At C-Level

Finger Lickin' Good

Last night at a party I found myself engaged in a discussion with a long-time restaurateur.  He told me that he got his start in the restaurant business through an invitation from Pete Harman, the legendary franchisee who was the first to sell Kentucky Fried Chicken and worked with "The Colonel"--Harlan Sanders--to develop the concept.  Sanders expanded the wildly successful chain and Pete Harman opened and owned over 200 units.

Harman was talented and hard-working.  He helped Sanders create operations standards for the new concept, but also created the name "Kentucky Fried Chicken" and pushed for emphasis of the iconic term "finger-lickin' good."  But what my friend wanted to talk about was more fundamental.  "He had an extraordinary way with people.  He listened to them and cared about them.  He had a way of making everyone feel good while being with him."

And he was compassionate and generous.  My friend told a story about when he was trying to buy a house.  Pete Harman asked him how the search was going.  "Well, we found a house my wife likes, but they want $10,000 more for a downpayment than we have."  An hour later Harman handed him a personal check for $10,000, saying "Pay me back when you can."  And there are countless stories just like that one.  But more than his many acts of personal kindness and generosity, he institutionalized these principles, promoting women when it bucked societal trends, and establishing profit-sharing when the concept was practically unheard of.

I've never met Pete Harman, but I've read about him many times.  Dave Thomas, the Wendy's founder, was a regular disciple.  So is David Novak, the current CEO and chairman of YUM brands, which owns KFC, Pizza Hut, Taco Bell and others.  

Pete Harman did more than run restaurants.  He touched lives.  It's not only a formula for success, but a legacy we all should aspire to.

KFC, OOS, DOA

Ninety-nine percent of restaurant promotions are derivative.   So it shouldn't surprise anyone that the wildly successful Denny's Free Grand Slam deal would be quickly copied by someone.  And while imitation may be the sincerest form of flattery, it is not necessarily the best prescription for marketing success.  Just ask KFC.

The Denny's formula was brilliant: Give away a meal.  Replace a major media campaign with a single high-profile announcement (for them, the Super Bowl) and rely on blogs, Twitter, email and word-of-mouth to spread the word.  Then make sure you can execute.  Denny's did this by limiting the offer to dine-in customers only, so the table turns became the governor that saved the kitchens from imploding.  The result, as reported in this blog a few months ago, was a resounding success, strategically, tactically and financially.

This did not go unnoticed at KFC, which surely prides itself on having smarter marketing folks than Denny's.  In the midst of a strategically brilliant and well-executed launch of Kentucky Grilled Chicken, they smelled an opportunity more aromatic than its 11 herbs and spices.  Take the Denny's formula, but instead of the costly Super Bowl ads, launch it on Oprah (the Walter Cronkite of our generation).  Then let the bloggers, Twitterers and email-mongers take over.  A free Kentucky Grilled Chicken meal has got to be as big a draw as a Denny's Grand Slam breakfast, right?

Well actually, it was bigger, fueled by Oprah's imprimatur and the apparent ease of dropping by a conveniently located KFC outlet for a chicken dinner to go.  Unfortunately, as has been widely reported in the press, things did not go smoothly.  There were millions of problems downloading the coupon from Oprah.com (including mine, which I could never successfully print) and massive chicken Out-Of-Stocks in KFC's around the country.  As a result, the company resorted to offering customers rain checks that had to be mailed in.  To make amends, KFC gave the disappointed customers the rather modest and overwhelmingly unsatisfactory compensation of a free Pepsi for their troubles.   The result?  Grumpily hungry customers.  Negative PR.  And a disastrous promotion, even if it did generate massive trial of the new grilled chicken.

