July 2013 Archives

On July 25, 2013, Starbucks (SBUX) delivered a Q3 double beat and stellar worldwide comparable sales (comps) of +8% (+9% in the U.S.)

Some analysts were concerned about the SBUX Q4 forecast of a mid-single digit comp. The high comps were said to be a kind of spike. SBUX explained that mid single-digit comps were likely in Q4.

CEO Howard Schultz explained that it would be irresponsible for SBUX to forecast high comps if it believed they were not attainable and that SBUX business trends were very solid.

He sharply concluded:

Now having said that, our expectations of ourselves that we are going to deliver a healthy comp growth in Q4 that our investors will be proud of. Let's get off the comp number, because it's not the issue, issue is we are building a great extraordinary endeavoring company and the comps are going to follow that.

Were the sell-side analysts right to be concerned about Starbucks' comp "slowing up?" See the below Starbucks comps chart. 

Starbucks Comp.png

My opinion: perhaps.   Of course, the beginning of comps deceleration is an important investor signal and will first be seen on quarterly or monthly comps reporting.  Only McDonald's (MCD) reports monthly comps.

But there are other more important questions.

In the retail and restaurant space, comp sales from year to year are given way too much emphasis in reporting and analysis. It becomes the headline bumper sticker. The metric, which strips out newly opened or closed stores that are "immature," is a proxy for business cadence and optempo momentum, and sometimes a proxy for profit flow through.

But the analytical problem is the year-to-year comp is only so meaningful. What happened last year - the base for the comp - could have been impacted by many factors such as weather, calendar shift, competitive and marketing calendar shifts and so forth. It's certainly possible to have a great 10-year, five-year or two-year comp trend, but to have a flat or modest current quarter comp calculation.

In the future, we urge investors of all sorts - and analysts - to ask more meaningful questions about the comp trend.

After getting the comp results, and a customer traffic and average ticket breakout, here are 10 more meaningful questions:

1. Did the comp achieved meet your internal budget?

2. What is the comp on a two-year basis, a five-year basis?

3. What tradeoffs to get this comp?

4. What's the comp on a rolling 12 month or rolling two-year basis?

5. How much profit flows through to the store level from this comp?

6. How much is the flow through on a percentage of incremental sales basis?

7. What is the standard, or theoretical profit flow through?

8. Is the incremental flow through attained via higher cost percentage leverage?

9. How much does incremental store level profit flow through to the corporate bottom line?

10. How does this comp affect variable compensation payout accruals?

One question to consider is whether this is a monthly period, or how many weeks were included in this comp and the prior period? The hugely symbolic and massive market cap McDonald's for instance, is still reporting on a traditional monthly basis, which makes for calendar noise, which we discussed previously on SA.

In the restaurant space, there is an inordinate amount of short-term action to maximize the comp.

Better investor and sell-side questions will enable the company to explain its rationale, and send truer & better picture to the market.

 

When you need an authority on understanding public franchisors, connect with me on LinkedIn - or just give me a call.

Benchmarking (as defined by Wikipedia), is "the process of comparing one's business processes and performance metrics to industry best practices." A few months ago I addressed the topic of strategic planning.

As part of the process I emphasized the importance of establishing key performance indicators ("KPI's") for your organization and measuring and monitoring them on a continuous basis.

These metrics should be flashing in front of you on a daily basis -on a dashboard or something similar.

Benchmarking takes this process one step further in the fact that you are comparing your organization's performance to that of your peers. Measuring for the sake of measuring is pointless.

In other words, the metrics are useless if you have no baseline for interpreting what they mean and more importantly where the numbers should be landing.

Regardless of the industry or niche your organization serves, there are mountains of data out there that will assist you in facilitating the benchmarking process.

Nevertheless, make sure the data you are compiling comes from a reliable source such as an industry or trade association. Good sources will allow you to view and compare data according to your regional location as well as overall size (revenue, assets, etc.).

No two companies are exactly alike, and each has its own business models and competitive advantages that allow them to separate themselves from competitors.

Nevertheless, benchmarking provides a high-level (think 30,000 foot overview) of reflecting on your organization's performance. I would advise however that you do not make the fatal mistake of being satisfied with being "in-line" with a benchmark.

