to chains such as PACE Membership Warehouse and Bizmart.

In an effort to increase its marketshare on an international basis, the company opened a facility in Amsterdam last October and will continue that expansion strategy into 1992. Final negotiations are currently underway with a Chinese corporation that will allow System Connection to open a trading company in Taiwan to source directly from manufacturers.

PHOTO : Fred Gonzales, CEO, JB's

Teresa Browning-Hess lives in Salt Lake City and specializes in business topics.
COPYRIGHT 1992 Olympus Publishing Co.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:five Utah-based businesses look to 1992
Author:Browning-Hess, Teresa
Publication:Utah Business
Date:Feb 1, 1992
Words:1991
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