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Election 2004

Outback's PAC house

Behind the tasty food and smart marketing, a political heavyweight plays to win

By SCOTT BARANCIK
Published October 31, 2004

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Behind the tasty food and smart marketing, a political heavyweight plays to win.
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Additional Links:
In his own words: excerpted comments from Outback’s Joe Kadow

Corporate PACs, ranked by size (choose “corporations only”)

Outback PAC’s filings with the Federal Election Commission

Coalition to Save Florida Jobs (group opposed to Amendment 5, Florida minimum-wage increase) 

Floridians for All (group supporting Amendment 5, Florida minimum-wage increase) 

Outback’s stock price


The former Elks headquarters in Jonesboro, Ark., seemed like a fine place to open an Outback Steakhouse, except for one problem: a 1944 county law that forbids businesses from serving alcohol.

Outback didn't let local custom stand in its way. It applied for a liquor license as a nonprofit called North Hills Hillbillies, hoping to use a loophole meant for private clubs. When the alcohol board and an appellate court struck down that gambit, the Tampa company's political action committee turned to state legislators for relief, and today the fight goes on.

While much of America fixates on the drama of Election Day, Outback's 2,700 steakhouse managers and joint-venture partners are breaking bread with local government officials, tracking legislation and quietly donating $1.6-million of their own pay to build one of the country's biggest corporate PACs. Bigger than Boeing's, according to FECinfo.com. Bigger than Halliburton's.

This is the politics of business. At Outback, it's more than just giving money to pro-business candidates or Republican Party committees, though that's where most of the PAC money goes. Whether the target is Arkansas liquor laws from World War II, or minimum wage proposals like the one on Florida's ballot Tuesday, what sets Outback apart from the typical corporate player is its battle-ready militia at the local level.

Many Outback managers are happy to help. Unlike most chains, Outback pays them 10 percent of local profits rather than a flat salary. An extra $10 in profit means another $1 in their pocket, which helps personalize the importance of wage laws and health care requirements.

Political astuteness is a key to the financial success of Outback, a company better known for clever marketing (Outback debuted shortly after the Crocodile Dundee movie phenomenon), unconventional thinking (most Outback restaurants don't serve breakfast or lunch, when alcohol consumption and spending is low), and tasty food (leave your calorie counter at home).

In less than two decades, the founders of Outback Steakhouse have turned a single Tampa restaurant into a global conglomerate that features eight chains, $3-billion in annual sales, more than 1,100 locations and about 70,000 employees.

Legislators have Outback's attention. And Outback has theirs.

"When they opened up the Rockford (Ill.) steakhouse, it was an open house, and they sent invitations to local elected officials to try it out," said Rep. Don Manzullo, R-Ill., chairman of the Small Business Committee and an Outback ally. "Now, that's darn good public relations. Eating a steak is better than cutting a ribbon."

"I wish there were more like Outback," said Lee Culpepper, chief lobbyist for the National Restaurant Association.

Grilling politicians

In the Outback Steakhouse world view, politics is a professional obligation.

"Government has too big an impact on our business to ignore it," said Joe Kadow, who serves as treasurer of the company PAC and doubles as the company's general counsel and a senior vice president.

It's a viewpoint proudly borrowed from the brain of casual-dining guru Norman Brinker: founder of Steak and Ale, creator of the salad-bar concept and mentor to Outback CEO Chris Sullivan and other company founders.

A key duty, Kadow said, is to help legislators understand how public policy affects restaurants.

Restaurants are a labor-intensive enterprise. Last year, Outback's profits totaled about $2,500 per employee. Microsoft, on the other hand, earned $94,000 per employee. Microsoft worries about software piracy and export taxes. Outback frets about health-insurance mandates and minimum-wage hikes.

In general, Outback's leaders envision a freer marketplace where prices are set by supply and demand, wages are calibrated to skill, and businesses offer employee health insurance because they want to, not because they have to.

"The vast majority of what we do is ask the government not to do something that they're planning to do to us," Kadow said. "You know, just kind of leave us alone."

But putting out public policy fires here and there is costly. For systemic change, Outback tries to elect free-market advocates. More often than not, that means Republicans.

Through Oct. 13 of the current election cycle, Republicans took home 98 percent of the $452,250 that Outback's PAC donated to party committees, 97 percent of the $453,551 it spent on national, state and local candidates, and 100 percent of the $52,000 it gave to the so-called leadership PACs of top legislators. Those legislators, such as U.S. House Majority Leader Tom DeLay and Florida House Speaker Johnnie Byrd, use the leadership PACs to solidify support within their party by contributing to favored candidates.

