Wednesday, November 28, 2007

A State of Mind

When was the last time you visited a video arcade? If that question reminds you of a time when Pac-Man (or worse yet, Pong) was still considered state of the art, you really need to find the nearest the Dave and Buster’s and go spend some time hanging out there.

For those who are not familiar with the chain, Dave and Buster’s is essentially a video arcade for grown-ups, including a bar, a selection of pool and billiard tables, many large television screens with a wide variety of sports programming, and a medium-price casual dining restaurant. We happened to eat there – and take in a few video games – over the past weekend, and it struck me as an interesting variation on the more common medium-price restaurant chains. Or, if you prefer, as an interesting variation on video arcades and bars. While we were there, however, we were also treated to an excellent demonstration of what good customer service really is.

First off, the concierge on duty was able to help me with a replacement for my Dave and Buster’s Gold Card. I should explain that all of the video games, skeeball machines, and other electronic entertainment systems at Dave and Buster’s operate on reloadable smart cards, which keep track of both how many credits you have left, and how many prize coupons you have won (if you play those sorts of games). Unfortunately, my card had been stolen along with my wallet a few months before, but I still had my card number, and that plus my photo ID was enough for the friendly concierge staff to find my account in their database and issue me a new card and card number. They even refused to charge me the usual $2 for a replacement card when they learned that mine had been stolen.

Then there was our waiter. The dining room at Dave and Buster’s is nothing fancy; the food is a fair match in both price and quantity for a Chili’s or a TGI Friday’s, and perhaps slightly better in quality (it’s a judgment call). But unlike most of the underpaid zombies you find at the competitors’ locations, Chris, our waiter, was a real pro. He made sure that our table got everything we needed, make sure that the other waiters who took over for him when he went on break got everything right, and managed to make it look as though we were his only customers, despite the fact that we could see him taking care of a party of 12 and a party of 20 on the other side of the aisle from where we were sitting. Balancing four tables – or even six – is one thing; balancing the equivalent of ten quite another. And he did it without looking harassed, hurried, or even particularly overworked; in fact, he made it look easy.

The fact is, I’ve seen waiters with a third of the load Chris was balancing, or concierge staff who don’t have dozens of drunken sports fans and hundreds of screaming children running around them, for that matter, who did not perform nearly as well as the folks at Dave and Buster’s did last week. In fact, not only have I paid more for a much less pleasant dining experience, I did so the very next day – and I’ll tell you more about that in my next post. But for now, let me repeat something I was told many years ago, during my first high-traffic customer service job, which is even more true today: Customer Service is a state of mind…

Tuesday, November 27, 2007

Making It Work

A few posts back (before the Thanksgiving holiday) I mentioned that, in my none-too-humble opinion, food service is the single hardest business to make a go of in the long term. Since then I’ve had a number of people point out examples of single-unit restaurants that have been in place for multiple generations, and multi-unit chains that have expanded from humble beginnings in a burnt-out gas station to become multinational powerhouses with a reach far beyond the restaurant industry itself. It seems clear that however difficult this industry may be, some people do succeed in it, and some in fact succeed in making very large fortunes selling food and beverages. The question here would seem to be, if this industry is so difficult, how do so many people strike it rich? And if the industry is so easy, why do so many new food service businesses fail?

Part of the problem lies in the fact that the heart of the food service industry, cooking itself, is more an art than a science. Just as a technically competent musician does not produce the same results that a virtuoso performer will playing the same piece, a great chef will get far greater results from the same ingredients, equipment and location than a merely competent cook will – even when both of them are preparing the same dish! Almost as much of a problem is the fact that most people go into the industry for the wrong reasons – as noted in my post called The Hardest Business. People who love to hang around in coffee houses open coffee houses, never considering the crushing physical labor involved. People who love to hang around in bars open bars, without even considering the paperwork, liability, safety, crime or crushing physical labor involved. And too many people fail to consider the three critical factors involved in opening ANY food service operation: location, location, and especially location.

But suppose we take a case were you are opening a franchised restaurant, with the menu, the décor, the marketing and advertising, the medical and dental plan, even the location chosen for you by the franchising company’s pathfinders. Could you make such a business a success? Without the ability to bring your particular culinary art to bear on the subject? For answer, I commend to your attention the International House of Pancakes location on PCH in Hermosa Beach, California. We were there for breakfast last week, and it did my heart good to see the new franchisee working the tables. He made a point of greeting each guest personally, welcoming them to his IHOP, making sure that they each had a menu and a copy of the week’s specials, and getting them their drink order.

