Learning To Grow

Learning To Grow

SIZZLIN': Ray Tang of San Francisco's Mariposa (above) and Culinary Olympic Gold Medal winner Todd Downs (below) prepared pork specialties during a gala dinner sponsored by the National Pork Board.

ATTENDEES AT RESTAURANT HOSPITALITY'S SEVENTH ANNUAL CONCEPTS OF TOMORROW CONFERENCE SWAPPED IDEAS AND LEARNED FROM THE MASTERS.

SOUND ADVICE: Richard Melman (below) fielded questions from the audience while Al Baldocchi (above) talked dollars.
Melman (bottom) is a stickler for details; Rising Star Michael Bloise (above).

Chris Ward of Restaurant Life Group at the National Pork Board dinner.

WELCOME: RH Publisher Jess Grossberg spoke of competitive challenges ahead.

THE ANSWER IS YES: "Chocolate shakes for everyone" declared Cameron Mitchell, underscoring his philospophy of empowering employees to make guests happy.

Al Baldocchi

Renaissance Chicago Hotel Chef Robert Sikkila

Dennis Lombardi

Chef Gerard Marquetty

Ron Paul

Clark Wolf

Kyle Kieper

Scott Ward

CELEBRATE: The National Pork Board sponsored the Melman Award dinner and a meal that brought several outstanding chefs. Flanking Melman (center) were the board's Jeff Pigott (left) and Larry Cizek (right).

Chef Andy Husbands of Tremont 647 in Boston cooks pork.

Greed—or at least wanting to succeed—is good, according to Richard Melman. "I don't care how creative you are or how good the food is. You need to focus on making money. It's not a nasty thing to make a fair profit," Melman told the audience at this year's Concepts of Tomorrow (COT) Conference.

Concept king Melman and a slate of other concept builders and savvy observers caused an outbreak of writer's cramp at the October 3-5 event in Chicago, presented by RESTAURANT HOSPITALITY and sponsored by key industry partners. The speakers shared so many practical lessons and visionary ideas that many attendees scarcely had a chance to put their pens down. Kicking off the conference, a welcoming reception recognized nine of the Rising Star chefs highlighted in the magazine throughout the year (see p. 34). These young guns are chosen for their visionary efforts in the kitchen. "You may not know them today, but I guarantee you that down the road you are going to know who these people are," said Mike Sanson, RH editor.

Kicking off the formal program the next morning was Cameron Mitchell, the dynamic young entrepreneur behind Cameron Mitchell Restaurants and winner of this year's Richard Melman Concepts of Tomorrow Award (see p. 26). Mitchell stressed the importance of developing a culture and set of values for his company, and how those yardsticks have helped support its expansion to a $100 million collection of nine brands in the Midwest. "To last, you need to focus on your culture," he advised.

Cameron Mitchell Restaurants combines a "treat your employees right and they'll treat the guests right" policy with a "make work fun" attitude. Among the core values are quality; open, honest communication; encouragement of creative thinking; and a commitment to growth—not just for the sake of growth, but to give employees a place to expand their own talents and opportunities. Some 80 percent of Mitchell's managers are promoted from within, he said.

The definition of Cameron Mitchell Restaurants: "great people delivering genuine hospitality"; their goal is "to make raving fans."

The road to success hasn't always been smooth, Mitchell admitted. The company doubled in size earlier in this decade, and the timing— right around the Sept. 11 terrorist attacks—was less than perfect. Today, management follows a cautiously aggressive growth strategy. It will open four to five restaurants within the next few years.

After opening a diner, a steakhouse and a seafood concept, Mitchell has learned that "the more defined the concept, the better the results are," and accordingly, his company constantly tweaks its brands. He decided to focus primarily on the seafood concept, Mitchell's Fish Market (see Concepts of Tomorrow article, Oct. 2004 RH) because it seemed to hold the most promise for expansion.

Mitchell wrapped up his presentation by illustrating an anecdote that reinforced his company's service philosophy—"The answer is yes, what's the question?" He treated the entire audience to miniature chocolate milkshakes.

Industry icon Melman, chairman of Lettuce Entertain You Enterprises (LEYE), shared some insights about the challenges of opening new restaurants. Even after 34 years in the business and opening more than 60 restaurants, he admitted that "three-fourths of our restaurants are home runs, the fourth is not." But with the right location and idea, it's usually worth the trouble to tweak an idea and get it right.

For LEYE, paying attention to details is an important factor in getting it right. "We are adamant about doing things a certain way, and we've been profitable." And that goes beyond the food, he advised.

