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Can small bites at small prices succeed?

March 30th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Can small bites at small prices succeed?)

Today’s USA Today has an interesting article that talks about casual dining’s attempt to draw diners in through small plate offerings.  Great idea if it works, but we worry that these restaurants may not focus on the right metrics.  For example, the article quotes the percent of items chosen for the new small plates in a Houlihan’s test market.  It’s great that they are testing, but are they looking at:

  • the incremental guest traffic attributable to the new items?
  • whether some restaurants perform better than others, and why?
  • what else small plates guests are ordering, and what items they are trading away from?
  • whether small plates guests return with greater frequency?
  • whether those returning guests trade up to larger sizes of the same thing?

When news broke this week about the passage of Obama’s health care reform legislation, the news was especially relevant to McDonald’s, Burger King, and every other large-scale restaurant chain in the nation. The new federal law requires restaurant companies with 20 or more sites to disclose calorie information on their food products, as well as information about how many calories one should eat daily for a healthy diet.

The law calls to mind a recent New York Times article about the science behind menu optimization. “There is constant tinkering going on right now with menus and menu pricing,” said Sheryl E. Kimes, a professor of hospitality management at the Cornell School of Hotel Administration. “A lot of creative things are going on because the restaurants are trying to hold on for dear life to make sure they get through this.”

According to the New York Times, restaurants “are hoping that some magic combination of prices, adjectives, fonts, type sizes, ink colors and placement on the page can coax diners into spending a little more money.” Of course, the only true way to determine what works and what doesn’t is to test menu changes in live market conditions. Given that menu labeling is now required by federal law, testing is going to be more important than ever for restaurant companies.

In May 1990, Fortune Magazine asked: “What happens when two extremely large, highly capable, well-financed corporations fight it out for preeminence in a commodity business like coffee?” The answer: a decade-long “often profitless struggle” between Maxwell House and Folgers, driven by huge media blasts, ineffective new products, and round-after-round of price promotions amid waning demand. The Coffee Wars.

Fast forward to the mid-to-late 00’s. McDonalds was rolling out 11,000 McCafes and Starbucks was finishing a decade of rapid expansion (over 5,000 U.S. stores) by re-awakening the instant category with VIA. When McDonald’s launched Premium Roast in 2006, the media brought back the “Coffee Wars” moniker, with Starbucks and McDonald’s as the primary warriors. Starbucks’ earnings and stock price tumbled, before beginning to claw back in 2009. The New Coffee Wars.

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Intelligent ATMs Blur the Lines between Channels

March 23rd, 2010 | Posted by Will Weidman in Financial Services | Uncategorized - (Comments Off on Intelligent ATMs Blur the Lines between Channels)

New ATMs can now do more than just withdraw cash. Many ATMs take deposits, often without requiring an envelope. This increasing range of services is blurring the line between tellers and ATMs.

Now leading banks are taking it even further: American Banker predicts, “Integrating bank machines more closely with other channels – including the branch, call centers, online, and mobile – may be the next step in further broadening use of ATMs.” (more…)

The Key to Finding Good Pizza? Use Stats

March 22nd, 2010 | Posted by JMarek in Uncategorized - (Comments Off on The Key to Finding Good Pizza? Use Stats)

Statistics consultant recently applied the science to user-generated reviews of the city’s pizzerias to his rigorous quest to find “the best.” Click here to read more.

Think Global, Act Local

March 20th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Think Global, Act Local)

Restaurant companies with broad networks and plans for international expansion face a unique challenge: how do you stay true to your roots while catering to local tastes? McDonald’s well-publicized strategy of offering both core and localized items appears to be hitting all the right notes, and demonstrates how the challenge of striking this balance also serves as a unique opportunity. In the U.S. market, where major players work furiously to differentiate themselves, these far-flung outposts can serve as seeds for innovation. Could internationally-inspired products such as Jack in the Box’s Teriyaki Bowl or Wendy’s Asian Sweet & Spicy Chicken be even more successful than traditional “American” fare? There is no a priori way to tell. The winning strategy is to keep your eyes open to innovative ideas, execute well-designed tests, and aggressively roll-out the ones that work.

Too Much of a Good Thing

March 19th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Too Much of a Good Thing)

There’s nothing quite as frustrating as a good idea that turns out to be too “good.” Case in point: Sonic was lauded for launching a traffic-driving “happy hour” promotion in 2009. While the promotion was successful in driving traffic, recent analysis indicates that it also exacerbated a downward mix shift by cannibalizing higher margin checks. The incremental traffic and extra add-ons were insufficient to make up for the surrendered margins. What is a decision-maker to do? In an environment where every company is aggressively defending share, can promotions attract new guests and be profitable? In a nutshell, yes. By carefully examining historic transactions, better understanding likely trade-ups and trade-downs, and quickly testing promotions in a subset of markets, executives can avoid these types of surprises.

Bank of America's Shocking Announcement

March 18th, 2010 | Posted by retailblogadmin in Financial Services | Uncategorized - (Comments Off on Bank of America's Shocking Announcement)

Many banks have acted in anticipation of overdraft legislation that takes effect on July 1st, but Bank of America’s response was the most dramatic yet. Bank of America announced that it would eliminate overdraft fees for purchases made with debit cards. The New York Times highlighted that this “could cost the bank tens of millions a year in revenue and put pressure on other banks to do the same.”

Will this strategy improve customer satisfaction and, more importantly, will this translate to increased retention, balances, and spread revenue? Bank of America will need to determine if these benefits outweigh the lost fee revenue. (more…)

Making Tough Decisions after an Acquisition

March 15th, 2010 | Posted by retailblogadmin in Uncategorized - (Comments Off on Making Tough Decisions after an Acquisition)

Many banks have made acquisitions recently, and with acquisitions come rationalization of the network and integration of the customers at the acquired bank. A major acquisition and the subsequent integration is a pivotal event, and decisions made can significantly impact the success of the acquisition.

The first key question banks face after an acquisition is which branches to close or consolidate. This process is often straightforward at the start. Some branches may need to be closed to meet regulatory hurdles. If the acquired bank is in overlapping markets, there will also be branches in close proximity that can be consolidated.

But soon the right decisions start getting less clear. A recent article in the Wall Street Journal reports that this is the first year since at least 2002 that the number of bank branches will decline. This is often driven by closing “overlapping branches” after an acquisition, but banks are also “trying to zero in more aggressively on the most profitable locations in areas that generate the most deposits.”

While it is clear which branches are outperforming, it is extremely difficult to understand what will happen when a less profitable branch nearby is closed. The impact of closing a branch is influenced by countless factors: distance to the nearby branch, competitive landscape, demographics of the population, customer loyalty, and so on. This information can be combined in a predictive model that will calculate the impact of closing a branch and identify profitable opportunities. This can prove difficult in practice, but getting it right can make branch closure massively more profitable. (more…)