Monday, November 21, 2011

Myth busting

A confused figment of my imagination writes, “Hey, Restaurant Reality Check, how am I supposed to tell fact from fiction in the age of The Onion, the Borowitz Report and KFC’s publicity department? Some of their made-up restaurant stories sound more believable than the real thing. How can a non-cynic know when he’s being fed a whopper?” (signed, Believing It—Or Not?)

Dear Believing,
I was discussing the very thing yesterday with Henry Kissinger and the Fonz. You just can’t tell these days who’s pulling your leg and who’s merely covering the Republican presidential candidates.

Fortunately for you and your confused peers, Restaurant Reality Check can recount how a few persistent myths were disproved, decidedly, by recent industry developments.

Wall Street firms have a hammerlock on executive compensation outrages. A Friendly source—note the capital “F”—blew that one away. In case you missed reports in mainstream media like The Wall Street Journal and The Huffington Post, the restaurant industry has its own instance of a CEO enjoying big-dollar privileges while the corporate rank-and-file burn their pink slips for warmth.

According to the reports, Friendly’s CEO Harsha Agadi billed the company for $234,000 in day-to-day expenses in the year preceding the restaurant franchisor’s recent bankruptcy filing. The charges didn’t include the $190,000 Agadi submitted for relocation.

The contrast with the plight of Friendly’s workers is what made the story a hot one. More than 600 lost their jobs when some 60 stores closed.

We can also refute at this time that the Fribble lobby has secured a federal bailout for the family chain.

E-mail is killing letter writing. Not in the restaurant business. Hundreds of stationers could pop for a second home this year because of the business they’re reaping from disgruntled shareholders and the chains they’ve targeted for takeover.

This morning, for instance, Cracker Barrel shareholders were sent a letter from CEO Sandy Cochran, spelling out why they should rebuff Sardar Biglari in his attempts to wrest control of the family chain from current management. She countered Biglari’s assertions by explaining the chain’s business-building strategies, point by point.

The communication was in response to an 11-page letter that Biglari sent last week to the same recipients. Taken together, the two missives might have made Cracker Barrel’s shareholders the most informed in the business.

But that’s not the only volley of letters helping the Postal Service. Cosi and Brad Blum, the Olive Garden alumnus who wants to run the fast-casual chain, have stamp dispensers churning as well.

Ditto for the CEO-turned-advisor of Wendy’s, Roland Smith. Recent SEC filings include Smith’s resignation letter, which in turn referenced other missives during the summer. The communications indicate that Smith stepped down because he didn’t want to leave Atlanta, where the chain is currently headquartered. It’s moving back to the suburb of Columbus, Ohio, where it was founded.

Smith has been succeeded as CEO by Emil Brolick, who’s collecting $1.1 million in salary, with the opportunity to earn another $1.6 as a bonus. Smith was in the same ballpark.

Survival has supplanted concept development. According to the conventional wisdom, restaurant companies are too preoccupied with survival to consider the development of new concepts.

Not any more.

The last two weeks brought announcements of new concepts from such celebrated operators as Starbucks (Evolution Fresh Juices), P.F. Chang’s (Pei Wei Asian Market, which of course has nothing to do with Chipotle’s launch of ShopHouse Southeast Asian Market), IHOP (IHOP Express) and Jamba Juice (JambaGo, the juice chain’s riff on an express format).

Okay, enough myth busting for now. In our next installment, we’ll take on Yeti and the promises of restaurant unions.

Wednesday, November 16, 2011

Catching up on the future

Swallows’ return to Capistrano seems like an iffy thing compared with the outpouring of restaurant predictions at year’s end. The 2011 crop of prognostications is looking like a bumper yield, mounting faster than the national debt after an unusually early start. If you were too busy putting away the summer patio furniture to notice, here’s what the soothsayers have foreseen thus far for the business.

A bad, bad year for independents. New York restaurant consultant Michael Whiteman, a recovering editor, has predicted that almost 10,000 non-chain places will fire down their ovens for good next year. The problem, he asserts, is the mom-and-pop’s inability to borrow what they need to stay in business until sales rebound.

Con-fusion returns. Whiteman is one of the sages who expect more mixing of ethnic specialties next year, a reversal of the march toward the purity, if not authenticity, that was heralded in prior times. Like 2010.

