Tag Archives: Strategic management

By The Numbers

Foodie Friday at last! I went out for breakfast this morning and as I watched my server typing my order into the Point Of Sale system, I wondered what was coming out the other end. No, not if my order had been captured correctly or if the ticket would print out correctly. I wondered if the owners of the place actually used the data that had just been gathered. Restaurants generate a phenomenal amount of data although I’d be willing to wager that a minority of them actually look at, analyze, and employ it to improve their business. Then again, I’d be willing to bet that many non-food businesses suffer from the same omission.

Think about it. A restaurant gets information from their POS system – what’s selling and how much does it cost. They see if something is more popular at lunch than at dinner. They can look at their reservation system to know when they’ll be busy and their seating record to know how many covers they’re selling. Smart ones look at how many parties of which size were kept waiting (maybe we should turn the 6-top into a 4- and a 2?). They know what drinks have been ordered. Their suppliers have data for them – what’s available and what does it cost? Then they have their own internal accounting – labor costs, etc. Each of those things relates to the other. But there’s more.

What’s posted on social media? Whats the most-photographed dish? What’s liked and shared? How many reviews and are they positive? What are they about? There’s a lot of data to collect from a multitude of sources – OpenTable, Facebook, Twitter, Yelp, TripAdvisor, Foursquare, Urbanspoon or Instagram. All of the former data is very structured and it tells you “what.” The social stuff, along with any loyalty data you might have is unstructured and it can help you to understand “why”.

Maybe if you overlay the daily weather during service hours you can infer a causal effect on any of the above. You can adjust what’s displaying on your drive-thru board when it’s busy to show the menu items that may be lower-margin but quicker to prepare in order to speed the line. If you collect emails (your reservation system does!), you can use Facebook or some other data provider to build out profiles so you can know your customer and better target your marketing.

My point is that every business has a similar capability these days. We might not have reservation systems but we do have online commerce or websites or apps. We need to be less intimidated by big data and more proactive with respect to learning about our customers and how they interact with our offerings. Does that make sense?

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Filed under Consulting, food, Reality checks

Woebuck

Sad news about Sears today. An American institution, they filed for bankruptcy in order to restructure the company. They will close 142 unprofitable stores near the end of the year. Liquidation sales at these stores are expected to begin shortly. This is in addition to the previously announced closure of 46 unprofitable stores that is expected to be completed by next month.

The press release says that “The Chapter 11 process will give Holdings the flexibility to strengthen its balance sheet, enabling the Company to accelerate its strategic transformation, continue right-sizing its operating model, and return to profitability.” I guess the question I’d ask is what the heck has taken so long? When I was a kid, the Sears catalog was a 500-page wish book. Everything from clothing to tools to appliances and damn near anything else was in the catalog or the store. At one point you could even buy a prefabricated house kit. They sold great appliances (built by Whirlpool) and even better tools (also built by others). They did very smart things like label grades of product “good” “better” and “best” using brand names.  They were Amazon long before Amazon was a gleam in Jeff Bezos’ eye.

So what happened? Well, technology did but that’s only part of the story. This is a perfect example of what can happen when any of us fail to recognize the fundamental changes happening in business – all business. Obviously, online commerce happened but Sears was in decline in the early 1990’s as Walmart took over the title of largest US retailer. Then the little wave became a tsunami, as consumers fundamentally changed their behavior, becoming more price sensitive, doing more research and shopping online, and the shift away from the mall sped up.

You might not remember this, but Sears was an investor in Prodigy, one of the original online services. They jumped out of the digital service in 1996, however. One can only wonder what might have been had they stuck with it and learned from it. Even though walled-garden services died as the internet grew, there was a lot to learn. Remember that Amazon didn’t begin to sell beyond books until around 2000. Why did they bail? To get back to what they knew best – retail (they also sold off their interest in brokerages and real estate companies they owned).

This is an excellent summary from Investopedia:

It would be easy to read this story as a triumph of e-commerce, or to reflect on the irony that Sears was a first-mover when it came to online shopping, with its proto-internet joint venture Prodigy. But even recently, Sears has been ahead of the curve in that area. According to Bloomberg, Lampert “showered” the online division with resources while the rest meleed over a shrinking pie.

Nor did competition with Amazon alone precipitate Sears’ decline. When sales and profits began to fade, in the mid-2000s, other big box retailers—particularly Walmart—were thriving. In 2011, the year Sears lost over $3.1 billion, Walmart made $17.1 billion.

Perhaps the might-have-been next Warren Buffett should have listened to the original, who told University of Kansas students in 2005, “Eddie is a very smart guy, but putting Kmart and Sears together is a tough hand. Turning around a retailer that has been slipping for a long time would be very difficult. Can you think of an example of a retailer that was successfully turned around?”

