Special Report | February 2013 | By Amanda Baltazar

Breaking the 7 Unwritten Rules

How some operators succeed by going against the industry’s conventional wisdom.

Every industry has its unwritten rules for success, a series of dos and don’ts that conventional wisdom suggests are the path to profits.

The quick-serve industry is no exception. For decades, companies have operated under a series of assumptions that guide their business decisions and compose their operations manuals. And many of these brands would suggest they’ve been all the wiser—and richer—by playing by the rules.

Now, however, some concepts are breaking the mold, discovering that consumers will still flock to their stores if one or more of the rules aren’t followed. Seven unwritten rules in particular have been tested, tampered with, or altogether discarded by a number of companies that are out to prove the industry isn’t easy to paint in black and white.

Rule No. 1: Do Not Expand Too Rapidly

The quick-serve industry’s past is littered with examples of brands that opened too many stores too quickly and ultimately failed by doing so. The danger in growing too quickly, experts say, is that operators will lose control of their concept, dilute their brand, fall short of capital, or simply be too ambitious.

But a number of well-known brands today are speedily opening stores without experiencing any negative fallout.

Bojangles’, a Charlotte, North Carolina–based chicken and biscuits chain, is opening a new restaurant every 10 days. The company’s 37 years of history have allowed it to learn from its mistakes, says president Eric Newman, especially since the early years, when it only grew modestly. It has also taken advantage of the greater availability of real estate and lower building costs during the recession, he says.

But limiting Bojangles’ growth to specific markets has also been key for the brand’s expansion. This helps with brand equity, Newman says.

“It’s easier to justify [buying the roll] when you’re in this unique location and you want to try this unique thing,” she says. “We’re building regular customers who can actually come and visit us once a year.”

“The increased base of restaurants in those markets creates more marketing dollars to increase further customer awareness,” he says. “Market penetration, marketing awareness, and increasing sales volumes and profitability are all linked.”

Los Angeles–based Fatburger is using a similar tactic. The chain’s unit count increased by 55 percent in 2012 over 2011, and the company will expand by hundreds of stores over the next few years, both within the U.S. and abroad. This year, it plans to open 50–60 new restaurants.

This kind of growth is essential to gain brand momentum, says CEO Andrew Wiederhorn. “Otherwise, you don’t build your brand awareness or your brand equity in a marketplace for consumers to realize you’re present or convenient,” he says.

“You advertise that the brand is coming to the city and the visibility of those units while they’re under development, and the buzz of the openings works together.”

The Big Salad, a Grosse Pointe Farms, Michigan, chain, says it plans to open 200 mostly franchised stores in the next 10 years. The company today has four stores: two franchised and two company owned.

CEO John Bornoty credits the big expansion plans to the brand’s simplicity.

“Most franchises focus on sales before they expand, but I focus on operations,” Bornoty says. “You have to have good procedures and processes. It’s cookie cutter and you don’t deviate.

“We’re not trying to do something new with each store,” he adds. “We keep it simple.“

 

Rule No. 2: Do Not Change the Recipes of Signature Dishes

Toying with a proven recipe is seemingly counterintuitive to succeeding in the foodservice industry, but some brands have gambled on an ingredient shake-up. Domino’s, for example, famously changed its pizza recipe in 2010, to great acclaim.

Coralville, Iowa–based Panchero’s Mexican Grill similarly succeeded when it altered the ingredients in its coveted chicken marinade last year. Panchero’s executives wanted to make the chicken marinade gluten free, and also hoped to make the marinating process simpler at the restaurant level—changes they had to go about carefully, considering the chain’s fresh-grilled chicken accounts for more than half of its menu mix.

“Now it comes pre-made, making the marinating process easy to execute with virtually no chance for a mistake,” says Barry Nelson, vice president of operations.

“But, at the same time, we wanted customers to not notice any difference in the flavor. People come to us for consistency.”

McAlister’s Deli, meanwhile, did let customers know when it made changes, using POP, social media, e-mail and outdoor advertising, and TV commercials to inform them about its upgrade in proteins and breads, which it did in 2011.

“The goal was to differentiate ourselves by leveraging what customers have come to know us for: a quality product and quality experience,” says Frank Paci, president and owner of the 310-unit chain

What was most interesting about the upgrade, Paci says, was how beneficial it was to the brand’s crewmembers.

“It improved the morale of the staff in the restaurants,” Paci says. “The whole McAlister’s experience got better, too, because the employees were so enthusiastic about the products.”

 

Rule No. 3: Always Offer Combos and Specials

Combos and special offers are a signature in the quick-service industry, helping retain customers looking for good value and enticing new customers looking to try something different.

But Illegal Pete’s, a burrito chain based in Denver, has chosen not to offer either.

“We’ve found it works better being genuine with customer service, not having our employees interact based on a script,” says Chelsea Marx, operations manager at the five-unit chain.

“We empower our employees to offer discounts … to create and build relationships,” she says, adding that employees can offer a 50 percent discount to one customer per shift.

Instead of offering specials or combo meals, Illegal Pete’s has a handful of off-menu dishes. “Customers see one person get it and then it spreads like wildfire,” Marx says. “That’s an opposite mentality—it’s an upsell for us. I think customers like that feeling of knowing a secret about a place.”

Rule No. 4: Celebrate Grand Openings for All New Units

Opening with fanfare maximizes brand exposure, many operators believe. But grand openings can be expensive and time consuming, and can sometimes bring too many customers to a restaurant on its first day.

