HOW TO TURN RESTAURANTS AROUND PART 2: "THROUGHPUT ACCELERATION"

Part 2 of BrandTrip Partners Restaurant Chain Turnaround Series

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The past few months of 2016 have delivered even more gloomy news for restaurant chains.  The store closures continue to mount, a new crop of bankruptcies have been filed, the C-suite is rotating like a centrifuge, and same store sales declines are affecting all categories including the industry darling fast casual segment. 

To help navigate these stormy waters, BrandTrip Partners is publishing a series of articles exploring turn around strategies for restaurant chains.   The first article, “How To Turn Restaurants Around – Exponential Leaps Through New Revenue Channels,” provided insights on how to look outside your current business model to find new sales streams.  Successful new revenue channels are able to grow the value of your brand with exponentially accelerated results, significantly improving the overall valuation of your enterprise with long term sustainable growth.

THROUGHPUT ACCELERATION

In this second installment we will examine strategies to improve throughput.  “Throughput Acceleration” simply allows the movement of more transactional behavior in a given amount of time.  The innovation tends to be accomplished through technology enhancements, process improvements, or physical plant alterations.  In their most successful implementations, Throughput Acceleration can be as highly impactful as the double-digit exponential leaps found through new revenue channels explored in our previous article.  A more typical result drives solid single digit results.

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DRIVING-THRU MORE TRANSACTIONS

One of the secrets behind Starbucks amazing record of sales growth

Everyone is aware of the amazing growth story of Starbucks.  However, just before The Great Recession, they slowed down substantially in the United States with negative sales and transactions in addition to store closures.  Their stock naturally reacted with a huge dive. 

To make matters worse, there was a little company called McDonald’s that overnight opened their McCafe platform in approximately 14,000 locations throughout the United States instantly becoming the largest provider of lattes in the country.  If you look at history with McDonald’s, they do well when they identify a major trend and offer a decent product at a lower price delivered more conveniently.  McCafe was the text book example. 

A critical component of the McCafe platform that stole market share from Starbucks was the drive-thru.  Back then, you were required to wait in that painfully long slow line at most Starbucks locations.  However, at McDonald’s you didn’t even have to get out of your car. 

Eventually, Starbucks did make a comeback.  It wasn’t because of the infamous seasonal PSL (Pumpkin Spiced Latte) and it wasn’t because of some other new chocolatey, caramely, creamy coffee concoction.  It was because of a number of initiatives, but the one that clearly put big money in the bank was the drive-thru.  Why?  Because it drove double digit sales with Throughput Acceleration.  In 2006, as reported in the Wall Street Journal, Starbucks reported that their locations with a drive-thu did 30% more volume than stores without them.  Fast forward to a 2012 Motely Fool interview with Starbucks CFO Troy Alstead where he shares learnings from the culling of locations in 2008 and the plans to increase their portfolio from 40% of all locations featuring drive-thrus to 60%.  The next year, Starbucks CEO Howard Schultz was quoted in a Nation’s Restaurant News report with these insights:

“Drive-thrus create incremental revenues and profits compared to traditional stores and represent a fast-growing and highly profitable format for Starbucks, comprising just over one-third of our U.S. company-operated stores but contributing nearly 45 percent of our U.S. retail profit,” Schultz said.

With these kinds of numbers, Starbucks could simply use this single tactic to continue to scale substantial positive volume and profits for years to come as long as the real estate sites allowed it.

In recent months, many other chains have announced joining the drive-thru club.  Friendly’s reported that they can generate more than 25% in additional sales when they have a location that includes a drive-thru.  They are simply leveraging the physical plant to serve more guests.

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DISCONNECTING THE PHONE TO ACCELERATE SALES

Domino's relentless focus on any device ordering

There really is no better technology driven Throughput Acceleration example than what Domino's has done over the past few years with their “AnyWare” ordering obsession.  They championed the virtually unlimited capacity to take online orders so much that they even produced advertising telling customers not to call them anymore to place orders.  Domino's literally admitted they are bad at taking orders, thus offsetting their labor costs to strictly a production and delivery force in the restaurants.

Additionally, their relentless focus on attaining as close to a zero click transaction as possible is keeping them ahead of their competitors and crushing the independent pizza players.  They are mastering ordering opportunities across everything from the mobile app to message bots delivering the ability to order their products with whatever communication device you may be near.  Ordering pain points have almost vanished for Domino's customers. 

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This Throughput Acceleration technology innovation has produced 22 consecutive quarters of same store sales increases and has raised the value of their stock over 500% in the past 5 years!  It wasn't because of a new pizza, a discounted "2 Fer" deal, or a movie release tie-in.  The primary innovation was Throughput Acceleration through ordering technology supremacy.

