Food & Finance High School Coffee Shop a Winner

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This past October I was invited to speak about Restaurant Profitability at the Food and Finance High School in New York City. I met with a group of students who were planning a “pop-up” coffee shop, Murphy’s Beans ‘N Dreams that would be located at the entrance of their school and run for one week in December.  The students impressed me with their questions, including one about how to turn around a business in trouble.   I answered that one key strategy would be to get an honest appraisal of what is going on, which would require various team members to provide open and honest assessments.  (For more on this see Alan Mullally’s description of how he did this when he became CEO of the beleaguered Ford Motor Company, in “American Icon.”)

Students also asked how a business owner knows they are getting good prices from their suppliers. Answer: get competitive supplier quotes, based on your product specs. They also asked, how they could  stand out in the competitive restaurant space. Answer: know what makes your offering truly distinctive, and publicize that aspect.

Another satisfied customer at Murphy’s Beans ‘N Dreams

They did successfully complete their project and it was terrific to see it in action. I stopped by and was pleased to find that the Murphy’s Beans ‘N Dreams team was handling the morning rush efficiently, the place was attractively laid out, the coffee was delicious, and there was an impressive assortment of baked goods, fruit and sandwiches too.  Congratulations to Ms. Loehr’s class.

 

 

Misbehaving and the C-Suite

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In many companies, delivering a large gain will get you a modest reward, while taking actions which lead to a large loss will get you fired.  That is just one of the important lessons to be learned from Misbehaving, Richard Thaler’s book on Behavioral Economics, published in 2015.

Thaler provides valuable insights to C-Suite denizens who want to discourage their managers from taking unnecessarily “timid choices.” and encourage risk taking. He recommends that business leaders :

  • reward the manager when a higher risk action leads to success
  • do not overly penalize a manager if risk taking leads to a business failure, especially if the execution was good, and there were conditions beyond the control of the manager

In this way, business owners will be encouraging managers to perform in a way that is well aligned with business objectives.

During my time as a financial analyst at General Foods , I got to witness some pretty dramatic career rises and falls, with the product managers for the failed SunApple and Orange Twist brands both fired on the same day, while Crystal Light category manager Jim Kilts was on his way to eventually become CEO of Nabisco, then Gillette and more recently, the co-founder of Centerview Capital Holdings. Cyrstal Light was a strong new diet beverage concept, and beautifully executed by Kilts.   SunApple and Orange Twist were less unique new products, and the execution by their respective product managers was not good, who both lost their jobs.

As a consultant, I am mindful of creating alignment concerning risk taking between client/owners and their managers when trying to affect beneficial change.  For example, recently working with a pallet manufacturing client, their operations manager was reluctant to schedule pallet production, unless there was a firm order in hand, even though the client had decided on a “make-to-stock” strategy for certain pallet types, and this had been communicated to the manager.   The operations manage saw it as a risky move to build this opportunistic inventory, for fear that he would be criticized from any resulting overtime.  The solution was to develop a scorecard report for the owner and his manager to review at a set time each week, so they could hold hands on any “make-to-stock” production decisions, including those requiring overtime production. As a result, my client reports he has leveled out some of the peaks and valleys in production, and also is enjoying improved customer service and incremental sales to satisfied customers.

Cash Flow Planning is Tricky but Critical

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Earlier this month, I had the chance to be a guest speaker on the topic of cash flow planning for business owners, at a Kauffman FastTrac class.   It’s an area of financial management that many business owners find particularly difficult to get their arms around, including Brian LaGette and Ron Wilson, two Wharton graduates, and the founders of what Inc. Magazine described as “The Company that Grew Too Fast.”   

Their company got its genesis as a Wharton class project in 1994-95, and was eventually named 180’s. They experienced explosive revenue growth, increasing from $1 million revenue in 1999 to $15.4 million in 2001, but were not able to finance that growth in sales of ear warmers and other products, and were eventually acquired by Patriarch Partners, a private equity firm specializing in distressed debt.   One aspect of their downfall was that they failed to foresee and plan for the additional working capital demands, both inventory and accounts receivable, from expanding their sales from sporting good stores to department stores.