Top imports? As to what ethnics might wax in popularity, just throw a dart at a globe. There are several predictions of Korean food going mainstream, but that’s hardly a new notion. Ditto with the prognostications that Thai will be the new Japanese. Peru is getting some lip service, too, as is Nordic fare. Our bet: simple Italian. Spaghetti and meatballs, differentiated from the past by quality, will be the dish of the year.

Can you sing oom-pa-pa? Dust off the lederhosen for your research dine-arounds, because there’s a consensus that beer gardens are the Concept of the Moment.

Comfort food will get a creative shot. There’s agreement among the cognoscenti that customers will still crave the safety of old favorites, but maybe with a dash of adventure to break the monotony. Southern fried chicken, for instance, might be passed over for Korean fried chicken (fried in olive oil rather than other shortenings). Technomic terms the phenomenon “familiar with a twist,” and suggests that it’ll go beyond a sharp cheddar (whoa!) in the mac and cheese.

Full disclosure. There seems to be no misreading the tea leaves on this one: Consumers will be demanding—and getting—more info about what they’re eating. Smart restaurateurs will decide they should be the source. Others will let their patrons fill the void via social media and citizen-reviewer services like Yelp. We’re not just talking quantitative assessments in 140 characters, but a mini-snapshot of what’s in the meal.

We’ll be adding more predictions, here and via, as they spew from the crystal ball.

Meet your potential customer

I'll be blogging today from Consumer Insights & Engagement, a conference presented by the parent company of and Restaurant Business, CSP Information Group. The content is skewed toward convenience stores, the audience of our sister publication, CSP. But the consumer is the consumer, whether he or she is buying an Egg McMuffin or a breakfast sandwich at a QwikStop.

The best way to follow the thread will likely be from the bottom up.

1:50:A retailer in the audience has asked what seem to be key questions for merchants interested in mobile payment: Will they need to upgrade their technology, and what happens if the system goes out? How could they charge if a mobile wallet isn't transmitting?

The plan, according to Isis, is to issue a companion card that mobile wallet users could wield to charge in an old fashioned way.

The Google representative pointed out that mobile wallets would be an alternative to credit cards, not a replacement. People will still carry traditional magnetic stripe cards.

Neither really responded to the question about tech upgrades.

1:25: The speakers are talking about the security and privacy aspects of using mobile wallets. They've stressed that effective safeguards are in place, but that consumers need to be educated. There's agreement that customers need to see mobile payment as the next evolution, not some scary, radical development.

12:55: A Google specialist on mobile commerce is explaining the rationale behind the tech giant's new mobile payment system, Google Wallet.

One of the main drivers, according to Serge Kassardjian: The payment process "is not optimized." Translation: It's a boring pain.

The objective is making the payment process a lot more fun and thereby strengthening the tie with the customer, Kassardjian explains.

"Why are we doing this?" asks Kassardjian, noting that Google is not taking a commission on transactions right now. One of the attractions, he said, is delivering extremely effective ads to targeted users.

!2:45 p.m.: The afternoon session of the conference is opening with a panel discussion of the mobile payment phenomenon. It's not about transactions, says Isis' Tony Sabetti, it's about a new way of communicating with consumers.

Isis is a "mobile wallet" payment system that's being created as a joint venture of AT&T, T-Mobile and Verizon Wireless. Once the system is up and running, the app will replace most of the cards in a consumer's wallet, from credit card to frequent-customer cards.

The whole idea is to combine multiple accounts into one payment system, says Sabetti. The process is attractive to consumers because it simplifies their lives.

For retailers, one of the benefits is having a new channel for reaching customers. Special offers or pitches can be delivered to them via phone, for instant redemption at the point of purchase.

9:00: Sansolo just asked how many chains in the audience have a tattoo or piercing policy. Once, any retail business blanched at the thought of having an employee with a visible tattoo. Now, tattoos are mainstream. They just need to be tasteful, in the eyes of many service businesses.

8:55:A prime illustration of the "generational divide," points out Sansolo, are the differences evident in musical tastes. The Black Eyed Peas were hailed as the best Super Bowl halftime act ever--by Gen Y-ers. Anyone above 45 abhorred them, Sansolo noted.

"What music do we play in our stores?" he asked.