Keep in mind that most benchmarks are averages, and that the best of the best will not only meet but exceed these standards.

Are you using benchmarking within your organization? If so, are you performing at, below, or above the standards? What steps are you taking to maintain or improve on past performance? Take this important step in your strategic planning process.

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As a business, you know that your utility company charges you for how much energy you use each cycle. Energy is measured in kilowatt hours (kWh), and you pay for the total amount of kWh you've used for the month. That's the straightforward part of your energy bill. 

There's another type of charge that factors into how much you pay the utility company each month.

Many energy plans also include charges for peak demand.

Peak demand charges reflect the highest kilowatt usage during a continuous fifteen-minute period for the month.

Every appliance needs to draw a certain number of watts in order to operate, so the more stuff that's plugged in and turned on, the more watts of energy your restaurant needs in order to be operational. 

The "demand charge" is meant to reflect the amount of generation capacity the utility company reserves to make sure a business has enough energy.

And unfortunately, utility companies base this demand charge on your highest 15 minutes of usage during any given month.

Simply put, the utility company charges for how much energy capacity your business needs for the month.

So what is this costing you? Peak charges vary wildly from $1/kW to $20/kW. Typically, quick serve restaurants have peak demand levels between 20kW (Dunkin Donuts) and 120 kW (McDonalds). Depending on your rate plan and your size, your peak demand costs can be quite different.

2. What Causes Your Peak to Increase? 

When your restaurant's energy use spikes, your peak usage can spike too

  • When many appliances are on at one time -- during breakfast or lunch rus
  • When employees start up several appliances at the same time (appliances often use more energy during their start up cycle)
  • When an appliance is rapid cycling and may be about to break
  • When employees overuse high-demand appliances.

Many variables can cause your peak demand to increase.

When one small factor changes in a month, your demand charge can spike significantly.

For example, if a rapid cycling freezer causes peak to spike one month, you could be stuck paying inflated charges the next month.

3. How You Can Help You Keep Peak to a Minimum

You need to have some process to detect abnormally high spikes in energy use. This helps you minimize demand spikes, and could save you hundreds of dollars a month.

For example, PlotWatt's patent-pending algorithms also tell you whether those energy spikes are normal based on your store's unique operating behavior. But unless you love overpaying, you need will need to acquire more knowledge about your location's energy spikes.

This knowledge makes you aware of the critical time periods when your demand spikes occur so that you can easily lower those spikes. Because PlotWatt provides daily feedback on your energy spikes, you can keep track of the highest peak for your billing period.

This helps you change your behavior much more quickly so that you don't set a new peak and waste money paying for that abnormally high peak the next month.

Not knowing about your peak can cost you big. PlotWatt hands you the information you need to put hundreds of dollars back in your pocket each month.  PlotWatt is compliance that pays.

Frustrations with Cell phone remains high.

In a recent Telephone Doctor survey, we received the following cell phone 'frustrations' from all over the country.

Is yours on this list?

There were more; however, these were at the top of the list.

  • Talking on a cell phone while conducting business. 
  • Answering a cell phone while talking to someone else in person. 
  • Talking loudly in a store/restaurant. 
  • Not using the vibrate feature when at work or in a public place. 
  • Talking on your cell phone when you're in the car with others. 
  • Using your speakerphone in public. 
  • Initiating a cell phone call when others are present. 
  • Talking on your cell phone and landline at the same time. 
  • Using call waiting. What? I'm not important enough to finish our conversation? 
  • People with 'awful' voice mail messages. 
  • Not answering when called when we know you're there. 
  • When the first thing a person asks is, "Where are you?" 
  • Having to listen to the chirps and weird rings and tones some cell phones make.

So then what are the 5 voice mail frustrations which are probably on your cell phone voice mail right now?

