Part 1 of BrandTrip Partners Restaurant Chain Turnaround Series
2016 has turned ugly for a large number of restaurant chains with dramatic sales declines, store closures, rising bankruptcies, and the eventual rotation of the C-suite. Unfortunately, it appears that this pattern in the restaurant industry will not end in the near future.
In this first installment of a series exploring turnaround strategies, we will review examples of the most dramatic way to increase sales at your restaurant chain. The ability to develop a successful strategy to add additional revenue channels can drive the business far above any other program.
Are You Mathematically Wasting Your Time?
Often, when we are working on restaurant chain turnarounds, we run into brands stuck inside their own box. They have tried various initiatives within the confines of their current business model with little or no success. These programs are usually targeted at an already successful daypart with heavy transaction counts. This strategy automatically creates a barrier to success due to challenges around the ability to serve more orders through the current service model and physical plant during that time frame. Examples include:
A casual dining brand with lines out the door at dinner tweaking their top selling pizza.
A fast casual brand packed at lunch adding a new cheese to the assembly line of their create your own burrito concept.
A quick service coffee brand that can hardly keep up with orders in the morning offering new single origin Hawaiian beans.
Yes, product quality and innovation are important. In fact, at times they can actually be revolutionary which we will cover in a future installment of turnaround solutions. However, will it get you a 10% or 20% leap in sales?
If your brand is at capacity in the daypart you have targeted with product/menu initiatives, it will be mathematically challenging to make that leap. If you are able to achieve increased consumer visits at that level, it could produce an opposite financial effect in the months to come unless you have also addressed your throughput issue with some sort of technology, equipment or service innovation. Long waits for tables and food can easily turn guests away never to return.
Focus On Sustainable "Exponential" Value
Leadership at restaurant brands need to ask themselves if these kinds of time and resource consuming initiatives will really create exponential value for your brand? Will they significantly increase sustainable transactions and sales? Will they attract new investors/franchisees to help accelerate brand expansion? Or, are these programs going to produce down, flat, single digit incrementality or short term false positives through discounting and limited time offers. The “Limited” in Limited Time Offers is generally self defining from the start. Should your team be focused on creating “limited” results, or sustainable exponential brand value?
One of the opportunities we look for when we receive an assignment to help craft restaurant chain turnarounds is revenue channel expansion. We look outside their current business model to find new sales streams that will significantly improve the brand from a continuous sales, transaction share, brand awareness and unit growth perspective. When you can successfully execute a disruption to your current structure that delivers all four, you are able to grow the value of the brand with exponentially accelerated results, significantly improving the overall valuation of your enterprise with long term sustainable growth.
THINKING OUTSIDE THE RESTAURANT BOX
How Coopers Hawk broke the classic restaurant business model
One of our favorite industry examples of a brand that turned the model upside down is Cooper's Hawk Winery & Restaurants. The traditional restaurants in their category like McCormick & Schmicks, Il Forniao, Del Frisco’s Grille and Brio Tuscan Grille all have their positives and unique menus, but all follow relatively the same model. Dinner is where they make their volume, the bar is an important contributor to profit, happy hour gets in those who can’t regularly afford the main menu, and private events are critical to make their year. With the right location, lunch can be a strong contributor and about half offer catering. Strip away the style of cuisine, service, and ambience and you will find that the raw revenue streams inside their business models are very similar sans those who cater.
Cooper's Hawk broke this category mold, stepped on what was left, and then drove over the remaining shards with a truck. Here's how their model differs:
Proprietary Wine – The only wine you can purchase at the 24 Cooper's Hawk locations is….Cooper's Hawk wine. Think brewpub on upscale steroids with wine. Over 300,000 cases of wine was projected to be produced in 2015 by Cooper's Hawk to support the 24 restaurants and other channels of distribution. Every penny of wine sales in the restaurant goes to Cooper's Hawk. Not to Gallo, Constellation, Trinchero or any other wine conglomerate. Granted, running your own winery is not as easy, or inexpensive as it looks on a strategy deck. However, they have figured it out giving them a proprietary beverage menu that makes the brand a destination. The wine is also not subject to commoditization or pricing pressures often experienced by operators featuring popular branded retail wines.