So what can we take away from this experience?  Mostly what KFC should have already known.  But just in case, here are a few lessons:

1. Simple is good.  Complicated is bad.  In an attempt to police double-dipping and control demand, the KFC promotion required you to print a coupon with unique bar codes from Oprah's website.  I'm sure this was a major factor in getting Oprah in on the deal.  But as previously mentioned, the bar code technology was a major problem, causing frustration, customer support issues, etc.  Contrast this to Denny's--Come on by and we'll give you a free breakfast, no strings attached.  Every marketer should heed the advice of Will Rogers: "Nothing you can't spell will ever work."

2. Operations first, marketing second.  This is an age-old problem in fast food.  It's what nearly killed McDonald's in the '80's and '90's.  The customer experience is the best way to build--and the fastest way to lose--brand equity.  Denny's recognized that their worst case scenario was long lines around the building (which is pretty good advertising, by the way).  If people didn't like the look of the line, they could turn around and go home.  At KFC, on the other hand, you had a steady stream of angry customers marching up to counters and wondering why there was no chicken, leading to explanations, excuses and confrontations that could not be worse for business.  I could write a book on this, but the Cliff Notes version is as follows: Big Marketing Ideas cause unnatural demand spikes that are operationally difficult to manage, causing long-term damage to the customer base while Marketing is off celebrating their short-term victory. 

3. If your franchisees aren't committed, don't do it.  This is a hard lesson and what makes a franchise system so very difficult to run.  Believe me, there is no person more capable of leading a group of franchisees than YUM Brands' CEO David Novak.  I've known David for years and seen him in action.  I'd follow him up Pork Chop Hill no questions asked.  So if his persuasive leadership didn't convince the franchisees to pony up on their food orders then this promotion was Dead On Arrival.

Naturally, KFC is spinning this as a terrific success, with five million coupons redeemed.  But sometimes success can hurt you worse than failure.  I bet it left a nasty aftertaste with Oprah, too.

Captain D the Bold

These days every marketing department is scampering around trying to figure out what to do in this economy. 

Image advertising?  Hard to show a return.

Price promotions?  Need a lot of media (which we can't afford) to drive the traffic necessary to make money.  And the competition for traffic is tougher and tougher in this environment.

So what do we get?  A lot of namby-pamby promotions and small product ideas that are doomed to failure.

There are solutions, but they generally require brave new thinking (see Denny's Free Grand Slam).  Here's another one I think is pretty brilliant.  Captain D's, the 580-unit seafood chain, decided to compare itself to the significantly higher-price casual dining leader in seafood, Red Lobster.  And importantly, the folks at D's really took off the gloves, with a 30-second ad filmed right next to a Red Lobster restaurant and featuring actual RL customers.

Full disclosure--I used to run strategic planning and concept development for Darden's Red Lobster.  I'll always have a soft place in my heart for the company.  But I have to admire the aggressive and powerfully strategic move by Captain D's.  In fact, I love it.  Why?

1. It elevates the quality perceptions of the Captain D's brand.  Compare fast food to casual dining?  If you can get away with it, absolutely.  (Carl's Jr. has been doing this for years with the Famous $6 burger, which costs about $4-5.)

2. It delivers a strong value message without discounting, which is a huge and sustainable win in this economy.  Save $30?  Save $45?  Well, of course I want to.  That's big money.

3. It tells me something I didn't know.  Did you say Seared Tilapia and Wild Alaskan Salmon?  I didn't know they had that!  Wild salmon?  At Captain D's?!!!

But perhaps even better, the ad generated controversy , which Captain D's leveraged with an ad on its website when RL's parent Darden Restaurants threatened legal action.   The Captain D's response is funny and perfectly positions them as the underdog with a relevant story to tell, even though it only ran on their website.  And you know that everyone outside of Darden's Orlando headquarters would rather see the spunky David prevail over the Big Red Goliath.

Props to the folks at Captain D's for innovative thinking and bold action.  There are ideas like this available for every business--ideas right for our economy and strategically on target.  But companies need some imagination to find them.  And then, of course, the resolve to take action.

