Before the onset of our current economic downturn, the restaurant industry enjoyed
decades of growth as Americans continued to eat more and more meals away from home.
But reduced spending by consumers, combined with the sector’s maturation, have interrupted
this long-advancing expansion — and may have changed the industry in a fundamental
and lasting way.
“Everyone I know is convinced that this is not a short-term deal,” said Scott Bergren,
president and chief operating officer for Pizza Hut. “A generational change has taken
place. Psychologically, the impact of the last two years is going to change the lifetime
expectations and outlook of a whole generation of customers.”
In turn, this change has placed new pressures on senior leaders, changing both their
corporate strategies and their views of the profile necessary for the successful top
restaurant executive of the future.
A CHALLENGED ENVIRONMENT
The restaurant industry experienced 1.2 percent and 2.9 percent negative growth in real
sales in 2008 and 2009, respectively, the first two years of consecutive decline for the
industry in 40 years. The National Restaurant Association predicts ongoing growth for the
future, projecting that the industry will employ 14 million people by 2020 — 1.3 million
more people than it does today. But it also expects 2010 sales to be essentially flat as
the economy improves.
“For the time being, people have taken some share away from our industry and applied it
to savings, to grocery, to uncertainty,” said Michael Kaufman, immediate past chairman of
the National Restaurant Association. “We’re not seeing a tremendous amount of trade-down —
I don’t think people are moving from Ruth’s Chris to McDonald’s. They are just being more
thoughtful about wine, appetizers and dessert, about sharing and cutting the average tab.”
In response, many leaders have changed their perspective in an industry that once
counted on ongoing organic growth. “In my mind, growth is the wrong idea today,” said
Bergren. “The categories aren’t growing. I don’t see a whole lot of consumer business
overall growing. What I see is people marshalling their forces to maintain share.”
Some industry sectors expect even greater challenges in the months ahead. “I think it’ll
be a really hard slog for the next 12 months,” said Des Hague, president and CEO of
Centerplate, which operates in the sports and convention markets. “Discretionary spend,
particularly in sports, which is 65 percent of our business, is going to be challenged. And
in the convention centers, we get visibility out by six to nine months, and we don’t see
the traditional number of bookings coming through.”
“A generational change has taken place. Psychologically, the impact of the last
two years is going to change the lifetime expectations and outlook of a whole
generation of customers.”
To keep customers in this difficult environment, many restaurants have lowered prices to
a level that is likely unsustainable. “The majority of restaurants are building traffic
through discounting, which is clearly not profitable over the long term,” said Nick
Shepherd, president and CEO of Carlson Restaurants Worldwide. “You’re basically renting
your guest from someone else — not creating loyalty. So how we deliver distinctive value
that is differentiated from the other players in the core casual sector is the critical
challenge that we face going forward.”
BUILDING THE BRAND
In fact, many restaurant leaders view a strong brand as the most important success
factor right now. According to Wyman Roberts, president of Chili’s Grill & Bar and On The
Border Mexican Grill & Cantina, “You’d better understand what makes your brand special to
consumers from a value perspective. There’s no room right now for ancillary spending.
You’ve got to be very specific about where you put your resources, and be sure that if you
pull things away, you invest more in the things consumers really care about as it relates
to your brand.”
Meanwhile, leaders don’t see the resource crunch easing up anytime soon. “Our view is
that there are structural changes that collectively define a new era for us and potentially
full-service dining,” said Drew Madsen, president and chief operating officer for Darden
Restaurants. “Systemic cost pressures driven by the growing middle-class population in
countries like China, India and Brazil will put more demand on limited food commodities and
energy. It’s going to create more costs than we can price for. We certainly need to be
brilliant with basics of brand management. In addition, we can’t just optimize our
current brand support platform to effectively address these cost pressures — we need to
transform it.”
To succeed in making the shift, companies such as Darden are increasing their efforts to
leverage their multibrand portfolios to drive sales more effectively. They are also
building strategies to utilize the array of digital and social media, instead of relying
primarily on network television advertising. And they are plotting out supply chain
transformation that ultimately will change the way that restaurant managers
order and receive food to maximize scale, quality and efficiency.