This is a story of a series of failures. It’s also a cautionary tale to any of us who live and work in these changing times. Brick and mortar stores still make up the vast majority of retail sales in this country yet the country’s largest retailers failed. Greed? Ignorance? Stupidity? What are your thoughts?

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Filed under Huh?, Thinking Aloud, What's Going On

Mounting On The Right

Let’s begin this week with a question for all you folks who like to ride horses. In fact, if you’ve ever been on a horse, you can probably try to answer it too. Here we go: on which side of the horse do we ALWAYS mount and dismount? Now that’s pretty simple, right? It’s the left side. In fact, you’ll almost always see the horse being led by someone on the left side as well. The real question is why, and that’s where things get interesting for your business.

No, there isn’t a physiological reason we do this. Most horses aren’t blind on their right sides so we’re not going to spook them. Basically, we mount from the left because it’s traditional. Unlike some traditions, this one has a practical reason for existing. Many of the people who rode horses hundred of years ago also were wearing swords, which were generally worn on a person’s left side so they could grab it with their right hand. If you tried to mount a horse from the right, the sword you wore on your left would get in the way, and no one wants to impale either themselves or their mount.

Those days of swords are long gone for most of us but the tradition of mounting from the left continues. Is there really anything preventing us from training a horse to accept mounts from the right side? Not really – we just don’t. That answer is probably applicable to something you’re doing in your business as well. Reports that get cranked out week after week or meetings that get held without fail. Maybe those things had a very good reason for existing when they began (maybe back in the days of swords!) but don’t really now.

The point is that we need to constantly be asking ourselves why things are the way that they are. Circumstances change constantly. Markets change and so do customer needs and preferences. It might just be time to ask yourself if it’s appropriate to try the right side, don’t you think?

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Filed under Consulting, Thinking Aloud

Learning From Ed Mitchell

I’m going to start the week with something a little unusual (for me, anyway). Although I’ve moved out of my little town in Connecticut I still follow the local happenings there via a couple of local blogs. One of the best is from Dan Woog, a life-long resident. One of his posts this morning really resonated and I thought it would be a great way to start the week here on the screed. You can read Dan’s entire post here and I’d urge you to do so. However, I’m going to summarize some of it below.

The subject is a local clothing store, Ed Mitchells. What resonated with me is how the store puts the customer first and foremost. In an era when the death of local retail at the hands of national chains and online giants is being screamed about in the business press, Mitchells demonstrates that its possible for any business to succeed if it follows a few principles we’ve often discussed here. They know their market and their customers and go way beyond whatever expectations whose customers have. Having shopped there myself I can tell you that this commitment is visible even to the infrequent customer such as myself. Yes, the store is very expensive. Yes, some of what it carries can be found in department stores at lower prices. But I’ll grab a few quotes from Dan’s blog to demonstrate how Mitchells has managed to overcome the challenges many businesses face through great service.

Their website encourages customers to email their personal style advisor, or call a sales associate. All emails are answered by real people…When the store is closed, a phone message offers an actual number to call in the event of a fashion emergency. Those calls are answered by an actual Mitchell family member. Immediately, the problem is taken care of…An unexpected funeral, and no suit. A business meeting, and a forgotten shirt. Things happen. A Mitchell family member will open the store on a Sunday for those issues. If needed, they send a tailor to a customer’s home.

Are those things you’d be willing to do for a client or customer? To demonstrate that this isn’t all store PR, here is one quote from the comments to Dan’s piece:

So here is a great Mitchells story. A friend of mine had to go to London for an emergency work week and dropped all of his suits off to be cleaned and it was Saturday night when he realized he had none of his suits. Here is your fashion emergency. He called Mitchells and they not only opened the store on Sunday for him for 30 minutes to get a few suits, but they had the tailor meet them there and alterations done by 3pm for his night flight.

If you want to be in business for 60 years and counter all the negative trends in your industry, Ed Mitchells is a great place for you to look for inspiration, don’t you think?

 

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Filed under Consulting, Helpful Hints

Burritos On The Brain

This Foodie Friday, it’s all about the humble burrito and what it can teach us about business and life. I’m sure you’re familiar with the burrito. As we know it here in the USA, it’s a rather large tortilla filled with meat, beans (usually refried), cheese, sometimes rice, sour cream, guacamole and often more. You need to be a “little burro” to carry all of that!

Here’s the thing though. Burritos in Mexico are a totally different matter. They generally contain one thing, usually a protein. Maybe it’s shredded pork that’s been cooked for hours in a mojo. Then a sauce of some sort is added and the meat is placed, with or without refried beans, into a tortilla, usually flour (corn tortillas are generally smaller and better for tacos or flautas). It’s much simpler but this simplicity does a few things.