Some observers assume the company is pursuing a right-wing social agenda because many of the pro-business candidates it supports are social conservatives. But that's not true, Kadow said; if anything, Outback executives lean libertarian. "The only purpose of our political activity is to protect the economic viability of the restaurant industry," he said.

"You probably will be able to find an example, and I don't want you to make light out of it, where, you know, "What the hell were we doing giving money to Jesse Helms?' " Kadow explained. "Well, we needed him that day."

Still, it is the rare Democrat who gets Outback money. Chicago Alderman Tom Tunney got $2,000 based on his unusual credentials: restaurant owner, former chairman of the Illinois Restaurant Association and lead plaintiff in a lawsuit against the city of Chicago for imposing a litter tax on take-out foods.

Outback doesn't support every Republican in every race, however; far from it. With 34 seats in the U.S. Senate up for grabs in 2004, 435 in the U.S. House, dozens of gubernatorial races and hundreds for state legislatures, even a large bankroll can quickly spread thin.

For advice, Kadow and government relations director Matt Halme turn again to Outback's local managers and joint-venture partners; the National Restaurant Association and its state affiliates; and casual-dining chains such as Darden Restaurants of Orlando (Red Lobster, Olive Garden, Bahama Breeze) or Brinker International of Dallas (Chili's Grill & Bar, Romano's Macaroni Grill, On the Border Mexican Grill & Cantina, Maggiano's Little Italy).

"Obviously the first question is, where are (the candidates) on our issues? Second, what committees are they on? What's their ability to have a direct impact?" Kadow said.

Key committees for Outback include House Ways and Means, which shapes tax policy; labor and education; small business; and agriculture. Those in tight races, of course, draw more cash than runaways.

Some candidates are a natural fit. Rep. Ric Keller, R-Fla., earned restaurant industry kudos and $5,000 from Outback last year after introducing the Personal Responsibility in Food Consumption Act, which proposed a legal innoculation for restaurants against obesity-related lawsuits. Rep. Mark Foley, R-Fla., received $5,000, the maximum a PAC can donate for a primary race, two weeks after he offered a bill that would speed tax writeoffs on restaurant equipment.

Outback gives special consideration to candidates who have a restaurant or farming background, like Tunney. Others include U.S. House Speaker Dennis Hastert, R-Ill., Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Herman Cain, who made an unsuccessful Senate primary bid in Georgia. Cain is not only a former National Restaurant Association CEO but a onetime Godfather's Pizza and Burger King executive.

Credentials alone are not enough to win Outback's support, however. The PAC takes few risks, favoring incumbents and avoiding unwinnable races.

In the Senate, for example, Outback is challenging only two of the 14 Democrats up for re-election. One is Senate Minority Leader Tom Daschle, D-S.D., whom Kadow said is on the wrong side of an agriculture issue.

Outback's closest allies in Congress? In the House: Majority Whip Roy Blount, R-Mo., Education and Workforce Chairman John Boehner, R-Ohio, and Small Business Chairman Manzullo, said government relations director Halme. In the Senate: Budget Committee Chairman Don Nickles, R-Okla., who is retiring. Kadow also complimented retiring Sen. Bob Graham, D-Fla., who "is helpful on a number of issues."

In all, candidates for the U.S. House of Representatives received 62 percent of the $453,551 that Outback's PAC spent on elections through Oct. 13; U.S. Senate candidates took 26 percent; state and local contenders got 11 percent; and the Bush/Cheney campaign received 1 percent.

The $453,551 doesn't reflect donations Outback may have made from corporate funds in states that permit it, like Florida. Nor does it reflect direct PAC contributions from Outback managers or their families, or party donations - Outback's PAC has made $452,250 so far - that were forwarded to candidates.

"They understand Congress, and they tend to be aggressive," said U.S. Rep. Jim Davis, a Tampa Democrat who received $1,000 from Outback.

Sometimes playing politics means being cagey, such as refusing to identify precisely which agricultural measure Daschle is pushing. "Do you really think I am dumb enough to fund his challenger AND pick a public fight with the guy who may be Senate Majority Leader after Tuesday?" Kadow said in an e-mail.

A long list of beefs

No public policy is more valuable to the restaurant industry than the tip credit.

Under federal law, most employers have to pay their workers a minimum wage of $5.15 per hour, a figure that hasn't been raised since 1997. But an exemption for tipped workers lets restaurants in Florida and many other states pay just $2.13 per hour, so long as the worker makes up the difference in tips.

It's a perfect example of industry clout. Thousands of Outback employees receive the $2.13 minimum, including servers, bussers, bartenders and hosts, thanks to the creation of the tip credit in 1966.