Before expanding a concept beyond the first location, LEYE asks two questions: Is the first one profitable? And are the right people in place? Melman said it helps a great deal to excel in whatever category you choose—if you have a hamburger stand, insist on having the best bun, meat, pickles and so on.

When he started in the business, Melman said operators could serve average food if they were novel in other ways. But the bar has been raised, and success demands being better at everything.

Not a big fan of fads, Melman prefers to take a long-term view of the business. But he's also ready to roll with the punches. "We have a fiveyear plan that we adjust every week or so," is the office joke, he said.

Working the Money Angle
One of the most crucial aspects of nurturing a concept of tomorrow is financing.

Al Baldocchi, who has counseled Chipotle and other growth concepts on financial matters, said investors look for a number of qualities before betting on a restaurant company expansion, including:

  • A successful concept—defined by strong unit economics (ideal: 35-40% cash-on-cash returns and a 20% return on the fully capitalized investment), positive same-store sales and a compelling consumer proposition.
  • A bankable, credible management team with great people skills and high integrity and solid decision-making abilities across multiple functional areas.
  • An achieveable business plan. Baldocchi said different investors define these items differently; in general, he likes to see "a keen sense of what the consumer needs and wants and a real passion to deliver."

Baldocchi also outlined the various sources of money for expansion. Newcomers to the business are most likely to find money from family and friends; operators with one or more restaurants up and running have more options. In any event, he advised, "it's important to talk to potential investors well before you need them."

For those new to the financing game, Baldocchi recommended seeking reliable financial, legal and business counsel; understanding your personal goals; knowing your money partner; trusting your gut; and taking care of your investors. "Make sure to pamper them because often they are involved in future investments," he stressed.

Everyone wants to know how they measure up to the competition, financially and otherwise, and Dennis Lombardi, VP of foodservice strategies for Columbus-based WD Partners, provided the answer in his presentation. He considered the question from the angle of existing stakeholders (i.e., the owners), prospective franchisees and potential buyers or investors.

Which segment an operator has chosen is one of the first things investors and franchisees evaluate. Lombardi pointed out that investors are often wary of segments with "category killers," or dominant brands. The concepts attracting the most interest currently include Asian, bakery cafes and indulgent snacks; Mediterranean and natural/better-for-you concepts also are picking up more interest.

An attractive restaurant is hitting on these four cylinders: menu/food (quality, indulgent and health-conscious choices are key), price point/value (getting even more important as fuel costs rise), environment/image (it must be clean and inviting) and service experience.

To be viable, a brand needs several attributes, Lombardi said: It must be repeatable (can you duplicate the concept elsewhere, and do you have the infrastructure to support it?), it should have a 2.5-to-1 sales to investment ratio on a non-capitalized basis and it must generate volumes high enough to be worth the investment and attract strong operators. For a full-service restaurant, that's $1.5 million in annual sales at minimum. And samestore sales growth should be outpacing that of the segment or other competitors.

Investors look for low turnover among managers (south of 15% or less at the corporate level, 30% among unit managers), an adaptable operating culture, good franchisee relations, ongoing consumer research, a food safety program, a competitive design package and more.

Lombardi warned about the perils of too-fast expansion. "Think about growth in terms of percentage growth," he advised. "Instant success in our business is 15 years of hard work."

Trendspotting
Ron Paul is the man for anyone seeking insight into where the restaurant business is headed. President of Technomic, Inc., a Chicago firm that keeps tabs on new and established concepts, Paul touched on a number of business trends and what they mean for operators.

To identify opportunities, Paul said a helpful exercise is to look at how many occasions your restaurant is appropriate for and try to broaden that appeal. Lately, one of those occasions might be the desire to have a nice meal at home. That's where takeout and offpremises catering are useful.

Another occasion showing growth is nontraditional dayparts. Brands like Starbucks and Subway are cashing in on the desire to have a snack or drink midmorning, midafternoon or after dinner.

Paul prescribed a grain of salt with some trends. He observed, for instance, that there is a long-term movement toward healthier dining, and that organic and natural foods probably have strong growth potential, especially in upscale, full-service restaurants. But he added that he would not invest his own money in any restaurant selling a "come to us because we're healthy" message.

Finally, the good news for white tablecloth restaurants: Paul believes there will always be a place for upscale fine-dining establishments. His advice to those operators: "Just stay focused, do what you do well and don't try to open 100 stores."

Consultant Clark Wolf encouraged operators to examine trends that will affect their business. The most important trend to affect restaurants in recent years, he noted, is that people want to know where their food comes from.

"They really care how it was raised, what it does to their body and what happens to the earth afterward," he said.