Business owners looking to build and use a cash flow model for their business would be well advised to remember the following:

  1. Give a lot of thought to your sales forecast, as this is a key element to accurately forecasting cash flow
  2. Understand your working capital ratios, how they change seasonally and with business growth, and what that means in upcoming quarters
  3. Try for a model that is detailed enough to be accurate, but not so complicated that you will avoid using it
  4. Back test the model on your past quarters’ results to validate it, before relying on it to project the future
  5. If no one on your team has the ability to do this kind of modeling, think about tapping an outside resource to help with the development, implementation and interpretation of cash flow model results

When done right, a cash flow model will help you forecast the need for additional cash in time to act, and it may even help you make decisions which lessen the need for additional cash to run your business.

Maille Boutique Undermined by Fairway Mustard Sale Pricing

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Maille Mustard store In 2014, a Maille boutique opened on Columbus Avenue between 68th and 69th streets.  According to Wikipedia, this is the fifth such boutique, following ones in Dijon, London and two in Paris.

Rents are stratospheric on this section of Columbus Avenue, and other nearby business establishments are able to cover the high rent by having premium priced goods (e.g., Kate Spade, Club Monaco, Theory),  high traffic (e.g., Joe Coffee) or some combination of premium pricing and high traffic (e.g., Papyrus, Bin71, Juice Press, Athleta.)

Maille on sale at Fairway

The Maille brand originated in France in 1723, and is not unknown in America, but only has a niche share in the overall condiment market, so the store is probably an attempt to gain consumers’ recognition of Maille as a premium quality brand in the mustard and condiments market.   The store is never very busy, and perhaps Maille, and its corporate owner Unilever, treats it as a promotional cost, and has never compared the store sales to the rent.

A few months after the Columbus Avenue Maille boutique had opened, I spotted Maille mustard on a “big sale” at the Fairway on 74th and Broadway, and the $3.79 per jar pricing was probably not in keeping with the premium image Maille is hoping to achieve for the brand since it is selling for $9 for a similarly sized jar at the nearby Columbus Avenue boutique!  Welcome to the Upper West Side.

 

 

 

 

Crumbs to be Quite a Workout for Lemonis

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Crumbs closure and announced bankruptcy last week raises questions on how it got to this point, and what is attracting Marcus Lemonis and the owners of Dippin Dots to buy the chain, subject to bankruptcy court approval.

 

Crumbs always felt to me like a stock offering in search of a strong business concept.   The sterile retail stores made profligate use of 1,000-1,200 square foot of space per unit to sell primarily sweet baked goods.   Many of their stores are on expensive Manhattan avenue addresses, where Gray’s Papaya manages to get by with just a quarter of that square footage to sell hot dogs and papaya juice, and Korean grocery stores get by with approximately half that space.

 

The expense and high calorie count of a single Crumbs cupcake likely reduces the possibility of bulk purchases, and the shops are sadly lacking in any kind of diverse cross-selling product offerings. Ironically, the Crumbs closest to my home is located next to a Modell’s sporting goods store and an Equinox gym, and around the corner from a yoga studio. A strategic alliance with Starbucks which was formed in August 2012 lasted only 13 months.

 

Crumbs achieved public ownership through the creation of 57th Street General Acquisition Corp, a so-called “blank check” company whose pitch to shareholders was basically “there are plenty of risks, but trust us, we’ve done this before, we know what we’re doing.” And while Crumbs management may have been strong at operations, in fact the brand was too narrow a platform, leaving them exposed to the end of the five-year cupcake craze.

 

All of which leads to the interesting question of why Marcus Lemonis (star of CNBC’s “The Profit”) is jumping in to attempt to snatch the chain from bankruptcy, and where exactly does he see the value which make Crumbs worth the risk?   It is probably more about the chance to acquire a distribution system for his growing portfolio of baked goods and sweets than the marketing allure of the Crumbs brand.     As Lemonis told the “Daily News” on 7/11/14, “we know that in order for this business model to succeed it must have a diverse offering. Our hope is to create America’s sweet and snack shop.”     Buying Crumbs out of bankruptcy will afford Lemonis a platform to do the kind of triage he does so well on “The Profit,” only instead of maximizing the selling potential of a single pie shop/wine store/gym, he now gets to do the exercise for a sixty plus unit sweets chain.   Should be quite a workout.