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When a New Competitor Comes to Eat Your Lunch

Posted by at 10 November, at 10 : 14 AM Print

■ By CONSTANTINE N. KOLITSAS, Consultant

 

THE word on the street is that a new competitor is opening soon. He’s going to have a brand-new restaurant, his concept is almost identical to yours, and he’s going to be just down the street. What’s your plan?

Almost ten years ago I was faced with this very scenario. Let’s take my experience as a case study.

At the time I was an Operating Partner in a small national bakery/café franchise; the “ten percent guy” who was boots-on-the-ground running the day-to-day business. I had a good business, doing close to $50,000 a week in sales. Most of the business (about 70%) came between the hours of 10:00 am and 3:00 pm. Approximately 10% of my revenues came from corporate catering, with retail delivery accounting for another 5% of sales. Takeout (picked up in store) was 30% of my business. The restaurant was a fast-casual concept, so there was no real table service; people came up to the counter and placed their orders, which were made fresh and fast.

The restaurant was located in a bustling “mini-Manhattan” about 30 miles north of New York City.

Things were going well and one day the word came: The huge national giant in the bakery café space (I’m not going to use its name, you all know who it is) was going to open a location across the street, about a block away.

The first thing I did was to call my corporate office. They’d seen this before. I know of other locations owned by other franchises that came up against this same competitor. I wanted to know how they fared; what to expect in the way of short-term and long-term impact to my business. The answer that they gave me wasn’t what I wanted to hear: In most cases, I was told, business dipped 35% for a period of 3 to 6 months. When the dust settles, I was told, business is typically down 15%. I was in a high-rent district. I know that this scenario would mean I would be out of business.

And so I devised a “Competitive Intrusion” plan to combat this new player in my market.

The first thing I needed to do was prioritize. I knew that I was going to lose a good amount of my foot traffic. Currently, people would wait in line to place their orders and walk around with trays waiting for other customers to vacate tables. I knew this would not happen. People on short lunch hours would not wait if another identical concept was just a block away. I wouldn’t…

So, I had to be wary of the “80/20 Rule”—that 20% of our efforts generate 80% of our results and the other 80% of our efforts only generate the remaining 20%. I wasn’t going to spend 80% of our efforts to protect a slice of business that was going to disappear regardless of our efforts. Not that I was going to ignore it, but I needed to apply the bulk of our effort to areas where it would have the greatest impact on sales.

The first area to address was catering. I had a great catering operation. Customers loved us. The first thing I did when I took over the location (another franchisee was failing when my investment partners and I took it over) was to grow the catering business from $700 per week to between $2,000 and $3,000 per week. Now it was time to take it to the next level. The culture in the restaurant was already very focused on our catering operation. We treated it as a separate business and had a robust compensation model in place that rewarded performance for all people involved. We implemented our own production, pre-production, and quality-control systems that enabled to make it “bulletproof” (most catering operations suffer because they keep making mistakes, we engineered the mistakes out of our systems). To grow catering sales, I needed to leverage my existing accounts and ask for referrals. And then I hit the streets with pamphlets and cookies. I was the best salesman in our location, so as soon as lunch was over, I handed the reins to my assistant manager and went on sales calls on a daily basis. In tandem I promoted our retail delivery business. These were the same customers, after all. Sometimes they needed catering platters and sometimes it was just two or three people looking for lunch orders. When the phone rang in the restaurant, the script was changed to “Thank you for calling XYZ Bakery Café, where we cater and deliver to your office or home. How can I help you today?” We created marketing materials promoting our delivery and catering that were stuffed into to-go bags.

The result was spectacular. Within three months, our catering business doubled, as did our retail delivery.

The next part of the Competitive Intrusion Plan was to improve our physical plant. The idea was to combat the shiny new restaurant across the street by making aesthetic improvements to our restaurant. Our place had not been remodeled in the ten years that it was open. With such heavy foot traffic, the place was tired. The wood floors were worn, the sofa beat up, and the look outdated. Corporate had a new branding campaign underway that included a restaurant design. We were obligated to do a remodel that would have given the place an exciting new look. The glitch is that my investment partners were resigned to the idea that the competitor was going to crush us and were not willing to spend the money to remodel. So we did some minor cosmetic improvements… We had the wood floors redone, tossed out the sofa, and updated just a handful of minor things inside the restaurant to conform to the new logos and design that were part of corporate’s brand overhaul.

For our regular in-store business (both dine-in and pick-up/takeout), the management team and I broke the business down to day parts and came up with strategies for improving each day part by 10%. We looked at the traffic counts for each day part (breakfast, lunch, “chill,” and dinner) and tried to figure out ways to bring in that additional 10%.

From a menu perspective, we got corporate on board to allow us to create and include on our menu some things that we knew would be a big hit in our region. We were the sole franchise in New York state (most of the franchises are in the South and Midwest), so we wanted to add some regional items to attract more customers. (Fresh mozzarella, tomato, and basil with a balsamic vinaigrette on ciabatta roll was a game changer for us!)

Now it was time to think like the competitor. I asked myself, “If you want to beat the place that is established, what’s the best way?” I had a great staff that was with me for a few years. They were well trained and had great customer-service skills. If the competitor was going to hurt me, he needed to steal my employees. I knew my staff respected me and responded to my leadership. But at the end of the day, a dollar is a dollar, and I knew the competitor had deep “new store opening” pockets. So I gathered my staff and addressed them:

“The new competitor is going to open in two or three months. For them to be successful they need YOU. They will come to you and offer you jobs. They’ll offer you 25 cents an hour more… 50 cents, a dollar. If you want to take it, let’s shake hands and move on. But this is a war. If you take that job, you need to understand that you cannot and will not ever work for this restaurant again. I don’t care if you are my best worker; I don’t care if I’m desperate for you; I don’t care if you are my best friend. If you leave, you leave and never come back. And one more thing… Every new restaurant hires many more people than they need. They will be very busy when they first open as everyone will go to check them out. But after a few months, the business will settle down and they will begin to cut hours. And then they will begin to cut staff. So, if you want to make another 25 cents an hour for a few months, please go. If you believe we are better and that we will crush them, then I say, Thank You and Let’s Get ‘Em!”

When this competitor came to town, they spread the word that they were going to put me out of business. They anticipated doing $70,000 a week in sales. The best they did while I had that restaurant was $30,000 (I knew this because I had a Kitchen Supervisor that worked a night job with the GM’s husband at a local Cheesecake Factory). And as for my business, it suffered a small 10% hit for two months. After that I was up in sales for the remainder of the year.

 

 

MANAGING

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