8:45 a.m.:Speaker Michael Sansolo is talking about the challenges about understanding the various generations--plural--that compose today's retail clientele. He pointed out that conventional wisdom called for focusing on one generation at a time. You take a bead on, say, Baby Boomers, then switch at some point to Gen X-ers, etc. Today, he notes, there's a hodgepodge of generations, all very different, all with their own hot points, all in need of being addressed.

For instance, he asked how many of the Millennials in the audience used a watch. There were several who did not. Sansolo explained that Gen Y-ers use their smart phones to tell the time.

"The chasm that exists today is wider because it's technologically enhanced," said Sansolo. "This generational divide fueled by technology is getting wider and wider."

Tuesday, November 15, 2011

Meet your potential customer

I'm blogging live today from a conference on the consumer. The thread is best read from the bottom up.

2:05: Uh-oh. It's starting to get ugly. Krista Lorio, senior manager of consumer insights for General Mills, is talking specifically about how c-stores can counter the challenge from quick-service restaurants at breakfast.

This is after noting that QSRs are really being aggressive in packaged-food sales--the packaged cookies, the grab-and-go pie slices, etc. Once, convenience stores owned that market. Not anymore. And like other speakers, she's noted recent indications that McDonald's is about to mount a major, major push for sales of desserts and sweets. That factor will undoubtedly bolster QSRs' sales of packaged foods.

"So how do c-stores win? When you're driving down the road and see the Taco Bell or the Golden Arches, how do you become synonymous with food?"

First, Lorio says, you have to become part of the "hunger solution." You have to establish your c-store as a place for attractive food.

Second, the emphasis has to shift to quality and freshness. Lorio suggested such cues as labeling when the coffee was brewed, or what employee is manning the roller grill.

Finally, she says, c-stores have a major advantage because of the breadth of their inventory. You can have a hotdog, but you can grab a bag of chips with it.

So, QSRs, be forewarned.

1:45: Restaurateurs should be very afraid. Kraft's Johnson says a key to bolstering convenience stores' appeal to Millennials is upgrading the food, particularly in regard to health. "The food offering is especially important," he explains. "They've laid out three pillars for us: It has to taste good, it's gotta be good for me, it's gotta be 'real food,' and they continue to want easy and fast."

A step in that direction will not only offset the competition from fast-food, a traditional rival, but also the rising challenge of drug stores stocking food and snacks, Johnson says.

1:30 p.m.: Is the young c-store customer much different from the Millennial restaurant patron? Data being presented at the conference might suggest a yes on first glance. But, on further contemplation, maybe not.

The top three motivators for c-store patronage in that age bracket, according to Eric Johnson, senior director of marketing/immediate consumption for Kraft Foods, sound as if they also hold true for restaurant customers. They're just seldom expressed that way.

Those drivers: Boredom, a need for energy, and a desire to be pleased.

11:40: Hispanics are twice as likely than non-Latinos to buy hot food from a c-store to eat there or take home, according to Garcia.

11:25: Carlos Garcia, an expert on the Latino consumer, has taken the microphone.

"You can see Hispanics as a segment unto themselves, but they can be segmented themselves," with separate behaviors and preferences, says Garcia. "Segmentation must move beyond just language. If you don't get the behavioral stuff right, the language stuff is irrelevant."

"You have to identify with them, with how they see themselves. It has nothing to do with Latinos;" all consumers want to be treated that way, says Garcia.

Word of mouth is essential, he explained. If a service experience is a good one, a Latino will tell 14 others, or double the usual audience for a non-Latino. If the experience is bad, a Latino will tell 20 people, according to Garcia.

11:12: Women tend to book vacations, and they tend to do it after 9 p.m. on weeknights, or during the mornings of weekends, according to Morris. Her observations suggest that restaurants should be cagier about when they promote themselves as a dining option when a family is on the road.

10:55: Only 24% of families meet the definition of "traditional," according to Morris.

10:50: Morris has just introduced a new term: LAT, or Living Apart Together. As she explained, more than 3 million sets of married couples live in different cities, a reflection of the tight job market.

"How can you help them with the logistics they are facing?" she asks.

10:45: Speaker Susan Morris, a former Marriott executive, is making a convincing case that women should be the consumer in a business' cross hairs. They control 33% of the nation's wealth and "are the Chief Purchasing Officers, the CPOs," said Morris. "Is anyone else ready to follow the money?

"Are you getting in the heads of women? Are you getting in the shoes of women?"

