Robbing Peter to Pay Wall (Street) - The Next Big Thing

The Next Big Thing

Blog

The Next Big Thing

« The Other Coast... | Main | I Didn't Eat at Houston's... »

Link This | Email this | Blog This | Comments (3)

Lane Cardwell

Robbing Peter to Pay Wall (Street)
February 6, 2008

It is normally about this time in an industry slowdown, like the one we are experiencing, that you see some of the old self-destructive behaviors start to appear. You can almost picture the restaurant executives sitting around the conference table discussing another bad quarter when someone says, "Sales are still soft. We can't take any more price. Our costs are still increasing. We need to start engineering some costs out of our products."

For those of you new to the industry, that is restaurant-speak for "Let's see if our customers are dumb enough to keep coming if we give them less quality, and charge them the same." The answer, of course, is that an alarming number will quit coming. Naturally, it doesn't happen all at once so the chain seldom will draw the correlation between less quality and less customers.

With the fewer number of customers coming in you have to go back to the well again and make further cuts in quality to "make" some money. And so it spirals down. What I have seen in the past is that it is tougher to add quality back than to take it away. Why? The impact of a cut on costs is provable. It's a leap of faith that better food and service will yield you more customers. Unless you have been down this road again.

For those of you tempted to "make money" off of quality cuts as a long term strategy for hitting your numbers, I have the names and phone numbers of several reputable private equity firms who might be willing to buy you at a discount and then do the right things themselves.

Cutting quality to improve profitability is not The Next Big Thing. In fact, it could be your Last Big Thing.

Posted by Lane Cardwell on February 6, 2008 | Comments (3)

Industries: Expansion, Operations

February 6, 2008
In response to: Robbing Peter to Pay Wall (Street)
tom koenigsberg commented:

Preach it Lane!! Good message. TK

February 6, 2008
In response to: Robbing Peter to Pay Wall (Street)
Larger slice, smaller pie commented:

Another industry knee-jerk, slow down bad behavior is to carve out marketing budgets. Bad recipe. That is exactly what your competition will do. The less background noise, the louder your message will be heard. Around for the Jimmah Cahtuh recession, I convinced clients to maintain budgets and stay in for the long haul. Most in a recession year, plus, had increases of 8%-15%. The following year, grosses jumped in excess of 30%. Consumers forget you quickly. Tom Willard Sage Advertising Jackson, MS www.sageadvertising.net

February 6, 2008
In response to: Robbing Peter to Pay Wall (Street)
Julie Reid commented:

Lane - thanks for the reminder about incremental product degradation. Those of us who have been around this industry a number of years know the guests will notice the subtle 'value engineering' changes, long before 'there's no longer any crab meat in the crab stuffed mushrooms'.