As companies strive to differentiate themselves, they’re pursuing excellence through a
variety of different operating models. “One model is adding a lot of menu complexity and
driving your business through a lot of product innovation,” said Tom Davin, former CEO of
Panda Restaurant Group. “At the other extreme, you’ve got people being world-class at maybe
just one product. We had some of that debate internally: Should we dramatically expand our
new product development group, or just become a lot more focused on making our No. 1
seller, our orange chicken, even better?”
No matter the approach, leaders agree that today’s increased competition has raised the
bar for overall performance. “In my opinion, there are three operating models,” said Hague.
“Do you lead by product, by operations, or being customer-intimate? Ten years ago, it was
okay to have one of those disciplines. Over the last 18, 24, 36 months, it’s become more
important to really excel at two of those, with a strong third discipline, as well.”
In addition to honing their operations, companies such as Centerplate, that have the
advantage of a favorable financial position are also eyeing growth, and scale efficiencies,
through acquisition. “We see growth opportunity not necessarily through new venues or
locations, but in entirely different businesses and in elevating Centerplate to No. 1 in
event hospitality,” said Hague. In November 2009, the company purchased Boston Culinary
Group, gaining a strong presence in the college stadium and ski resort markets.
DEVELOPING TALENT
As the industry strives to execute better, it remains challenged in these efforts by the
fact that it is often the least skilled, lowest-paid employees who interact with consumers
the most. And those employees often don’t stay around long. To succeed, companies are
increasingly recognizing the need for leaders who can create a learning environment in
which people can grow and build a career.
“One of every two people works in a restaurant at some point in their career,” said Dawn
Sweeney, president and CEO of the National Restaurant Association. “The funnel is big, but
too many of our people fall out of it and go to other industries. We need to do a better
job of helping people see the opportunities available to them here. It’s an industry where
you can grow very quickly and run a $1 million P&L when you’re 24. You can’t do that almost
anywhere else.”
In part, these retention problems may be exacerbated by the fact that developing talent
from the entry level up hasn’t always been a traditional strength of the industry. “As I
look around, most people don’t execute well, because the people at the restaurant level
don’t care,” said Davin. “The root cause of that is that they don’t feel cared for. And you
can’t require people to care or leaders to care for their people. It has to come from
within.”
To give his executives a deeper understanding of the challenges faced by store
employees, Davin asked all of his senior executives go through the company’s seven-week
general manager training program upon hiring. It included six weeks working every possible
job in a Panda restaurant, from serving customers to chopping broccoli. “When I was in the
Marines, every Marine was a rifleman. Every Marine can walk a patrol, pull security, fire a
rifle, go into a firefight,” said Davin. “At Panda, everybody has to be able to run a
restaurant.”
To groom future senior managers, many leading companies have also established strong
mentorship programs. Yum! Brands, Pizza Hut’s parent corporation, takes select high
potential employees to offsite meetings where they are matched up one-on-one with senior
executives who have the highest achieved talent in the company to learn demonstrated best
practices. “Food retail is a really fast-moving business with constant innovation,” said
Bergren. “If you don’t do worldwide know-how sharing, and make it not just part of your
culture, but part of your structure, you’re going to fall behind.”
It’s also important for executives who strive to be senior leaders someday to gain
exposure to the different core elements of the business. “You have to get well-rounded,”
said Roberts. “You’ve got to understand operations as well as the financial side and the
marketing piece of the business. This isn’t rocket science, but it’s got a lot of elements.
If you have to rely on experts in these areas, it limits you as a leader.”
"The funnel is big, but too many of our people fall out of it and go to other
industries. We need to do a better job of helping people see the opportunities
available to them here."
At companies such as Darden, leadership development is focused on developing this
breadth, with a particular focus on each executive’s biggest development need as it relates
to what their leadership accountability will be at their next job.
“For a handful of high-potential folks who in seven to 10 years might be our COO or CEO,
we’re asking, ‘Is a new career path, or a new assignment with the potential for
significantly accelerated learning in key areas, required to prepare these individuals to
capture their full potential?’” said Madsen. “It can be very disruptive to the
organization, so you have to do it very strategically and selectively. But it’s a great
learning and developmental opportunity.”
THE NEW RESTAURANT LEADER
In this changed environment of increased competition, growing price pressure and
uncertain growth, restaurant leaders are changing what qualities they look for in their
senior team. “In the past, you’d go recruit an M.B.A. from a good school,” said Bergren.
