Actionable Insights From APT's Retail Practice

… are “mixing” and “redemption”.  Well, at least from the standpoint of someone focused on increasing profits.  Let’s take them one at a time:

Mixing, as in “our new item is so great it was mixing 5% within two weeks!”  Umm, great, you are selling a lot.  What happened to profits?  To margin rates?  Did you get incremental guests?  What halo did you see in rest of check?  What got cannibalized?  I’m thinking of developing a 10 cent double cheeseburger — boy, that’ll mix well!

Redemption, as in “we got 30% redemption on our Facebook coupon!”  It was distressing to hear folks from major social media platforms brag that “redemption rates on social media are orders of magnitude better than print couponing — 30% instead of 1%”.  Redemption ≠ incremental sales.  McDonald’s could hand a coupon for Free Fries to each customer walking in to the store at lunch.  Redemption would be through the roof, but was it really incremental?

Deep understanding of incrementality is difficult in the restaurant business.  Even consultants, agencies, vendors, and restaurant companies that purport to “prove” incrementality seldom get the analysis right.  So I can understand why marketers turn back to these scary words… but that doesn’t mean mixing and redemption lead to actual profit.


April 21st, 2010 | Posted by JMarek in Restaurants - (Comments Off on Innovation)

Here are three quotes from a great presentation yesterday given by Einstein Noah Restaurants and Bellwether Group.  The topics were around innovation and testing — near and dear to our hearts!

From Jeff O’Neill, Einstein Noah CEO:

Too often, value is what restaurants do when you don’t have innovation… because you don’t have an effective innovation process

From James O’Reilly, their CCO (second C = Concept):

The problem isn’t having an innovation process, it’s sticking to it

and, on one important reason testing is a key part of that process:

It’s OK to fail.  You just don’t want your customer to see you fail

Interesting stuff!

Tea Time

April 20th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Tea Time)

Ten years ago, a former colleague, then at Stanford Business School, wrote a business plan for a restaurant concept: essentially “the Starbucks of Tea”.  At the time, Starbucks had purchased Tazo.  High end consumer brands like Numi were just emerging.  She never actually followed through building the first store, but I’ve always wondered whether she was onto a great idea.

Fast forward 10 years, there’s been talk at Restaurant Leadership about whether it is time for tea.  Makes us think someone ought to be out there running a test.

A Menu Item or a Concept?

April 20th, 2010 | Posted by JMarek in Restaurants - (Comments Off on A Menu Item or a Concept?)

Blogging from the Restaurant Leadership Conference in Scottsdale:

The breakout session led by Technomics was based on changes in their Top 100 Restaurants list over the past 10 years.  Based on who moved in and out of the list, they drew some more general conclusions.

One chain that fell out of the list was TCBY, prompting the question: Is yogurt a concept or just a menu item?  That is, can I actually get consumers to seek out my restaurant for this product alone, or do I have to do more?  TCBY actually chose to do more, e.g., ice cream, and it hasn’t worked out well.

What struck me is that yogurt is currently booming in San Francisco — but with the new Pinkberry-style offering.  Yogurt is still a viable concept.  What if TCBY had stayed focused on yogurt, but innovated in that space?

Leveraging the Local Option

April 16th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Leveraging the Local Option)

The Test & Learn Summit continued Tuesday, including the Food for Thought session focused on restaurant issues.  One major discussion topic was around the “local option”, periods of time in the marketing calendar when QSRs’ market-level franchisee groups can choose localized promotions and media support.

Local option periods can provide a wealth of insight into which programs work and which don’t, if managed correctly.  (more…)

Flying Blind

April 13th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Flying Blind)

Test & Learn Summit keynote speaker Haim Mendelson had a great quote yesterday from Zynga founder Mark Pincus:

If you’re a visual pilot and you fly in the clouds, your life expectancy is about 180 seconds

A nice metaphor for trying to manage without testing and analytics in a modern business environment!

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.


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.