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R.I.P. TO WAITING

How Panera eliminated waiting, lines, and competition

How beautiful is the Panera 2.0 dine-in platform?  You walk in, sit down at any table you want, order on your phone, input the table number, send the order, and food magically appears at your table moments later.  No standing in line.  Isn’t that what we all want?  Isn’t this how life should be?  We are shocked that no other significant quick service or fast casual brands have done this yet!

Hello restaurant industry!  It’s almost 2017!  Do this and you achieve nearly 100% order accuracy, 100% happy guests, 100% the correct change, 100% etc.  The technology exists.

Why should I stand in that line at Shake Shack, IN-N-OUT, or any other restaurant line?  There is absolutely no reason for this pain point to exist anymore at any restaurant chain.  Just bring me what I want to where I am, already pre-paid.  This is, of course, is not to mention that this same technology at Panera Bread allows for take-out orders and delivery orders too.  You can also otherwise skip the line and use a kiosk ordering tablet. 

Case in point is a quote from Blaine Hurst the EVP and Chief Transformation and Growth Officer in a Nation’s Restaurant News interview earlier this year.  “One, it is more at [customers’] pace. Some people like to browse; some people want to go faster. In addition, at a busy peak I can get more people through a busy café with the same number of cashiers. Our 2.0 cafés have a disproportionate amount of sales because we’ve freed up capacity at lunch.”

In other words, Blaine is lovin’ his transaction drivn’ and sales climin’  Throughput Acceleration platform.

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THE PROCESS HACK

BJ's mobile app redefines casual dining ordering and payment process with streamlined technology

In 2014, BrandTrip Partners CEO Tim Hackbardt was part of the team at BJ’s Restaurants that launched the first casual dining restaurant chain mobile app and online ordering platform that allowed you to order your meal for a dine-in occasion.  The cumbersome process of placing your order and paying for it in a sit-down environment can be fraught with a long list of pain points depending on how efficient your staff is during that shift.  The BJ's team focused on those irritations and applied the appropriate pressure to the age old casual dining ordering and payment wounds.

The new process allows you to place the order on your phone, show up (all mobile orders automatically get you placed on the preferred seating waitlist by the way), get seated and the food starts coming right out.  More importantly, when you want to leave, press a button on the mobile app and your bill is paid.  Done and done. 

Note:  The fact that the CEO of BJ’s was also a board member at Domino’s should not be lost in this conversation.

No longer did you ask the server for the bill, wait for the server to come back, wait for the server to come back to get the credit card and bill, and wait for the server to finally bring back the credit card and bill for you to sign.  That entire exchange was eliminated, providing a more pleasant check out experience for the guest and faster table turns that results in more sales volume and also more tips for the servers at the end of the night.

CEO Greg Trojan explained it well in an interview with Nation's Restaurant News during the rollout in 2014, “It’s really a paradigm shift” for casual dining, he said. “If you take out the front-end time (when people peruse the menu and order their meals) and take out the time spent waiting for a check, our experience becomes more of a 35-minute experience, as opposed to close to an hour. But you don’t feel rushed.”

Fast forward now to almost 2017 and still no other casual dining chain has introduced that speed or convenience for their dine-in guests.

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A FASTER PHYSICAL PLANT

Johnny Rockets clamps down on the slow flat top grill to speed up hamburger production

Like Starbucks, Johnny Rockets was interested in adding on those double digit drive-thru sales.  However, since the inception of the brand they had been flipping burgers the old fashioned way on the classic flat top grill.  This equipment was not conducive to the expectations of a customer that the drive-thru is the high speed lane to getting fed.  They needed to evolve their physical plant to take advantage of the expansion opportunities they wanted for the brand both domestically and internationally.

The answer was blowing up the kitchen.  The new high efficiency kitchen now features a clamshell style grill that reduces the cooking time down to only one minute.  They also made changes to be able to make shakes faster and other process improvements. 

The brand can now grow around the world with many more real estate opportunities than ever before and achieve higher revenues than the previous business model, thanks to their new Throughput Acceleration based kitchen design.

THROUGHPUT THROUGH TIME

Much of restaurant history is littered with successful Throughput Acceleration milestones that took market share away from competitors or launched new categories and brands.  Fast food, fast casual, Domino's 30 minute delivery guarantee, the drive-thru, and online ordering are just a few examples that have delivered substantial financial rewards for these type of improvements. 

Less well known are the countless programs behind the doors of restaurant chains that have simplified operations shaving seconds, and sometimes minutes, off of cook/preparation times to drive more transactions.  Fast food knows that just a few more cars through the drive-thru can result in significant sales comps.  Casual dining knows that table turns do the same. 

By focusing on the opportunity to achieve more transactional throughput by leveraging technology enhancements, process improvements, or physical plant alterations you too could easily exceed the industry average and set your brand up for many years of success.

