The World is a Little Darker Now...

[Mammon]

http://online.wsj.com/article/SB1217347714...=googlenews_wsj

Metromedia Restaurant Group earlier this year violated several terms of a lending agreement with GE Capital Solutions. It had been in negotiations with lenders for months to stave off the filing, while closing some stores and looking for a buyer, said two people involved in the matter.

The filing is the most extreme sign yet of how midpriced sit-down restaurants are undergoing one of their worst periods in decades. High ingredient and labor costs are eating into profits, and several years of rapid expansion by bar and grill chains has left a glut of locations in the market. Pressures on consumer spending like high gasoline prices and dwindling home values have prompted consumers to eat out less often or switch to cheaper fast-food meals.

A friend and I were actually planning to drive to the town East of us to go to Bennigans tomorrow or this weekend, we made these plans this morning and then all the sudden I hear they are filing for bankruptcy! Why the one restaurant I really want to go right now?!

I think God hates me... and my friend.

[fletch]

I think God hates me... and my friend.

Maybe He just hates the food at Bennigan's.

[01503]

Somewhere, a young boy named Butters Stotch is screaming. Listen closely...

Nooooooooo!

[Kori]

^LMAO

Bennigan's is absolutely disgusting. Good riddance.

[Jake]

No more Monte Cristos ???

[K-Mac]

They had a good smokey honey mustard. That's about all I will miss. Steak and Ale is no loss either. Outback Steakhouse is much better and makes just about everything from scratch every day. I worked there for three years many moons ago and I still enjoy eating there.

[Benpercent]

Not all of them are closing. According to my local paper, a few in Michigan will continue to stay open, so perhaps you might want to check with the locations in your state Mammon.

Though I must add I have never been to Bennigans. What is so special about it?

[Mimpy]

Not all of them are closing. According to my local paper, a few in Michigan will continue to stay open, so perhaps you might want to check with the locations in your state Mammon.

All the company-owned restaurants have closed. The franchises remain open.

[JASKN]

All the company-owned restaurants have closed. The franchises remain open.

Interesting, I wonder how that works out. Who decides the future Bennigan's operating standards?

[K-Mac]

It will probably end up like Dairy Queen in that no one knows what their standards are anymore. In Texas, Dairy Queens are still good burger joints with an awesome chicken fried steak sandwich called the DQ Dude, yet you can drive a state or two away and they look at you funny when you order it. There's a DQ near my office here in Colorado that doesn't serve any fried food. How does a burger joint do that?! (And yes, fried food is allowed here by law. We're not quite as bad as California, yet.)

[pam]

GE owned the company that owned Bennigan's?

That is like Microsoft owning Applebees/ThankGodIt'sToday/RubyChilis or whatever TF they are called.

They all suck.

Garbage in Garbage out

Edited August 1, 2008 by pam

[adrock3215]

Interesting, I wonder how that works out. Who decides the future Bennigan's operating standards?

Closing the company-owned units doesn't equate to shutting down corporate operations. Obviously, if they are still franchising new units, or there are existing franchisees paying royalties, then the company still exists and can set standards. They just won't run any stores. (Which is how it should be in my estimation anyway. Franchisees always run the units better than a corporate entity.)

[JASKN]

Closing the company-owned units doesn't equate to shutting down corporate operations. Obviously, if they are still franchising new units, or there are existing franchisees paying royalties, then the company still exists and can set standards. They just won't run any stores. (Which is how it should be in my estimation anyway. Franchisees always run the units better than a corporate entity.)

OK, thank you. That makes sense, since a corporation will probably have a less personal and vested interest in each store than a single owner. Not to mention the franchisee is bound to understand things better on a local level. For some reason I had the impression the case was the opposite, that companies ran the better stores.

[adrock3215]

OK, thank you. That makes sense, since a corporation will probably have a less personal and vested interest in each store than a single owner. Not to mention the franchisee is bound to understand things better on a local level.

Those are essentially the two reasons why franchise-owned stores tend to operate better than corporate-owned stores. Many companies have had great success through franchising, including McDonald's, 7-11, Domino's Pizza, Papa John's Pizza, Burger King, Applebee's, and most recently, Subway and Quiznos. There is, however, a trend right now in the direction opposite franchising, as companies such as Starbucks, Chipotle, and Potbelly's have so far stuck to only corporately-owned stores (with the exception of airport units in the case of Starbucks and Potbelly). I'm not sure why these companies refuse to adopt a franchise-model. For whatever reason, they think they can manage a huge conglomerate of stores from a central location (Seattle, Denver, and Chicago for Starbucks, Chipotle, and Potbelly respectively). It would be interesting to find out the rationale behind this; my suspicion is that it has something to do with "quality over quantity", and maintaining total control of every unit. (I heard that Starbucks even determines where chairs and tables will be placed in every single store.)

