The Chefs Table


Give them what they ask for.

Posted in Hospitality by ftiess on the April 12th, 2009

Here is one of my favorite scenes concerning the issue of a purpose driven restaurant… to satisfy the customer and make money. (There are some colorful metaphors used, please excuse the language)

Marginalized Cuisine- When finance gets in the way of quality.

Posted in Entrepreneur, Hospitality by ftiess on the March 2nd, 2009

Unmet Expectations
How many times have you visited a restaurant only to end up with a sour feeling in the pit of you stomach? You just realized that warming up the leftovers from last nights dinner would have been a better choice then spending fifty bucks for your family to dine on packaged pre-prepared microwaved dishes from a chain restaurant.

In my book The Culinary Reference Guide, I discuss this concept in the preface entitled, Mental Mise en Place. “Have you ever been to a restaurant where you ordered the same thing on twp separate occasions? When you went back to the restaurant was that meal just as good as the first time? If your answer is no then perhaps, your second experience was an improper execution of the formula. …. This is where the consistency of preparation is critical; you ordered the dish the second time because you liked it the first. Most guests will not reorder a dish that they did not like the first time….”

Drs. Joann and Jim Carland put it another way in their Catching the Dream Series of course materials, to quote and paraphrase from chapter seven of New Venture Growth 3rd edition- Production management. To paraphrase managers are in charge of achieving production goals without sacrificing quality, “if inferior raw materials are purchased inferior products will result. If poorly trained or incompetent people are used on the production line, inferior products will result.”

Quality
Quality is the consistent delivery of a predetermined standard. Without recognized standards and customer-validated expectations, the growth of a brand will not succeed. Why has McDonalds done so well over these past 53 years? Think about it…. the consistent delivery of a predetermined standard. McDonalds became popular as Americans took to the road in the 1950’s, and with any road trip, the necessity, for families to find a safe, quick, and inexpensive place to eat. The reason why there are so many chain restaurants today is directly linked to the success of this business model.

Recent Experience
Recently my family and I went out for lunch to a chain restaurant that we had visited last year. Our first time was on Mothers Day, of all days, the service was ok the food was good. It seemed as if someone had finally found the formula to produce this ethnic cuisine in a sustainable efficient manner. I am a big fan of this particular ethnic cuisine, (by the way I am not trying to indict this restaurant chain in any way and therefore will only give the particulars that are relevant), and since moving to Charlotte several years ago have only found one restaurant, of this cuisine, that has been consistent and of good quality. This recent visit left us walking away, and, as mentioned earlier questioning why we did not have leftover instead. The food was hot and apparently safe, but there was something missing, oh yeah, the flavor we had enjoyed in the past. The key to prepare and serve this particular cuisine is in the freshness and quality of ingredients, and since the time of our last visit something had changed, the quality of food. Our meal tasted like it had been prepared from a box of prescribed ingredients as opposed to being made from fresh product.

The Taste of Industrialized Cooking.
Upon investigation of this restaurants parent company Brinker International some quality issues are rather apparent. Brinker International is one of the world’s leading casual dining restaurant companies. With more than 1,900 restaurants and over 120,000 team members in 25 countries, we welcome more than 1.2 million guests into our restaurants every day. (Source -Brinker.com). Doug Brooks, Brinker International President was quoted in the The Dallas Morning News on October 30, 2008 by Karen Robinson-Jacobs stating their restaurant are experiencing a “difficult operating environment as our country works through these economic challenges,” It is for that reason the Brinker is seeking to expand its brands in markets outside of the U.S. by opening 41 new operations. Going global brings with it a different standard of customer expectations. One of the largest growth areas is the Middle East, yes the land of milk and honey and crude oil is going to be introduced to Salsa, Guacamole and Fajitas. Actually, the cuisines are quite similar- meat grilled and served on a flatbread with a raw vegetable sauce. Brinker International advertised in the August 2008 Food Safety and Quality Website for a Quality Assurance / Food Safety Manager listing the job requirement: “Design, implement and manage the product assessment process for assigned products to ensure that all products are routinely assessed for the physical, chemical, organoleptic and/or microbiological analyses per specified parameters and frequencies Ensure that all suppliers and distributors have annual third party sanitation facility audits, recall programs and all relevant food safety and product quality programs”

So you are probably asking yourself, so what does this have to do with the change in quality control issue from the last visit. Simply, in my opinion, when a food company goes global the distribution of ingredients, consistency of product availability and above all prime costs are factors that may have precedence over the quality of the product. Looking over several quarterly reports issued by Brinker cost of sales increased from 27.9 percent in the prior year to 28.6 percent in the fourth quarter of fiscal 2008, August 05. By the end of the Second Quarter Fiscal 2009 on January 22 Brinker reported “Cost of sales, as a percent of revenues, decreased from 28.3 percent in the prior year to 28.2 percent in the second quarter of fiscal 2009. During the quarter, favorable menu price changes more than offset the negative impact on cost of sales of unfavorable commodity prices primarily related to chicken, produce and oils and sauces.”

