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Steve H

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Sometimes there's no economy of scale

by Steve H » Fri Oct 03, 2014 3:41 pm

Maybe this is really the reason why HotBytes hates chains?
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Robin Garr

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Re: Sometimes there's no economy of scale

by Robin Garr » Fri Oct 03, 2014 3:52 pm

I actually bloviated on this very point on a friend's Facebook thread about Starbucks vs Heine's this morning. Here's the opinion that I batted off on the fly over there. I think it's marginaly relevant here:

Some bloviating foodie wrote:When does a growing, entrepreneurial local become a chain? Great question, and it applies to quite a few local favorites. Heine's/Vint, Boombozz, J Gumbo's, Bearno's; scale up to Tumbleweed and, heck, even KFC and Papa John's. I think the invisible line is passed when the bean counters' voice gains dominance over the operational side, but that's hard to detect until the effects trickle down and become apparent to consumers.
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Andrew Mellman

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Re: Sometimes there's no economy of scale

by Andrew Mellman » Fri Oct 03, 2014 4:53 pm

I think another key point is who owns the company . . .

If it's a public company where anyone can buy the stock, then almost by definition the "bean counters" have to have a major voice in the operations. Similarly, if it's a venture capital owned company, then the owners are themselves "bean counters" and have purchased the business to derive income.

When it's a corporate concept restaurant - one where a corporate entity decided that there was a particular unsatisfied need and designed a restaurant from scratch simply to meet that need - then the corporate profitability is an overriding concern.

On the other hand, when the original owners still run the company, then - while profitability is important - there are those people who still (hopefully) have a goal in mind, and a customer they are looking to satisfy. It's different.

There are three examples I can come up with off-hand.

1. Cheesecake Factory was started by a divorced woman who had to make money for her family, took her only skill (making cheesecakes) and starting in her garage and moving into a single restaurant for distribution started a business designed to give customers more than what they wanted for a good price. The original family still runs the business. They could have expanded even more, they could have offered smaller portions (good publicity by lowering calories while spending a lower percentage on food costs), but they didn't, as their philosophy is to give you so much you'll think you have a bargain. Now, they have recently become a public company to raise cash for the Grand Luxe Cafe, so time will tell if this will continue or not.

2. Chick Fil A. No matter what you think of the ownership (and I don't think very much of them), no one can question that they'd make more money by being open on Sundays. Similarly, they could raise prices (it's not universal, but most of their chicken sandwiches are priced slightly below competition), but don't. Neither option fits the owner's values, even though the bean counters are likely complaining.

3. Morton's Steakhouse was wonderful back when it opened, when Arnie Morton founded a steakhouse under his popular Arnie's in Chicago at the Rush Street triangle. He was superstitious, so since that first restaurant was in an unused basement all his restaurants had to be in basements (most still are, tho not all). Since the first accidently was delivered pig creamers instead of the cow creamers that were ordered, from that day all Morton's had to use pig creamers. The quality control was exceptional. Now that they are owned by a chain and the family sold out (in the last year), it is very unclear whether this attention to quality will continue; too early to tell.

While I see nothing bad about Capital Grill, as a corporate concept restaurant they never could compare to Morton's (in my opinion). You may not like Cheesecake Factory, but there is nothing out there that can compare to it in terms of price, quality, and quantity of food (at this point). At the same time, there are corporate entities like O'Charlie's and Rafferty's where I frequently confuse the two, as much of their menu's are interchangeable and most of the offerings are assembled or heated rather than cooked from scratch. I don't think any of the originators are involved with Tumbleweed, and we all know what went on with KFC. Papa John is on the stock market, and while they do monitor quality they also are always looking for ways to improve profits.

Would that there were a definitive split between locals and chains, but I think that rather it's a wide line, and any given restaurant can be at any point on that line depending on its ownership, it's stage of development, and its operating philosophy.

This is not universal. There are restaurants out there still under the original management that have expanded and changed, and some chains that really "get it" about personal service (J Alexanders?), but at least with the original ownership there is hope!
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Re: Sometimes there's no economy of scale

by Steve H » Fri Oct 03, 2014 5:28 pm

Very thoughtful post Andrew! Thanks.
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Re: Sometimes there's no economy of scale

by Mark R. » Fri Oct 03, 2014 6:52 pm

Great post Andrew!I certainly like the way you described the differences of restaurants as they grow up.
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