It’s difficult to concisely summarize last week’s WFF Conference in Las Vegas, but I’ll try. Suffice it to say that as usual, the event was a shot in the arm for attendees, who learned, relearned, and connected with old and new industry peers while benefiting from the insight of leaders and visionaries attending.

Keynote Speakers

 
 
 
 

Photo: L. Kerr

Gladys Knight – as an entertainer and restaurateur, the superstar’s story hit on the theme of work-life balance, a frequent WFF topic. How heartening to know that Ms. Knight understands this issue, having grappled with it while on the road with the Pips. In addition to her nontraditional working mom experience, she supported two children in starting restaurant and bakery businesses, both financially and morally, and she dreams of using her family’s farm to teach youngsters about food and life lessons. For me, Ms. Knight’s life lessons hit home more than did the notion of her as a colleague – but I’ll try to get over that mental hump! Her advice: don’t be afraid to stand tall and take on the responsibility of being a leader. And rest assured, Gladys can still belt out a song – she treated us to a performance of “Need to Be” after speaking.

Keith Ferrazzi of Ferrazzi Greenlight spoke on building and sustaining relationships that garner success. His firm’s research shows that your key relationships – lifeline relationships in his lingo – are predictive of your ability to build business relationships. Not surprisingly, the necessary relationship ingredients he mentioned included intimacy, generosity, vulnerability, and caring. His counsel: to get people to care about you, just care about them. I find I can often apply WFF speaker advice to both work and personal relationships, and this case is no different. To overcome the intimidation of networking, Ferrazzi suggests a simple approach of asking you can help others rather than the reverse.

Gloria Santona, EVP and General Secretary of McDonald’s Corporation, inspired us with her experiences as a young Hispanic woman embarking on her legal career when this was far from a common career option. She noted that the current ratio of women to men in the workforce is much higher than it is in boardrooms, a fact that shapes much of the WFF mission. As she recounted her experiences at McDonald’s, I couldn’t help but think that if all companies provided such opportunities for inclusion, our workplaces would be incredible. Santona defines success as creating opportunities for people of different backgrounds, which was a good backdrop for the Top-to-Top Summit. Additional advice: Focus your career on what’s most important to you; treat failure as a developmental opportunity, develop the leader in you; and you can’t do it alone.

Top-to-Top Summit Highlights

Dr. Saj-Nicole Joni spoke on leadership, using the example of Edward Liddy and AIG bonus controversy. Participant wisdom: Liddy’s desire to do right by AIG employees should have been a backseat to the company’s bankruptcy, the taxpayer bailout, and public outcry that would clearly follow. Moreover, the lack of a diverse group of advisors hurt.

Joni then moderated an executive panel including the following members and their advice on leadership:

P. Liewand, M. Rich, D. Madsen, D. Sweeney

Photo: L. Kerr

Paul Leinwand, VP Global Consumer, Media and Digital Practice for Booz & Co.: Find ways to enable people to take risks.

Mindy Rich, Vice Chairman Rich Products, Inc.: Don’t be afraid to find the confidence to take risks ourselves.

Drew Madsen, President and COO, Darden Restaurants: Encourage everyone to think about leading people, not just businesses. The difference between good and great is often getting the effort from the front line in this special business.

Dawn Sweeney, President & CEO, National Restaurant Association: Strike the balance necessary in fighting battles, as in the case of the recent health care lobbying efforts.

Changing of the WFF Guard

WFF leadership continues to evolve, and a high point this year was Fritzi Woods’ debut as WFF President and CEO. Having listened to Fritzi on many a WFF panel, I know this is as extremely good news for the organization and its members. Here’s to your stewardship, Fritzi – I look forward to it. Furthermore, outgoing Interim President Linda Pharr really gets to leave now, having done an extra tour of duty – which interfered with her retirement, no less – as the WFF worked to fill a management void. How generous of Linda.

We welcomed incoming WFF Chair Maureen Hurley, a consistent image of leadership during my WFF membership. She, as well as outgoing chair Mary O’ Broin, inspired us by sharing their stories, lessons, and goals, both past and future. Congratulations best wishes, ladies.

Fritzi took the opportunity for an informal panel discussion with the following heavy hitters who are always so giving of their time and advice:

Lorna Donatone, COO & Education Market President, Sodexo/WFF Treasurer: Raise your hand – don’t sit back and assume others know your goals and capabilities.

