FRIDAY INTERVIEW: Pat McDonagh, owner of Supermac's fast food chain 

WHEN A young Galway teacher wanted to open his first business premises in the late 1970s, he was refused the bank loan he needed to buy the property. The finance was small by today’s standards – £20,000 on a project costing £35,000 – but the bank manager just wasn’t keen on Pat McDonagh’s plans for a pool hall.

Undeterred, McDonagh crossed the street to the rival bank and secured the loan there instead, only to be refused the necessary planning permission subsequently.

Suddenly, he had an empty building and what was starting to look like a big financial liability hanging over his head. Action was needed, so McDonagh looked around the town – Ballinasloe, Co Galway – and tried to work out what it was lacking.

He settled on a shortlist of a furniture shop and a takeaway. He chose the latter and Supermac’s was born, the name based on a nickname McDonagh earned during a particularly fine performance on the school GAA field years before.

“For the first couple of years in business, I worked at least 70-80 hours per week. I had two days off in the first year – one because I was sick and one for Christmas Day,” he says. “If you’re enjoying it, it’s not really work.”

McDonagh didn’t come from a business background. His mother was a teacher and his father, who died when McDonagh was 19, a garda. Unlike his four siblings, he says, he did not shine at school and, for the most part, chose to become a teacher because the training lasted just two years. There was also the small matter of being rejected by the Air Corps because of poor eyesight but, most crucially, teaching appealed because the hours and holidays allowed time for other ways of proving himself.

By the time he started Supermac’s, McDonagh had already been making a bit on the side for years. During his school years, jobs ranged from cutting turf to working for Butlins in Mosney. He also spent a summer on a merchant navy ship sailing from the US to Europe and, after graduating as a teacher, made a few bob taking Polaroid pictures for holidaymakers at events such as the Rose of Tralee festival.

His first semi-serious business foray was into pool tables, which he would install in pubs after his day job as a principal in a two-teacher national school.

“I made a bit of money but mostly, I learned how to sell – the rules of the street,” he says, adding that today’s education system should allow for more of this.

While McDonagh was enjoying himself, the intensity of combining the first Supermac’s with his day job became too much. After 4½ years as a teacher, he left education to pursue the lifeboat-free world of entrepreneurship.

“There was more money in chips than in algebra.”

With the Ballinasloe business – a stand-up takeaway – up and running, McDonagh’s thoughts turned fairly quickly to expansion.

Not before he had digested a few elementary business errors, however. There was the time, for example, when potato supplies dried up and he ended up buying the kind of spuds that farmers use to feed cattle and which make nasty, soggy chips. And then the time the electricity went out during the Ballinasloe Horse Fair and McDonagh had to repair the fuse box with tin foil while hundreds of merry punters waited for their dinner. It only sparked a little, he promises, and only one street was plunged into darkness as a result.

Initial expansion was in Gort and Galway city, with the first sit-down Supermac’s opening in Galway’s Eyre Square during race week in 1982. The company, born in a recession, had grown as the economy had shrunk, and McDonagh had barely noticed the negative backdrop.

“We were doing pretty well. I didn’t see it as a risk at the time because I was so involved in it, so engrossed.”

For the next 10 years, McDonagh mostly opened sit-down, family-style restaurants, also going the franchise route with an outlet in Thurles, Co Tipperary, which did not initially work out. Again, lessons were learned and today, 68 out of Supermac’s 102 outlets are operated by franchisees.

Under the franchise system, Supermac’s will spend up to €250,000 fitting out the store and will then draw rent and a percentage of turnover from the business. In self-operated stores, the same costs apply but the revenue model clearly differs.

Accounts for the Supermac’s group show rental income amounted to €2.5 million in 2009. This was as operating profit came in at about €5 million, on turnover just shy of €60 million. Figures for 2010 are still being finalised but McDonagh says a “pretty level” performance was achieved.

Crucially, he also expects the numbers to include a maiden contribution from Claddagh Irish Pubs, a chain of 15 pub/restaurants McDonagh operates in the midwest region of the US. The venture was, for a time, disastrous, and led to writedowns of almost €23 million between 2005 and 2008, before it was turned around.