After that he would move on and let the waiters take over while you place your order, eat your food and pay your check, but he was always there in the background – making sure everyone’s food was cooked properly, everyone was being looked after correctly, and that none of the easily preventable mistakes that you see in food service (particularly in the lower echelons of the industry) take place. I can’t tell you how he would handle a problem or customer complaint, because I’ve never seen one come up in his IHOP; I can only speculate that they don’t come up very often and the new franchise owner probably takes care of most of them before the customer even realizes there’s a problem. In any event, I don’t think it’s a coincidence that this particular IHOP has become insanely busy every morning in recent months, or that you have to come early to avoid waiting until after noon for a table.

Of course, some of you will argue that it’s only an IHOP, with a limited menu and a clientele that is not expecting fine dining. Anything better than the “barely passable” level most people associate with the IHOP chain would look amazingly good here. Which might be true, except that later that day we saw the same principle applied to a far more complex restaurant operation…

But that’s the topic of my next post.

Monday, November 5, 2007

The Ethics of Excess

A few days ago there was an article about the new Airbus A380 jumbo jet, and how the first customer to roll one out (Singapore Airlines) was planning to use them on the Sidney to Singapore run, configured for about 480 passengers in a variety of classes. The article made a big fuss over the private compartments available in first class; effectively private cabins that can be configured to hold a double bed if two travelers want to sleep during the flight. Anyone who has ever endured a long over-water flight in coach knows that the two biggest luxuries imaginable in air travel are the ability to get comfortable and privacy, because neither one is going to happen when you’re flying in the steerage. If you have the $10,000 to spend, however, you can get a flying hotel room aboard Singapore Airline’s new planes.

What makes this a question of ethics is that most travelers do not have an extra $10,000 to spend on air travel; for that amount of money you could probably take 20 or 30 of your closest friends along on the trip – or get a really nice hotel and then pay your rent for six months when you get back. Since an A380 could be configured to carry over 800 passengers in coach seats (which are still much larger and roomier than standard coach accommodations on any other airliner), a carrier could theoretically use these aircraft to lower the cost per passenger, allowing people who could not normally afford to travel by air to conduct business, visit family members, or simply see more of the world. Since the aircraft are more efficient, the company could still make more money than they would by operating an older vehicle over the same route while benefiting the public.

Unfortunately, airlines (like most for-profit companies) are not in business to benefit the public; they are in business to make money, and as much of it as possible. And the simple fact is, an airline can make more money carrying one luxury passenger at $10,000 per ticket than it can carrying 30 coach passengers at $300 a ticket, not to mention the savings in fuel because the one passenger is 30 times lighter. As long as the airline can sell all of its private compartments and first-class seats (and business-class seats, which are also more profitable than the equivalent cubic space of coach seats), it will make far more money than it would by hauling larger numbers of economy-class passengers. So far, the novelty of the new airplane has make it relatively easy to book all of the available seats, and Singapore Airlines is anticipating 90% or more of capacity on every flight for months to come.

Of course, the increase in travelers of any economic level is good for whatever destination they travel to, and the fact that the company is making a profit will increase their stock price, improve the fortunes of their stockholders, enable them to hire more people and pay better wages, and generally improve the economy of any country in which an airline using these airplanes is operating, so it could be argued that the strategy Singapore Airlines has chosen is also benefiting the public. The real question would appear to be, does the airline have any ethical responsibility to provide the public with cheaper transportation? Or should it follow a purely capitalist ideal and just provide its product at whatever price people are willing to pay for it?

It’s worth thinking about…

Sunday, November 4, 2007

A New Game

A while back, when I was still teaching Business Plan Writing and Strategic Planning, I used to give my students an in-class exercise that I called “What Business Are They In?” Now, I know the question “What business are we really in?” has become one of the common management clichés, and you’re all tired of hearing it. But the reason this became one of the stereotypical questions of our profession is that most people don’t really know – which is to say, they’ve never really thought about it. Most of my students were either starting a small business or trying to expand an existing one, and in many cases the key problem they were having was that the business they were really in wasn’t exactly the one they thought they were in. I still see examples of this issue from time to time, so I thought it might be fun to revive the exercise for all of you.

