HOWARD JOHNSON INTERNATIONAL, INC.

When 27-year-old Howard Johnson (1896–1972) bought a drugstore-newsstand outside of Boston in Wollaston, Massachusetts in 1924, he added more to his debt than to his assets. The $28,000 obligation that the new acquisition brought added to Johnson's already-existing debt of $10,000, which was left over from a failed joint venture in cigars with his father. Two innovations, however, quickly made Johnson's new business a success. First, he devised a home delivery service to peddle newsstand products in Wollaston and surrounding communities. His annual profits for the newsstand reached $30,000 in a few years. Although this money helped Johnson get out of debt, it was his interest in ice cream that had the biggest impact on his business.

An ice cream fanatic, Johnson wanted to use the drugstore's soda fountain to sell the best ice cream in town, which in his opinion was the ice cream being sold by a local pushcart vendor. Johnson paid the vendor $300 for the recipe (which yielded an extremely rich ice cream because it called for twice the butterfat of other commercially produced ice creams). Eventually Johnson began to experiment with other flavors, adding each one he liked to the soda fountain's menu. His 28 flavors were so popular that they became the Howard Johnson trademark.

These relatively small experiments began an early expansion and formed the basis for what would soon become a very big business. Howard Johnson was so pleased with the success of his ice cream that he decided to expand its sale outside of his drugstore. He put up small ice cream stands along the beaches of south Boston suburbs. The stands were a huge success; on one extremely hot August day alone, he sold 14,000 ice cream cones. In 1928 the profits from all Howard Johnson ice cream sales totaled $240,000.

Emboldened, Howard Johnson decided to open a family restaurant in 1928. The restaurant, in Quincy, Massachusetts, enjoyed only a short-lived popularity and closed in 1929 at a loss of $45,000 for Johnson. The Quincy restaurant, however, was not an entire loss. In 1929 a family friend, Reginald Sprauge, wanted to open a restaurant on a nearby highway. Sprauge knew that Howard Johnson's name and ice cream would boost the restaurant's visibility and popularity. The two men entered into an agreement that stipulated the following: Johnson would allow Sprauge to use the Howard Johnson name. In return, Sprague agreed to pay Johnson a cash fee, to sell only Howard Johnson brand ice cream, and to allow Howard Johnson to set the standards for all foods served at the restaurant. It all made perfect sense for Johnson who, in light of his earlier debts and failed restaurant, could not obtain bank loans to start new restaurants himself.

This is generally viewed as the birth of the first U.S. franchise restaurant chain. Under this system, independent businessmen called licensees owned and operated the restaurants, not Howard Johnson or his company. The licensees had the right to use the Howard Johnson name, but they paid the start-up costs for their properties, including an initiation fee paid to the company. They also had to purchase their food and other products from the Howard Johnson company, which was the main method by which the Howard Johnson company made money on these ventures.

Johnson had no trouble finding other takers for his franchise system. By 1935 there were seven Howard Johnson restaurants in Massachusetts. In 1940 there were 135 restaurants that extended down along the East Coast as far as Florida. That same year Howard Johnson won a bid to put 24 restaurants along the Pennsylvania Turnpike, where he would maintain a restaurant monopoly until 1979. Howard Johnson favored well-traveled automobile routes for his restaurants, knowing that the increasing popularity of cars would draw people out of population centers onto the roads. He hired 27 architects to design new properties. The trademark buildings each had bright orange roof tiles (orange being the color most likely to be seen by motorists) and a New England-style cupola in bright blue topped with a weathervane. Howard Johnson maintained high standards—he devoted two days a week to conducting unannounced inspections. He institutionalized novelties like the children's portion to attract families. The company provided the chain restaurants with elements of guaranteed success and it continued to grow.

World War II (1939–1945) brought gasoline rationing, and by 1944 only 12 out of about 200 restaurants were still open. Some restaurants were converted to cafeterias for workers in war plants. After the war Johnson decided to build smaller restaurants, leaving behind the grand roadside mansions of the pre-war years. In the summer of 1947, the company was building 200 of these new restaurants, which would extend into the southeast and Midwest. By 1954 there were 400 Howard Johnsons in 32 states, and the company was also adding a motel business. Some of these were franchises, others were owned directly by the Howard Johnson company.

