Perspectives™ The Consulting Group

Disposable Prototypes

By Edward D. Engoron, President/CEO
PERSPECTIVES™/The Consulting Group, Inc.

The Situation

The senior management team of a twenty-five year old regional fast casual restaurant chain was seeking assistance in reducing the cost of new unit construction by approximately $100,000. Company store averages were about $900,000, with some units as low as $350,000 and a couple above $2.0 million. Interestingly, but not surprisingly, we found that many of the more mature, legacy stores were more likely to be producing higher volumes than some of the newer, more recently designed restaurants.

After spending two very full days on the road visiting a dozen or so older and newer units, we found a considerable "range" of designs, facility layouts and performance records. This range resulted from going off on an IPO "too-t"... too many (units and designs), too fast, too far away and with too little infrastructure. You see, after several years of home grown, self-funded, organic growth, our client's little company created real excitement in the marketplace and they were rewarded with a significant capital infusion which funded the aforementioned "too-t". Stretched thin, the young, exhausted management team was unprepared and ill-equipped to deal with the problems that resulted from their aggressive over-expansion and public offering.

We also learned that within the 18 months prior to our introduction, the company had invested considerable time and money on a project to develop a new prototype which they expected to produce $2 million in sales for new restaurants going forward. Unfortunately, the new prototype - a significant departure in terms of both the original concept design and operations layout - did not deliver the goods. However, with the construction of each subsequent new unit, the management team tweaked the design to become a little more efficient, a little less expensive, but not necessarily a little more compelling or successful, revenue-wise. With each additional tweak, the restaurants looked more and more like all the other fast casual concepts in the marketplace, than they did the original concept's design.

We decided to spend some time with the concept's founder to learn about the roots of his concept. We asked, "What did you do so right 25 years ago that made this such a successful concept?" He told us, "Most college kids go away for spring break and come back with a sun burn and a hang-over. I came back with a great idea for a restaurant that I just knew my college friends [and others] would love back at home." The menu was ethnic, simple and easy to execute; the flavors were distinct, unique and habit-forming; and the concept was as friendly and unpretentious as the founder.

It soon became clear to us that our clients weren't over-spending on buildings and sites, they were under-earning on revenues. They had lost much of the "magic" that drew those early crowds in. Over the years, in response to various external pressures, they had pinched, squeezed, redecorated and cost-justified their way into concept abyss! While pinching pennies and searching for profits, they lost sight of the soul and the fun of the concept. This is not an unusual situation by any means... we can all think of favorite places, products and even people that just aren't what they used to be, right? Of course, change is inevitable and expected, but you've got to stay true to the essence of the appeal of the original concept. Consumers, customers, guests... whatever you call them... they always know what's real. So, this mission was to help our client "get real".

The Objective

Our Mission was to refocus the brand essence on the original concept's appeal - find the fun - and drive the sales. The Business Objective was to develop, design and implement a competitively distinct, profitable , high-volume, expandable, small footprint, fast-casual foodservice concept prototype with strong emphasis on faster guest service, reduced capital investment, increased operational efficiency and optimized guest satisfaction. After all, we couldn't lose sight of the fact that this was a for-profit business operating in a fiercely competitive segment.

The Solution

We began by examining the business model... you can't redesign your way to success if the concept is based on a faulty business model. We found that the financial premise for the original concept itself was indeed fundamentally sound, unlike some of their competitors where the business models just didn't work. There were, however, opportunities for maximizing return on investment for the business at large. For example, because new unit development had slowed to a trickle while management attempted to lock in a successful prototype design and address the problems associated with their previous expansion spree, they allowed the development pipeline to virtually dry up. Additionally, because they weren't opening a series of restaurants on a pre-determined schedule, they were not taking advantage of volume buying (of equipment, furniture, fixtures, etc.). Also, the few new unit deals that were being signed, were still being developed using previous prototypical layouts that were larger, more expensive and less efficient than desired.

We then turned to the design of the restaurant itself. Designing or redesigning a prototype restaurant for an established chain with a still-active founder can be a very intimidating process, especially for the designers and even the client's own project team. In their rush to "imprint" a chain's image, many designers fail to look back and study the history of the company... identifying those elements that contributed to the company's initial success. We needed to develop a solution that would not only be successful for new restaurants, but could also be applied as a "kit of parts" to update the older and less distinctive units.

In reviewing a chronological gallery of photos we had amassed from our initial and subsequent restaurant tours - covering both new and legacy stores - it became very apparent that the newer stores lacked the fun, color, light and casual distinctiveness that had set the chain apart from its competitors in the first place. Our gallery included examples from each of the design eras throughout the chain's history to identify key points of differentiation from one era to the next. Working with the client's project team, we began asking lots of questions, "How many seats did you gain (lose) with that change?" ... "What happened to the early artwork and décor package?" ... "How did the change in the condiment bar impact guest flow?" ... "Did labor decline or increase as a percentage of sales with this kitchen layout?"

