"Lunch Is Out of Here"

I entered this industry through the side door.  Unlike 95+% of the people who work in the restaurant industry, I was hired into a corporate position as a financial analyst.  Quickly seeing where the action was, within two years I had weaseled my way into the operations department as an operations analyst. Same basic job, more colorful bosses.
 
One day I was told that I would be spending an hour with a hot shot, rising star, soon-to-be regional manager for Steak and Ale. His name was Chris Sullivan, and he would be spending a few days in the home office to broaden his awareness of how the corporate part of our company worked. I was asked to give him an overview of my job, and how it related to the field side of our business.
 
Chris showed up at my office, and you could already tell that after less than two days in the home office, he had definitely reached the end of his tolerance level for the corporate world. "So, what do you do?" he asked.  I gave him a quick rundown. Menu price analysis, budgeting, problem unit analysis, sales forecasting, and lots of other things that made Chris’s eyes glaze over. Seeing that I was losing him in less than 3 minutes, I told him that I had just completed a contribution analysis of lunch at Steak and Ale. The analysis was to determine how much profit lunch contributed to the overall profit of the concept. Chris came back to life. "We lose money at lunch," he declared.
 
I told him that was the reason I was asked to do this particular analysis. There were still many leaders within the company who had been with Steak and Ale when it was a dinner-only business, and they were not convinced that the addition of lunch had done anything for the company, except add to the work load of the people in the field. Chris was clearly one of these. I told him that while lunch was only 25% of our sales, that if you took an incremental approach to the analysis, and only charged lunch for the expenses that were directly related to lunch, it contributed 35% of our total profits. "No," he repeated. "We lose money at lunch."
 
So I proceeded to take him through the analysis line by line, starting with sales. At each line he nodded in agreement. "Yes. That is right. Yes. I agree with that." And it continued like that all of the way down the income statement. Then we reached the bottom line. Profit. I told him, "You can see that when you don’t charge lunch for rent, or for the general manager’s salary, and for the other things that wouldn’t change if lunch went away, that it contributes 35% of our profits." "No," he repeated one more time. "We lose money at lunch."
 
I remember thinking, either I am doing a terrible job of explaining this, or we are about to promote a very dumb person into a regional manager position. To determine which it was, I started at the top of the analysis again. Sales. "Yes." Labor. "Yes." No rent. "Yes." And so on, all the way down to the bottom of the income statement again. When I got to profit I repeated my conclusion, one more time, that lunch was very profitable to our company. "No," Chris said. "We lose money at lunch."
 
"Chris, how can you say yes all the way down the income statement, and then say no to the conclusion about the contribution of profit?" 

I remember his answer like it was yesterday, and it is the reason for this particular blog.
 
"Because," Chris said, "if you were out in our restaurants every day, instead of working in an office, you would know that the restaurant staff and managers are tired before the most profitable part of our business even starts. Your analysis is focused on lunch. If we didn’t have to do lunch, we would do a better job at dinner, more customers would come to dinner, dinner sales would be higher than they are today, and we would make a lot more profit than we are making with lunch and dinner combined today. I’ll tell you something. If I ever get a chance to run this thing, lunch is out of here."
 
I learned a lot in my one hour with Chris. He came in to be the student, and ended up being the teacher. It opened my eyes to the fact that analysis can’t be done in a vacuum. I often hear in the investment community the admonition to "do the math." I learned that day that you can do the math, but if you haven’t done your homework, and understand how our business lives and breathes, you will only get a math answer.
 
Chris Sullivan never got to run Steak and Ale. Instead, he was asked to run our other concept, Bennigan’s. He and his partners then franchised Chili’s in Florida and Georgia. After a few years, they sold it back to Chili’s corporate, took their profits, and opened Outback Steakhouse. True to his word, lunch was out of there.