At Regal Cinemas, Cost Control Is Ticket to Expansion : Theaters: CEO brings lessons from the low-margin grocery business to his movie house operation, earning 138% annualized sales growth.

Michael Campbell learned how to squeeze pennies in the grocery business. Now he’s in a more glamorous industry, bringing Hollywood to the masses, but he still has that same down-to-earth approach.

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Forget the recent Variety cover with supermodel Cindy Crawford (to tout a marketing deal with Pepsi) or an opening night with actress Tia Carrere (to christen a theater complex).

Campbell, praised as “very low key and non-Hollywood” by industry analysts, is all business as he builds Regal Cinemas Inc. into one of the country’s largest movie theater chains and fastest-growing public companies.

“First of all, I think if you are a good retailer, you are a good retailer,” said Campbell, 41, who was a once-or-twice-a-year moviegoer before he bought his first movie house 13 years ago.

“Essentially, we are still retailers. Instead of selling canned goods and produce, we are selling movie tickets and concessions.”

Campbell, Regal’s chief executive, likes to talk about $15-per-day meal allowances for his employees, the joys of flying coach and finding a $40 hotel room on the road.

Cost control is the watchword for this company, where cappuccino and muffins were added to the concession fare not as a luxury but as a profit point.

“We operate this company just like we were losing money every day,” said Campbell, who spent two decades working for the local grocery chain White Stores, which has since been acquired by Food City Corp. in Knoxville.

Regal Cinemas’ headquarters are tucked away in a former warehouse on the outskirts of Knoxville, its boardroom once a pizza parlor. “We try to impress our customers in our theaters, not by being located in one of the office towers downtown,” Campbell said.

Regal Cinemas didn’t exist before late 1989. Today, through openings and acquisitions, Regal is the ninth-largest film exhibitor in North America. It has 861 screens in 116 theaters across the Southeast and Midwest, with plans for another 300 screens in the next 18 to 24 months.

Last month, the company made a bold bid for a greater share of the family entertainment dollar. It opened its first FunScape center in Chesapeake, Va.--an $8-million, 13-screen theater and entertainment complex of bumper cars, virtual reality games, a children’s play center, miniature golf and a restaurant row of Taco Bell, Arby’s, Pizza Hut and an ice cream shop, all under one 95,000-square-foot roof.

Two more FunScapes are under construction in Syracuse and Rochester, N.Y., and another is under development in the suburbs of Wilmington, Del.

Analysts were impressed. Montgomery Securities of San Francisco predicted the first FunScape alone could boost earnings 9 cents a share.

“As a matter of fact, I just raised my estimate for next year on Regal, reiterated my ‘buy’ rating and raised my price target 12 months out based largely on this new concept called FunScape,” said Thom Thomson, an analyst at Wheat First Butcher Singer in Richmond, Va., who has visited the center.

“I think it has a chance to be a huge success,” echoed Gary Dennis at J.C. Bradford & Co. in Nashville.

Fortune magazine has ranked Regal among the fastest-growing non-financial firms in the United States for the past two years--rating its 138% annualized sales growth at 19 on the list and its 165% earnings growth at No. 8.

Regal’s net earnings in 1994 were nearly $7 million on $136 million in revenue, up from $6.4 million in net income on $97.6 million in revenue in 1993, the year it went public.

Its stock, which is sold over the counter, has been trading in the $40-a-share range, an all-time high.

“I never expected to see the company at this point, at this stage, ever,” said Cincinnati film broker Philip Borack, whose company has been negotiating movie bookings for Campbell since the beginning and now is a Regal director.

“No one could have. I mean this company will be the third- or fourth-biggest [movie chain] in the United States in another two years.”

Campbell and Neal Melton, 35, a company vice president and former grocer, know what it’s like living on the edge of a 1% profit margin in the supermarket business.

They were delighted to find a bigger cushion in movie theaters, where Regal has enjoyed net margins of 9% of sales, “far and above the tops in this industry,” Campbell said.

It all began in 1982, when Campbell and Melton decided to reopen the old Star Theatre in downtown New Tazewell, about 30 miles from Knoxville. Campbell, who never graduated from college but took a few college correspondence courses, likes to say it was as much a hobby as a community service.

But Borack remembers Campbell’s approach differently. “Where other people came in and spent an hour talking about wanting to play family movies because that’s what our little community needs, he was much more businesslike. I mean he grilled us for eight hours, and asked all the right questions.”

The Star reopened with “E.T.” Patrons were lined up around the corner for weeks. By 1989, Campbell’s company, Premiere Cinemas, had 25 theaters in five states.

Campbell and Melton sold the company to Cinemark for $21 million, took three or four weeks off and started Regal with a new tack. Instead of targeting theaters for smaller communities, Regal would go after growing suburbs in metropolitan areas. And they would use large multiscreen theaters to create greater efficiencies.