Carin Stutz, SVP, Strategic Operations & COO, Global Business Development, Brinker International/WFF Secretary: take the high road. Add value to a conversation and don’t bring it down – imagine being in others’ shoes when you don’t agree with them.

Maureen Hurley, EVP & Chief Administrative Officer, Rich Products Corporation/WFF Chair: Have confidence in yourself, quit thinking you might be “found out” and set your mind to your goals.

The announcement that Brinker International has donated office space in its Dallas headquarters to the WFF was great news. This gift was due to the generosity of ever-supportive Carin Stutz and Doug Brooks, Chairman and CEO of Brinker.

WFF Awards

There has been much industry coverage of these award recipients. What stands out to me is the extent of their accomplishments, humility, and generosity – it’s truly awe-inspiring. Congratulations to Mindy Rich, Vice-Chairman, Rich Products; Joyce Mazero, Partner, Haynes and Boone; Cindy Novak, President, Communication Leadership Network; Doug Barber, EVP and COO, Cracker Barrel Old Country Store; and Sarah Palisi Chapin, CEO, Hail Merry Snacks. Congratulations to Kraft Foodservice, recipient of the one award that goes to a company rather than an individual, with Tom Sampson, President North American Foodservice, accepting.

While it was a new setting, recognizing some new leaders, the 2010 WFF leadership conference was true to form in continuing to offer top-notch programming and educational opportunities, while fostering new and old connections among industry peers. This year’s tone was one of inspiration and hope to prepare us for the more prosperous times to come for the industry. Won’t those be a welcome change!

Everyone Loves a Deal

March 11, 2010

© 2010 L. Kerr

Free this, all you can eat that. 2 for $20; 15 under $15; starter, entrée and dessert for $12.99. Small cravings. Small plates and snacks. $1 coffees; $1.00 menu;  $5 lunch. And the list goes on – you can’t turn around without reading about specials at restaurants everywhere. It’s deal madness.

Don’t you love it?

And I don’t just mean customers – restaurants have to love them as well. They don’t have a choice.

For cost-conscious customers, as times stay tough and cost cutting is a must, a simple, casual meal out moves down on the priority list, if not off the list entirely. A night out is a true luxury compared to say, the electric bill. So deals are a necessary enticement. And it’s not  just customers who need the deals; restaurants must rely on them as well.

It used to be that many operators tried to avoid offering deals, citing a well-known list of arguments against them:

  • Don’t train guests to be more price sensitive
  • Limited time offers wreak operational havoc
  • Price cuts bite into margins
  • Competing on price just leads to price wars

But desperate times mean restaurants can’t afford not to offer deals.

I remember when operators could focus on growing revenues by pure and noble means – by adding customers and building check. And by building check, I don’t mean via price increases. It came down to such basics as getting customers to come in more often, and to consume more during those visits – simple, right? Of course new products were crucial, but that’s a tough game. All that R&D, maybe some new equipment, the sell-in, the resistance, and the pressure on each new product to be the next great thing. And if sales saw only a temporary, modest blip, and new items didn’t take off like gangbusters, there were post mortems, lessons learned, and disappointment. It’s a tough game, that quest for new news.

But these days the new news is the deals, and while it’s easy for critics to declare that price cuts are damaging, they should keep in mind how much further sales could be down without these dastardly deals – a difficult calculation to make. On the plus side, deals have sparked some menu creativity and consumer excitement. And some of the associated smaller portions benefit chains and their patrons by promoting health and value, or the perceptions thereof.

We don’t yet know to what degree consumers will retain price sensitivity when prosperous times return. With the pace of store closings and the financial pressure bearing down on everyone from guests to shareholders, it’s hard for operators to think about that now.

So until the smattering of good news we have seen lately about positive performance becomes the norm, the reality is that everyone will continue to love and need a deal, including operators.

My mother will be disappointed to learn this, but I once told a valentine not to buy me flowers on Valentine’s Day, and if he must, not to buy me roses. Despite Mom’s best efforts, my practical nature sometimes gets the better of me. I know roses cost more around February 14th, and I just can’t tolerate the price hike.  

Last week, reading articles and advertisements for Valentine’s Day meals, I was of course was glad to see restaurants projecting positive sales. But I couldn’t ignore the economics of it, and wondered how others view the business of Valentine’s Day dinners. And if you’re reading this, you probably know that I conducted some well-timed research to find out what people think à la the rip-off factor. To everyone who responded to the survey, thank you, and here is the skinny.

