By:Rick Compton

The first thing you have to understand about Mel's is that ... well, it's not just Mel's. There are four Mel's already, one every 10 miles between downtown Naples and Fort Myers plus one in Sarasota, but these are augmented by two Stevie Tomato's sports bars. And these may soon be increased by a couple of seafood places. Things at Mel's corporate headquarters are never still for long.

Which brings us to the second thing you need know about Mel's to understand how a mom-and-pop pie place on a stretch of underdeveloped Route 41 could burst into a $16 million business in five short years. The answer is a growth technique whose basic principle has been proven again and again: an owner/operator in each location.

Mel's leadership has enhanced this technique with another requirement: almost every owner/operator is a family member or a close family friend. "We have an owner operator in every restaurant except [Naples'] Stevie Tomato's," says Chris Karakosta, president and CEO of Mel's Diners, Stevie Tomato's Sports Page and Creative Restaurant Management.

He points out that each manager there is up more than 45 percent and under consideration for a partnership. Karakosta's cousin Romi Terezi and his wife are partners in the Fort Myers Mel's. Terezi's brother Kostika runs the Mel's in Naples. Another Karakosta cousin, Kris, and his wife Diana, work in the corporate office. Karakosta's son completes the ring. "My son's Stevie Tomato's is in Fort Myers." he grins. "It works."

Karakosta's family has a history in the business. His father, Jim, opened a banquet hall at age 16 upon immigrating to Chicago. Chris worked in the hall during his pre-teen years and began managing the operation by age 16. He opened his first restaurant at age 19 and opened his first theme restaurants, The On-Stage and Reel People Restaurants, at age 21.

It was Karakosta's father who gave his son the bedrock advice from which Mel's and Stevie Tomato's grew: "Forget $20 lobsters," Karakosta recalls his father said. "People want to have a good meal for under $10 including soup, salad, potatoes, vegetable, bread and butter." It was this mandate he had in mind when the younger Karakosta designed Mel's menu for the first store, in San Carlos, in 1989.

Lessons Learned

The growth has not come easily.

"I grew from a one-unit chain to a five-unit chain in five years," Karakosta recalls. "We were out of control. We probably lost a million-and-a-half dollars in a couple of years."

Finding managers who would care as much about success as he did was harder than he imagined. "It was very difficult to overcome," he admits. From this crucible came the owner/operator approach. "Little by little, I took one store at a time, I brought a partner in and they, too, became worried about making the mortgage payment."

Karakosta also schooled the managers in the basics of his restaurant philosophy: to consider the restaurant as their home, and the customers as their guests. "When a guest comes into your home, you make sure the kids are washed, the furniture is straight and, as a guest walks through the door, they get offered a beverage immediately. "It doesn't take a rocket scientist to run these restaurants.

"So many people come out of school and can do the paperwork," he chuckles, "but taking care of guests ....?"

Now, Karakosta is taking care of upwards of 1.8 million guests a year.

The Mel's Method

Karakosta has two management principles: make it from scratch, and watch the reaction. "We try for consistency," he says. "Sometimes I go in the restaurant and get upset because things are not the same, but I think when you do things from scratch, you get inconsistency."

Everything from the peeling of potatoes to the baking of pies is done in-house. Karakosta recognizes the dangers inherent in from-scratch cookery. "One time it may be a little more peppery, but they can return it if they don't like it and get anything they want."

PULL QUOTE: It's not like selling gasoline -- you are selling tastes. If you are a good owner, you are on the floor and watching facial expressions.

His second principle, to observe his customers as they dine, protects him from disappointment. "I watch people eat," he admits. He realizes that when serving nearly 2 million meals a year, there are bound to be some problems. "It's not like selling gasoline -- you are selling tastes. If you are a good owner, you are on the floor and watching facial expressions. The trick is to get to that table when they are not happy, and make them happy ... to do everything you can to win them over."

Mel's Diner, responsible for 80 percent of the chain's revenues, has not evolved by accident. "Mel's is down to a science," Karakosta says. Each restaurant seats 180 people and produces an average check of about $8 a person.

Karakosta reports that he spent about three months up north, in New Jersey and New York, just looking at traditional diners. On some of the trips, he was accompanied by Sam Circelli, president and owner of Design Build 2000 Inc., a Gateway firm that plans and constructs commercial buildings. "We took their methods of operations, kitchen designs," says Circelli of the search process. "It was probably a year's worth of ideas, designs and efforts from our part in order to find the materials, components and design."

Karakosta involved his owner/operators in the process, too. "I took my partners up there and took a piece from here, a piece from there, put a little Florida flair in it, and that's how it worked." The result du jour is the state-of-the- art Bonita store, opened last fall.

The sports bar side of the business is not as predictable. "Stevie Tomato's is a daily challenge. You go from football to baseball to hockey, maybe a boxing match." He pauses in thought. "It is more related to current events. We are always planning, always changing. I probably put 80 percent of my efforts into the sports bars."

The re-opening the San Carlos Mel's also takes a fair amount of Karakosta's attention. "I think we are most excited about, for me to finish the cycle, is to put San Carlos back on-line."

That cornerstone Mel's Diner was closed for remodeling several years ago. "We had some problems with a development order which we are still working out, but the whole family wants to get back there," he says.

Many growth questions, though, still are to be answered. "It's hard to create that uniqueness that we had. We thought many times about just duplicating the old building." Karakosta's wife is a proponent of this approach. "Then others advise me 'out with the old, in with the new'.

"It will probably be a mish-mash of both. With the wife, it will need to

be compromise."

Controlled Growth

"I have a lot of good people who work for me, limited partners in each location," Karakosta realizes. "They keep me under pressure to grow." But he also realizes that every restaurant owner would like to pirate his good people. "If I don't bring in more revenue, they can't grow without leaving the company."

To this end, he constantly examines his market position. "We think [Mel's] are pretty much saturated in this area. Sarasota is a good store for us, but...." Karakosta takes a breath. "We can expand anywhere in Florida, but we are in such a fast growing area in Naples, Bonita, Fort Myers. So if we want to grow, we [must] create other concepts here."

So look for a seafood place as the next iteration of Karakosta's growth. Smelt's Diner, maybe? Or Stevie Pompano's? Whatever the name, Karakosta's imperative of good food, good prices and a good time will undoubtedly be all over it.

Rick Compton is a freelance business writer and humor columnist.