OPERATIONS: Top five client mistakes of 2003

Jan. 19, 2004

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

Well, it is that time of year again. Time to list the Best and the Worst of 2004. Naturally we will start with the worst. Below I have listed the five biggest mistakes my new consulting clients have made in 2003 (hopefully, existing clients are not making them anymore.)

I weighed two criteria when in compiling this list: 1. The seriousness of the offense; and 2. The commonality of the offense.

For example, I had one client who could not resist smoking cigarettes in the store. This is a serious offense, but one that's not very common. More common is clients allowing employees to smoke in front of their store and that almost made the list, but it wasn't common enough.

Jim Moran

I had to make some tough choices, but here they are.

5. Mom-and-pop-itis—This is a little-known disease that tends to affect almost every restaurant which isn't nationally recognizable. Clients love to say to me, "Listen, we're no Domino's Pizza."

My response is always the same, "Domino's Pizza was not always Domino's Pizza. It also started out small. It's just that 90 percent of restaurants fail because they think small and stay small."

When you make decisions about your restaurant, ask yourself, "Would an extremely successful pizza company make this same decision?"

Understand, I am a big proponent of the individuality of small operations, and I'd never insist independents make themselves clones of large chains.

But sometimes individuality is confused with shoddy operations. Think about it: How often have you been inside an independent shop whose walls and counters are covered with crap, or employee uniform standards are lax (or non-existent), or its doorhangers are ugly and outdated. That's not individuality, that's lame, and ultimately it portrays a negative image that makes the customer think, "Domino's isn't like this."

The point is to think and operate professionally, like Domino's or Papa John's or Pizza Hut, and then adapt those successful tricks of the trade—i.e. personalize them—to your own operation.

4. Televisions in the Store—Here's my rule of thumb on televisions: Unless 90 percent of your business is dine-in, having a television in your lobby area is an INCREDIBLY STUPID IDEA! Here's why: Your employees are watching TV when they should be prepping, cleaning, doorhanging, etc., etc.

I also believe the percentage of customers who benefit significantly from watching TV as they wait in the lobby is very small. In fact, many call in their orders or order in-store, leave and come back.

I had one client insist I was wrong on this issue, so I sat in his lobby for two hours. He had 27 carryout customers and only three ordered in-store and waited for their orders. What you might gain by having a TV for so few folks to watch can't compare to the amount of money you are losing on labor because employees are drawn to it.

I had one client tell me he would "lose customers" if he didn't have a TV because when the Florida Gators games are on, none of the school's "rabid fans" would order from him if it wasn't televised in the lobby. (Well, I am a Miami Dolphins fan and I would NEVER leave my house in the middle of the game to go get some carryout food. "Rabid Fans" understand that leaving means missing at least some of the game, which is unacceptable. That's why they call for delivery.) The truth is that the client wants a TV in the store so he can watch TV. Period.

3. Deplorable Phone Behavior—Let's ignore the fact that most employees I see don't use a phone script and are generally not very helpful. Not upselling every order is like taking money out of the owner's pocket and SETTING IT ON FIRE! I audited one client whose employees did not even attempt a single upsell 80 percent of the time.

I love to ask my clients how much profit Domino's Pizza makes on a large pepperoni pizza if they charge $11.48 for it. The most common guess is $5.

Were that even close to accurate, Frank Meeks, one of the chain's most successful franchisees, would literally be the richest man on the planet—not Bill Gates. After subtracting all of the fixed and variable costs, Domino's makes about $1.08 profit on a "large pep."

However, if you upsell a six-pack of soda for $2.99, you add 92 cents profit, almost doubling the profit on the transaction—not to mention increasing sales and lowering labor. I spent way too much time in 2003 training clients to upsell and convincing them of its importance.

2. Embarrassing Driver/Insider Ratio—I wrote an article for PizzaMarketplace earlier this year on some managers who work for Frank Meeks in the Washington D.C. area. The piece centered on the incredibly low labor numbers those managers run routinely. The article yielded some interesting, though not surprising, responses. Several people who e-mailed me simply did not believe that you could run 14 percent to 15 percent labor (including manager's salary) in a pizza store. Most of my consulting clients don't believe I can lower their labor below even 20 percent! One said to me, "If you can get my labor below 25 percent, I will be thrilled."

I have a relatively easy time lowering most of my clients' labor by 5 percent to 10 percent, and I do that several ways. Raising sales and ticket averages certainly helps, but the biggest impact I make is through improving a store's driver-to-insider ratio. This is easily done with some cross training and by developing the staff's sense of operational urgency during the rush.

Domino's founder Tom Monaghan believed the perfect ratio was 10 cross-trained drivers for every one insider. Frank Meeks would not allow his stores to schedule a second insider unless there were at least seven drivers scheduled.

Monaghan's goal is ambitious, but attainable. Meeks' goal is very realistic. There is no reason that every driver in your store should not be able to help in food preparation, and if they speak English, they should be able to handle phones.

Most of my clients have the same amount of insiders as drivers, or close to it. Not only is this is physically and mentally lazy and unnecessary, I almost never see a sense of urgency in these operations.

Oh, and one more note: If you own your store and you are drawing a salary from that store, then count yourself as an insider. That is why it is called owner-operator not owner-observer-office-sitter.

1. Expanding Too Fast—This is the main reason most companies with good business models and smart, enthusiastic owners, wind up failing. As I discussed in an article earlier this year (see OPERATIONS: Monaghan's maxim was never to put the cart before the horse) you should not open a second store until you have someone capable to operate that store in your absence. This rule applies to every store you open.

If you want to have a large company some day, you must focus on developing a training system that produces future store managers. If you have incompetent or unprepared people running your stores, then you will lose customers who will never come back. And when you run out of customers by turning them off, you are finished.

* The following mistakes were the runners-up, which did not make this list:

* wasting food
* short-term thinking
* lazy doorhanging plans
* bad (desperate) hiring choices
* lax safety and security
* inefficient closing procedures
* menu mistakes
* lack of store cleanliness
* restaurant disrepair
* not having or using a profit-and-loss statement.

The disturbing thing about these mistakes is that the only stores I see are those operated by owners and franchisees who care enough to make the investment to hire me as a consultant. I have no doubt that there are plenty of stores I don't get to see where such poor practices are regular.

The good news is that I saw plenty of great trends in 2003, and that will be the focus of next month's article.

Other articles by Jim Moran ...

* OPERATIONS: Protect your investment and people with store safety policies
* OPERATIONS: Take pride in your product
* OPERATIONS: Monaghan's maxim was never to put the cart before the horse
* 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: Operations Management

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