Each ingredient must be perfect because the flavors of each is a point of focus as you’re eating. You can’t hide bad meat behind a lot of cheese and sour cream. Your seasoning must be aggressive or the dish will be bland. After all, it’s wrapped in a bland tortilla that can tend to deaden its contents. In short, the Mexican burrito mirrors some of the world’s great dishes – simple ingredients but complex flavors. Think cacio e pepe – pasta with cheese and pepper. Like the burrito, it’s not about difficult techniques or hard to find ingredients or even complex timing like a souffle. Instead, it’s about having the patience and skill to bring out the best in your materials and the confidence to present them to stand on their own.

That’s a great lesson for those of us in business. Too often we hide behind buzzwords or present materials in a way that hides the basic thoughts we’re trying to convey. How many powerpoints have you seen with 50 words saying what 5 could have said? We try to make what we’re doing exceptionally complex instead of trying to simplify it. We add the unnecessary toppings – not guac and cheese and sour cream but hard to read contracts and user agreements or black-box systems that add nothing but cost and marginal improvements.

The next time you’re in a meeting, think of the humble Mexican burrito. Keep it simple but make each piece spectacular. The ingredients of your business – the people, the business model, the systems – must all be the best and you’ve got to combine and season them to make them better. Not more complicated and not hidden behind unnecessary glop. Make sense?

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Filed under food, Thinking Aloud

Hurricane’s Comin’

I went to bed last night after watching my favorite weather forecaster give a rather dire outlook for this week. When I moved to North Carolina I opted for hurricanes over blizzards, I guess, and now it appears that one is headed right for us.

I ran out earlier to pick up a case of water bottles just in case the forecasts are accurate. The local Walmart had nary a bottle anywhere, and the long aisle of empty shelving reminded me that I wasn’t the only person who had this idea four days ahead of when this thing is supposed to pay us a visit. I’ve got lots of ice to hold the food and lots of wine to hold me so I think I’ll be fine.

On the drive home I thought to myself that it was pretty cool how everyone is going about their business and preparing. There weren’t any D batteries at Walmart either and there were lines at the gas stations I passed. People are trying, as we were constantly told in the Boy Scouts, to “be prepared.” Which leads me to today’s screed.

There is a hurricane headed for your business. It might not be on your radar yet or you may have red flags raised over your beaches, but you can rest assured that at some point a massive, devastating storm will hit you. The thing is that you need to have a disaster place in place and preparations made long before that time arrives. Was Chipotle ready for the massive e. coli outbreak? It almost destroyed them and they still haven’t recovered. What if the power grid fails for whatever reason and all of your refrigerated inventory must be thrown out? What’s the plan to deal with that and are there financial plans in place to recover?

You need a crisis response team and a disaster plan. Your key players from all your relevant business functions – operations, public relations, marketing, quality assurance, legal, etc. – have to have been briefed on the plan long before it’s executed. I’ve written before about how my organization’s web servers failed after 9/11 due to a lack of dust filters that forced the shutdown of the emergency power we were careful to have at our disposal. When the crisis had passed, we rewrote the disaster plan to account for yet another “just in case.”

Hurricanes happen. The question isn’t how to prevent hurricanes but how best to prepare and recover from any damage they cause when they do. I’m ready for this one. Are you?

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Filed under Helpful Hints, What's Going On

The Great Customer Gulf

Foodie Friday is here at last and with it comes some great information from Earnest Research. My data tells me that screeds about research don’t score particularly well with many of you but I think what the study I’m highlighting today is an excellent reminder of a basic business fact that pertains to the balance between keeping customers happy and attracting new customers. Read on!

What the study examined was the top 10% of various restaurants’ customers by the frequency of visit and how that compares with the average frequency. As reported by The Franchise Times, the gap can be enormous:

At McDonald’s, that top 10 percent customer went 86.5 times each year on average. That’s 309 percent more than the average customer, who went 21.1 times through the year.  Even the most frequent Starbucks customers don’t reach that. The top 10 percent of customers by frequency went 80.7 times—though they visited 374.5 percent more than the average customer who stopped in 17 times.

Earnest researchers checked in on a handful of brands for this data (see chart, right). In green are national QSR chains, orange is national fast-casual restaurants and blue represents chains that are regional but have a traditionally strong customer base. While the numbers jump around a lot, the highest frequency customers come between three and five times more than an average customer.

Your reaction to that may be a large “duh” since the Pareto Principle is probably burned into your head by now. What impressed me, however, was the size of the gap. If you factor in “average order value”, the amount of money spent by the top 10% is huge even though as it turns out they tend to spend a bit less per trip. In real terms, for example, the difference between a top customer at McDonald’s and an average one means a $708 annual value compared to the average customer’s $187.

Money spent to keep a customer happy is money well-spent. Money spent to get a customer to become a more frequent customer is even better. While there’s no question that we all have to keep adding new customers to our base, once they’re there, we need to shower them with love, great service, and incentives to grow their engagement with you. The data shows it’s true in the franchised restaurant business and I’m pretty sure it’s true of yours too.

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Filed under Consulting, food