Let’s take a business everyone is familiar with: the coffee house. You’ve probably been in one this week; you may even be in one right now, if you read these posts on a mobile or wi-fi device. It seems like a simple enough business, doesn’t it? They brew coffee and sell it to people. Some of the people also buy food. But since these businesses are selling you 25 cents worth of coffee and 10 cents worth of milk for $2.95, it seems clear that they’re not actually selling you coffee. So what business are they REALLY in?

Consider a Starbucks as the generic chain coffee house; a Coffee Bean and Tea Leaf or a Peet’s are not going to be all that much different. All of them offer coffee, food, and some brewing paraphernalia for sale, as well as (relatively) clean and comfortable places to sit and consume food and drink. Starbuck’s goes in for music as an additional product, while Coffee Bean sells gifts for coffee drinkers, and Peet’s has their own tie-in products, but functionally it’s still the same business. What they’re selling you is mainly convenience; you could certainly brew your own coffee and steam your own milk, but the coffee chains will sell it to you, hot and ready to go, right when you want it. Some people will use the coffee house as an office, a study hall, or a conference facility, which are all things you also can’t get by having a coffee maker in your kitchen.

A different example would be the Fox Hollow Coffee chain. Most Fox Hollow locations are sited in small, stand-alone buildings like the one pictured on their web page, most often with a drive up window on each side and two long driveways to handle a large flow of cars. The whole operation is basically two or three coffee stations, three cash registers, and two drive-through lanes. There’s nothing else for sale, and most Fox Hollows have nowhere to sit even if you wanted to. So what are they selling? Well, speed, mostly. I’ve held a stopwatch on the Fox Hollow near my house, and they’re almost twice as fast as a Starbucks – and Starbucks is at least three times faster than any of their competitors. Add in the convenience of two well-designed drive-through lanes, and you can get your morning coffee in a matter of seconds, without ever leaving your car.

All of this is obviously quite different from the one-off neighborhood coffee houses like the ones mentioned in my last post (and the Slate article linked there), which serve as art galleries, concert venues, community centers, non-exclusive neighborhood social clubs, meeting halls, and a wide range of other community functions. These operations are selling a community, a lifestyle, a sense of belonging, a place of comfort or refuge, or sometimes all of the above and more. In fact, if you were to make a survey, you’d probably find that the single-unit coffee sellers across the US are in fact involved in literally dozens of business models, none of which are really like a Starbucks (or the equivalent) even though they all allegedly just sell coffee…

Saturday, November 3, 2007

The Hardest Business

Some time ago a client came to consult with me about writing the business plan for a new venture she wanted to start with her mother: a coffee house. Now, with the huge increase in coffee sales in recent years, and the ongoing proliferation of coffee houses, there isn’t really much doubt that you can make a relatively large amount of money selling coffee. True, the big chains have swept up much of the market, but there is still a niche for local institutions; neighborhood coffee houses that don’t look, smell, sound and taste just like 8,000 other locations throughout the United States, Canada, and Europe. The problem was that my client and her mother wanted to go into the business because their current jobs (they were both accountants) were too difficult, and they wanted to do less work.

Needless to say, neither of them had ever worked in food service before. Had they done so, they would probably have realized what everyone else who has ever tried their hand in this industry already knows: that it’s the hardest business to survive in, let alone make money. If you’d rather not take my word for it, there was an excellent article in Slate Magazine about two years ago (or about three years AFTER the consultation in question) explaining the economics of a small coffee house and why you can expect to go mad trying to make a go of one. Of course, not all locations are as demanding as New York City, but most other locations also lack the population density that gives NYC its unique mass of customers. Generally speaking, most other locations are a wash.

My clients had been expecting to start their workday every morning at 9 am, 8:00 at the earliest. I pointed out to them that this would mean abandoning all of the morning rush hour customers to whatever chain coffee vendor happened to be nearby, and suggested that they’d probably need to get in by 5 am to get ready for a 6 am opening (5:30 would be better). They both got this look, like a deer in the headlights, as they contemplated getting up at 4:00 am every morning. They had also expected to close at 6 pm, until I pointed out that this would mean giving the after-dinner, after-theater, late night and evening commute business to the competition. Closing before 10:00 pm would mean throwing away more money, and Midnight would be better. If they intended to bake their own baked goods, they’d need to get in by 4 am to get dough in the oven by 5 for a 6 am opening, and they’d have to count on another hour at close to wash dishes if they were going to serve food.