McDonagh is reflective about Claddagh, which he acknowledges easily qualifies as his biggest “blunder”. He says he got into the business by chance after his American operations manager moved home and asked him to invest in a new idea. This manager – Kevin Blair – spearheaded the development of the pub group and McDonagh largely left him at it.

“I probably took my eye off the ball and didn’t realise fully what was happening,” he says.

Blair was in expansion mode but, after a while, McDonagh realised the business wasn’t making money. There was a dispute about how many pubs should be opened and, more fundamentally, a legal disagreement over whether a $21 million injection from McDonagh was a loan or an investment. A court case left McDonagh as a winner of sorts, with victory followed by the company entering Chapter 11.

“I had to buy it back. I had to reinvest,” says McDonagh, with a small wince, adding that he placed trust in the wrong person but the responsibility is his own. “You can only look in the mirror.”

Lessons learned once more, he despatched a team from Ireland to shunt the business back to viability. Now, there are 10 Irish managers across 15 Irish pubs and McDonagh’s plan is to expand that. “This year, we would expect a more substantial contribution,” he says of the chain’s finances.

As well as Supermac’s, McDonagh and his wife Úna (whom he initially picked up as a hitchhiker and ended up hiring in his restaurant), hold the country franchise for the Papa John’s pizza chain and a sub-franchise for the Quiznos sandwich chain.

With so many balls in the air, McDonagh works hard to keep track of day-to-day affairs at Supermac’s, staging unannounced calls to the chain’s outlets, franchised or otherwise.

“I like to stay in the restaurant for a couple of hours and talk to staff.”

All his outlets, regardless of the brand, must confront McDonagh’s twin pet hates: the cost of insurance claims and the cost of employing staff to work on Sundays, which he says can amount to up to €25 an hour in certain locations when items such as PRSI are included.

Both have seen him participate in high-profile campaigns, with the wages issue awaiting judgment in the High Court.

The insurance claim campaign – which on one occasion saw McDonagh cause his barrister great dismay by standing up in court and asking for damaging, example-setting video evidence to be viewed even though the claimant had dropped the case – has meanwhile waned over time, in large part as a result of his efforts to expose fraudulent claims.

McDonagh says he doesn’t particularly like lawyers but experience has proved he doesn’t avoid them when he needs their services either. In the case of claims, he says, he got sick of going into work every Monday worrying about how many new cases had arisen over the weekend, rather than focusing on how much money had been made. Claims were cramping his style, frightened as he is of failing to move forward.

“There’s no such thing as standing still; you’re either going backwards or forwards.”

He is constantly watching for new trends, good or bad, in the restaurant business. Drinking at home rather than in pubs diminishes after-hours munchies, for example, while the growing trend for out-of-town shopping will hit town-centre restaurants, which tend to suffer under the burden of high rents anyway.

This is why McDonagh’s new Supermac’s openings (he plans four or five this year) will focus on out-of-town locations. “That’s the way it’s happening.”

Changes in customer behaviour, coupled with what McDonagh describes as an “overcrowding” of legislation attached to the traditional Supermac’s business have also prompted the company to look at other models, such as the smaller, cheaper Fresh Express outlets which have done well in service stations. This has led to McDonagh investing in a few service stations himself and, ultimately, gave birth to this month’s plans for a €7 million “travel plaza” at Moneygall, Co Offaly.

Having been rebuffed in earlier attempts to partner with motorway service station operators, McDonagh decided it was time to do it himself, landing on Moneygall just in advance of news that President Obama was due to visit his ancestral home next month. The development, which will include a pizza restaurant, a Supermac’s, a food court, a convenience store and fuel pumps, is expected to create more than 50 jobs. Other such developments will follow, but not at the expense of the group’s other businesses.

McDonagh says he is particularly “careful” about debt within the company, preferring not to exceed the €30 million level, which he sees as only just comfortable for a business of its size.

“It’s not my belief that you should totally borrow to expand. You have to keep something for a rainy day,” he says, imparting a lesson that too many learned too late over recent years.

On the record

Name: Pat McDonagh

Age: 57

Family: Married to Úna, with four children ranging from 25 to 19.

Something youmight expect: He is a huge fan of Galway hurling.

Something that might surprise: He finds time to act as selector for his local hurling club, Killimordaly (population: 1,200), in Co Galway.