If you’ve been around franchising for a while, you’ve heard about the Minnie Pearl Fried Chicken debacle. It goes like this: A couple of Tennessee promoters used the country singer’s name to sell fried chicken franchises in the late 1960s. They sold so many, so fast, that when they went public, the stock price soared. But the SEC launched an investigation and when Wall Street discovered that their earnings were based on uncollected franchise fees, the scheme collapsed and the chain disappeared. "All they ever cooked was their books," journalists said at the time.
The only problem is, none of that is true. The real story behind Minnie Pearl Fried Chicken’s downfall is a lot less nefarious—most franchisors at the time accounted for franchise fees that way, too—and a lot more colorful, because it includes John Jay Hooker, a gubernatorial candidate who hobnobbed with the Kennedys and who blames Richard Nixon for the chain’s demise.
The lust for conglomerates
In his book "Fortunes, Fiddles & Fried Chicken," author Bill Carey describes a Nashville business climate filled with good-old boys who wanted to get really, really rich. A few of them started an insurance company, National Life, that bought a radio station that morphed into the Grand Ole Opry and a country music empire. A family called Jarman grew a single shoe manufacturing plant into Genesco, an apparel conglomerate with 100 divisions, including chains of shoe stores and upscale brands Bonwit Teller, Henri Bendel and, for a short time, Tiffany’s. And a Nashville pharmacist, Jack Massey, parlayed a drug store into a surgical supply business, a chemical plant, a savings and loan institution and Kentucky Fried Chicken.
Sometime in the 1930s, Harland Sanders, a 7th-grade dropout and former colonel in the U.S. Army, started selling homemade biscuits and fried chicken out of his rural Kentucky gas station. In 1955, when an interstate highway bypassed his restaurant, "Colonel" Sanders donned a white suit, picked up a pressure cooker filled with chicken flavored with his secret blend of 11 herbs and spices, and traveled the country selling franchises to other small restaurant operators. By 1963, when he felt he needed a real estate lawyer, Sanders had 500 franchised outlets.
According to Carey, Sanders hired John Y. Brown Jr, of Louisville, the 28-year-old son of a former Kentucky governor, who promptly decided to give up the law and open a barbecue restaurant the Colonel had in mind. But Brown needed to borrow some money, which led him to Nashville and Massey’s Commercial Investment Company. Brown and Massey teamed up and bought Kentucky Fried Chicken’s recipes, trademarks and franchise contracts for $2 million and promised Sanders $40,000 a year for life to promote the business.
The new owners moved the company to Nashville, standardized the restaurants, menus and recipes, revised the franchise and royalty arrangement and used the Colonel and his image in national advertising campaigns. They expanded rapidly and in 1966, when they took the chain public, early investors, including franchisee Dave Thomas—who used his windfall to start Wendy’s—became multi-millionaires.
The drumstick epiphany
The success of Kentucky Fried Chicken tantalized John Jay Hooker, a Nashville attorney in practice with his younger brother, Henry. While in his early 30s, John Jay met Robert Kennedy during a bribery trial and the men became friends. John Jay shared Kennedy’s liberal philosophy and ran for the Democratic nomination for governor of Tennessee in 1966 on a pro-civil rights, anti-Vietnam war platform, but lost to a less radical candidate that was supported by the Nashville Banner newspaper.
In a phone conversation, John Jay said, "One day after I lost the election, it was raining cats and dogs but when I drove past a Kentucky Fried Chicken restaurant, people were getting out of their cars to pick up chicken. I got to the office and Henry was on the phone, talking to his stockbroker about price/earnings ratios. I asked him what PE ratios were, and he explained that Wall Street was selling Kentucky Fried Chicken at 40 times its earnings."
John Jay said he asked Henry, "You mean while we’re working here night and day, Massey’s making money while he sleeps? And if we got into the fried chicken business, we could make 40 times what we do now? How long have you known about this and why ain’t we in it, too?"
John Jay decided on the spot to "copy everything Massey’s done, just as Pepsi followed Coca Cola. I picked up the phone, called Minnie Pearl and asked her if she’d like to get into the chicken business with me. I figured she’d be our alternative to Colonel Sanders and the public would think it believable that her family had a good fried chicken recipe."
Sarah Colley Cannon was a local icon who had scandalized her affluent family by going into show business. When she signed on with the Hookers, her onstage character, ‘Minnie Pearl,’ who wore a hat that dangled a price tag, was a star of the "Hee Haw" TV show.
John Jay and Henry financed their venture by selling stock to other prominent Nashville residents for 50 cents a share and hired a Chicago food laboratory to develop a recipe that "was as good, or better, than Kentucky Fried Chicken," John Jay said. "We opened one chicken store in Nashville in a location that was a six or a seven out of 10, so when prospective franchisees came to town, they’d figure, if it works here, it will work in my better location."
