Archive | January, 2015

Burger King vs McDonald’s: The Ongoing Case Study of Restaurant Ineptitude

26 Jan

In 2010 3G Capital, a Brazilian private equity firm, purchased Burger King and started replacing its senior management with much younger personnel. These replacements came from Wall Street, were educated at some of the top academic institutions, and have no fear of working consistent 80 hour weeks. How young is young? Their CEO, Daniel Schwartz, was 32 at the time of his appointment,  his CFO 28, head of Investor relations 29, and President of North American Operations the adult at 36.

Compare this to McDonald’s leadership team: their CEO has spent 24 years exclusively with McDonald’s, and their US President 3o years.

And how is that working out for McDonald’s (MCD)?

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The restaurant industry is simple. It’s hard work, but it’s simple. McDonald’s has forgotten this and done all types of things that drive business complexity, lower profits, and keep recalcitrant senior and middle managers overpaid. In a world where restaurants are overbuilt and churn high, you need to stay relevant with customers or you can be easily dismissed.

Why It’s So Hard to Reach Restaurants

16 Jan

Yay for learning!

We’ve spent the last few posts looking at the empirical data people turn to when making decisions about how to approach the restaurant industry. Now we’d like to look at little more at the “fuzzy stuff” and offer some rationale for WHY restaurants are the way they are.

When we set out to write this post, it was hard to find the requisite data for an apples-to-apples comparison. In one of the earlier posts we had mentioned it took 17.5 touches, on average, for enterprise SaaS (customer has >1000 employees) deals to close. This process typically looks like an inside sales rep making calls or emails to find the appropriate person to take the solicitation. Next comes a meeting, usually virtual, in which a different inside sales rep, steeped in the art of closing, begins to assess the fit, roadmap, decision stakeholders, and budget timelines. All of these points of contact, until the check is signed, are counted as a touch.

Well, we couldn’t find any well-published data about touches in the restaurant vertical. So for this post, we will use our own data. For the record, WhatsBusy does NOT sell anything to restaurants. As our previous entries make clear, the restaurant industry is a terrible vertical on which to hang the success of your business. Long sales cycles and low contract volumes are just the fringes of the abyss. We do, however, work with restaurants, and those are the figures we will cull for this post.

WhatsBusy has had deals move as fast as three touches… outside the restaurant vertical. Inside the restaurant vertical, we have never had anything happen with fewer than 60 touches. Yes, 60 touches. Why so many? Now begins our quest for a logical answer!

Restaurants have a brick and mortar presence. Thus they feel ubiquitous and accessible to many people looking to sell something. The result, which many operators will tell you, is an inordinate number of inbound solicitations. It is not uncommon for certain positions within a restaurant to receive 50 solicitations per week. At this rate, responding to sales people would likely consume most of a restaurant’s time.

However, the implicit misfortune is that the restaurant is now missing opportunities to be educated about solutions that could massively impact operations and bottom lines, and in the case of WhatsBusy, these sorts of things don’t even come with a price tag. It seems to us, then, that restaurants do receive a large number of inbounds, but are very, very bad at sorting out legitimate opportunities from routine sales propositions. In an effort to simplify their lives (or rather to stymie financial returns and misserve their employers), restaurant personnel are applying categorical filters to every inbound conversation, regardless if the person is a Harvard-educated professional who previously IPO’d a retail solutions company, or a crack addict.

We believe part of this comes from the makeup of the restaurant industry. In most cases you will find that senior executives in the restaurant industry have been in the vertical for their entire careers. While there is nothing particularly wrong with this, in general, it poses a problem when the restaurant industry is decades behinds other industries. Thus people who have only known restaurants are not unlike tribes that have been isolated while the larger world has seen the likes of the Renaissance and the Industrial Revolution.

While this may seem like a cherry-picked example, I highlight it because it is a well-documented (see Who Says Elephants Can’t Dance?) case study. Lou Gerstner graduated from Harvard and spent time at McKinsey, RJR Nabisco, and American Express. His background does not scream IT pioneer. Yet he was hired as CEO of IBM during it’s flailing 1990′s, and is largely credited with turning the company around. Why? Because Lou had been exposed to processes and people, outside of IT, that gave him the learnings and confidence to turn around a company which he knew little about. At the end of the day, companies are all – mostly – the same.

We can sharply contrast this to Clarence Otis, CEO of Darden, who was rightly thrown out by Starboard Value. Clarence studied at Stanford School of Law (on par with Harvard), and joined Darden in 1995. From 1995 until his departure in 2014, Clarence was solely focused on the restaurant industry. Taking this myopic view, Clarence did not learn how other industries had implemented more advanced tools and systems. He did not know how to improve a business outside of a “change the menu” mindset. Instead, Clarence increased G&A to an industry high while consistently underperforming peers.

To quote Steve Jobs,

Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something.

It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people.

Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences.

So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have.

Restaurants will round the corner when the anachronistically-entrenched guard leave their posts and new blood flows in. In will rush outside experiences. In will rush youth and vigor. In will rush sophistication. In will rush good financial returns – something restaurants have not had in a long while.

Restaurants vs Grocery

16 Jan

For those who may not be aware, the US food and beverage market is effectively bifurcated by sales dollars: half goes through grocery, the other half through restaurants. When examining progress and innovation in the space, it is relevant to compare grocery to restaurants, as suppliers will look at where their products end up and determine where to spend their time. Commonly, suppliers cannot generate much ROI in restaurants because there is a dearth of sophistication, and education is not cheap.

In our eyes there’s no clearer example of the void in restaurants than in mobile ordering. OLO, founded in 2005, started providing mobile ordering services to restaurants. Over the past decade they’ve successfully penetrated 150 restaurant brands and raised $25M. If we look at a competitor, we can see the time it takes to sell one of these operators. Tillster recently announced a 2.5 year effort to bring mobile ordering to Burger King. In that same 2.5 year period, Instacart, who deals with grocers and not restaurants, has raised $265M and works with grocers like Costco, WholeFoods, and others to bring mobile ordering AND delivery to grocers.

In this simplistic example, the comparison of grocery to restaurants highlights the major gaps in sophistication. Even though the restaurant market is nearly the same size as grocery, investors have put 10x more money in 1/5th the time into a solution that goes to grocery over one that goes to restaurants. Another way to frame it is that investors think that restaurants are 50x less sophisticated than grocers as measured by the time it takes them to become educated on innovation… and they put their money where their mouth is.