“But now we see that many of these otherwise qualified people are risk-averse. They’re
left-brained, analytical and trained to avoid risk. The action-oriented right-brain thinker
has become much more valuable as the pressure of the market encourages
the business to be more adventurous and take more risk.”Traditionally, leaders have looked within the industry for their senior talent. “There’s
a real bias that to be a restaurateur, you’ve got to earn your stripes,” said Roberts.
“It’s not 9 to 5, it’s holidays, it’s dealing with guests, it can be physically demanding.
I think people are wary of investing in outside talent and then having them decide, ‘this
isn’t my industry,’ because it is a tough industry.”
Today, while the bias toward those with an industry background remains for the core
business in restaurant operations, leaders are more willing to look outside the industry
for functional roles such as finance, IT and marketing.
“We’re very conscious of building employee engagement and providing opportunities for
our employees to grow and progress within Darden,” said Madsen. “We strive for 70 to 80
percent of our overall promotions to come from within the company. But in departments such
as marketing, where we don’t have as big a population base, and we need to infuse our best
practices with new ideas, the internal promotion rate might be closer to 50-50. We need to
have game-changers there. It’s part of how we’ll win the battle.”
Given the sometimes insular nature of the industry, leaders value executives with
intellectual curiosity and an inherent interest in the best practices of other industries.
This includes everything from the relationship-building and marketing prowess of consumer
packaged goods and retail to the tech savvy of a variety of industries that isn’t yet
embedded in the restaurant sector. “The management of the future will have a bigger,
broader vision about how technology can be used from a facilitating and convenience
standpoint in a way that the industry hasn’t fully captured yet,” said Sweeney.
In an environment of increasing cost pressures, real estate knowledge, which has always
been important, will become even more critical moving forward. “The margin in our industry
is already so small that some of the men and women who have done well are those who have
also recognized the real estate implications of what they’re doing,” said Sweeney. “A lot
of people make more money in real estate than they do in the restaurants.”
Restaurant leaders are also best served by having a keen sense of competition. “You’ve
got to want to win,” said Roberts. “The score gets posted here every day. It’s not like
some industries, where you wait a year to see how the packaging plays out. From a marketing
perspective, that’s what I’ve always loved about this business. You do something, you see
the results — good or bad — right away.”
GOING INTERNATIONAL
Meanwhile, as other industries have become increasingly global, many restaurant leaders
take a more reserved view of the power of global expansion. “Looking internationally will
increasingly become part of the growth strategy, but if your base business isn’t working in
the home market where you have over 50 percent of your stores and earnings, no
international growth strategy will be sustainable,” said Shepherd.
As a result, international growth isn’t a top priority right now for some restaurant
companies. Others who have yet to achieve the scale of a McDonald’s are primarily achieving
success abroad through franchise relationships where they provide know-how, product ideas
and the brand itself while leaving the day-to-day operations to a local partner. “A leader
who is thinking about doing that needs to understand A) how franchising works, B) how
cultural differences matter, and C) how to set it up in a relationship where there’s
trust,” said Kaufman.
But even those companies that aren’t looking to go abroad still can benefit from
leadership with an international mindset. “Consumers today have a much broader perspective
in many ways than they ever did before,” said Sweeney. “The influences of global cuisine,
the global marketplace, and the diversity we have in our own country create an environment
where you are best served by having that perspective.”
IT'S STILL ABOUT HOSPITALITY
In the end, though the shifts in the economy and consumer psychology may have
fundamentally changed the industry, leaders agree that the industry’s most essential truth
is now truer than ever: the restaurant sector is still a service industry where success
hinges on customer satisfaction.
“Is it really about every guest leaving happy?” said Shepherd. “I’d say it’s really
about every guest leaving absolutely wanting to tell everybody they meet that they have
just been to a special experience, and, what’s more, they get it every time they go there.
We’ve actually changed our mantra to ‘Ring the bell’ because it’s part of our heritage. The
bell was always a part of Friday’s — and you rang the bell when something special
happened.”
Ultimately, creating such a culture may be the restaurant leader’s most important role
of all. “It always comes back to leadership,” said Roberts. “The leader creates the culture
of the restaurant and sets the standards. He or she makes sure we’re delivering in a way
that doesn’t just kind of hit the mark, but creates the feeling of a great restaurant. Good
food is almost a given today. In this business, it’s about the emotional connections we
have with people.”
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