Along with health care and alcohol policy, it's also one of several issues Outback tracks at the federal, state and local levels. Several years ago, when Congress was entertaining a proposal to eliminate the tip credit, Outback sent company waiters to lobby Capitol Hill legislators against it, echoing the company view that raising worker pay would trigger layoffs. Kadow called it one of his proudest political moments.

A more imminent threat is the minimum-wage proposal due to appear Tuesday on Florida ballots. If voters approve Amendment 5, the state's minimum wage would rise to $6.15 an hour, and the minimum for tipped employees to $3.13.

For a full-time Outback server, passage of the amendment would mean a $2,000 bump in annual salary. If you believe the Florida Restaurant Association, it also would mean mass layoffs and benefit cuts. For Outback itself, passage would mean the average profit per Florida employee could drop as much as 80 percent.

So, they fight. Outback contributed $400,000 to the industry-sponsored Coalition to Save Florida Jobs, including $375,000 in corporate funds and $25,000 in PAC money. Much of the PAC's $100,000 donation to the Florida Chamber of Commerce also will go toward the battle.

Government mandates like the minimum wage infuriate Kadow. He thinks it would be more effective to help low-wage workers by strengthening the federal government's Earned Income Tax Credit, which rewards working parents with cash, at taxpayer expense. And he would rather boost wages through Outback's Stars program, which gives employees a share of restaurant-level profit increases.

"How much should the government tell me I have to pay somebody who can't speak English, who can't read, and who I have to train?" Kadow said, addressing a similar wage law in Santa Fe, N.M. "It's an anti-capitalist kind of thing, and to put that kind of instruction into a market economy, I don't understand it." Outback does have a strong presence in states that have higher minimum wages, including California and Washington.

Alcohol laws are a knottier issue.

Outback doesn't want a repeat of its experience last year in Muncie, Ind., where a car crash involving an intoxicated customer led to a $39-million jury verdict against the company (Outback has appealed). At the same time, Outback wants liquor to flow freely at its restaurants. Booze is the most profitable item on the menu.

This conundrum hasn't stopped Outback from seeking the right to serve alcohol in historically dry locales such as Jonesboro, Ark., where it invested $5,000 in a group called Citizens for a Progressive Arkansas, or Rankin County, Miss., where it spent $10,000.

Nor has Outback shrunk from fighting to serve liquor on Sundays in Rock Hill., N.C., kill expensive alcohol permits in Killeen and Mesquite, Texas, or repeal a South Carolina law that requires restaurants there to serve alcohol from airplane-style minibottles.

"Outback's critical all the time in political circles," said Tom Sponseller, president of the Hospitality Association of South Carolina. "You want them as a partner."

Meanwhile, Outback is working hard to reduce its alcohol-related liability. One priority is to eliminate state laws like Indiana's, which holds restaurants legally responsible for the actions of intoxicated customers. Another is to fight attempts by groups such as Mothers Against Drunk Driving to make states lower the legal blood-alcohol limit for drivers.

"MADD's program has really become, "Impairment starts with the first drink,' " Kadow said. "I think there's a difference between you going out to dinner and sharing a bottle of wine with your wife and some friends, and somebody who . . . has had previous arrests when they were ridiculously over the limit."

A more effective way to reduce drunk driving, Kadow said, would be to impose more severe penalties on repeat offenders and those with especially high blood-alcohol counts. All totaled, Outback's PAC spent at least $77,000 on alcohol-related issues through Oct. 13.

Health care is another albatross. Though Outback offers coverage to all employees who work 25 hours or more per week, it opposes government mandates.

Today, Outback is aiming its guns at Proposition 72, a California ballot initiative that would require many employers in the state to provide meaningful health insurance or pay a health tax. Outback's PAC donated $60,000 to Californians Against Government Run Healthcare, its California managers contributed $60,000 more, and it will spend roughly $250,000 in corporate funds, Kadow said.

Insurance isn't Outback's only health-related bugaboo. In Washington state, Outback is seeking to repeal a new ergonomics law. In Maine, it helped defeat a bill that would have required large restaurant chains to include nutritional data in their menus.

Even when the bill's supporters offered a watered-down version that would have required only a calorie count next to each menu item, the powerful lobbyist Outback helped bankroll refused.

The government needs to leave business alone.

"My charge was plain," said Jim Mitchell, a nephew of former Senate Majority Leader George Mitchell, D-Maine. "Kill the bill."

-- Times staff researcher Kitty Bennett contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.

[Last modified October 31, 2004, 06:07:09]

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