Light bulbs above some heads

A few weeks ago, the restaurant industry was reeling from a shortage of customers, and hence sales, and therefore profits. Worst of all was an acutely low supply of something just as critical: Creative ways of contending. Now, at least, it looks as if that drought is easing.

A glimmer here and a rumbling there suggest economic conditions are separating the industry thinkers from the Dan Quayles—the folks who think brilliant leadership is picking the right idea to copy. They’re lemmings looking for the parade sign reading, “Cliff this way.” It’s the mindset that has landed much of casual dining in its current predicament.

Contrast that spud-headedness with a few initiatives that have come to light in recent days. Daily Grill’s parent company is cutting its cash outlays by paying executives 10 percent of their compensation in stock instead of dollars. It gives new meaning to the cliché, “win-win.” The company saves on salaries, the executives get paper that could be worth far more if they can drive up the stock price, and other shareholders get a management team that’s highly motivated to work for their benefit. Raise the value of the stock and everyone gains.

There’s also the public relations value of letting the world think the home office has cut its top-paid execs’ take-home, when in fact it’s given them something with the same face value and the potential of being far more precious. Indeed, from the recipients’ standpoint, it’s better than getting stock options—provided they don’t let the stock price decline any further (see earlier reference to management’s and shareholders’ perspectives being aligned.)

But that’s not the only ah-ha notion that’s been aired recently. Consider Sonic’s plan to lower its labor expenses while boosting customer service and possibly increasing the take-home pay of carhops. The drive-in chain is in effect reclassifying the runners who bring orders to patrons’ cars as tipped servers. It hasn’t said how it’ll trumpet that recasting to customers, but executives said in disclosing the plan that most guests already leave a gratuity. By formalizing the tendency and encouraging carhops to strive for tips, the chain can claim a tip credit, thereby cutting what it’s required to pay the staffers as a minimum wage. Yet the carhops are likely to end up with more money than they did when they were collecting the full wage.

What’s more, with an hourly-staff turnover of about 100 percent, the chain can phase in the program by merely extending it to new hires. The transition would only take a year, presumably with no shock to carhops who are accustomed to getting the full minimum wage.

Not all of the innovations are far afield. The Pollo Tropical fast-food chain, for instance, merely replaced its sandwiches with wraps. It correctly anticipated that wraps would be easier to eat on the go, and presumed that benefit would appeal to the chain’s mobile clientele. Units are selling 50 to 60 wraps a day, compared with the 15 to 20 sandwiches they formerly peddled, executives told investors Wednesday.

In still other instances, the course was apparent. It just took leadership and courage to pursue it. Every franchisor would readily attest that its success rests on the financial wellbeing of franchisees. Yet few have backed up that assertion with the sort of action that Papa John’s and Domino’s have recently taken.

The former made news Tuesday when executives revealed that the franchisor’s commissary operation would roll back the prices of the cheese it sells to franchisees. The wholesale cost paid by corporate likely hasn’t receded; Papa John’s must be absorbing the cut in its margins. It’s taking the hit to enhance the profitability of franchisees, even though royalties are based on sales, not the bottom line. But by keeping licensees healthy and thriving, the home office is betting it will benefit in the end.

To keep franchisees growing, Papa John’s is also looking at ways of becoming their bank. Because they’re struggling to find the capital needed for expansion, the franchisor is willing to serve as their pipeline until the tap is reopened by more traditional sources. One of the core rationales for franchising is the use of licensees’ capital to build a chain. Papa John’s, much to its credit, is rethinking that tenet of the situation.

It may be inspired in part by arch-rival Domino’s, which disclosed last month that it was providing franchisees with financing. “It will never be my preference to provide financing to our franchisees,” CEO David Brandon commented to investors. “We would rather keep our relationship with them focused on being the franchisor rather than their bank. However, we are wading through uncharted waters.”

Better to be slogging through them than being carried along by the current, hoping you’ll eventually land upright.

Watch what you insinuate, John

It’s bad enough the presidential candidates exploit their families, friends and supporters in the lunge for votes. Now they’re going after one of our own. On Tuesday, John McCain threw the venerable Sonic chain under a bus so he could sound wise and statesman-like.

“If we do nothing, many businesses will fail,” McCain said in a mass e-mail to supporters after the House of Representatives rejected the $700-billion bailout package. He then cited Sonic’s problem in securing capital from a usual source, GE Capital. His implication was clear: The corporation could become a casualty of the financial mess. That’s at best an overstatement, and at worst a calculated misrepresentation of the franchisor’s stability, made either way for political gain.

In covering companies with financial problems—something Nation’s Restaurant News is doing with increasing frequency these days—we’re painstakingly careful not to suggest that a concern could be going under, unless of course it’s actually filed for bankruptcy. At the hint of a business failing, suppliers might deny credit, loans could be called, prospective franchisees could pass on a contract, landlords could choose another tenant, and new hires might decide to work elsewhere. It’s the business equivalent of declaring someone a criminal because suspicions have been raised.

McCain apparently doesn’t share that compunction. He went ahead and affiliated Sonic with catastrophe, when the facts don’t warrant that assertion. Ironically, Sonic CEO Cliff Hudson spent part of the next day joining with other business leaders from the chain’s home state of Oklahoma to lobby for the bailout package, the very intention of McCain’s e-mail blast. There was no need for the senator to raise the possibility of failure to get his point across. He could have merely cited the importance of the package to Sonic, and left it at that.

Instead, he demonstrated the sort of self-serving, exploitative politicking you don’t want to see in a leader who needs to inspire.

How lemmings draft a menu

Listen: That crunch you hear is the sound of quick-service chains squashing their points of differentiation. Instead of learning from the tragic blunder of casual dining, players one click down the service spectrum are just as avidly turning their menus into clones of the competition’s line-up. If they haven’t already copycatted McDonald’s Snack Wrap, vis-à-vis Wendy’s, Sonic, and KFC, it’s only because smoothies, premium coffees and espresso-based drinks are higher on their To Develop list. And that’s after deciding how to join the discounting binge.

In the currrent environment, you can readily understand why a chain copies a sure-fire hit for someone else. But it clearly speaks to a dearth of cleverness and creativity within the sector. Instead of analyzing why a certain product appeals to consumers and then crafting an alternative that sates the same desire, even contenders with considerable marketing knowhow are merely giving a twist to what’s already selling well.

The follow-alongs are not only betting that lightning will strike twice, but leaving themselves vulnerable to the upstart that hatches a true New Idea. If a newcomer hits on the next Bloomin’ Onion, fajita, Blizzard, chicken nuggets or smoothie, the old guard is cemented into the role of hawking commodities. How much pressure on prices can a concept take when costs are squeezing margins from the other direction?

The copycats would be better served by staying attuned to what makes their concept unique and then nudging their menus in the direction in which public tastes are moving. Leapfrogging to a far afield idea just because it worked for another player is like trying to make it as a rock star by covering last week’s hits.