Morris is explaining that Citibank has a whole division devoted to landing more female customers, called Women & Co., "This is the type of thing you might want to look into," says Morris.

10:15 a.m.Shhh. I'm writing this from deep inside the camp of what many of you view as the enemy, the convenience-store industry. I'm attending a conference called Consumer insights & Engagement, a meeting presented for retailers by's parent company, CSP Information Group. The conference delves into the attributes and behavior of consumers. Because those individuals are the same ones whom restaurateurs are trying to land, I managed to get inside the meeting rooms. I'll be blogging the relevant tidbits I hear through tomorrow. So stay tuned.

Thursday, November 10, 2011

Enter the mid-tier burger

Faster than you can say “Forget 99 cents!,” two big fast-food chains are unwrapping burgers that could lure customers away from the low-priced choices that eased the brands through the Great Recession.

Call them mid-tier burgers, priced to fill the gap between each chain’s new premium choice and the smallest sandwiches on their respective menus.

Indeed, “mid-tier product” is the description Wendy’s uses for its W burger, which will be rolled out in December. “This is going out at a $2.99 price point,” new CEO Emil Brolick explained to investors yesterday. “One of the things we want to do is put a product out there that we think is going to encourage people to trade up. Perhaps those individuals that are purchasing [a] 99-cent item will trade up to this product.”

The lure, he said, is a strong flavor and a high-craft aspect to the burger, which has about “two, 2.5 ounces” of fresh beef.

That seems to be the same strategy Burger King is employing with its new BK Toppers line. The burgers are dressed with flavorings like Swiss cheese, mushrooms and barbecue sauce. They’re heftier than the W’s, with 3.2 ounces of beef, but will be priced at $1.99, according to franchisee Carrols Restaurant Group.

That puts it between BK’s regular and Mini burgers on the low-price end, and the new BK Chef’s Choice at the high end, with a price of $4.99.

The two giants aren’t alone in sandwiching mid-priced burgers between their bargains and their biggies. Carl’s Jr. recently added new Steakhouse burgers, arrayed on the menu between its Six Dollar Burger line (typically priced around $4) and its Famous Star singles.

Missing among the converts is the segment’s true king, McDonald’s. First in size as well as sales growth, it’s been relying with stunning success on its beverages and snack-type items, leaving its burger line-up largely untouched since the rollout of the Angus line.

Tuesday, November 8, 2011

Keeping up with BK's test kitchen

Burger King’s test kitchen has been such a hive of activity that it’s hard to recollect all the new or newly revised products that have recently moved beyond the test phase. Carrols Restaurant Group, the chain’s largest franchisee, provided a recap to its investors yesterday. Here are the highlights:

--A new, thicker cut French fry that’s being quietly rolled out. Quality Restaurants, another large franchisee, switched to the new sides a few weeks earlier. Carrols adopted the thicker cut in late October.

--Better bacon. The coarser-cut strips are delivered raw to stores and cooked on the premises so they’re a fresher garnish or breakfast side.

--The Chef’s Choice, a one-third-plus (5.5-ounce) premium burger with a price to match: $4.99. Although Carrols officials didn’t say it, the sandwich appears to be Burger King’s answer to McDonald’s one-third-pound Angus line.

--BK Toppers, a line of garnished, 3.2-ounce burgers priced as a middle option, at $1.99. The array fills the gap between the new BK Minis, the sliders that were introduced earlier this year, and the Chef’s Choice and Whopper.

--Soft-serve ice cream, introduced this summer as a loss leader (buy a meal, get one free; Carrols said it provided 100 free cones a day during the warmer weather.)

--Smoothies, which appear to be still in the refinement stage.

Carrols said it’s encouraged by the performance of the products it’s recently adopted. “We are optimistic and hopeful that as we move forward, Burger King will begin to regain market share, expand its customer base and experience sustainable traction in its performance,” said president/COO Dan Accordino, who’ll be taking over the burger operation when longtime CEO Alan Vituli retires at the end of the year.

Accordino didn’t acknowledge the menu change that made headlines this week, the rollout of new kids meals that bring back the chain’s giveaway crown, once a BK signature. The meals are available with apple slices instead of French fries, a counter to the health-oriented option that McDonald’s is currently adopting.

Monday, November 7, 2011

Before I shelve the program guide...