I surveyed colleagues and friends via Facebook, Twitter, and emails asking them to respond and recruit others. So while it’s not a random sample, it’s relevant for my purposes. It ran from Thursday night, February 12 until the morning of February 14th, when I had reached 100 responses – 103, actually.  I have to say, I enjoyed learning about others’ views of the occasion via the non-price-related questions, but as a pricing nerd, I care most about the views on costs and value. So without further ado:

  • 40% of respondents believe prices are more expensive on Valentine’s Day than other nights of the year
  • 33% believe prices are similar to those on other nights
  • 20% don’t know or aren’t sure
  • 4% think prices are discounted on this night
  • 5% responded “other,” noting specials and pairings that are available, with no note as to expense

Big aha: more people think dining out on Valentine’s Day is similarly-priced or cheaper than other nights than think it’s more expensive. Restaurateurs, I am happy to be the bearer of good news.

Is Valentine’s Day a special occasion worth the splurge? Is it a hassle to go out for Valentine’s Day? Respondents rated these affirmative statements on a 6-point scale where 1 means strongly agree and 6 means strongly disagree:

  • For both statements, the average score was 2.9
  • No answers were given for either statement in the disagree range of 4 to 6

So people value this occasion and are willing to put up with the crowds, pressure, opportunity to be exploited, and mandatory fun (their words, not mine) because they appreciate the time with their loved one, adult conversation, dessert and lack of dirty dishes (as reported in open ended questions). Again, operators, rejoice!

One Restaurant’s Point of View

To understand the restaurant perspective, I spoke with Byron Lepine, Manager at Kingston Station, a downtown Boston lunch favorite of mine. I had received an email with their V-day specials – a $50 3-course prix fixe menu, $70 with wine pairings. Byron sounded like the host with the most as he described the restaurant’s philosophy. “We want to make sure guests have a memorable evening and go home feeling good about it.” He waxed poetic about the planning and regretted not repeating last year’s late-night anti-V-day party for singles this year.

Lepine knew his menu inside and out, explaining that both customer favorites and special items were among the selections. When he mentioned that one of the items was a $26 entree, I was quick to ask how $24 for a first course and dessert meant a value, and he quickly recited the value and economics behind their meals. He clearly does his homework. “What you pay for an entree doesn’t reflect the food cost. We have a terrible [cost] on skirt steak and should probably charge $35 or $40,” though it’s less. “We eat the cost.” He used the example of the Valentine’s Day special prime rib, a $36 entree, along with two $9 courses, for the $50 package. While I don’t consider a couple of dollars a bargain, his points about the fair market price are well-taken. And those of us in the biz know that not all items’ profitability is created equal.

Side note: I reviewed the restaurant’s typical prices for items on the Valentine’s Day menu, and using these to calculate V-day value is a bit less favorable than using Lepine’s reference points of what the restaurant “should charge.” My calculations do not, however, include the factors he mentioned, like fresh flowers and special atmosphere, as well as the difficulty of handling many more tables in a night. And as we say, value is not just price. And as we also say, the laws of supply and demand hold true, so as demand goes through the roof on Valentine’s Day, it’s fair that prices do, too. So while the wise consumer in me has a narrower view around the pricing, the businesswoman in me says Kingston Station is conducting smart business.

I also asked Byron about the wine pairing, thinking that the extra $20 would not be such a bargain, but when he told me it was a glass of wine with each of the 3 courses, I knew that was a good deal. He estimated $9 price tags for the wines selected. I don’t know about you, but I often see them for more than this. Indeed, many wines on Kingston’s menu are $8 and $9 a glass. So I like that math. And while Kingston’s menu suggested the wine for each course, the restaurant would not hold guests to the recommendation, adding to the value quotient. This left me with a good feeling about Kingston’s wish to spread the good feeling.

A Diner Weighs In

My optimism was tempered when I learned that the warm glow of a Valentine’s value was sadly lacking by a friend who visited a suburban Boston restaurant on this auspicious occasion. Her summation: “Last night’s dinner was the biggest f-*^ing rip-off, it was ridiculous.”