  1. Hi, I'm not here/ or not available right now. (DUH. That's a hot lot of news. We know that. That's why your voice mail answered) 
  2. Your call is very important to me. (Right, then why aren't you there?) 
  3. I'm sorry I missed your call. (Well sometimes we're not. Besides that's a pretty useless statement.) 
  4. I'll call you back as soon as possible. (Now what's wrong with that? Well... Your ASAP may be different from my ASAP and we'll never exceed anyone's expectation with ASAP. Simply state "And I will return the call." 
  5. Not giving caller an 'out' or another way to reach the party; i.e. Another phone number, a person, or an email to locate them.

When was the last time you checked your own message? Probably time to do that.

# # #

Reprinted with permission of Telephone Doctor Customer Service Training. Nancy Friedman is a featured speaker at franchise, association & corporate meetings. She has appeared on OPRAH, Today Show, CNN, FOX News, Good Morning America, CBS This Morning & many others. For more information, call 314-291-1012 or visit www.nancyfriedman.com.

The thought of making a cold call can send chills through the hearts of even the most seasoned business owners.

After all, calling a stranger is hard enough without the stress of trying to get them to buy something. Here are some tricks to make cold calling less stressful and more productive.

1. Have the mindset that they will never buy from you. Doing this will release you of the pressure of having to make the sale.

2. Find out who the key decision maker is. Don't waste your time making your pitch to junior employees, receptionists or people in the wrong department.

3. Don't start the conversation by asking them how they're doing. They're busy and don't have time for small talk with strangers. Cut to the chase as towhy you're calling.

4. Set the bar low. Don't try to close the sale. Instead ask for a meeting. If that doesn't work, ask if you can send them some information, then follow up later.

5. Name drop if you can. Mention a colleague you both know or an association you both belong to. This will help build rapport and warm the call.

Neil Rackham is one of the best known modern sales leader who combines expert theoretical knowledge with practical intuitions to deliver effective sales-as-a-process tools.

Sales-as-a-process dates back to NCR's founding father, John Henry Patterson. Rackman, the author of Spin Selling, has updated some of Patterson's original thinking about how to create an effective sales process.

One surprising result is that passion won't produce sales. Because passionate people aren't conscious listeners.

Neil Rackham explains why in this video -pay attention to the first 2:12 minutes. [Neil is talking about entrepreneurs, but he could be also talking about franchisors.]

The fundamental reason why [franchisors cannot sell franchises] is that, almost by definition, a franchisor has a deep enthusiasm for what they are doing and their products.

And one thing we know about selling, we've known for nearly forty years, the best selling isn't at all about your products and what you can offer, it is very much about the customer and their needs.

And franchisors very often swamp the customer.

After all, since 1970 research has shown that in a sales call the more time a customer talks the higher the probability that the call will succeed.

In my experience, franchisors cannot help themselves. When they get in front of the customer, they want to tell them The Story.

It can be a very compelling story, it just doesn't cause the franchise prospect to buy, as well as if they focused on the prospect and listened to what the prospect needs were and worked from there.

[Franchisors do listen], but they listen very selectively.

They are listening for how can I get in and start talking about what I can offer.

[But] when you study highly effective sales people, one of the things you find is that highly effective sales people talk about solutions or what they could offer very late in the sales process. Less effective sales people cannot wait until they can start talking about what they can do.

Franchisors are impatient people.

And often, they will jump in too quickly and start talking about answers. And the prospect listening to them doesn't link that answer to their needs. Because prospects have to start with their needs and move towards what fulfills their needs. The prospect doesn't want to start with the franchisor's products and start to work backwards.

Too many franchisors say: "We have this Great Thing, Do You Need it?"

And the answer the prospect often gives is: It is a Great Thing, But We don't Need it".

For More Great Franchise Sales Tips, Why Not Subscribe to The Franchise Sales Newsletter?

Do your customers care?  I'm willing to bet they do when it comes to themselves.  While that may sound selfish, lets keep in mind that your customers buy from you based on what you can do for them, not what they can do for you.  The problem is that many business people seem to forget that.

I was at a local electronics retailer the other day looking for an item that was advertised in their flyer.  When I got there, the item was nowhere to be found.  When I asked about it, the guy behind the counter went on in great lengths how the factory in the US shipped it late and it went to the head office instead of the store, and on and on.

