A New Name

4 minute read

Play it again, Sambo

When business gets bad enough, a company will try just about anything. Sambo’s, which has 1,117 restaurants in 47 states, is now even trying out a new name (No Place Like Sam’s) at more than 100 of its shops in the Northeast in an attempt to reverse a four-year tailspin. The company, whose restaurants serve everything from pancakes to hamburgers 24 hours a day, has also changed ad agencies and revamped its menus.

Things were not always bad at Sambo’s, which was a darling of Wall Street investors in the mid-1970s. Between 1967 and 1977, the number of restaurants in the chain jumped from 67 to 869. Income during that period went from about $1 million to $22.8 million. But in the first six months of this year, the company lost $16.7 million.

One of the keys to Sambo’s initial success was a potent profit sharing plan called Fraction of the Action. This allowed a restaurant manager to invest $20,000 to buy 20% ownership of his operation. When the plan was started in 1967, it attracted a small army of businessmen willing to put in long hours in return for the promise of making it big. Recalls John Puccinelli, who was a restaurant manager for three years in Concord, Calif.: “They recruited us by saying that if you’ll stay with Sambo’s for ten years, you’ll be set for the rest of your life.”

In 1977, however, the company decided that it could not pay out that much in profit sharing and began buying back the managers’ interests. Within six months, 50% of the managers had quit. And then the lawsuits began. Former managers claimed that the Fraction of the Action was actually a pyramid scheme that indirectly paid off top corporate officials with money put in by the restaurant managers. Charles P. Cattin, a former manager in Portland, Ore., sued Sambo’s, charging fraud. Last month an Oregon court awarded him $925,000 in damages. The company paid settlements to resolve ten cases last year, and 15 similar ones are pending. Former managers have set up an organization called S.A.P.S. (Sambo’s Association for Partnership Survival).

The restaurant chain has also been suffering from a major image problem. Black groups for years were offended by the company name, which brings to mind the children’s story Little Black Sambo. For this reason, the city government in Toledo tried unsuccessfully to block the opening of a restaurant there in 1978. The company denies the charge, claiming “Sambo’s” is a combination of the names of its two founders, Sam Battistone Sr. and F. Newell Bohnett. The company finally decided to switch rather than continue fighting. If No Place Like Sam’s leads to sales increases in the Northeast, the company may adopt it nationally.

The new name is part of the rescue operation launched after City Investing Co., a New York conglomerate experienced in resurrecting ailing companies, completed buying 34% of the chain for $29 million in 1980. Last January the new management filed a $100 million lawsuit against 28 former company officials, including Battistone and Bohnett, charging that they had inflated profits and expanded the chain too rapidly.

Chairman Daniel R. Shaughnessy, 54, the former chief financial officer at rival Howard Johnson, is director of the operation to save Sambo’s. In addition to the new name, he has tried to change the chain’s reputation as primarily a place for breakfast by offering lunch specials for $1.99 and dinners for $2.99. Shaughnessy also cut costs by slashing the corporate headquarters staff near Santa Barbara, Calif., from 641 people to 303.

Wall Street analysts are skeptical that the new name and tight budgets will be enough to save Sambo’s. Competition in the fast food business is fierce; displeased clients are quick to eat some place else and slow to return. Says Levern Graves, an economic consultant familiar with the chain’s problems: “The only thing Sambo’s has been proficient at producing in the past few years is litigation.”

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