Denny's Scores Big

It was better than expected.  A huge success.  Gutsy and brilliant.  Denny's Grand Slam Breakfast giveaway on Tuesday had to exceed every expectation the company had going in.  Sales were huge.  Publicity has been extraordinary.  And customer feedback consistently positive. I was particularly surprised by expressions of heartfelt thanks by many customers.  In these hard times, the promotion was often seen as a charitable act of compassion and generosity.  Score.

As promised, I stopped by my local Denny's yesterday while breakfast was in full swing.  Consistent with most of the reports I read, there were a lot of young people standing in the 20-30-minute line.  That's spot-on strategy for Denny's, which has been trying to build credibility with this demographic, particularly with their Allnighter campaign, which includes tie-ins with up and coming rock bands. Score.

Operations were tight at the restaurant.  The kitchen was an assembly line of pancakes, eggs, bacon and sausage.  As expected, the critical path was dining room seating (the promotion wasn't for carryout orders).  But because the promotion was only active during breakfast and lunch--both generally time-constrained--tables turned pretty quickly.   And no one that I talked to complained about the wait.  They expected it.  Score.

Employees were excited, enthusiastic and proud to be part of something great.  As expected, tips were very generous.   Perhaps the promotion did as much to reposition Denny's with employees as with the public, saying we're a pretty happening place.  Big score.

While most businesses are hunkering down and pulling back media dollars, Denny's charged into the face of the economy, giving away six-dollar breakfasts with NO STRINGS ATTACHED and advertising (with one spot!) on the Super Bowl.   It was a brilliant strategic move, aggressive and daring and generally very well-executed.   Score.

Denny's management took a big swing at the fence, and scored big.  Like Virgil said a few thousand years ago: "Fortune favors the bold."

A Grand Slam?

What a gutsy and aggressive move by Denny's.  For those that missed it, they bought a $3M 30-second ad on the Super Bowl announcing that they will give away a FREE Grand Slam Breakfast to everyone in America on Tuesday, Feb. 3 (tomorrow) from 6 a.m. to 2 p.m.  There's a lot of reasons why I think this is brilliant, and only one why it may be a big mistake.  Here goes:

1. It makes a statement that Denny's is happening.  And after all, one of Denny's biggest issues is its image.  How cool is it to announce one of the biggest giveaways in restaurant history on the Super Bowl?  The answer is: Very cool.

2. It has generated tremendous publicity.  As of 11 a.m. today (Monday) Denny's website had 14 million hits.  OK, it's not an ecommerce site, so the value of a web visit is open to debate.  But all that web traffic certainly makes the media investment look better.  Not to mention the more than hundred million impressions from the Super Bowl itself and all the news coverage afterwards, easily getting the TV CPM lower than $30.

3. Retrial is the right strategy.  We've all been to Denny's, but when was the last time?  Anyone actually been in one of their retro units?  Seen their new decor?  There's one near my house, and it's not bad.

4. They lead with their signature product.  We're not giving away a grilled cheese sandwich here.  It's the Grand Slam Breakfast.  I love it.

5. The economics could be pretty good.  Now I don't have any inside info from Denny's, or the time to go get it.  But let's make some broad assumptions.  First, disregard labor.  Yes, it will be costly, getting ready, getting prepped and cleaning up.  But it's for one day.  Plus, the labor leverage will be pretty high. Let's also assume that the cost of a GS Breakfast is $1.  That's probably high, so it's conservative.  So, on unit level economics, let's say you'd normally get 200 customers into a Denny's during that eight-hour period, and let's say 80% of these decide to get the free breakfast instead of their usual $6 plate.  That's $960 in lost revenue, and probably a bit more in extra food cost.