By this point, the “deer in the headlights” look had gotten a bit fixed, and we hadn’t even started on the amount of coffee they would need to sell each day in order to stay in business, the physical demands of running such a business, or the difficulties they would face in trying to get financing for such a project from bankers who would already know about all of these issues and would not be eager to advance money on a project this risky. But the worst part of the whole proposition is that even if they had managed to complete all of the preparation, overcome all of the development tasks, launch their enterprise and live with the insane hours and crushing physical demands of the work, their coffee house might still have failed. Because, you see, in food service, you don’t actually have to be selling an inferior product to lose all of your customers; people just have to BELIEVE that you do…

I’m not sure what became of my clients; I suggested they rethink the project and get back to me. They never did. Hopefully they’ve settled on some form of start up business that will allow you to work less than 8 hours each day, only 5 days per week, with no risks and no need for start-up capital – and if anyone out there knows what kind of business that would be, I’d appreciate it if you’d drop me a line and let ME know.

Because I’ve never heard of such a thing…

Thursday, November 1, 2007

Subliminal Advertising

I was watching one of the new Kia Motors ads the other day, and happened to comment on what a wonderful example of subliminal advertising I thought it was. Now, we’ve all heard the stories about movie theaters supposedly flashing the word “popcorn” for a split second (one frame?) during a movie, or a picture of a plate of fried clams that actually contains concealed images of an orgy. All of which have been repeatedly debunked over the years – there is no evidence of any kind to suggest that these sorts of suggestions actually work. But there IS a different kind of subliminal advertising that has always been with us, and the commercial in question is an excellent example.

The ad is structured to look and sound like an ad for a dating service, only in this case the “match” being made is between a consumer and an inexpensive car, not between two single people. What makes it subliminal advertising is the choice of characters in the ad – one of whom is a young, attractive blonde woman. Since the key demo for most car ads is males, ages 18 to 36, the implication is clear: if you purchase one of these cars, you’re actually purchasing the blonde. The fact that the character is completely passive (she has no spoken lines, and is clearly willing to accept being “paired” with whoever or whatever the Kia people tell her to accept) simply completes the illusion; if this woman is agreeable enough to buy a Kia when told to do so, heaven only knows what else she might put up with. Maybe the male viewer has a chance after all…

Of course, this is nothing new; companies have been using attractive spokesmodels to sell cars for years, with the car serving as a surrogate for the attractive woman, but in an attainable form. Very few men can actually hope to have a supermodel as their significant other, but anyone with a few dollars a month to spend can have a new Kia. The same approach is used to sell all manner of consumer products, although the most familiar examples after cars are probably beer and personal grooming items – use our products and women like these will want to sleep with you is the message being employed. In recent years these ads have become so clichéd that some companies have actually begun using them as parody or self-parody, such as in the Axe Body Spray commercials, where use of the product quite literally results in the user being attacked by lust-crazed females.

From a business standpoint, this form of advertising makes sense only if the gain in sales realized outweighs the negative reaction that will almost certainly come from feminist groups, conservative political organizations, advertising bloggers and other people with no sense of humor. No matter how harmless the subliminal message is – even if the attractive woman is fully clothed and never does anything more suggestive than award a gold star to a successful pupil – someone somewhere is going to condemn the ad as sexist, racist, ageist, or otherwise offensive. If our key demographic group is comprised of people who fall into one of those categories, then we should avoid using this type of advertising.

On the other hand, if our key demographic is Males, 18 to 36 years old, then the criticism of these ads is rather silly. In a free-market economy, companies exist to make money, and the suggestion that they ought to deliberately hamper themselves in order to avoid the risk of offending a segment of the population who will never do business with them anyway is ridiculous. As business people, the question we need to ask when approaching television ads, print ads, radio spots, Internet ads or even outdoor advertising is whether the piece we have developed has a second, underlying, suggestive meaning – and whether or not that will help us to meet our marketing goals…