Do I need to know this?  Of course not.  Did this make me feel better about leaving empty handed?  No way.  And to make matters worse, he couldn't tell me when the item would actually arrive.

"But the sale will be over in two days." I said.  "Can I at least get a rain check so I can purchase it at the sale price when it arrives?"

What would you have said if you were the guy behind the counter?  A no brainer, huh?  Well this is what he told me: "Sorry sir, but we don't do rain checks.  It's our policy."  He then went on to explain that this item has been known to go on sale more than once throughout the year.  Thanks, I'll try to keep that in mind.

A true story.

While you may have handled the situation differently, there are still times when we expect our customers to show sympathy when we are unable to provide five star service.  Sure, things beyond our control will happen that impact on our ability to keep our promises. 

Just don't expect your customers to care about them.

Instead, just deal with it head on.  Put yourself in the shoes of your customer.  Sometimes a "sorry" is enough.  Other times, some form of compensation may be appropriate.

Here's five questions to ask yourself next time one of your customers asks for something:

  1. Is my customer unhappy as a result of a transaction with my company?
  2. Could this customer potentially buy from me again?
  3. What is my cost in dollars to make this customer happy?  (It may be less that you think)
  4. How can I turn this situation into a win-win experience?  (Make this your top motivator)
  5. What would I want this person to say if asked of their experience with my company?

The most important thing any customer can give you is their trust.  If they believe that you will right any wrong and look out for them, they will be your customers for life.  And no amount of advertising will get you that.

By the way, I ended up taking the flyer to a national electronics retailer that had the product in stock and matched the sale price.

Marc Gordon is a professional speaker and marketing consultant based in Toronto, Ontario. His firm, Fourword Marketing, specializes in helping businesses create a brand identity and developing effective marketing campaigns.  Marc can be reached at (416) 238-7811 or visit his website, by clicking here

In one of the best IPO results of the year, the first restaurant IPO of the year, Noodles (NDLS) raised almost $100M and stock price more than doubled from its initial pricing at $18 to close at $36.75 on its first day. The Noodles CEO, Kevin Reddy, came from Chipotle (CMG), at an earlier stop in life.

Is Noodles the new Chipotle?

Chipotle IPO'd in June 2006. They are both fast casual concepts, Colorado based, both early movers. And there are many fundamentals comparisons. See the table below, prepared from both the Noodles and the Chipotle SEC S-1s, for their last full fiscal year before IPO, which shows the key fundamentals drivers:

Nooeles IPO.png

Store economics look similar? Yes, in some ways:

· Fast casual operators, new buildings, new food types and popularized styles.

· Average Annual Restaurant Sales in the $1.2M to $1.4M range.

· Solid restaurant margins - Noodles now actually exceeded that of Chipotle in 2005 by 210 bpts.

· Totally or primarily company operated model.

Noodles' success demonstrates there is investor demand for new restaurant offerings and validates fast casual investor demand. I understand NDLS was twenty times oversubscribed. Catterton, Morgan Stanley and Cowen did a nice job.

The issue to keep in mind is the United States consumer space is not the same as it was in 2006.

Recession, fundamental changes in population, income, eating and dining preferences, commercial real estate site characteristics, and more U.S. restaurants in operation each year make for a more difficult 2013 and out conditions.

Noodles must deliver good quality, service, cleanliness and price/value, in a differentiated fashion, with good corporate stewardship and continue to build connections with guests, employees, investors and other stakeholders via its culture.

Mathematically, as it expands, it has to think a lot about occupancy costs. NDLS occupancy costs are now 9.9%. Chipotle's was 7.6% in 2005. Site supply is tight. Many legacy brands, the real first movers, like McDonald's and Dunkin' Brands (DNKN) got the early best U.S. sites.

Restaurants economics was built on 6-8% rent, but some restaurant operations are facing 15-20% rent for some sites. Too much push for too fast expansion will test the rent leverage especially for a $1.2 million sales concept.

The imputed IPO valuation from the NDLS IPO is already $800M, or an EV/EBITDA multiple of 26.6X. That's rich. But it's just the first day. I hope the pressure cooker investment world will take a break and give them a chance to grow smartly.

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