Some final thoughts on last week’s People Report Best Practices Conference:

The meeting has emerged as one of the industry’s major conferences, and this year’s gathering proved the annual event is no longer merely an HR confab. The number of c-suite residents in attendance dashed that impression once and for all. The focus was on human capital, but the scope of attendees underscored the importance of that resource for all levels of a forward-thinking organization.

Steve Jobs was very much with the conference in spirit, cited by speaker after speaker as an example of an individual who pursued his own way, flouting conventional wisdom at every step. With so many attendees pecking away at their iPads, iPhones and Mac Books, we needed no reminder of that philosophy’s success.

To a surprising degree, the Occupy Wall Street movement and its worldwide spin-offs also drew attention, in conversations between attendees as well as from on-stage speakers. Although the comments were often critical, there was an unexpected level of sympathy with the protestors’ core objection that essential social values have been corrupted by greed.

That dynamic was one more hammer blow to the old certainty that any gathering of chain-restaurant officials will be more solidly Republican and conservative than a bankers’ convention. The diversity of thinking on social issues was evident in the Twittersphere, where posters using the hashtag #prbpc showed a diversity of opinions on matters like economic stimulus programs. I moderated a panel on politics where Craig Miller, a candidate for the U.S. Senate seat from Florida, said he’d rebuke the unemployed to “get off their asses and get a job.” That drew a storm of 140-character objections, and a direct counterargument from a keynote speaker.

The balance in perspectives was underscored by a session at the conference on “connected capitalism,” or aligning business with the interests of communities. The panelists emphasized that conscience needn’t be incompatible with the profit motive. "An unconnected business is not a sustainable business. Period," declared Kat Cole, the president of Cinnabon.

Best new phrase I heard: “One-percenter,” the label used at my dinner table by futurist David Houle to designate a person of outstanding wealth.

A new industry star emerged in the person of John Bettin, the CEO of The Palm steakhouse group and chairman of this year’s PRBPC. I’ve pinned enough conference name badges on my lapels in bygone years to risk Carpel Tunnel Syndrome, yet I’d never had the pleasure of hearing Bettin, who provided a very engaging account of how he’s turning around his upscale charge. He repeatedly flashed a humor and warmth that were very much appreciated by all.

One of the more noteworthy observations from PRBPC co-host Wally Doolin: The imperative of any restaurant chain CEO today has to be to drive sales. He suggested the constant rallying cry of recent years—cut costs with abandon—is waning in its effectiveness as a profit driver.

The overriding takeaway from the conference had to be the essential role that culture plays in employee recruitment, retention, performance, and a restaurant business’ overall success.

Wednesday, November 2, 2011

Get the petition started

This is an open plea to Jerry Deitchle from the attendees of the People Report Best Practices Conference: Please, do a book.

Write down all the pearls you shared today about your role as CEO of BJ’s Restaurants. Give us a single handy resource for your folksy expressions, which pack an intelligence that'd prompt any self-respecting consultant to double his rates. We particularly loved how you characterized your current role at one of the industry’s best-performing brands, and how it differs from your prior responsibilities as a CFO:

--You’re no longer a profit optimizer, now you’re a sales driver, instilling that sales-building mindset into the organization’s very DNA.

--You’re no longer the caddy, now you’re the golfer, “the one who actually has to drive the ball,” as you put it.

--You’re a stagecoach driver who’s leading—not driving—a team of really good horses, i.e., your staff.

--“I’m a recovering accountant.”

--Your LinkedIn bio lists your title as Chief Dishwasher.

Some of us might’ve been skeptical about the humility that was ascribed to you by our conference hostess, Joni Doolin. She recounted how you responded when she decided to present you with a People Report award: “What, have you run out of people to give it to?”

But you convinced us with the things you said, like being uncomfortable with having your picture in the program guide alongside the luminaries who’ve previously won the Legacy Award (Doug Brooks, Joe Lee, Lou Kaucic, Phil Hickey.) “Maybe you can put the BJ’s logo in place of my picture in next year’s listing,” you suggested. And we don't think you were kidding.

Finally, we want to hear more advice like the nugget you offered at the close your presentation, which was basically an explanation of how you came to appreciate human resources specialists after initially failing to understand their value. That was a dicey admission to make to an audience of HR specialists.