We began conceptualizing modified designs and layouts in a series of internal work sessions by developing a "wall of ideas" - a large roll of white butcher paper peppered with design ideas, life-style photographs, hand drawn sketches, vignettes, swatches of materials, paint chips, draft floor plans and elevations, etc. There were several design iterations for each element, rather than several iterations of complete designs. This enabled the project team to explore the interaction between various elements on the ultimate ambiance, flow and appeal. For instance, there might be three or four tile options, representing not just color variations, but design and textural differences as well. The elements were not constrained by budgets or even practicality at this point... this was strictly a blue sky exercise.

While one might tend to approach a project of this nature by "starting over" - throwing out all previous designs in favor of something new - the real world doesn't work that way. There are political considerations and financial implications to every decision. In this case, significant time and money had been invested in the previous design work and the board of directors was loathe to allow management to regard it as completely useless and without value. Additionally, their customer base had been exposed to the previous, less-than-successful designs, and it is very confusing to them when the design and layout of "their" restaurants are constantly tinkered with and modified.

In several work sessions with our designers we began to select, eliminate and hone the design, while the operations team spent their time challenging the functional layouts of the restaurant. During this process, we discovered that not only would we be able to make the restaurant footprint more efficient, we would actually be able to deliver more seats by the turning the kitchen on its ear... a key win for a chain with a disproportionately higher percentage of sales coming from on-premise dining.

There were a number of key considerations/goals that were kept top-of-mind throughout the design process:

Fun - the original concept was all about kicking back, taking a break and having fun; the new design had to contribute to the fun without trying too hard or being an intrusive interruption. It had to be authentic, not kitschy.
Sensual - playing up and off all five senses; while visual stimulus is obviously crucial, don't discount the importance of the other senses... each should be carefully considered and orchestrated.
- Aroma - in a restaurant, aromas are very powerful motivators - both positively and negatively... but remember, the absence of aroma is unnatural and may come off as a little weird (think about walking into a chocolate shop that doesn't emit a wonderful chocolate aroma).
- Sound - it's not just about having or not having music, thought that is an important consideration; it's also about sound-reflective surfaces (echoing), quality sound systems, sound zones, kitchen noises, themed sounds, etc. It's also about the selection and programming of the music by day-part. Guests want to feel one way at lunch and another at dinner, and music really helps set the mood.
- Tactile - the materials with which guests interact (touch) should be authentic, theme-appropriate and not unpleasant. Textural variety is also more interesting for guests, as it provides opportunity for discovery in each visit.
- Taste - while we don't recommend using "lickable" wall coverings, the design should certainly enhance the overall desire to dine there and give the food a great stage on which to be featured.
Unique and distinctive - since the concept was first introduced, several competitors had joined the category, imitating our client's early designs; the new design had to regain its distinctiveness.
Easy to understand - a fundamental rule of thumb in the restaurant business is that your guest needs to know what to do and where to go when they get there; this is especially true for quick service and fast casual concepts. The new design needed to connect with the guest the minute they walked in the door.
Easy to replicate for our client, but hard for competitors to copy - this one is all about the nuances... the client team needs to thoroughly understand the role and importance of each design element; that will ensure ease of duplication as the chain grows. Competitors who lack this understanding will undoubtedly eliminate or substitute elements they do not understand or believe to be inconsequential, resulting in a two-dimensional rip-off at best.
Affordable - of course, you must meet the company's financial and expansion criteria for development, while driving sales. Once the design elements are selected, there are usually significant savings to be realized once the procurement team begins to "shop" them. However, as stated above, it's important that they have a thorough understanding of the power of the design...one lighting fixture is not automatically a substitute for another, just as a Hershey Kiss isn't a substitute for a Teuscher Truffle!
Inviting - offer superior "street appeal"; if all the changes are inside the restaurant, the outside world may never know. We needed to signal change... to remind lapsed users that "we're still here" and to entice rejectors to "give us another try". This can be especially effective when taking the concept back to its roots.
Disruptive - to cut through the clutter and noise of the competition; whether building a new restaurant or remodeling an existing one, it's critical that you get noticed. Again, it's about that immediate connection with customers who may only see your sign, building or restaurant for a few seconds as they drive by... you only have an instant to make a positive, memorable impression! It doesn't necessarily have to be in good taste, but it must be striking and impressive. Make sure they associate your brand with your design and not your competitor.
Increase throughput - reengineer the kitchen to be maximize efficiency and volume, especially at peak periods, while minimizing heart-of-house allocation relative to dining/take-out square footage.

Creating a new "look" for our client was much more than a design exercise; it was a retooling of the business geared to create buzz, streamline operations and increase sales and profits. Based on the prevailing concept articulation and menu, we developed a new prototype with detailed elevations, floor plans and a comprehensive equipment and decor schedule, including written specifications for use in obtaining bids from selected vendors. New equipment recommendations were evaluated in our test kitchens by our internal staff and our client's operations and quality assurance teams.

