IHOP ex-chairman Herzer dead at age 73

Nation's Restaurant News,  Dec 22, 2003  by Amy Spector

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GLENDALE, CALIF. -- Richard K. "Kim" Herzer, the former chairman, chief executive and president of IHOP Corp. who built it into a financially stable, $1 billion-a-year-plus sales machine, died Dec. 7 at his home in La Canada-Flintridge, Calif., after a heart attack. He was 73.

"His legacy is one of support and belief in the entrepreneurial spirit," said Herzer's hand-picked successor, chief executive Julia Stewart, who joined Glendale-based IHOP in 2001. The proof, Stewart said, is that there are many International House of Pancakes franchisees who "are millionaires who started at IHOP as dishwashers or servers."

Stewart herself started at a San Diego IHOP as a 16-year-old server before she went on to executive roles with such operators as Carl's Jr., Taco Bell and Applebee's. When she returned to IHOP, "it was the Steady Eddie; we built restaurants," she said.

But that was not always the case, IHOP executive-turned-franchisee Bob Leonard said. Leonard, president and chief operating officer of 131-unit FMS Management Systems of Miami, said that when he joined IHOP in 1972, "I thought 'financially beleaguered International House of Pancakes' was the name of the chain.

"Kim was the genius who [made] us a financially stable company."

That stability was achieved as Herzer orchestrated a management buyout from a troubled former owner and as he took IHOP public and grew the chain steadily toward the 1,000-location milestone it reached a few years ago.

Herzer, who retired as IHOP's chairman in January, had a 36-year tenure with the company. The growth and stability he achieved for it allowed Stewart recently to address an industry evolution toward larger franchisee companies and away from the smaller, entrepreneurial operators Herzer championed with a long-running program of IHOP-financed turnkey development. In that model the company would open a restaurant and assure its profitability before turning it over fully to the franchisee and then collecting rents and interest on financing.

Under Stewart's leadership IHOP has shelved the practice in favor of a more traditional franchising model that seeks to encourage bigger, multiunit operators.

Stewart said she and Herzer often discussed the restructuring of IHOP under her two-year stewardship. "He selected me because he knew it was time for a change," she said. "He understood that for IHOP to reach its full potential, it was time for a change."

According to 35-unit IHOP franchisee Joe Katin, whose Katin Corp. franchise in Piano, Texas, recently signed on to build an additional 31 restaurants, "Julia and Kim are two different people and two different management styles."

Herzer graduated from the University of California, Los Angeles, with a bachelor's degree in finance in 1958, the same year the first International House of Pancakes opened in Toluca Lake, Calif. He joined IHOP predecessor International Industries Inc. in 1967 as a divisional vice president and controller.

He ascended to be president and corporate director in 1979 and then helped to create the company known today as IHOP Corp. by leading the leveraged buyout of the business in 1987. He proceeded to take the company public in 1991, when, according to securities filings, the chain's average-unit volume was $845,000.

IHOP restaurants that were opened in 2001 generated average-unit volumes of nearly $1.6 million, the company reported in its 2002 annual filing.

As of this Sept. 30, the company operated 77 restaurants and franchised or licensed an additional 1,047 in 48 states and Canada.

Franchisee Katin remembered when Herzer joined the company, three years after Katin started at an IHOP in Glendale, Calif., as a busboy, later to be promoted to dishwasher. Herzer "hired on as a bean counter," Katin recalled. "He was a little higher up than Joe the dishwasher."

IHOP struggled economically in the early 1970s, Katin recalled, around the same time he was ready to purchase a franchise. The company offered him a Brownsville, Texas, site, which he took over in 1974. Today he employs 2,400 people at his 35 units and plans to open four more restaurants in 2004.

Katin said he learned his management skills on the job under Herzer's tutelage. "Kim was really a remarkable person," he said. "He was a financial wizard. He brought the company out of a pinch that probably nobody else could have."

Herzer's respect for franchisees also was impressive to his colleagues. "When everybody else would tell you no, Kim was such a warm-hearted guy; if he thought it was right, he would help you," Katin remembered. "You don't see that in franchise organizations anymore."

Katin added that Herzer "wanted people to talk to him personally. And he cared what people said about IHOP"

In 2001 Herzer unveiled his succession plan by hiring Stewart as IHOP's president and installing her on its board. The following year he turned over his chief-executive duties to her. Last January he handed the reins as chairman to Larry Alan Kay.