MORE RESTAURANT TURNAROUND RESOURCES

Additional articles in the BrandTrip Partners "How To Turn Restaurants Around" series that you might enjoy can be found below:

BRANDTRIP PARTNERS PRESENTS “THE EVOLVING MOBILE RESTAURANT TECHNOLOGY” AT SPLICKIT/ONOSYS USER CONFERENCE

Restaurant mobile solutions leader SplickIt recently acquired Onosys to provide multi-unit restaurants access to a proven mobile and online ordering system, integrated loyalty and catering programs, and technology support from one single company.  To fully showcase their new platform, and new marketing automation capabilities, they invited restaurant brands from around the country to join them at their offices in Boulder, Colorado on November 3rd.

Given our extensive experience in this area, BrandTrip Partners CEO, Tim Hackbardt, was asked to provide the group deep insights into how mobile restaurant technology has evolved and what the future has in store for our industry.  BrandTrip Partners has been a leader in the restaurant industry consulting with chains to help them develop their future technology strategic roadmaps that include integrated mobile platforms, new media strategies, loyalty programs and connected CRM/Big Data systems. 

How To Turn Restaurants Around PART 1: "Exponential" Leaps Through New Revenue Channels

Part 1 of BrandTrip Partners Restaurant Chain Turnaround Series

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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.

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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.

 
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DELIVERING RESULTS

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.

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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?

Exponential Channeling

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:

Mobile Payments Today "5 Tidbits You Need To Know" At CONNECT Mobile Innovation Summit Include Quote From BTP CEO Tim Hackbardt

Following the CONNECT Mobile Innovation Summit, Mobile Payments Today published an article on the "5 Tidbits You Need To Know" from the conference.  #3 was contributed by our own BTP CEO, Tim Hackbardt while speaking while sharing vision and learnings from our work with restaurant chains developing new mobile Technology, big data and media strategies during the session titled "Personalized & Relevant:  Cracking The Code On Mobile Success."

In the Mobile Payments Today article, his counsel included the following quote from the session:  "Adoption works really well when [consumers] utilize an app and the staff knows what to do. That's the area where people are falling behind.  We see everything falling down right there [with untrained staff].  Adoption isn't going to happen unless that experience at the restaurant is good."

Here is a summary of all 5 tidbits from the article.

  1. Douglas Kwong, digital director, Cicis Pizza: "The mobile industry right now is like [search engine optimization] in the mid-2000s. We know it's important, we're trying to figure out how to prioritize its importance against the other channels." Kwong made the statement during a panel discussion about the mobile marketer's dilemma of how best to reach consumers on smartphones. Cicis launched its mobile app in December and saw 100,000 downloads in the first five weeks.
     
  2. Graham Gunst, associate partner of interactive experience and digital strategy, IBM Interactive Experience: "I'm going to get a better experience if I exchange it for some data. Obviously, I want my data protected. [But] it's the trade-off of a better experience for privacy." Gunst shared this view during a panel discussion about how different connected devices are becoming more prevalent in the shopping experience. And with that comes questions about whether consumers are willing to share private information in exchange for an incentive or service.
     
  3. Tim Hackbardt, CEO, BrandTrip Advisors:"Adoption works really well when [consumers] utilize an app and the staff knows what to do. That's the area where people are falling behind. We see everything falling down right there [with untrained staff]. Adoption isn't going to happen unless that experience at the restaurant is good.” Hackbardt brought up this longstanding issue during a panel about cracking the code on mobile success.
     
  4. Joe Scartz, managing director of digital commerce and integration, TPN: "[Mobile] is an extension of the consumer. If you want to create great user experiences, mobile is going to be a central part." Scartz reiterated a common theme at the summit during the mobile marketer's dilemma panel.
     
  5. Rick Ruskin, marketing and product of online commerce, General Motors:"The traditional buying model is dead. It's not there anymore. As we look at this customer journey changing, the buying process is done before you talk to the customer." Ruskin's view on the current shopping experience is probably one of the best you'll hear at a conference and he made this comment as he moderated the "Going Beyond the Phone" panel.

CEO Tim Hackbardt Presents At CONNECT Mobile Innovation Summit In Chicago

On August 16th, BTP CEO Tim Hackbardt presented at CONNECT Mobile Innovation Summit to a room full of mobile technology, retail and restaurant professionals at the Sofitel Water Tower Hotel in Chicago.  Christopher Gumprecht from Lettuce Entertain You Enterprises and Prem Kiran from Fishbowl also joined him on the panel.

Covering the topic "Personalized & Relevant:  Cracking The Code On Mobile Success", Mr. Hackbardt shared vision and learnings from our work with restaurant chains developing new mobile technology, big data and media strategies.