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Executive Trying to Build New Chain at Same Time : Butler Struggles to Get Naugles Back on Its Feet

March 03, 1985|BRUCE HOROVITZ | Times Staff Writer

Concealed from customers at the drive-up window of most Naugles restaurants is a computer that quietly counts the number of seconds it takes to fill each order. A branch manager's monthly bonus depends on how quickly the customers are fed.

A clock of a different sort is ticking for Harold Butler.

For the chairman of Fullerton-based Naugles Inc., who earlier founded the giant Denny's coffee shop chain, 1985 may be a watershed year in his lengthy career. After several years of rapid growth, Naugles has stumbled badly and Butler is working on big changes. But he's also wrapped up in expansion plans for Herschel's, his new delicatessen chain, and he's hinting that he may soon reduce his role at Naugles.

"It's foreseeable that I'd leave as chief executive (of Naugles) but remain as chairman," Butler, 63, said during an interview in his posh, two-story office that sports a fireplace and sauna.

If he does ease out of Naugles to spend more time with his new chain, it would be in character for him. Moving from one restaurant venture to another has marked Butler's 30-year career. He is generally cited as a pioneer whose concept for Denny's--low prices, high volume, uniform menus and fast service--helped create the modern restaurant chain. But critics also complain that despite his bold ideas, he sometimes stumbles in managing rapid growth and is slow to change when the marketplace demands it.

Perhaps because of the recent problems at Naugles, however, Butler is backing away from his long-held belief that a plateful of good food is enough of a draw to attract plenty of customers.

Makes Concepts Work

The costly design of his snazzy new deli chain pays heed to today's image-conscious consumer who wants pizzaz in the surroundings as well as the food. "Butler has the ability to take a concept and make it work," said Jay Fairfield, an analyst at Piper Jaffray & Hopwood Inc., a Minneapolis investment firm.

The concept for which he is most famous is La Mirada-based Denny's Restaurants Inc., a chain of coffee shops he founded more than three decades ago. But in 1969, his ambitious plan to expand Denny's into the Las Vegas hotel-casino industry failed and led eventually to his resignation as chairman in 1971.

Denny's made an offer to purchase Parvin-Dohrmann Co., a Los Angeles firm that owned a number of Las Vegas hotels, including Caesars Palace. But the Securities and Exchange Commission, in a civil lawsuit filed in 1969, accused Butler of privately making a better offer to some Parvin-Dohrmann shareholders that was not available to all public shareholders. The SEC action was settled by a consent decree.

Meanwhile, the deal fell through and Denny's stock value plummeted. Butler eventually sold his Denny's stock for about $3 million. That same stock was at one time worth nearly $80 million, he said. "If we had bought Caesars, I'd still be with Denny's," Butler asserts. At the time, Denny's had 800 restaurants, about three-fourths its current size.

Ran Against Trends

When he took control of Naugles, Butler added to his reputation as a maverick, employing ideas that run against the grain of industry trends. He keeps all the restaurants open 24 hours, has steadfastly refused to advertise, charges among the highest prices for fast food, and hires at least two disabled and two elderly hourly workers at each store; he calls them his most reliable employees.

But Naugles' best customers are considered among the industry's least reliable. Nearly 70% of the chain's business is rung up at its 24-hour drive-through windows, and much of that comes late at night from swing-shift workers zipping through to gobble nachos and burgers. By comparison, other major chains do less than half their business at drive-through windows, and most do not stay open all night.

Said one restaurant industry writer of the chain's unorthodox operations: "Naugles flies in the face of everyone else's perception of how to operate a fast-food business," which includes heavy advertising, lower prices and shorter operating hours.

But the predecessor of Denny's, called Danny's Donuts, was also an industry enigma. It started out as a 900-square-foot doughnut shop in Lakewood that sold fresh doughnuts stuffed with jam (not jelly), and served high-quality coffee--something few competitors offered.

Expanded Menu

Early success prompted Butler to build a second Danny's in Garden Grove, but when customers failed to show up, Butler says, "I found out I couldn't walk on water." Instead of sinking, however, he added a grill. Suddenly, he operated a doughnut shop that also sold hamburgers.

Contrary to common belief, the coffee shop was not named after a relative or friend. Butler says he chose the name Danny's simply because it was popular. But customers began to confuse the shop with another chain, Coffee Dan's, so Butler changed Danny's to Denny's.

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