But you redeemed yourself with your tip: “Never take that first no from your CEO as the final no.” If there’s an HR initiative that’s stoked your passion, come back at him or her, using data—“Always use data; drive data points whenever you can,” because that’s what’ll get to them.

So, Jerry, let’s get to it. Fire up the keyboard and give us some more of your thinking.

Play pooper?

Live from the People Report Best Practices Conference. See the posts below for some context.

My favorite comment of the conference thus far came from Ken Schiller of K&N Management, operator of several franchised Rudy's and Mighty Fine Burgers restaurants. He was talking about the principles that earned his company a Malcolm Baldrige Award and distinguished it as one of the best places to work in Texas. One of those, he explained, is fun.

"This happens in spite of me," Schiller said in a complete deadpan. "I’m not a good role model in this respect. [Long pause.] But some of our crewmembers are really, really good at it."

During the session, it came out that K&N picks one aspects of its operations to address every year. Everyone in the organization, from CEO Schiller to the part-time crewmember, is expected to focus intently on that one thing.

Another unique aspects of K&N's operations: It has a staff chaplin. "If someone's worried about the lights going out because they can't pay the bill, that person isn't going to be very good at delighting customers," says Schilling.

A chaplin provides the care and attention that make employees better at the job. "How many of you spend time solving other people's problems?" asked his HR chief. A forest of hands went up.

The chaplin handles those situations so other people can focus on their job.

Losing out to iPads

I'm live blogging from People Report Best Practices Conference. For clarity, you may want to drop down a few installments and read your way upward.

Here's what's happening right now:

Comments from the stage suggest that restaurants' toughest competitor may not be the convenience store, the supermarket, or even the bank that holds a potential patron's mortgage. From what the presenters have been saying, the challengers really hurting restaurant sales may be the Apple Store and BestBuy.

Several speakers have mentioned the paradox of people cutting their discretionary spending, then lining up to buy iPads. It's part of what seems to be a far more sophisticated trend than the usual straight line indication that the economy is improving or declining. For instance, it was noted that sales of craft beers and wines are improving, at the expense of less expensive choices. They may be dining out less often, but the indulge a little when they do. Or they take the money they saved and go out and get a big flatscreen TV.

That, they suggested, tends to explain why macroeconomic gauges indicate the economy is improving, but things don't look that good when you drill down.

Turnaround tale

I'm blogging more or less live from the People Report Best Practices Conference. Here's the first installment for the kick-off afternoon session:

We’re literally 20 minutes into the first general session of the conference, and already we’ve heard a turnaround story that pushed the ROI on attendance into positive territory. It was John Bettin’s account of how The Palm survived during the economic downturn.

In early October of 2008, when the financial community plunged into near-ruin, fine-dining fell like a rock. About a week later, Bettin joined $85-a-head Palm as the first CEO to be recruited from outside the founders’ families. “At least I could claim [the collapse] it wasn’t my fault,” he cracked to the audience of about 300 chain execs.

The private owners of The Palm pulled him aside on Day One and said, point blank, forget about the usual transition into the job. We want you to focus on meeting our obligations to the banks.

Bettin plunged into the task. Given the direction of the economy and fine-dining sales, he realized right away that the venerable steak brand wasn’t going to meet its financial obligations. It was a life-or-death struggle, a crisis that required extraordinary measures.

One of the questions the situation raised was what to tell the Palm’s venerated staff, who could make or break a recovery with their attitudes. “We decided to be 100% transparent,” explained Bettin. “We let them know that we were in trouble, that we would be trying different things, that our plan might change daily.”

As the negative trends continued, the company had layoffs and salary cuts. “Be we also launched a recognition program with Tiffany pens that cost us $100,000 a year. We started a newsletter that cost us $40,000,” recounted Bettin.

The company wanted the employees to stay engaged and play a crucial role in the survival struggle, even as the bad news was communicated to them.

“Your grandmother told you, ‘Honesty is the best policy.’ I can alter that and say transparency is the only path if you want to succeed,” said Bettin. “We celebrated every day we were less negative than we had been.”

As a result, “we came out of it faster than a lot of people,” and same-store sales have remained positive, he said. “It’s not me, it’s not the leaders, it’s our 1,600 employees.”

If you'd like me to focus on particular aspect of the conference, just e-mail me at, or send me a message via Twitter, @peterromeo.