And franchisees did come. "It was like being a sexy girl at a dance," John Jay said. "Since I wanted to run for governor again, and then President of the United States, I didn’t want to be in business with someone who was a drunk, cheated on his wife or had a bad reputation in his own community." The brothers hired a private investigator to check candidates out. When someone who passed muster returned and wanted to buy three franchises, for example, John Jay and Henry talked them into buying 10.
Main Street to Wall Street
Like Kentucky Fried Chicken, the Hooker brothers took Minnie Pearl public. But unlike later reports that the Hookers somehow cheated the public, their May 1, 1968 stock prospectus clearly stated that "the company’s net income is derived primarily from the sale of franchises." Franchisees made a down payment on their share of each franchise fee (the brothers retained 49 percent of each franchise sold) and financed the rest with notes. Nevertheless, the entire franchise fee was recorded as income on the day the franchise was sold. John Jay said he opposed this method of accounting, which he viewed as a "death trap."
But Alfred Thomason, a Nashville accountant who managed the local Price Waterhouse & Co. office that audited Minnie Pearl’s financials, said in a phone interview, "At the time, that was the generally accepted accounting principle for recording franchise income." The prospectus also stated, "Prior to the formation of the Company, no officer or director (with one exception) had any experience in the fast-food industry."
Despite these disclosures, and the fact that only five restaurants were actually open, the stock price, which started at $20, soon reached $56 and the Hookers’ original investors were instant millionaires. In early 1969, with 40 restaurants open, 100 under construction and 300 under development, the Hookers caught Nashville’s conglomerate fever, and used some of their proceeds from the stock sale to buy up dry cleaning, transmission repair and day-care concepts and a hamburger chain called Royal Castle. They renamed their company Performance Systems, Inc. (PSI).
The Hookers even attracted their own copycats, and soon franchises named after Al Hirt, Tex Ritter, Johnny Carson, Tennessee Ernie Ford and other celebrities appeared. "It was the wild and woolly days of franchising," said Don Perlyn, now vice president of Nathan’s in Miami, who was then affiliated with Lum’s and other concepts that also recorded franchise fees as immediate income.
But the lack of restaurant experience, both at the top and among the well-vetted franchisees, began to take its toll. According to Bill Carey, some Minnie Pearl restaurants closed, others were losing money and the stock price slid. John Jay was planning to run for governor again in 1970, so the brothers arranged to sell controlling interest in PSI to National General Corporation, a California conglomerate that owned movie theaters, Bantam Books, and insurance companies. "They had $3 billion in cash that they could deploy to build chicken stores," John Jay said.
At the same time, the SEC launched an investigation of PSI. John Jay claims orders for the investigation came straight from the Nixon White House. "Al Gore Sr. was running for re-election to the U.S. Senate and part of Nixon’s "Southern Strategy" was to defeat both of us," he said. The pro-Nixon Nashville Banner ran front page stories about the investigation and editorials warning voters against electing a governor with such poor business sense. "They pictured me as some sort of crook and said my company was going to hell in a handbasket," John Jay said.
Others doubt the investigation was politically motivated. Nashville resident Charley Watkins, who founded the O’Charley’s casual dining chain in 1971 (and sold it in 1982) said, "I saw no signs of deliberate action by the SEC. When you have a fast-rising stock like that, based on a whim, someone has to look at it." Other Nashville businessmen said John Jay is a great idea man, but lacks business acumen. And Tony Badger, a professor of American history at Cambridge University in England, who is writing a book on Al Gore Sr., said in an e-mail that he doubts Nixon specifically targeted Hooker.
No matter what the cause, the results were disastrous. The SEC confiscated millions of pages of PSI’s documents, said Watkins, and refused to let the Hookers report their sales or profits. National General reneged on its purchase offer and both Democrats lost their elections, John Jay to a dentist from Memphis who became Tennessee’s first Republican governor in over 50 years. The PSI stock price fell to less than a dollar and the company was forced to sell off assets, such as the burger chain, to pay down debt.
In the early 1970s, the Hookers signed a consent decree with the SEC, restating the figures in their 1968 annual report as a loss instead of a profit. "At that point, the stockholders and franchisees had all lost confidence in us. What started out as a beautiful virgin, the government made into what appeared to be a whore," John Jay said. In 1973, the American Institute of Certified Public Accountants issued new guidelines for franchisors, advising them to record franchise fees as income only when stores are open and operating.
John Jay Hooker’s career was far from over. He was later publisher of the very Nashville Banner that so defiled him, chairman of both United Press International and STP, the fuel additive company, and founder of Hooker’s Hamburgers, a double drive-through concept he sold in the mid-1980s. At 76, his present cause is political reform, and he files frequent lawsuits against Tennessee candidates who accept political contributions from out of state. "The debacle of Minnie Pearl haunts me to this day," Hooker said. "The problem wasn’t losing my money, it was losing my reputation for being honest.