If You Build It, They Will See

It may be sad, but it's definitely true... many people can look at a set of plans or sketches but not visualize the final result; and most people cannot project how the spatial relationships and key design elements will ultimately feel and function. The only way to really know is to build it out. To ensure that the project team was on board with the design, layout and functionality of the new prototype without putting it all on the line in bricks and mortar in the marketplace, we convinced our client to build the restaurant in a warehouse - like a movie set - where elements could be tested and changed. We created a full size, semi-operational prototype of the layout to evaluate the design and test functionality and flow. The prototype was revised as necessary and finalized for approval.

This step proved invaluable to the team. They could actually feel the dimension of the space and experience the design as both a customer and an employee. We changed out design elements multiple times to test different operational and functional scenarios. For example:

Banquettes vs. booths vs. tables and chairs
Menu board options
Guest directional elements - way-signing, flooring, etc.
Guest perspective - sight lines from the guest areas into the heart-of-house and out toward the street
Alternative lighting packages and fixtures and lighting levels
Alternative sound systems and programming
Placement and design of the condiment and beverage stations
Selection and placement of kitchen equipment
Guest queuing and service options
Amount, selection and placement of décor items and marketing materials

Another benefit to the "movie-set" approach was our ability to bring consumers - customers and non-customers - onto the set to gauge their reaction to the proposed design. This was an important opportunity to ensure that our design fit the brand - that it was authentic and real - and that we didn't alienate current customers while trying to invite new guests to the party. Again, allowing them to be in the space, experience the design, even eat in the dining room (we brought food in from our client's nearby restaurant) gave us tremendous insight into how the design would be received in the marketplace. The lessons we learned were applied to the set immediately - not a step easily or cost-effectively accomplished in an open, operating restaurant.

After all the tweaks, changes and adjustments were completed, our team finalized the "kit of parts" discussed earlier... a series of visual/architectural, audio and aromatic branding cues/design elements that supported and reinforced the brand/image subtly and overtly through their unique application. This "kit of parts" aided the team in the adapting the new concept to future stores and for cost-effectively retro-fitting elements within existing operations. Additionally, many of the design and décor elements used in the prototype could be installed in the remodeled stores, making the entire exercise more cost-efficient.

We arranged for professional photography of the movie set and created a presentation that the client's Development team used for generating excitement among potential franchisees and key real estate developers for acquiring favorable locations. And by photographing key elements of the movie set, our designers were able to "photo-shop" them onto proposed retrofits of existing stores... creating a "before and after" presentation that was used in negotiations with landlords; this changed the discussion from one of asking for permission to make changes to negotiating additional tenant improvement allowances, minimum and percentage rent, dedicated parking spaces, exterior signage and lighting, spiffing the center, and extending the term of the lease.

The Results

The first application of the new prototype will be opening in early 2006, but the re-image application of the kit-of-parts is well underway with nearly 20% of the restaurants completed by year-end 2005. The results of the project have been very positive in a number of ways:

New unit development has ramped up as retail developers showed great enthusiasm for the new brand image. New unit growth/expansion is also an important factor for shareholders.
Sales at the re-imaged stores have increased more than 10% and are well ahead of same-store sales at non-retrofitted locations. Return on investment for the remodels is running about 85% with a less than 12-month payout.
Guests love the new look! They report feeling more comfortable in the new space (even though there are more tables and chairs in the dining room), they feel that the design is right on target with the concept's positioning and many guests even say that food tastes better.
Employees love the new look, too! Morale at the re-imaged stores is higher because employees recognize that management has invested in them and because guests are so receptive and positive about the changes. It's hip and exciting to work at these locations.
By the way, when done correctly the cost of the "movie-set" is considerably less than building out a new unit and a whole lot less expensive than building a bomb in the marketplace. It gives you a lab to test out your ideas - good ones and bad ones - in the privacy of your own warehouse and plan your re-image assault without tipping your hand to your competition. You can keep the warehouse for a short time, or invest in a more permanent space that will allow you to upgrade and test new ideas on an ongoing basis to keep the concept fresh.

Summary

Without a doubt developing a new prototype can be a fun and rewarding process, provided you follow a few simple rules:

Stay true to your concept... don't let outsiders tinker with your business/design to reflect the latest craze in the marketplace, especially when your gut tells you not to. If it ain't broke, don't fix it!
Don't' go public (at the early stages) if you can avoid it... most operators will tell you that the big pay day isn't worth the long-term costs and pressures associated running a public company. And if you do go public, remember to invest in the development of the management team - especially unit level and field management - that you'll need to properly run all those new restaurants you're going to build.
When embarking on a new prototype design, be sure to involve and then listen to input from the operations team, the management team and the guests. The smallest details can make a world of difference. Just know going in that you're bound to make someone unhappy because you didn't act on their advice. Re-read Rule #1, make a decision and move on.
Once you make the transformation, let the whole world know. For new units, do it up BIG... make it the media event of the century! For remodels, try to implement your changes in clusters of locations where you can celebrate the changes with lots of communities and guests simultaneously and advertise your spectacular re-grand opening. Make it a party!