June 17, 2010

56) In-N-Out Burger

危 wēi  danger

In-N-Out burger is a chain of fast-food restaurants founded in 1948 in California.  The brand became famous for its limited menu and simple strategy that remains in use today: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.”  While scaling to 240 stores the company has stayed true to its vision – rejecting calls to franchise, leaving the simple menu unchanged and ensuring that it rewards its staff better than its competitors (it is one of the few fast food chains that pays more than state and federally-mandated minimum wage guidelines). And, to maintain freshness its locations are all within one day’s drive from its Baldwin Park distribution center. It’s great at what it does as evidenced by it consistently topping polls like this Zagat report. Given its rejection of growth through franchising and its inability to expand too far from its distribution center I have always thought its tiny menu might be its downfall. Surely its fans would become bored of the offer?

机 jī opportunity

My fears were allayed when traveling with a colleague recently.  On a road trip we visited In-N-Out, after choosing and ordering (very quickly given the lack of choice) I noticed that he ordered ‘off-menu’.  It turns out that In-N-Out has a ‘secret menu’ – this struck me as pretty smart because it allows its fans to make a wider choice and it drives word of mouth marketing.  I looked it up on the web and it turns out it’s not even that secret: when celebrity chef Gordon Ramsay appeared on The Hour, a Canadian TV talk show, he chose an animal style In-N-Out burger to be his “death-row” last meal.

How About…

  • Stripping your offer to its simplest version?
  • Developing a ‘secret’ offer for your best customers, making them feel privileged and deepening their affinity of your brand?

–

and, just in case you’re interested (and out of the loop like me) here are some of the not-so-secret menu items:

June 10, 2010

55) ITC Limited (eChoupals)

危 wēi  danger

As I outlined in a post last year the Indian agricultural market is tough.  Farm ownership tends to be heavily fragmented, the infrastructure is often poor and historically the supply chain has been clogged by middlemen. This makes life difficult for both farmers and the buyers.  For example, often farmers would have to travel for days to a market with no knowledge of current prices, once there the exploitative middlemen could pay below the market rate and refuse to pay any premium for quality.  It has been estimated that farmers were losing up to 60% of the value of their crop as a result.  This in turn disincentivised the farmers from improving their crop quality and made supply to the industry’s big buyers unpredictable.  Large food buyers, such as ITC Limited (an Indian conglomerate), would surely have to accept this status-quo?

机 jī opportunity

No, to the contrary ITC has harnessed technology to overcome these structural problems by investing in internet kiosks in rural villages.  The kiosks, named eChoupals, enable the farmers to sell direct to ITC at an agreed price, give access to best practices and enable them to place orders for agricultural inputs such as seeds and fertilizers.  In order to instill trust in the system ITC trains a local farmer to run the system and places it in their house – on average each serves 600 farmers in the surrounding ten villages.  To ensure that they remain incentivised the sanchalaks receive a small service fee.  Even after this service fee it is estimated that farmers’ profits have increased by more than a third and ITCs costs have reduced. The conglomerate plans to scale up to 20,000 eChoupals by 2012 (from 6,500 today) potentially servicing 15 million farmers.

How About…

  • Harnessing technology to disintermediate inefficient value chains?
  • Empowering local talent to assist in supporting your customers?

–

June 2, 2010

54) Hotel Chocolat

危 wēi  danger

Hotel Chocolat, the upmarket confectioner, was founded by Angus Thirlwell and Peter Harris in 1993.  I’ve always been a fan – not least because the company has consistently turned its challenges to opportunity.  For example, when it struggled to maintain quality cocoa supply it bought an Estate (Rabot Estate in St Lucia) – this in turn became a phenomenal provenance story.  Or, when it couldn’t muscle its way into big retailers it direct sold through catalogue.  It also grew a Chocolate Tasting Club (a subscription service which currently has about 100,000 members) which has created a community of evangelists and made demand more predictable.

It’s a great business, since its launch 20 years ago it has been profitable every year bar one and has continued opening stores during the downturn.  The company has been self-financed to date but its recent successful US store launch has revealed the global potential.  It’s time to expand before competitors enter the local markets but surely the team will have to give up its 200% ownership to fund expansion?