The culprit? Prix fixe menus. This restaurant, like Kingston Station, required guests seated at tables to order the prix fixe dinner, which is how restaurants increase their checks on this night o’ couples. However, my friend noticed that the restaurant allowed those at the bar to order à la carte, which ended up being less money for the same meal served as a “special.” Her dinner deal was a $75 ticket, and she calculated that ordering the selections separately “didn’t even come close to $75.”  Her reaction: “I think I now will officially spend both New Year’s Eve and Valentine’s Day dinner at home. I loved spending the evening with my guy, and the food was good, but it was ridiculous how it was priced.”

So what can I conclude from these various sources of data? If you’re in the camp that wants to splurge, or you don’t mind the hassle, or you can finish 3 courses and 3 glasses of wine, the deals may feel better. If you are restaurant catering to a house full of two-tops, you have to earn your money and manage the crowds, but luckily their price/value perceptions are in your favor.

And if you’re me, you get to take surveys and observe it all in the name of work!

A Few More Survey Findings:

  • 47% of respondents prefer to go out, while 34% prefer an evening at home; 15% want to treat it like any other night
  • Fine dining is the winner for those who want to go out, preferred by 41%, while independent restaurants claim 35% of respondents
  • Respondents who prefer a night at home overwhelmingly want to make a special meal, with 66% opting for this choice; the next most popular option: takeout at 10%
  • 60% of respondents were women, 35% men, and 5% did not indicate their gender.

photo: roboppy, flickr

The conflict between Burger King and its franchisees over the $1 Double Cheeseburger is as hot as the restaurants’ flamebroilers. I’m glad I was neither one of the corporate folks selling in this program, nor one of the franchisees who feel it’s being forced upon them. Having worked on corporate marketing and finance teams earlier in my career, I know the drill well. And I’m not surprised to see this age-old, stereotypical thinking and behavior playing out yet again.

It’s classic. Franchisees tend to view corporate as a bunch of eggheads who are out of touch with actual customer behavior, ignorant of franchisee costs and life in the trenches. They resent that royalties are based on sales rather than profit – the top line vs. the bottom line. Meanwhile, corporate employees tend to see franchisees as reactive and unwilling to invest in marketing that will grow their businesses.

Whether the stereotypes contain a grain of truth or not, the reality is that better data and thorough analysis could snuff this inferno.

The debate has centered on the issue of the $1 price point for a double cheeseburger, yet the program’s true impact hinges on much more. Regardless of whether franchisees lose or gain money at $1, the success of the program should be based on detailed analysis of sales and customer behavior. Is traffic increased over the long haul? Are higher-margin items being sold in greater quantity along with the double cheeseburgers? Are customers refusing to purchase items once they return to their regular prices? What are the short- and long-term gains of the program? Do those gains outweigh the cash lost in price-cutting?

Ron Ruggless covered this topic in the November 30 issue of Nation’s Restaurant News, “BK suit highlights franchisee friction.” Franchisee Dan Fitzpatrick states “You could conservatively indicate that it costs us between $1.10 and $1.15 per double cheeseburger that we sell with all of our fixed and variable costs being covered.” Fitzpatrick’s accounting is curious.

The cost of serving a double cheeseburger should reflect the meat, cheese, condiments, bun, wrapper, and even a napkin. Items such as labor, utilities, and insurance are fixed costs, and won’t change unless a promotion requires hiring additional staff. If the lights are already on, the flamebroilers are fired up, and the crew is at work, I say you account for these costs at the end of the month and year to accurately assess your costs and profits. It’s unlikely that Burger King locations are adding staff due to an item’s placement on the $1 menu.

I’m not saying that a complete profit picture — including utilities and the rest — is unimportant. It’s critical. It’s just not fair or logical to add them until the program is over. Once we know the quantity of each item sold, fixed costs can be allocated accurately.

I don’t know the exact cost of a double cheeseburger – based on Ruggless’ reference points for everyday pricing between $1.89 and $2.39, I’d venture to say that it’s closer to $1.00 than $.50, so placing the item on the $1 menu indeed yields a low margin. Even so, the point of the promotion is to boost overall sales and profit. Both franchisee and franchisor must look beyond the stereotypes and judge a discount program holistically.

It’s a lot to ask that franchisees and franchisors work together harmoniously, but it’s worth keeping in mind the following: franchisees should understand that their goals and the franchisor’s are more often than not the same – increased profitability for both, based on maximizing store revenue and therefore, profit. Franchisors should attempt to walk in the franchisees’ shoes and seek to understand true item and store profitability — including proving their understanding of the long-term impact of cutting prices on customer behavior. If this happened more often, perhaps the need for lawsuits would be minimized.