[JASKN]

I heard that Starbucks even determines where chairs and tables will be placed in every single store.

That would not surprise me, though I think Starbucks is not a very good company, and I don't take it as an indicator for "good managing," or owning. Also, the Starbucks example does not really fit the pro-franchise bill. Every airport Starbucks I have been to (perhaps 20 altogether) had a marked quality and service difference than company-owed stores.

Since you mention quality over quantity, I wonder how a pro-franchise argument would handle that. How many franchisers have had trouble with poor quality and similar issues, and how difficult was it to fix? Does it happen a lot? And do the benefits of a larger market share and a potentially more valuable brand outweigh the franchise annoyances (or maybe even value-destroying practices)?

Perhaps the fix is to be really vigilant in owner-selection, supplemented with very good (and appropriate) contracts. I guess I can't see the franchise argument being made without also the corporate argument. That is, the corporate guys have to like what they do on their end of it just as much as the franchise owners on the other end.

[adrock3215]

Since you mention quality over quantity, I wonder how a pro-franchise argument would handle that. How many franchisers have had trouble with poor quality and similar issues, and how difficult was it to fix? Does it happen a lot? And do the benefits of a larger market share and a potentially more valuable brand outweigh the franchise annoyances (or maybe even value-destroying practices)?

These are good questions, and I will try to tackle some of them.

I think that the quality issue does exist, and can become a big burden on any franchisor brand. One of the more difficult issues related to quality is the enforcement of standards, i.e. two pieces of cheese on each cheeseburger, 48 pepperoni's on each pepperoni pizza. The delicate shift from a corporate-model to a franchiseable-model must be planned and implemented with a tremendous amount of care (and a bunch of lawyers to write up UFOC and Franchise Agreements). Many companies are simply not stringent enough in franchisee selection, because the corporate parent may want to expand the brand quickly, and may value brand expansion over certain quality standards. The act of selling franchises is a balancing act for the franchisor--on one hand, the franchisor feels as if he has a great brand that can be legitimately expanded; on the other hand, too much growth too fast is detrimental to his brand and can result in long-term destruction.

An example is the upstart franchise here in the DC area named Five Guys Burgers. Their burgers are great, and their business model is simple (fries and burgers basically, think like a 50's style burger joint). They are currently the hot franchise to buy. I spoke with a current franchisee who, after 1 year, was already aggravated with the corporate parent. Turns out that in order to buy a single Five Guys franchise, you must contractually agree to open a minimum of 5 stores on an agreed-upon timetable, regardless of how your business does. This means that if I open my first store and it takes longer than expected to get up and running, I don't have the proper amount of capital to invest in my second, third, fourth, and fifth stores. To block against undercapitalized franchisees, Five Guys has certain standards, i.e. You must have 30k in working capital, a personal net worth of 1 million, and a 800+ FICO score. But their screening process isn't good enough. They are in pursuit of fast growth, and they are sacrificing the integrity of their brand as a result. In other words: the franchisor doesn't have the proper means of supporting high franchise growth at this point.

I don't think that this is the right way to go. Personally, from what I know, Domino's Pizza and McDonald's are two of the top franchise-models. They encourage single-store owner franchisees, and provide a great deal of support to unit-owners (although I heard McDonald's will force franchisees to invest large sums of capital in equipment when they come out with new products).

As you said at the end of your post, the franchisor and franchisees need to work together on developing and implementing standard practices, advertising, product development, in a word: everything. There's the story of the franchisee in Mississippi who developed the "hot bag" for Domino's. Before that, pizzas were just delivered, and they frequently were not hot. When CEO Tom Monaghan visisted the franchisee and saw the bags in use, he quickly implemented them at all Domino's stores nationwide. That is the type of relationship a franchisee and franchisor should have. The franchisor needs to provide enough support for the franchisee to not want to reinvent the brand and/or standard operational procedures; and the franchisee needs to act as if he is running his own business (not his own brand), but still submit to rational and reasonable demands that the corporation wishes to impose.

Does that make any sense?

Edited August 7, 2008 by adrock3215

[adrock3215]

McDonald's CEO Skinner was just on CNBC and said something that reminded me of this thread.