One constant about expectations in foodservice is change, he added. Thanks in part to the expansion of Whole Foods Markets, for instance, the dining public has revised its expectations about prepared food. Today, they expect good, fresh, easily available food on a regular basis.

People also want to feel good about what they are eating, Wolf said. And they look to food for comfort, although the definition of comfort food is a moving target. "Some people consider sushi comfort food," he noted.

Kyle Kieper's provocative brandbuilding presentation provided additional clues about where restaurants are headed. Kieper, VP and creative director with design firm FRCH Worldwide, opened with some statistics that have potential to impact products and services, especially foodservice:

  • 60% of all U.S. households have no kids, and that's expected to grow.
  • Traditional families make up fewer than 25% of all households.
  • Women make more than 80% of all buying decisions.
  • Over the next decade there will be a $1 trillion transfer of wealth in the U.S.

Among lifestyle trends presenting possible opportunities for restaurant operators, Kieper noted that interest in local products is rising, nontraditional housing is exploding and traditional grocery store sales have been declining.

He said the rise in the internet has created an "I want it now, and I want it customized for me" attitude by consumers that restaurants will need to satisfy. "Consumers are looking for Monday through Friday solutions, not Saturday night entertainment," he observed.

And expect wireless access to expand beyond coffee shops as more people expect to be connected all the time. "Allowing people to be connected is kind of like having a restroom any more," Kieper said.

Practical Matters: Smooth Sailing
RDG Chicago's Scott Ward, VP of operations, shared some of RDG's common sense rules for running an efficient facility. To keep a handle on 40-plus units, RDG has established systems—such as regular mandatory meetings, scheduling rules, inventory—and outsourced certain functions like payroll and accounting.

Ward said RDG focuses on four key concerns: hospitality, labor costs, food costs and beverage costs. It use productivity and hours as a yardstick instead of labor cost percentages.

Staffing strategies have helped RDG post one of the lowest turnover rates among Chicago restaurant operators, Ward said. The company works with employees to build their self-esteem, earn their trust, train and motivate them and provide feedback. RDG likes to hire managers who are not afraid to get their hands dirty and who have an entrepreneurial spirit. Training manuals are a conglomeration of techniques picked up from larger chain operators.

Finally, he noted, everyone who undergoes training signs a statement acknowledging that training and is held accountable for what has been learned.

As operators begin to build out their concepts, they have to focus in on one key principle. "It's consistency," declared Tim Soufan, senior VP of food and beverage and purchasing of 10-unit Boston-area casual chain Not Your Average Joe's. "Consistency is the oxygen you breathe in the life of your concept."

Soufan's a guy who should know, since his previous career stops included executive chef duties at such megachains T.G. I. Friday's and Denny's. He was emphatic about the level of complexity any single operator can effectively handle in the restaurant business. "If you are a multiconcept operator and you want to expand to other states, or if you have more than three units of the same concept, you're over your personal limit," he said.

Soufan pointed out that creating and delivering consistency over multiple units "is a promise you make to consumers over multiple locations, in multiple states. The execution of consistency is different than just managing the concept."

So how do you build consistency over multiple units? Soufan said it's all about writing tight specs and standards and having them in place for every aspect of your concept. "When you open a unit, there's lot of excitement for the first three months, then many people start to leave," he said. "At that point, the store has to be ready. It has to be on cruise control. That's when you need specs and standards," he said.

"You don't want people running around interpreting your procedures," he said. "Even when you go to a great restaurant like Charlie Trotter's or Ambria here in Chicago, where there are lots of smart people on the staff, there is still a high level of control and strict adherence to procedures."

Heading To Fat City

In his breakout session titled "Thriving Through the Obesity Crisis," Brian Wansink provided a road map of win-win strategies for operators who want to avoid the most common pitfalls on their way to profitability.

Wansink's book, Marketing Nutrition, is based on dozens of studies conducted by the interdisciplinary research team at Cornell University's Food and Brand Lab. He offered attendees ideas about how to understand consumers' views of healthy foods and how to improve them.

Wansink pointed out that the food industry's response to criticism has slowly evolved from denying or redirecting blame, to appealing to consumer sovereignty, to thinking in a win-win manner. In some cases, consumers may be willing to pay a little more for less. For instance, one firm determined that 57% of consumers will pay a 15% premium for solutions such as portion-control packaging. For restaurants, this translates into offering mini-portions at twothirds the standard price, or encouraging take-out bags at the appropriate point in the meal. This doesn't mean giving up profits, since customers have already paid for their food.

Among the strategies Wansink shared were:

  • Offer portion control.
  • Change the product, not the price.
  • Change the recipe, but keep it good.