'So, what do you remember about him?'

So many industry leaders have been called by reporters for comment on Herman Cain that the solicitations were a topic of conversation at the People Report Best Practices Conference party last night.

Cain would be pleased to know he’s remembered by his former colleagues in foodservice, but all professed they declined to reminisce about him with the media.

Tuesday, November 1, 2011

What's the right way to grow overseas?

Wally Doolin, chairman Of Black Box Intelligence and a recovering chain executive, doesn’t flinch at bringing up the sometimes controversial issue of brand ownership. At last year’s People Report Best Practices Conference, he lobbed the firebomb observation that control of a concept by an investor, like a private-equity company, might prove a troubling change for an industry that was built largely on entrepreneurship. “Usually,” he noted at the time, “enterpreneurs make the decision that’s right for the business.”

At this year’s conference, which started today with a new session on the international market, he touched on a sensitive issue again by asking two U.S. brands what ownership model they’d have preferred to use in their overseas expansion. If they could do it over again, he asked officials of Starbucks and T.G.I. Friday’s, would they do more franchising? Less? How about joint ventures? What do they see as the ideal ownership model when you head abroad?

Nick Shepherd, CEO of Friday’s parent company, said it’s not a matter of what was right or wrong. Friday's chose a particular route because of factors that prevailed at the time. Any U.S. chain looking to grow abroad may have to make compromises because of it's situation, like not having enough capital to blitz a market. That would suggest franchising. But to woo a local partner, and maybe local financiers, a chain might have to hold a stake in the overseas stores. That'd mandate a joint venture.

Joint ventures can work beautifully, he stressed, but it’s important to structure it correctly. Having less than a 50% stake can mean surrendering too much control of the brand to the local operator.

You might have to start with a smaller stake, just to have some skin in the game, but it doesn’t make sense to have 15 or 20 percent because it puts you in a passive position, agreed Shepherd’s fellow presenter, Joe Canterbury.

Canterbury, Starbucks’ VP of international business development, noted that the coffee giant now wholly owns its restaurants in a number of foreign markets, a far cry from the small stake it held when it established its first beachhead, in Japan. But back then it needed to "have some skin in the game" because the brand was untried outside of the United States.

Franchising provides more control, they suggested, but at some point the local operator’s interests are going to diverge from the franchisor’s. Canterbury characterized it as inevitable.

Whatever model is pursued, they agreed, the key is finding the right local partner. The tenor of that relationship will be crucial in good times and in bad. A good partner can get you the sites and people that ensure success, stressed Shepherd. And even when interests diverge, a strong relationship enables you to resolve the situation amicably.

Shepherd noted that everyone in the room has had the experience of picking a franchisee who looked great on paper but failed to meet expectations as a business partner. It happens overseas, too, but what goes wrong in a store in Singapore can spread across the globe in a flash.

Doolin ended the session by asking the pair to recount one of the humorous instances that U.S. chain executives invariably encounter abroad.

Canterbury recalled how Starbucks worked with local authorities to resolve a trademark dispute. During the negotiations, they sat in front of a 20-foot-high portrait of Russian strongman Vladimir Putin, trying not to show the intimidation they felt.

Shepherd recalled a business presentation he co-hosted before his days with Friday's. His boss stressed at the time that they were not to mention an obscure sporting event to the 500-plus Europeans in attendance because it might offend them. Instead, he made a reference to Nazis in jackboots. Then he threw the emcee duties over to Shepherd.

What do you want to know?

On Thursday morning I’ll be moderating a panel on what restaurateurs need to know to participate in the political dialogue leading up to the 2012 elections. During the session of the People Report Best Practices Conference, we’ll be fielding questions about issues of particular interest to the business. We want to arm the trade with the knowledge and confidence to counter partisan bickering with reasoned, substantive discussion.

If that brings to mind any questions you’d like me to ask the panel, please drop me a line via e-mail ( or Twitter (@peterromeo). The group consists of Dawn Sweeney, CEO of the National Restaurant Association; Craig Miller, the former restaurant-chain chief who’s campaigning to become Florida’s next U.S. Senator; and Josh Davies, the Sage Hospitality executive who ran for a seat on Denver’s City Council.

I look forward to hearing what you’d like me to ask. If your question is posed to the panelists (and I’ll do my best to get them heard), I’ll try to cover the responses here.