机 jī opportunity

As always Hotel Chocolat has approached the problem creatively.  Instead of raising expensive equity or debt it announced a very different approach – the company plans to raise £5m by selling “chocolate bonds” to its most loyal customers, taking advantage of rock bottom interest rates.  The investment opportunity will be marketed to the members of Hotel Chocolat’s Tasting Club – ‘Investors’ can subscribe for a three-year, £2,000 bond, which will deliver a “tasting box” of chocolate worth about £18 every two months — equivalent to a 6.7% yield.   The money raised will help to expand the high street chain from 42 to 72 shops, enlarge the Huntingdon factory, develop a new cocoa plantation in St Lucia and expand the business overseas.  Angus Thirlwell, co-founder, said: “We would rather pay interest to our customers than a bank. Many who have money sitting in the bank getting a low interest rate may prefer to be paid in chocolate.” The company is on track to deliver a 20% rise in turnover to more than £50m this year.

How About…

  • Fundraising from less obvious sources, e.g. your most loyal customers?
  • Using the fundraising process to bring in a community of evangelists?

–

May 17, 2010

52) McDonald’s

危 wēi  danger

Further to my post on Clover Food Labs last week a couple of my [few] readers have said to me that they love Ayr’s entrepreneurial approach but that it’s unrealistic for larger companies to perpetually prototype and iterate.  Their logic seems to be in line with that of the great Stanford Professor, James March who has argued that it’s incredibly difficult for organisations to simultaneously be explorative (searching for new opportunities) and exploitative (maximizing the payoff from existing opportunities).  With this in mind, shouldn’t large companies stick to building their ‘exploitative’ muscles – extracting value from their existing opportunities until that opportunity is exhausted and them move on to exploration again?

机 jī opportunity

I don’t think so, mainly because in fast-changing markets the exploration would come too late.  In his new book ‘The Design of Business’, Roger Martin makes an eloquent case for the discipline of ‘Design Thinking’ – an approach that we at IDEO use to tackle the challenges our clients present us with.  Rotman explains that design thinking “enables the organization to balance exploration and exploitation, invention of business and administration of business, and originality and mastery”. Perpetual prototyping is one tool used by the Design Thinker to enable simultaneous exploration and exploitation.  It strikes me that McDonalds is an example of a company that manages it – it prototypes relentlessly and it’s certainly big – according to Fast Food Nation, nearly one in eight workers in the U.S. have at some time been employed by McDonald’s.  It prototypes in store but also through the team of Dan Coudreaut, Director of Culinary Innovation. Ideas can come from those in his test kitchen or from franchisees or suppliers, and are prototyped initially in the full size store and kitchen at the head office.  This broad source of inspiration followed by prototyping enables them to trial around 1800 new products per year of which only a handful make it into the stores – but when they do they’re nearly always successful.  It also reduces the risk associated with launching new products by revealing the broader impact, for example Coudreaut tried a product called the McDouble Cruncher which was like a cheeseburger with barbecue sauce and onions. Although it was hugely popular when trialed the team observed that consumers stopped buying quarter-pounders (a core menu item) – not a good thing for margins so it was dropped.

How About…

  • Aiming to be simultaneously in explorative or exploitative phases?
  • Prototyping whatever your company size, increasing the number of ideas that you  can test and reducing the risk of failure?

—

May 11, 2010

51) Clover Food Lab

危 wēi  danger

Starting any business is scary.  Starting any restaurant business is very scary.  It’s expensive to set up, there’s legislative hoops to jump through, location and menu are critical (and it’s tough to do market research before making the leap) and quality standards have to be maintained.  Finally, consumers are fickle so even if it’s initially successful you can’t rest on your laurels.  Surely you can only start by jumping in head first at the deep end?

机 jī opportunity

To the contrary, my colleagues Ryan and Colin (thanks guys) told me about Boston-based Clover Food Labs, a startup that has cunningly overcome these challenges.  Instead of committing to a site and launching a concept blind Ayr Muir has taken a more creative approach.  He decided to keep location flexible and costs low by opening a food van.  Muir tries different locations and menus with the goal of homing in on the right restaurant format.  Everything that Clover Food Labs does is in Beta (hence Labs) – it has taken some clever design to be so flexible.  For example, the truck itself is a giant whiteboard enabling Muir to edit menus instantly (see the image below).  In addition, Clover is completely open with the public – publicizing the bad stuff (see Muir’s Great Sandwich Disaster post here) in addition to the good stuff.  The open experiment approach seems to be working, I read that the van sells out often and mistakes seem to be less frequent – maybe Muir’s homing in on his restaurant format – it will be interesting to see if he can give up on the flexibility his van yields…

How About…

  • Starting small to learn? And staying in Beta forever?
  • Questioning every sacred cow?
  • Being totally transparent (even the bad stuff) to shorten the feedback loop and create a real dialogue with your consumers?

—

here’s a photo Colin took of the stall itself – with menu in progress…

« Older Entries