Yes, we can have the same entrée in Charlotte and Dubai, but that does not mean that the entrée will please both Ricky Bobby’s and the Sheiks taste buds.
In summary something had changed in this ethnic restaurant’s recipe of quality assured preparations, it was not the cook in the restaurant, the server, our even the menu. It was the marginalization of the mass produced sauces, and preparations. Shaving pennies from the cost of food budget has probably caused this company to reformulate their base recipes, which of course could affect the final product. A company can only succeed if it exceeds its guests expectations, altering the production standards may help for a few financial periods, but in the long run marginalization of production ruins the brand.

Resources
1.Tiess, Frederick. The Culinary Reference Guide. 2nd. Matthews: Le Guild Culinaire, 2006.
2.JoAnn & Jim Carland (2005) Catching the American Dream: New Venture Growth, Whitney Press.
3. www.mcdonalds.com
4. www.brinker.com
5. Robinson-Jacobs , Karen . Brinker counts on international restaurant growth as U.S. economy sags.” The Dallas Morning News October 30, 2008 , ‘natl. ed
6. Arabian Food Supplies Launches Popular Mexican Restaurant Locations In The Middle East.” UAE NEWS. 2 Mar 2009 .
7. “QA / Food Safety Manager – Dallas, TX.” The Comprehensive Food Safety Website. Aug 2008. FoodHACCP.com. 2 Mar 2009 8. www.businessdictionary.com
9. www.youtube.com

A Diamond in the Rough – Purchasing an existing business

Posted in Entrepreneur, Hospitality by ftiess on the February 1st, 2009

Source Flickr

Have you ever walked in a business and wondered why it was not busy. You notice that the design and concept are unique, that the product and or service is interesting, but still customers simply walk on by. Perhaps it is a great concept that is sustainable through any given market fluctuation, but where is the return. Maybe you have found a diamond in the rough.

Be careful of what you are getting yourself into, assess the liability of the business.

Should you desire to purchase a business like this you really have three options. First option- recreate what you like about that venture in a market that will sustain it. The second option is to offer that owner the opportunity to turn the business over to you by purchasing the business as a going concern, if it is a corporation, or purchasing the business as a collection of assets, continuing the business as it transfers to you in a sale. The third option requires a little more tact and risk, waiting for the business to fail or for the owner to give up. In this case, you could purchase the assets of the business for your own startup. The transfer of sale for the second option really depends upon the type of ownership that the venture is engaged in. Purchasing the business as a corporate “going concern” brings an assumption of liability risk because the liability transfers to the new owners just as the physical property and assets do.

What is the value of the concept, intellectual property or distinctive competency?

Many factors are involved in the valuation of a business for resale. Assessment of physical property is the easy part of this equation. Appraising the value of the business’s life or “Good Will” is a more difficult task. But even more difficult is appraising the value of the intangible assets like territorial rights, franchise agreements, and exclusive permits of defined services.

During the period of due diligence an inquiry is made and values are established to allow both parties the time to determine the value of the tangible and intangible assets. A third party should be contracted to perform a physical inventory
of all physical assets for the transfer. Real estate representatives can provide an opinion of the real property value and certified public accountants can justify the set value at the time of transfer in relation to the flow of goods.

Good will is really the perceived value of the sellers collective work based upon the sustainability of potential earning beyond the point of transfer. In some cases like the acquisition of an independent pharmacy the good will value is placed on the transfer of each prescription from seller to buyer. The value of that business is not in the inventory,it is in the potential sales of those prescriptions. Based upon a passed personal experience the number of prescriptions held by a pharmacy owner may cause the resale value to be assessed in the millions for an inventory of less than half a million.
The valuation of “Good Will” may also account for the value of a human asset, and in some cases an agreement may be contingent upon the continuation of employment by valued employees within the business. Let look at the pharmacy again, the pharmacist may have served his or her clients for many years, there is a certain trust in that relationship, and therefore an agreement may be reached with the pharmacist, in order to capture the patronage of those clients. Perhaps the pharmacy owner will need to sign a non-compete clause to ensure that the customers stay with the business as opposed to the another business.

Whatever the reason for the sale someone believes that they, owner or buyer, can benefit more from the sale more than the other person. Hopefully both sides, buyer and seller, feel that way. The seller may feel that his or her maximum potential has been achieved. The buyer recognizes that the business has potential to return his or her investment. The buyer may even see a hidden asset that the seller does not, and for that reason purchase the business.
One person sees a lump of coal , the other sees what is inside of the coal.