Cramer asked Skinner why MCD was doing so poorly in the late 90's/early 2000's. Skinner replied that the root of MCD's problems a few years back was that it had taken "its eyes off its fries". Expanding on this, he said that MCD had pursued a strategy of growth, i.e. quantity, over quality. The solution, according to Skinner, was to refocus on the customer in an effort to get each individual unit to increase its individual revenues (as opposed to increasing system-wide revenue by neglecting existing units and simply opening new units at a faster and faster pace).

Edited August 14, 2008 by adrock3215

[Jake]

Skinner replied that the root of MCD's problems a few years back was that it had taken "its eyes off its fries".

I worked at McDonald's in H.S. I was told at the time that 60% of Mickey D's business was from fries. I'm not sure if that's net or gross revenue, but I'd guess net, assuming potatoes are cheap.

Another interesting fact about McD's fries: Proper salt application is considered the most important step in preparing fries for sale. You can screw up the grease temperature, get the frying time wrong, and let the fries get old/cold in the hot bin, as long as you throw enough salt on... people will like them.

[Devils_Advocate]

I worked at McDonald's in H.S. I was told at the time that 60% of Mickey D's business was from fries. I'm not sure if that's net or gross revenue, but I'd guess net, assuming potatoes are cheap.

Another interesting fact about McD's fries: Proper salt application is considered the most important step in preparing fries for sale. You can screw up the grease temperature, get the frying time wrong, and let the fries get old/cold in the hot bin, as long as you throw enough salt on... people will like them.

It's true.

[D'kian]

Another interesting fact about McD's fries: Proper salt application is considered the most important step in preparing fries for sale. You can screw up the grease temperature, get the frying time wrong, and let the fries get old/cold in the hot bin, as long as you throw enough salt on... people will like them.

Really? What do they do with people who don't like salt?

Once at Arby's I asked whether I could get fries without salt. I got a five minute lecture on fry preparation from the manager (summoned by the girl at the counter for some reason). As the manager was finishing his explanation of why he couldn't possibly serve me unsalted fries, a batch came off the fryer. He scooped them off himself, no salt. As I gathered my tray, the girl asked "Would you like some salt packets for your fries?"

[Thales]

Really? What do they do with people who don't like salt?

Once at Arby's I asked whether I could get fries without salt. I got a five minute lecture on fry preparation from the manager (summoned by the girl at the counter for some reason). As the manager was finishing his explanation of why he couldn't possibly serve me unsalted fries, a batch came off the fryer. He scooped them off himself, no salt. As I gathered my tray, the girl asked "Would you like some salt packets for your fries?"

now that's funny.

[Jake]

There are people who order unsalted fries just to get fresh fries. Perhaps the manager was responding to that. When I worked at a Roy Roger's in high school, these two old ladies used to do just that. They'd make a stink about wanting unsalted fries; at first I thought it was for health reasons, then I noticed they sat down at a table far from the counter and proceeded to pour on loads of salt. Annoying, but what's a restaurant manager to do?

[D'kian]

There are people who order unsalted fries just to get fresh fries.

I know. That was covered at the Arby's lecture Actually I order them unsalted because I like them better that way (I do put mustard and ketchup on them), and because I get plenty of sodium and sodium chloride in my regular food intake already.

The fries operation is pretty trasnparent at most burger joints. An employee pulls raw fries from a bag (recently thawed, no doubt) and puts them in the fryer. The fryer dings after a set time, then an employee takes the fries out to the tray or bin with the incandescent lamps that'll keep them hot, and puts a half metric ton of salt on them (well, maybe I exagerate the amount of salt a little bit). I was willing to wait for the next batch.

They'd make a stink about wanting unsalted fries; at first I thought it was for health reasons, then I noticed they sat down at a table far from the counter and proceeded to pour on loads of salt. Annoying, but what's a restaurant manager to do?

Smile, make a new batch when such customers come in, and tell them you're the only fast food palce in town that provides unsalted fries. That'll keep them coming back. If you can add a 5 cent surcharge for unsalted fries, you'll make a little extra. Maybe even kick it up the franchise chain and make it a standard option. Customers are easily fooled (because they don't know the details of the operation).

BTW I no longer order unsalted fries at fast food joints. Too much trouble.

Edited September 26, 2008 by D'kian

[K-Mac]

Annoying, but what's a restaurant manager to do?

Don't pawn your dead fries off on me?

I worked in a steakhouse for three years and when the kitchen would try to send out dead fries, the manager would send it back for fresh fries. Who wants to eat cold, limp, greasy fries??

[Jake]

Who wants to eat cold, limp, greasy fries??

dunno, maybe all those starving children in Africa my mom would mention to get me to finish my broccoli...