Modmarket, an upstart Boulder, Colorado–based fast-casual chain, has not held a grand opening for any of its four locations. It does, however, have pre-opening events. The company places a board outside in-development restaurants directing customers to a website, where they can secure an invitation to the pre-opening event that serves free food.

“That builds a bit of buzz,” says founding partner Anthony Pigliacampo. “It only takes a handful of people to discover this, and you get 100–200 people.”

It also creates a low-pressure environment to train staff, Pigliacampo says. If the staff makes mistakes, customers don’t mind because they’re eating for free, he says.

Pigliacampo says he spends far less—around $1,000—on these events than he would for a grand opening.

How Do You Roll?, an Austin, Texas–based sushi concept, opened its Phoenix location last year with no grand opening. The restaurant is located in a new mall where Five Guys, Chipotle, and Jersey Mike’s had recently opened. Prior to opening, the manager handed out coupons for a free sushi roll.

“We’d try to explain the concept and build the anticipation about the opening,” says franchisee Shane Sender. “We tried to build excitement. Everyone was coming to Chipotle, and we built off of that and their customers.”

Pre-opening events create a low-pressure environment to train staff. If the staff makes mistakes, customers don’t mind because they’re eating for free.

It wasn’t cheap pre-marketing this way, Sender says. “I paid my manager $1,000 a week for four weeks.” It did, however, create terrific word-of-mouth advertising, he says.

In November, The Berryhill Baja Grill opened its 12th restaurant in the Houston market without a grand opening.

“Doing a grand opening in a city where we’re well known didn’t make much sense,” says Jeff Anon, CEO of Berryhill Hot Tamales Corporation. Instead, the company dropped off food to all of the town’s radio stations and nearby businesses to spread the word.

“This builds emotional connections,” Anon says. “We tell all of our franchisees to go out and be the face of their restaurant.”

 

Rule No. 5: Do Not Open In an Unconventional Location

Operators tend to avoid locations with no parking, bad storefront traffic patterns, and poor visibility. But these locations can sometimes be a blessing in disguise, experts say.

The second Modmarket location, in Glendale, Colorado, was behind another restaurant and set back from the street, Pigliacampo says.

“However, we saw there was a dearth of healthy options and we figured if we did a great job, the word would spread,” he says. “When people see the site, no one can believe the sales we’re doing. It’s testament to the fact that the most important thing is the experience you’re delivering to your customers, and if you’re 300 feet off the beaten path, people will still find you.”

The downside of being off the beaten path, he says, is that sales take a little bit longer to build. But the benefits, he says, are worth it.

“People have to discover your restaurant, and then they have ownership of it,” he says. The rent also makes the low-visibility location a hit, he says. “That store is extremely profitable because the rent is so manageable.”

There’s no parking at the St. Charles Avenue Smoothie King location in New Orleans, but franchisee Rose Kuhnau says that fact has only encouraged employees to perform better.

“You have to keep the fact that you’re a quick serve in mind, and be well staffed, and provide quick service if someone is double parked or illegally parked,” she says.

Employees even run smoothie orders out to the trolley-car drivers and people in cabs who pass by their door and order in advance, Kuhnau says.

“I think if you provide an outstanding experience and people feel good in your business, they’ll find a way to come back, even if they have to park and walk,” she says. “People will remember that, tell friends about it, and it increases your business.”

 

Rule No. 6: Open Your Doors Seven Days a Week

Convention wisdom says the more days a business is open, the more revenue it earns. But some restaurant companies have bucked the notion, including Chick-fil-A, which is a $4 billion business without being open on Sundays.

Single-unit Tortilla Bar, in Orem, Utah, also closes on Sundays.

“I think everyone needs the time off,” says owner and chef Sam Oteo. “Sundays would be a great time for us to open, but it’s a time for my staff to be with family and recuperate from the six days a week that we open.”

It’s important to Oteo that his staff has personal time, he says, because it helps them perform better the rest of the week.

All four OinkADoodleMoo locations close on Sundays, too. It’s partly for religious reasons, says Mark Peebles, CEO of the Englewood, Ohio–based brand, but it also gives employees something to look forward to all week. Like Oteo, Peebles believes employees need to refresh and be ready for the next week so they can provide great service.

Consumers respect restaurant closures, Peebles says. “Our customers have tremendous respect for us closing on Sundays, and people who come by on Sundays when we’re closed usually come back [another day].”

 

Rule No. 7: Do Not Offer Expensive Dishes

Customers eat at quick-serve and fast-casual restaurants because they’re fast and consistent, but above all, because they’re inexpensive. Some brands, however, are testing the limits of just how expensive a menu item can be.

Conshohocken, Pennsylvania­–based Saladworks, which has 113 locations in 11 states, sells salads that typically cost around $8.75.

“I want to compete on quality,” says Paul Steck, president of Saladworks. “There’s always someone who can compete on price. So I’m going to create the best salad that I can and I’ll charge what I need to. You can’t be all things to all people.”

Quicks Hole, a seasonal fast-casual restaurant in Woods Hole, Massachusetts, opposite the Martha’s Vineyard ferry, serves a $24.95 lobster roll. “We source the best fresh lobster, never cut it in any way, and overstuff that roll,” says owner Beth Colt. “Food cost on that one item is around 35 percent.

“I can’t drop the price, because I use really good lobster,” she adds. “It gets people talking and it gets the line forming.”

But the reason most customers don’t care about the price, Colt explains, is that almost all of them are waiting to catch the ferry and are typically in a summer vacation state of mind.

“It’s easier to justify [buying the roll] when you’re in this unique location and you want to try this unique thing,” she says. “We’re building regular customers who can actually come and visit us once a year.”