Source Inmagine

Resources – Youtube, exclusiverights.net, flickr, entrepreneur.com, RGIS, ezinearticles.com

Hedging the recession fear– who is investing in franchise motels and why.

Posted in Entrepreneur, Hospitality by ftiess on the January 31st, 2009

Niranjan's New Motel

Niranjan's New Motel - Flickr Source


Over the Christmas holiday my family and I traveled from Charlotte to Virginia Beach and then to New York, traveling on several major highways along the coast. We noticed the closure of many business’s along our path. Our return trip took us another route down route 81, through the Shenandoah valley. One thing that I noticed coming home was the number of new motel construction projects. Each of these sites were noticeably the same as far as the progressive phase of construction, an indication that someone or some group was investing quite heavily in motel construction. I questioned why someone would invest now in motel construction, with news that the lodging sector would experience an even greater downturn this year.

A more important question than why, was who had that kind of financial reserve. In researching motel ownership trends I cam across an interesting article about the Patel motel cartel.
The article highlighted the fact that 50% of the hotels owned in the North America are owned by member of the Asian American Hotel Owners Association (AAHOA). Further stating “at least 50 percent of all new franchisees since 1992 are Indian-owned. Typically these motels are not fleabag properties but Econo Lodges, Days Inns, Holiday Inns, Comfort Inns, Quality Inns and Super 8s. These are economy/budget properties with no food, conference facilities, guest laundries or room service. In addition, AAHOA members own and franchise a growing number of full-service hotels like Marriott, Hilton and Sheraton.”

So why would one invest in a franchise motel as opposed to creating a new brand? Perhaps we should first look at this choice from the perspective of the consumer. There are important considerations to take into account, as a traveler, going 65 miles per hour on our major highways chooses; lodging cleanliness, safe environment, and reasonable value for a single hotel night. These choices are sometimes made in an instant.

As for the investing nascent entrepreneur, based upon the consumers factors the following is a list of franchising benefits.

1. Immediate brand recognition.
2. Repeat business due to brand loyalty.
3. Proven marketing results with national campaigns.
4. Standardized quality control points for the brand.
5. Centralized reservation systems.
6. Collective purchasing agreements.
7. Established operating systems and training.

All of these factors support the success rate of franchise motels over independents. Consumers are less likely to trust the cleanliness, safety and related value of a motel stay to an independent micro-branded operation.

So to answer the question who is building these motels lets look at what Joel Millman writes In The Other Americans “Patels took a sleepy, mature industry and turned it upside down- offering consumers more choices while making the properties themselves more profitable. Motels that attracted billions in immigrant savings turned into real estate equity worth many billions more. That equity, managed by a new generation, is being leveraged into new businesses. Some are related to lodging (manufacturing motel supplies); some related to real estate (reclaiming derelict housing); some simply cash seeking an opportunity. The Patel-motel model is an example, like New York’s West Indian jitneys, of the way immigrant initiative expands the pie. And there is another lesson: as the economy shifts from manufacturing to services, the Patel-motel phenomenon demonstrates how franchising can turn an outsider into a mainstream player.”

I am only assuming that the Patels are making this investment, there isn’t any concrete data to support my claim, just the historical data. It stands to reason that with a downturn in housing construction, in a slumping lodging sector that someone had the insight to negotiate the construction of the motels with construction companies and lending institutions for their future advantage, build and invest now for a increased return on investment.

Franchising- Have it your way

Posted in Entrepreneur, Hospitality by ftiess on the January 24th, 2009

By definition a franchisee is an independently owned operation within a chain of franchise. A company owned store within a franchise chain is similar in operational standards, however the unit is managed by an agent of the franchise corporation. Ideally a customer should not notice a difference in the product or service offered. Depending upon the performance of the franchisees and corporate owned units the collective synergy can either promote the brand or damage the brand.
The corporate attributes that are beneficial to the franchisee is instant brand recognition, a limited risk of failure over independent startups, and continued product and service support. A path to learning the business operation for some budding entrepreneurs is to become a manager of a corporately owned franchise or even a private ownership. As a franchise manager climbs the corporate ladder he or she may position themself to become an owner operator.
Actually my preference would really be to develop a concept, “perfect” the brand and promote the growth of the operation by becoming a franchisor. If you have a favorite chain restaurant it is because of a single concept- quality. Quality is the consistent delivery of a predetermined standard.

Based upon observation and experience, in my opinion, the four most important elements to develop a successful quality business are:

1. Provide a product that fills a need or desire.
2. Identify operational problems early, and correct them.
3. Repeat, and document the activities that are successful.
4. Adapt with market demands.

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