Denny's expects 1-2M people to take advantage of the offer.  With about 1500 units, that's 1000 giveaways per unit, less the 160 current customers, that's an additional 840 plates.  At $1 food cost, that's $840 in food cost.  So your unit losses are up to almost $1800 ($960 + $840).  BUT ... how much revenue and profit are you going to pull out of each of those 840 incremental customers?  All you need is $2.15 incremental margin per customer to break even.  So any combination of soda or coffee (very high margins), sides or desserts (70-80% gross margin) or tagalong friends who order something else and you're even for the day (again, excepting labor).  Throw in the value of goodwill, marketing opportunity and future visits and the numbers start to look pretty reasonable.

Now the risk.  The experience had better be good.  First of all, you can't change your staff for one promotion.  Your server is not going to look like Jennifer Anniston or David Archuleta.  If you like the perky college students at The Olive Garden, you're likely to be disappointed.   Nevertheless, you can bet that every manager will have their restaurants super-staffed and every employee wearing clean uniforms and a big smile and on their A-game. 

However, despite best efforts, it's hard to manage restaurant throughput during volume spikes.  Things can turn ugly quickly.  And if I have to wait 45 minutes for a free breakfast I'm not likely to feel very good about Denny's, or come back again very soon. And at many restaurants, that's a very real possibility. Backfire.

In any event, I'm going tomorrow.  The Grand Slam is not my type of breakfast.  But the promotion I have to see.  And a shout-out to Denny's management.  I like your style.  And your guts.  Good luck.

Casual Dining is Reeling

Few industries have been hit harder by the economic crisis than Casual Dining.  My alma mater, Darden Restaurants (DRI) is trading below $17, from $40 a year ago.  Brinker (EAT) has gone from $25 a year ago to $6.70 today.  Similarly, Cheesecake Factory (CAKE) is down about 75% vs. year-ago. While perhaps the market is overreacting, the dramatic trends should not be surprising.  Some recent research shows that 71% of Americans are reducing their dining expenses.  The  market has concluded that the casual dining heyday is over: Traffic is declining quickly and won't bounce back for a long while.

Good restaurateurs understand that the answer cannot be higher prices and lower portions.  That's a death spiral waiting to happen. 

If I was running a casual dining chain, I'd build my strategy on the premise that people are eating out less, so they want a really special experience when they visit a restaurant.  Consider these:

1. Shift the mix to premium quality and higher-priced items that generate more penny-profit, even if it means discounting them or reducing prices.  

2. If you don't take reservations, now would be a good time to start.  I bet long lines aren't your problem these days, even on Saturday nights.

3. Take service to a brave new level.  Get your service manager on the floor during all business hours, greeting every customer at least once, comping a dessert, leaving business cards, learning names, getting emails, etc.  Make each of these guest feel very special.

 
4. Advertise like each visit will be an extraordinary experience, even if you're not Ruth's Chris.  (For some reason, I'm reminded of the Austin Powers provocative but unpretentious trailer back in 2000: "If you're going to see one movie this summer, see Star Wars. But if you're going to see two, see Austin Powers.")

5. Mine your database.  Invite old customers back for something special.  Better yet, call them.  (Yeah, I know that sounds crazy, but you can bet the story will be told.

6. Stick to the basics.  Unless you've got a killer product idea, you're better off promoting what you're famous for and good at.  It's not worth advertising marginal product news, as you'll be disappointed in the returns.

7. Try to make the place look full.  Close off the view of empty rooms and sections.  If need be, close part of the restaurant for remodeling.  Attract large groups (meetings/businesses/gatherings/etc.) on weeknights with generous offers, even if it's at breakeven economics.

8. And of course, need I say, QSC?  Don't cut labor if it leads to slow service, dirty bathrooms and littered sidewalks.

9. Corporately, it's time to close your lowest-performing stores that are showing losses, or worse yet, burning cash.  In the same quarter, add the severance packages from the home office people you choose to let go. Wall Street will give you some credit for these actions, and it's doubtful the stock will get hit much worse from a single drunken sailor story about your awful quarter.

10. And then hang on.  If you've been doing this awhile, you know the good times will return, eventually.