OPERATIONS: Monaghan's maxim was never to put the cart before the horse

Nov. 10, 2003

Jim Moran is a pizza and restaurant industry veteran, and an industry consultant and speaker with Restaurant Trainers, Inc.

My book, "77 Winning Strategies for Restaurant Management" recently appeared on a list of the most important restaurant Management books of all-time. This was a great honor for me, because that put me on the same list as two of my idols in the restaurant industry: Tom Monaghan (founder of Domino's Pizza) and Dave Thomas (founder of Wendy's).

I have been fortunate to spend some time with both men. In this article and the next, I will discuss important issues these pioneers believed were key to their success.

This month I will focus on Tom Monaghan's warning about careful, calculated growth, i.e., not putting the cart before the horse. The subject we were discussing was when to expand to add new stores, a fantasy many owners entertain as soon as their restaurant enjoys some success.

Jim Moran

Soon after, it seems, thoughts soon turn to opening a second ... and then a third.

I asked Tom in 1997, when he was still running Domino's Pizza, what he believed should be the rule of thumb for opening a second store.

A firm handle on your first store is a must, he said, and by that he meant generating consistent double-digit sales and profit increases, plus being able to handle the rush. He believed that maintaining good service during the busiest times is the biggest key to long-term success.

Once an operator has achieved those goals, Tom said the operator must be 100 percent certain he's ready to open a second store. That meant the operator had the capability to staff and manage that next store. And even then, he still stressed the eager operator should wait one more year before opening the second store.

Such wise cautiousness was a hard-earned virtue for Tom Monaghan. After expanding too quickly at the beginning of his legendary career, he had to close many stores.

What's clear in our industry is most people do not follow the sage advice of a master like Monaghan. And, quite frankly, that's a major reason I've done so much on-site consulting work over the past few years. Below is how 90 percent of all of the conversations with my consulting clients begin when they first contact me for services:

"We opened our first store and things were going great! Since then, we have opened ____ more store(s) and things are really tough right now... ."

Such operators are perpetually surprised that not only are the second and third stores not living up to the performance of the first store, now the first store is slumping as well.

There are several reasons why this happens, but the top reason, by far, is that people, as Monaghan warned, put the cart before the horse by opening a new store before they have a qualified person to manage it!

And though the reasons for doing this may differ, the result is almost always the same.

Sometimes operators expand because of what seems like simple logic: "If store number one is making this much money, then I can open store number two and make even more! Every day that goes by and that second restaurant is not open, I am losing money that could be in my pocket, right?"

Sometimes companies actually contractually obligate their franchisees to open a certain amount of stores by a certain date. This is a terribly shortsighted business model. One of my consulting clients currently has this policy. They have a great business model and delicious product, but this policy could bury that company all by itself.

I see unlimited potential in this client, but I have had several disastrous store visits that could be blamed on the person running the store.

This company paid a firm thousands of dollars to survey its customers and were surprised that, although their business model and product received high marks, they are actually losing more customers than they are bringing in. This is a time bomb for a growing company. The people running its stores are not delivering on this great business model.

What's worse, this company is expanding quickly, and the more stores its operators open, the more royalty sales come in. That in turn is giving them a false sense of success.

It's likely that the hard lesson this company will have to learn is that there are a finite amount of customers available for any restaurant, and when you run out of those customers because of poor service, you are out of business.

If you want to be successful five years from now and not just this year, place more focus on training and developing people to run the stores you have.

Next month I will focus on the advice Dave Thomas gave me, when I asked him for his key to long-term success.

Other articles by Jim Moran ...
* OPERATIONS: Pizza-centered school fundraisers pay dividends for all
* OPERATIONS: Rule #1 in pizza is, 'The customer is always right'
* OPERATIONS: Doorhanging is for drivers, not for kids
* OPERATIONS: Everyone wins on the 'one per run' delivery system
* OPERATIONS: Cross-training lowers labor cost, boosts morale
* OPERATIONS: The secrets of running low labor

Topics: Domino's Pizza , Operations Management

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