During the 1960s and ’70s, there was massive hype over the expansion of quick serve restaurants McDonalds (due to Ray Kroc) and KFC (due to Colonel Sanders). However, there was another massively growing fast-food chain that was taking significant market share and that chain was “Arby’s.” Today, the Arby’s Restaurant Group Inc. is the second-largest fast-food sandwich chain in America, second only to Subway, with Panera Bread and Jimmy Johns coming in at a very close third and fourth.
But how did Arby’s get where it is today? How was the concept conceived and grown into being the second-largest fast-food sandwich chain in the United States? For this article, I will spotlight Leroy and Forrest Raffel, and how their dedication to innovation in the food service industry led to the development of one of the most successful restaurant chains of all time.
Born In The Greatest Generation (WWII Generation)
Forrest “Fuzzy” Raffel was born on May 14, 1922, to Jacob and Ann Raffel. His younger brother, Leroy, was born on March 13, 1927. Both brothers served in the military during World War II (Forrest in the Air Force and Leroy in the Naval Reserve). Forrest graduated from Cornell University’s School of Hotel and Restaurant Administration. Leroy graduated from the Wharton School of Finance from the University of Pennsylvania.
From Restaurant Equipment To Roast Beef Sandwiches
In the 1950s, the brothers bought their uncle’s restaurant equipment business and created Raffel Brothers, Inc., which became one of the country’s leading food service consulting firms, specializing in restaurant equipment for operators.
But from afar, the brothers were watching the massive growth of Ray Kroc’s McDonald’s and how companies (such as Burger King) were getting in on the action by copying a lot of the operational franchise formula created by Kroc, along with copying the “Speedee Service System” created by brothers Maurice and Richard McDonald. The Brothers believed that there might be a market for quick service/fast food that wasn’t based on the sale of hamburgers, but the sale of roast beef sandwiches.
Jumping Into The Game/Rapid Growth
“We were totally confident, while everyone else thought we were out of our minds.” – Leroy Raffel
The brothers took a chance and on Thursday, July 23, 1964, when they opened their first quick service roast beef sandwich shop in Boardman, Ohio. They were going to call it “Big Tex,” but that name was already in market use, so they called the shop “Arby’s” based on the initials of “R” and “B” of Raffel Brothers.
Arby’s was positioning itself as a more “upper scale” quick service joint, by having their roast beef sandwiches priced higher at 69 cents, compared to McDonalds hamburgers going for about 15 cents. The first store was a hit and The Raffel Brothers would then begin expanding very rapidly to the point that by the late 1960s, they had over 300 locations in nearly 40 states.
But the fast expansion required high amounts of working capital. The brothers utilized bank loans and equity capital to help finance the late 1960s growth, but those sources weren’t going to sustain the current operational levels along with prospective growth plans. So as a result, the brothers sought to take their organization public with an IPO in 1970. Changes made within the SEC delayed the IPO and by the time it was rescheduled, issues in the market required the brothers to abandon the stock issuance.
This left the brothers without the needed working capital which put them behind on various expenses and financial obligations of the business. Issues with banking partners and franchise partners manifested, and a Chapter 11 bankruptcy filing was completed in late 1970.
The Comeback and Successful Exit
While the company was within the Chapter 11 bankruptcy reorganization process, the Raffel Brothers would begin to regain control of the organization and spend the next couple of years restoring profitability. They successfully came out of the bankruptcy reorganization and by the end of 1975, the brothers grew Arby’s to 500 locations nationwide. This growth required a similar cash infusion like the prior late 1960s growth, but instead of trying for another IPO, the brothers entered an agreement with RC Cola in 1976, selling Arby’s for $18 million (worth nearly $80 million in 2017 dollars due to inflation).
The Raffel Brothers would continue to operate the Arby’s organization under the RC Cola umbrella, growing to over 800 locations by the end of 1979. By the end of 1979, The Raffel Brothers would decide to step down from operating Arby’s, retiring from the food service industry as multi-millionaires.
While Arby’s has gone through a variety of new management structures (even at one time being partially owned by Wendy’s) the organization still maintains its dominance in the quick service industry, including in 1991 being the first to introduce a healthy menu with items under 300 calories.
Today, Arby’s is operated through The Arby’s Restaurant Group and has nearly $4 billion in total revenue, with nearly 3,400 locations and over 74,000 employees. The Arby’s classic Roast Beef sandwich is a household name in America, as the sandwich has been one of the most popular fast food items for well over 50 years.
The Legacy Of The Raffel Brothers
Forrest died in September 2008 at the age of 86, with his obituary stating that he was to “roast beef sandwiches” what Colonel Sanders was to “chicken.” Leroy is still alive (as of this writing) and over the age of 90. The story of The Raffel Brothers is one of both believing in one’s self and having tenacity, two qualities that every entrepreneur must have if they are going to achieve business success.
- Literally everyone called the brothers crazy in the early 1960s when they were thinking of jumping into the quick service business with the roast beef sandwich concept, but they believed in themselves, stepped out on their vision, and succeeded in rapid mass fashion.
- Then, literally, everyone thought they were completely done in the early 1970s with the IPO failure, bankruptcy filing, along with the loss of major bankers, investors, and franchisees. But the brothers fought back and were able to persevere through the turmoil, taking Arby’s to the highest it had ever been at the time and retiring millionaires.
Success in business requires a strong belief system, vision, tenacity, and the ability to bounce back from setbacks. My hope is that story of The Raffel Brothers will inspire you to step out on your vision and continue to hold onto said vision, in times of turmoil.
Image: Mike Mozart, Flickr