In 1959 Howard Johnson Senior turned the company's presidency over to his 26-year-old son, Howard Johnson Jr. The company's headquarters remained in Wollaston, but executive offices were moved to Rockefeller Center in New York City. The company continued to expand and in 1961, when its stock went public, there were 605 restaurants, 10 Red Coach Grills, 88 motor lodges, 17 manufacturing and processing plants, net sales of $95 million from 1960, and a net income of $2.3 million. Between 1961 and 1967 Howard Johnson Sr., his son, and his daughter sold around two million shares of stock for __BODY__ billion. When Howard Johnson, Sr. retired as chief executive officer and executive treasurer in 1964, his company was the country's third largest food distributor, behind only the navy and the army.

Although the company continued to grow—becoming a coast-to-coast chain with properties in California in the mid 1960s and adding Ground Round restaurants in 1969, it was now facing new problems and competition. Holiday Inns, Ramada Inns, and Marriott hotels were becoming increasingly popular with people who once stayed at Howard Johnson's motor lodges. Howard Johnson restaurants were increasingly perceived to be out of date in terms of their looks and their frozen food, which compared poorly to McDonalds and Burger King fast food franchises. Management was accused of being too cheap to upgrade the company's image. The company responded by introducing 24 hour service in over 80 percent of company-owned (not licensees') restaurants. Also, soda fountains were replaced with cocktail lounges in 100 company-owned locations. Seating capacity was expanded; special menu promotions were added; and new properties were concentrated in population centers as opposed to major highways. Howard Johnson continued to have record high sales and share earnings.

In 1979 Imperial Group Ltd. of Great Britain bought Howard Johnson for $630 million. It liberated the past controls over restaurants and motels, allowing them to buy food from a variety of sources and not just from the Howard Johnson company. Imperial also offered new food and lodging packages, entrees, and low cholesterol breakfasts. To attract business travelers, Imperial offered corporate discounts. Licensees were given the choice of refurbishing their existing properties by 1987, with low-interest loans from the company, or losing their franchises. Imperial also started a new Plaza Hotel chain in 1983. It was midpriced and also geared toward business travelers, with restaurants and lounges, banquet and meeting rooms, and executive accommodations.

Despite its changes, Imperial was unsatisfied with Howard Johnson's performance and it sold the company to Marriott Corporation in 1985 for $314 million. Marriott divided the company, selling the franchise system and company-owned lodgings to Prime Motor Inns Inc. for $97 million. Prime assumed the company's $138 million debt but also took the Howard Johnson trade name and trademark. Both purchasing companies wanted to get rid of the independently owned properties after their franchise agreements expired.

This opened an interesting chapter in the company's history. To protect their interests, the franchisees threatened a class-action lawsuit against Marriott and Prime. In 1986 Franchise Associates, Inc., a company formed by the franchisees, won a perpetual exclusive license to the Howard Johnson name for restaurants in the United States, Panama, and the Bahamas. Franchise Associates, Inc. also obtained exclusive rights to use the trade name for Howard Johnson Signature Food Products and the free use of Howard Johnson recipes. By 1991 Franchise Associates owned and operated 85 of the 110 Howard Johnson restaurants.

The story of the lodging branch of the company took a different turn. In 1990 Prime sold its Howard Johnson lodging properties to an affiliate of Blackstone Group for $170 million. Blackstone renamed the Howard Johnson Franchise Systems subsidiary to Howard Johnson International Inc. in 1996. By the mid-1990s Howard Johnson lodging was expanding to worldwide locations under the leadership of president and chief operating officer Eric Pfeffer. Its intent was to fill the gap in international lodging between high-priced hotels and youth hostels. The company was operating over 600 hotels worldwide, with international locations in Columbia, the United Arab Emirates, and India.

HOWARD JOHNSON INTERNATIONAL, INC.

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