New, Not Always Better

The other day a stock analyst called me. His job is to watch quick service restaurant stocks and guess which ones will go up, so he can recommend them to his clients. He hadn’t been at it long and was looking for some wisdom. Of course, I told him that if I had that tuned-in crystal ball, I would be a very rich man. But, never lacking in opinions, I talked to him.

He specifically wanted to know my thoughts on one large chain that was about to embark on a whole new business within the walls of its existing restaurants. Would they be successful or a bust? As we talked this over, it struck me that a lot of businesses seem to be trying to be all things to all people. There is sort of an attitude of “If it is good for one, it must be good for me, so I’ll do it.” I want to give you some ideas to think about before you jump in.

Now, if you are a franchisee of a big chain, you don’t have much say in whether you’re going to take on a new business venture. You are tripping along selling hamburgers and some genius at headquarters decides there’s money to be made selling marinated squid, and all of a sudden the fish truck pulls up. You have to start marinating.

But, if you do have something to say about new business ventures, think about the following before you get tempted.

Image: That’s right. What will it do to the image you have worked so hard to create and maintain? Let’s say you are an adult restaurant with a happy customer base. You look at the place down the street with all the little kids dragging their mommies in and you think, “I should have kids in my store, too.” Be very careful. Your core business and image is for adults, not kids. Sure, those kids mean business, but think of the messes they make. Think of the adult customers who come to you because you are quiet and peaceful. It may not be worth changing your core business.

Price: Can you afford the new business? New products mean food and paper costs you didn’t have before. Additional labor may be needed, or a different type of worker, and a part of the store may be needed to prepare the new product. Of course, if your store is not being utilized efficiently, this may be good. If you get rid of seating that’s not being used to put in a coffee bar, your store may be more efficient. And, heaven forbid, you have to raise menu prices to compensate for the costs associated with a new product. Not good.

How about the crew training needed to handle a new product? If it’s intense, you may have a whole new set of problems. You have to think about morale, and management priorities. There are also equipment costs and repairs. Every new piece of equipment brings a whole new set of worries.

Space: What about something as mundane as storage space. Do you have enough room for the additional food and paper? Do you have the capacity to handle the additional waste potentially generated by an additional food item?

Advertising: You want folks to know about your marinated squid, so you have to tell them. Is this additional money you are going to take from the vacation fund, or are you going to borrow it from your core business budget? See what happens?

Customers: What about them? Let’s assume marinated squid is something they want. Up to now, they have been happy with your Yak burgers. You switch them to squid. What happens to the cases of Yak you have in the freezer? You can’t return Yak. You just can’t. You have to be careful that you are getting new customers or more trips from existing customers, not just switching them to something else. For example, the coffee business is hot (pun intended), but you can make a lot of money on soft drinks.

Wait time: Be careful that you are not slowing service times down with a labor-intensive product. A bigger menu means more for the crew to remember and more for them to do.

Staying power: Lastly, be careful about the long-term nature of food versus food fads. Look at the history of the food before you commit. Ethnic foods usually stand their ground, as do staples like meat, bread, and potatoes. I would wonder about the long-term nature of squid.

As an example, I remember pizza at McDonald’s. It was a great product, some of the best pizza I have ever eaten. And easy, right? Just get an oven and stick it in. Remember, this was at the height of the company’s “have it my way” days. You can’t take the pickle off the hamburger, and you will eat pizza with the toppings we say you can have. Besides that, we had great advertising with singing Italian guys throwing pizzas around and having a wonderful time. Plus, dinner checks would go way up because pizza is for families and they buy lots of Coca-Cola and Atlanta would be happy and … you get the idea. One big problem: McDonald’s is not a pizza parlor; it is a hamburger place. You don’t go to a pizza place for a hamburger and vice versa. We learned our lesson. I told the stock analyst that, for the sake of my stock, I hope the coffee thing works out OK. After all, coffee is not pizza. Is it?

Just be smart when you are considering new items. The key thing is don’t mess up your core business, whatever you do. The stock analyst thought that was a key criterion for evaluating future ventures. I asked him for a tip. He sent me a dollar.

A Peaceful Life and Happy Trails.