For more than three decades the fast food industry has used the Small Business Administration (SBA) to finance new restaurants — thereby turning a federal agency that was created to help independent, small businesses into one that eliminates them. A 1981 study by the General Accounting Office found that the SBA had guaranteed 18,000 franchise loans between 1967 and 1979, subsidizing the launch of new Burger Kings and McDonald’s, among others. Ten percent of these franchise loans ended in default. During the same period, only 4 percent of the independent businesses receiving SBA loans defaulted. In New York City, the SBA backed thirteen loans to Burger King franchisees; eleven of them defaulted. The chain was “experimenting,” according to a congressional investigation, using government-backed loans to open restaurants in marginal locations. Burger King did not lose money when these restaurants closed. American taxpayers had covered the franchise fees, paid for the buildings, real estate, equipment, and supplies.
According to a recent study by the Heritage Foundation, the SBA is still providing free investment capital to some of the nation’s largest corporations. In 1996, the SBA guaranteed almost $1 billion in loans to new franchisees. More of those loans went to the fast food industry than to any other industry. Almost six hundred new fast food restaurants, representing fifty-two different national chains, were launched in 1996 thanks to government-backed loans. The chain that benefited the most from SBA loans was Subway. Of the 755 new Subways opened that year, 109 relied upon the U.S. government for financing.
the world beyond pueblo
THE FRANCHISE AGREEMENT THAT Dave Feamster signed in 1984 gave him the exclusive right to open Little Caesars restaurants in the Pueblo area. In addition to the franchise fee, he had to promise the company 5 percent of his annual revenues and contribute an additional 4 percent to an advertising pool. Most Little Caesars franchisees have to supply the capital for the purchase or construction of their own restaurants. Since Feamster did not have the money, the company gave him a loan. Before selling a single pizza, he was $200,000 in debt.
Although Feamster had spent four years in college at Colorado Springs, less than an hour away, he’d never visited Pueblo. He rented a small house near his new restaurant, on a block full of steelworkers. It was the sort of neighborhood where he’d grown up. Feamster expected to stay there for just a few months, but wound up living there alone for six years, pouring all his energy into his business. He opened the restaurant every morning and closed it at night, made pizzas, delivered pizzas, swept the floors, did whatever needed to be done. His lack of experience in the restaurant business was offset by his skill at getting along with all sorts of different people. When an elderly customer phoned him and complained about the quality of a pizza, Feamster listened patiently and then hired her to handle future customer complaints.
It took Feamster three years to pay off his initial debt. Today he owns five Little Caesars restaurants: four in Pueblo and one in the nearby town of Lamar. His annual revenues are about $2.5 million. He earns a good income, but lives modestly. When I visited a Colorado Springs restaurant operated by a rival pizza chain, the company flew in a publicist from New York City to accompany me at all times. Feamster gave me free rein to interview his employees in private and to poke around his business for as long as I liked. He says there’s nothing to hide. His small office behind the Belmont store, however, is in an advanced state of disarray, crammed with stacks of sagging banker’s boxes. While his competitors use highly computerized operating systems that instantaneously display a customer’s order on TV monitors in the kitchen, Feamster’s restaurants remain firmly planted in the era of ballpoint pens and yellow paper receipts.
Feamster has established strong roots in Pueblo. His wife is a schoolteacher, a fifth-generation native of the city. His community work occupies much of his time and doesn’t seem driven by publicity needs. He donates money to local charities and gives speeches at local schools. He pays some of the college tuition of his regular employees, so long as they maintain a 3.0 grade average or higher. And he recently helped organize the city’s first high school hockey team, which draws players from throughout the district. Feamster paid for uniforms and equipment, and he serves as an assistant coach. The majority of the players are Latino, from the sorts of backgrounds that do not have a long and illustrious tradition on the ice. The team regularly plays against high schools from Colorado Springs, which have well-established hockey programs. The Pueblo hockey team has made it to the playoffs in two of its first three seasons.
Despite all the hard work, the future success of Feamster’s business is by no means guaranteed. Little Caesars is the nation’s fourth-largest pizza chain, but has been losing market share since 1992. Hundreds of Little Caesars restaurants have closed. Many of the chain’s franchisees, unhappy with the company’s management, have formed an independent association. Some franchisees have withheld their contributions to the chain’s advertising pool. Feamster feels loyal to the Ilitch family and to the company that gave him a break, but worries about the reduced spending on ads. Even more worrying is the recent arrival of Papa John’s in Pueblo. Papa John’s is the fastest-growing pizza chain in the United States, adding about thirty new restaurants every month. In the fall of 1998, Papa John’s opened its first unit in Pueblo, and the following year, it opened three more.
The fate of Dave Feamster’s restaurants now depends on how his employees serve his customers at every meal. Rachel Vasquez, the manager of the Belmont Little Caesars, takes her job seriously and does her best to motivate crew members. She’s worked for Feamster since 1988. She was sixteen at the time, and no one else would hire her. The following year she bought a car with her earnings. She now makes about $22,000 a year for a fifty-hour workweek. She also receives health insurance. And Feamster annually contributes a few thousand dollars to her pension fund. Rachel met her husband at this Little Caesars in 1991, when she was a co-manager and he was a trainee. “We made more than pizza,” she says, laughing. Her husband’s now employed as a clerk for an industrial supply company. They have two small children. A grandmother looks after the kids while Rachel is at work. At the back of the kitchen, inside a small storage closet, Rachel has a makeshift office. There’s a black table, a chair, a battered filing cabinet, a list of employee phone numbers taped to a box, and a sign that says “Smile.”
Fourteen of Feamster’s employees meet at the Belmont store around seven o’clock on a Tuesday morning. Feamster has tickets to an event called “Success” at the McNichols Sports Arena in Denver. It starts at eight-fifteen in the morning, runs until six in the evening, and features a dozen guest speakers, including Henry Kissinger, Barbara Bush, and former British Prime Minister John Major. The event is being sponsored by a group called “Peter Lowe International, the Success Authority.” The tickets cost Feamster $90 each. He’s rented a van and given these employees the day off. He doesn’t know exactly what to expect, but hopes to provide a day to remember. It seems like an opportunity not to be missed. Feamster wants his young workers to see “there’s a world out there, a whole world beyond the south side of Pueblo.”
The parking lot at the McNichols Arena is jammed. The event has been sold out for days. Men and women leave their cars and walk briskly toward the arena. There’s a buzz of anticipation. Public figures of this stature don’t appear in Denver every week. The arena is filled with eighteen thousand people, and almost every single one of them is white, clean-cut, and prosperous — though not as prosperous as they’d like. These people want more. They are salespeople, middle managers, franchisees. In the hallways and corridors where you’d normally buy hot dogs and Denver Nuggets hats, Peter Lowe’s Success Yearbook is being sold for $19.95, “American Sales Leads on CD-Rom” is available for $375, and Zig Ziglar is offering “Secrets of Closing the Sale” (a twelve-tape collection) for $120 and “Everything of Zig’s” (fifty-seven tapes, four books, and eleven videos) for the discount price of $995, thanks to “Special Day of Seminar Pricing.”