Napa Style Tasting Room & Retail Outlet – A business inside a business, the Cooper's Hawk tasting rooms offers just that…a taste of Cooper's Hawk. Each Cooper's Hawk has a separate tasting room available to anyone of legal drinking age at any time during business hours. They have created a way for consumers to frequently sample a taste of what the brand has to offer in an affordable manner as opposed to limiting guest brand interaction to only the typical infrequent full sit down experience. Starting at just $7 for eight pours, happy hour is basically all day long and a unique experience you can’t find anywhere else in the category. You can also purchase wine and wine supplies from the tasting room and take the experience/brand home.
Wine Club – Cooper's Hawk has one of the largest wine clubs in the country sending out monthly shipments of their proprietary vintages, varietals and blends to over 200,000 members. This is very significant. What other restaurant chain has guests paying them to send a reminder of the brand experience to their home every single month and drinking it? The revenue flow is game changing and the brand awareness value is priceless.
Wine Gift Sets – Talk about exponential, they went beyond the stale gift card and created gift sets for both individuals and even a corporate gift section leveraging their massive wine club list. Again, an exceptional way to create a non-traditional restaurant revenue stream from guests across the country. Few other restaurant chains are lucky enough to have their consumer base pay to broaden the awareness of their core menu offering.
Jimmy John's delivers higher average unit volumes through doing what others won't exceptionally well
Jimmy John's is another great example. Let’s just list them: Subway, Firehouse Subs, Quiznos, and Jersey Mike's. They are all Jimmy John's competitors and none of them have delivery let alone the “Freaky Fast” delivery that baffles the minds of most operations executives trying to figure out how they do it that fast. It is simply freakin' amazing.
Jimmy John's results are in the numbers. According to Nation's Restaurant News 2016 Top 200 Report, the average volume for a Jimmy John's is $875,700 which is more than double the $425,000 average unit volume for the big national competitor Subway. Even their strong, but not as geographically saturated, competitors Firehouse Subs and Jersey Mike's have over 20% less volume at $717,000 and $709,000 respectfully according to the same report. Quiznos trails all with only a $308,000 average unit volume and little to help it climb up to the others as it doesn’t even have online ordering at all their locations let alone a slick mobile ordering app and delivery system like Jimmy John's.
The bottom line: Jimmy John's is single additional revenue channel has provided them with a superior business model that drives best-in-class revenue.
A WHOLESALE IDEA
Rowster Coffee micro roasts a host of quality sales channels
On a smaller scale is a local coffee brand in Grand Rapids, Michigan that is showing big brands how it can be done. Rowster is a one location brand on Wealthy Street. Make no mistake, IT IS a brand. When you enter Rowster, you have entered a serious coffee zen zone. The roaster is right in front of you and there are sacks of beans by the back door. It’s that fresh. See previous BTP article on Rowster: The Starbucks Killer? Real Coffee Cred?
What Rowster has done to innovate beyond the average coffee house is to make their brand accessible through other channels, get paid for it, and reap the rewards from the expanded brand awareness through the consumer base of their partners. They have a thriving wholesale business to local restaurants, cafes, businesses, and yes…breweries. Elk Brewing thought so much of Rowster Coffee, that they now brew barrels of Rowster Coffee Porter year-round. How cool is that for a coffee brand? Take note big bean guys. Is there a Starbucks Ballast Point Stout in the future? Tully’s Rogue Brown Ale? Deschutes Peet's Moss Porter?
One of the reasons you don't see brands changing their business model is their view of risk. Adding new revenue channels is not usually easy. It takes hard work by a team of individuals that are not distracted by the day to day current business conditions. It also generally takes financial investment to change a business model which raises the risk in the eyes of conservative ownership.
The question brand leadership needs to ask is "What happens if we keep doing the same thing?" If the answer is "nothing", and your brand is perishing, then your risk has been lowered substantially. Even if your brand is thriving, opening up new revenue channels has the opportunity to exponentially accelerate your success before another brand steps in and takes what you have away from you.
MORE RESTAURANT TURNAROUND RESOURCES
Additional articles in the BrandTrip Partners "How To Turn Restaurants Around" series that you might enjoy can be found below: