January 2013 Archives

Restaurant sector challenges of negative same store sales comparables, consumer unease, rising food commodity costs and some magnitude of increased heath care costs emanating from Obama Care appeared in 2012. The same issues will be present in 2013.

But all is not lost. There are initiatives that can offset the negatives. Here are thoughts of what restaurants, both chain operators and independents, of all stripes, simply have to fix in 2013 operationally to meet these challenges. None of these opportunities are new news.

Restaurants have been working on reducing food and labor costs since the 1970s. It's time now to look at other areas of the P&L as well as revenue maximization beyond price increases.

Revenue enhancement related:

Unique Store level pricing: US national. zone, region or even DMA level pricing is a relic of the past, representative of a 1960s-1970s more suburban, homogenous US restaurant mindset. With development everywhere and a vastly stratified and diverse US society, why does the price in suburban Philly Bucks County PA need to be the same as in south Philly? It doesn't.

The rub comes in with massive television driven campaign single price points. YUM/Taco Bell has just rolled out its $1.49 grillers on television. Is that really the only price point that will work? Rarely does the promoted item mix exceed 20%, so 80% of the mix remains to be influenced by store level pricing. This route provides for revenue management upside and I'll have a whitepaper on this topic out soon.

New beverage and dessert options needed:

The rise in water only customers and the falloff of soda sales s is epidemic. This is very noticeable at your local Chipotle (CMG), go in and check out how many customers just get water.

But the industry is to blame, as there has been little to no change in carbonated sodas for years other than the new Coca Cola mix machines. What about: flavored waters and drinks around $1? Could a carbonated cranberry, cherry or vanilla fizzy drink be prepared with existing soda/drink/bar equipment? Yes.

Could it be sold profitably for $1? Yes, especially that is aimed at water customers who now carry zero gross profit. Smaller desserts: Jack in the Box (JACK) has recently figured that out with its $1.00 brownie bites, for example. This might not work at a Cheesecake Factory (CAKE), with a $7 flagship dessert that is split anyway, but it could work in other concepts.

Suggestive sell/upsell:

In almost every restaurant type, but especially in chain operations, the order taker generally ends the transaction by asking "would you like anything else? This happens in QSR, fast casual and casual dining operations. Ban the phrase "anything else", and replace it with...."apple pie?" (for QSRs) or "glass of wine?" (for casual dining operators). Bar operators have it covered with..."would you like another", and is often used. The trick is to get new customers.

Cost Containment related:

Obama Care Health Care impact: adapt, stop whining. It's here. The estimates from McDonalds, Wendy's, Dominos, CKE restaurants and the like are in the $15,000 to $20,000 additional expense per store zone. Papa John's was the high outlier, up to $100K per store.

Perhaps John was on a carbo high when he mentioned that. Of course, small pizzerias and huge casual dining restaurants will have different costs per unit. The effect will vary based on many other factors. Test something.

We wonder if a two track wage scale might work: one higher base wage for no benefits due, or a lower wage for where payable. To foil the invariable Fair Labor Standards Act (FLSA, 1938) challenge (The FLSA does allow for differential wages for medical so long as it isn't workers comp medical expense involved), sweeten the pot for the lower wage tier employees that they get first dibs to higher hours and overtime since they are covered and won't affect the 30 hours/week calculation.

Or what about a registry to share employees to keep employees engaged and working but under the hours threshold? I've have an additional whitepaper on this later.

We've mentioned before restaurant utility costs, especially electricity (too few HVAC thermostats and overly cooled dining rooms (since kitchens are hot all day) Could not a second rooftop AC unit and thermostat be added for the front of house that would be amortized quickly? Utility company experts say the payback could be less than two years.

Stop discrimination and avoid legal costs:

It's amazing the number of chain restaurant operators, franchisees and independent restaurants that get caught in EEOC/Title 7 discrimination situations. Two multi-unit franchises (BKW, PNRA) in December 2012 alone. Big settlements, big legal costs, diversion of management time and attention.

The federal anti-discrimination laws have been on the books since 1965, and the Fair Labor Standards Act has been on the books since 1938. Management must enforce fair and equal treatment of all customers and employees.

For every dollar in legal costs, twice as many restaurant sales dollars must be generated just to offset the direct cost.

I frequently get questions related to advertising. So, I began to look more keenly at the advertisements around me. I wanted to find examples of things to do and not to do.

Testimonials and Puffery

I found this advertisement in my local paper. This provides a good specimen for my first two dos and don'ts.

1. Don't use absolutes. This ad touts that dental implants are: "The BEST Solution for Slipping Uncomfortable Dentures..." I am an attorney not a dentist, but really the BEST (the word 'best' is in all caps in the advertisement).

Aren't there other solutions out there? Is a dental implant really the best solution?

The advertisement goes on to say: "We offer the Best Solution for your Budget (this time the word 'best' is not in all caps; however, you see some random capitalizations that even an attorney would not ascribe). Again is it really the Best for my budget? Doesn't Dr. Jones down the way offer comparable pricing and installment payments?

Don't use absolutes in your advertisements! There is always an expectation. There is always someone else that offers something akin and argumentably equal or better to what you are offering.

2. Do get permission before your print. I don't know about you, but if I were G.L., I would want the good doctor to ask before he printed: "I couldn't wear my lower denture at all. I didn't want to go out in public. Dr..... placed some implants in one operation and gave me immediate temporary teeth. I can eat apples corn on the cob & smile with confidence. It changed my life."

Do get permission before you print testimonials! The speaker would be most thankful and the law requires it.

Print the Facts and Protect Your Rights

I found this advertisement in the August 2012 issue of Popular Science. This provides a good specimen for two more dos and don'ts.

3. Don't print unless you can point to it. It you are going to make a claim, make sure that there is evidence that you can point at to backup your claim. And, if it is an advertisement for prospective franchisees, make sure you point to something in the FDD or franchise disclosure document.

American Honda Motor Company in its ad for the Accord says that "J.D. Power and Associates has named the Honda Accord 'Highest Ranked Midsize car in Initial Quality.'" At the bottom of the ad in fine print (fine print-we will get to that) it cites an Initial Quality Study conducted by J.D. Power.

Don't print it unless you can point to the facts! If you are going to make a claim, make sure you can point to the facts to backup your claim.

4. Declare your rights. On the very bottom of the advertisement notice you will find the ©2011 American Honda Motor Co., Inc. This stakes American Honda Motor Company's copyright to this advertisement. It says that the advertisement is American Honda Motor Company's original work of art and no one is allowed to copy it. And, yes that is the proper copyright format. The © symbol, the date, your company name.

In this electronic copy and paste world, it is more important than ever to include a copyright notation at the bottom of your advertisement. Oh and while you are at it, include the other symbols: registered trademark®, service mark℠ and trademark™.

Declare your rights! In this electronic copy and paste world, it is more important than ever to include registered trademark®, service mark℠, copyright© and trademark™ symbols in your advertisement.

Be Transparent

I found this tag on a shirt that I recently purchased for myself. It is a good specimen for my last dos and don'ts.

5. Do skip the fine print. It is all about transparency. Transparency is in. Transparency in pricing, transparency in government is all good. If you include a lot of small fine print at the bottom of your advertisements it looks like an advertisement for Viagra or that that your product comes with a lot of hidden terms and conditions.

Instead of in fine print saying that my newly purchased shirt, after one washing would be faded and discolored, the tag nicely explained to me: "We produced this garment with considerable help from the wearers, printers, & embroiderers whose handwork made this style unusual and exclusive . This hand woven and embroidered fabric may result in slight weaving and shade variations, thereby giving it a unique character all its own. Enjoy!

Do skip the fine print! There is a way to say everything. Say it without the traditional fine print legalese. Make everything you say a selling point.

Legal Disclaimer: All advertisements are used under the fair use exception of copyright laws. I have not been a recipient of dental implants, me nor anyone in my household owns a Honda, and no animals, to my knowledge, were harmed in the making of my shirt.