How Top CEOs Assess Risks
Chief executives have big decisions to make and risks to consider. But in the quick-serve industry, where trends are constantly evolving and one misstep can impact an entire chain—like when McDonald’s decided to spend hundreds of millions to advertise its doomed Arch Deluxe sandwich—taking risks is an especially daunting responsibility.
Still, industry experts say big risks can yield big rewards for quick-serve CEOs who navigate each risk carefully.
Carmine Giardini, founder of Palm Beach Gardens, Florida–based CG Burgers, says every decision in the restaurant industry is a risk for a CEO. “The idea is to minimize the type of risk that you’re taking,” he says.
Giardini says understanding a market and how a brand fits into that market is critical to making good decisions. For example, when considering expansion, Giardini says, every potential location should be carefully evaluated. When adding new menu items, he says, launching a test to see what customers think is critical. “If you’re careful and you study it, and you believe in it, and you have a team that believes in it … that’s the way to minimize your risk.”
Knowing what customers want is key to taking smart risks, says Mercury Amodio, owner of the PBandU concept in Wayne, Pennsylvania. She says CEOs should conduct every risk-benefit analysis with their customers’ expectations in mind. “I would pass on anything that compromises my company profile or the footprint that I have established,” Amodio says.
Gene Gunn, a consultant with A’La Carte Foodservice Consulting Group, confirms that identifying and protecting the brand’s position should be a driver when evaluating any risky decision. “The first risk you have is defining your point of difference inside the marketplace,” he says. “That is the critical decision you have to make.” Once a restaurant’s market position has been established, Gunn says, the CEO should use it as a compass point when faced with potentially risky moves, such as expansion.
Sometimes a quick serve’s biggest risk is the menu itself, as in Amodio’s case. PBandU’s offerings—variations on peanut-butter-and-jelly sandwiches—take some people out of their comfort zone, and she says innovating beyond the norm was a daunting concept.
“Hoping that people would be intrigued enough to try something like a bacon, cheddar, pickle, and peanut butter sandwich” was a tremendous risk, Amodio says, adding it’s one that “absolutely paid off.” PBandU plans to capitalize on its success soon with the opening of a second location.
Taking the risk to go against the norm has worked for others, sometimes in high-profile situations. Domino’s Pizza took a big risk late in 2009 when it launched a marketing campaign that confessed the chain’s old pizza was bad, and it resulted in major sales gains the following year.
Giardini points to a time he opened a gourmet market in a location that everyone told him wouldn’t work. He describes the location as “cow country” and says friends told him he “was never going to make it, and I was never going to see any money there.” Still, he was convinced the area was prime for growth and had done the research to verify the risk he was taking. “I took that risk and we made money from the first week we opened,” Giardini says.
The experts say some risk assessment can be passed on from the CEO to company employees, but deciding who to pass it on to and how much risk they should be in charge of can vary.
Giardini says employees should be left with risky decisions only in very specific situations. He says employees high in the organization like managers or vice presidents might be ready for a small dose of risk, but even in those scenarios, company policy should provide them with good direction. Other employees, like the crewmembers in the store, Giardini says, shouldn’t be involved in any risk taking. “They have enough to do to take care of the customer,” he says.
But Amodio says employees like managers and supervisors should sometimes be encouraged to take risks with some input from above. She says managers should be able to propose potentially risky ideas, because it’s a good way to stimulate new concepts. But those ideas need to be thoroughly vetted before they’re put into practice, she says.
“I’d never want a manager to come up with an idea and just start implementing it without discussing it with me,” Amodio says. If she isn’t comfortable moving forward with an idea after investigating it further, she doesn’t have any problem telling her team the idea isn’t right for PBandU. The wellspring of new ideas, however, is something she says she’ll always welcome. “Bring every idea you have to the table, and nine times out of 10 it’s going to be a good idea,” she says.
Not every risk pans out, though, and failure is something Amodio has learned to accept as part of doing business. Although she certainly doesn’t welcome failure, if one of her ideas flops or doesn’t work out as well as she hoped, she says she’s able to gather up useful information that she can apply later. Negative results, such as poor online reviews or customer feedback, she says, often spur her to learn more about the issue and do a better job on the next idea.
“I really take those as a time for me to learn and grow from that,” Amodio says. “I’m not afraid of [failure] anymore.”
Giardini says CEOs should think through what a failure might do to the business before taking any risk. And even when the desired outcome isn’t achieved, they should remember to look at how their business can be stronger because of it, he says.
“[Failures are] heartbreaking. They’re not worth the loss, but it’s definitely something you learn from,” Giardini says.
Food & Beverage
Thank you for signing up to receive QSR's flagship e-newsletter, A.M. Jolt. To help us better serve the information needs of our audience, please complete the information below.
In addition to A.M. Jolt, we also offer the following e-newsletters and communications. Please mark those you would like to receive.
- Business Services
- Cleaning & Sanitation
- Computer Systems/Software
- Dispensing Equipment
- Disposables, Packaging, Plastics
- Equipment Installation/Repair
- Financial Products/Services
- Food Products
- Franchise Opportunities
- Kitchen Equipment
- Safety Services/Products
- Security Systems