Industry Structure j~
An Expanded
Restaurant
Typology
An examination of the segments of the multiunit-restaurant industry highlights common
and contrasting attributes.
by Christopher C. Muller
and Robert H. Woods
THE U.S. RESTAURANT indus-
try quietly passed a milestone in
1992. In t h a t year the top 200
r e s t a u r a n t chains accounted for
more t h a n 50 percent of all
domestic r e s t a u r a n t sales vol-
ume, surpassing independent
operators in revenues for the first
time. In hindsight, the trend
toward chain growth and indus-
try consolidation was inevitable.
The economies of scale and scope
© 1994, Cornell University
JUNE 1994
present in multiunit organiza-
tions provide large chains oppor-
tunities t h a t simply do not exist
for independent operators.
Whether the "corporatization" of
the food-service industry strikes
the observer as positive or nega-
tive is irrelevant. W h a t is impor-
t a n t is t h a t managers and opera-
tors m u s t realize t h a t a different
set of core competencies is needed
to succeed in a multiunit environ-
ment t h a n in an independent one.
Those competencies are rooted in
the attributes of the various
multiunit-restaurant-industry
segments. In this article, we
27
present an updated, expanded
typology of the multiunit-
r e s t a u r a n t industry and discuss
the distinct attributes of each
segment.
Christopher C. Muller, Ph.D.,
an assistant professor of food-
service management at the
Cornell University School of Hotel
Administration, is guest editor for
this section of the Cornel] Quar-
terly. Robert H. Woods, Ph.D.,
is a professor of food-service
management at the Eli Broad
School of Management at
Michigan State University.
 An Expanded Restaurant Typology
Use of Brand or Trade Name Customer Decision Attributes
QUICK SERVICE • Brand affiliation for top-of-mind recall • Low price
• Market penetration, distribution • Speed and time savings
• Consistency

MIDSCALE • Brand loyalty for increasing • Menu mix and choice

frequency of use • Value (price and portion size)
• Comfort
• Table and counter service

MODERATE UPSCALE • Brand identification with self • Fashion statement

and group • Ambience
• Flexibility of use by key
customer groups

UPSCALE • Unique name and product • Style

• Personal identification with • Ambience
consumer (self actualization) • Service
• Dining experience

BUSINESS DINING • Use of proprietary brands • Location

• Frequency of captive patronage • No menu fatigue
• Price and value
• Ease of purchase decision

GENERIC • Reliance on trade name • Price and value

and trade dress • Consistency
C H A R A C T E R I S T I C S OF • Brand management , Convenience
MULTIUNIT RESTAURANTS

An Expanded Typology following article, we will excerpt • Keys to operations, specific

The traditional typology of
i n d e p e n d e n t r e s t a u r a n t s includes
t h r e e segments: quick service,
midscale, and upscale. However,
t h a t typology does not fit the
m u l t i u n i t environment, which we
t h i n k m u s t include five segments.
The two additional segments we
suggest in this article are: moder-
ate upscale (or casual theme) and
business (or industry) dining.
Each of these segments is set off
from the others by specific at-
tributes, although m a n y seg-
m e n t s have a t t r i b u t e s in com-
mon. Hotel food and beverage,
suggested by some as a sixth
segment, is not included in this
list because we believe t h a t this
s e g m e n t does not have differenti-
ating a t t r i b u t e s r eq u i r i ng sub-
stantial specialized skills or
additional core competencies. The
table above provides an overview
of our expanded typology; in the
key points from the typology for
discussion.
Multiunit Management
While each of the five i n d u s t r y
segments has a set of distinctive
characteristics and competitive
attributes, t h e r e is in addition a
group of commonalities t h a t r u n
across all segments. P a r a m o u n t
among these common p a t t e r n s
are the skills and competencies
necessary for m a n a g i n g the
b r a n d n a m e of a m u l t i u n i t
r e s t a u r a n t . Those skills and
a t t r i b u t e s include:
• Concept clarity;
• Reliance on t rade n a m e and
t r ade dress;
• Brand-image development;
• Price and value;
• Consistency;
• Convenience;
• T a r g e t e d m e n u profiles;
• High-margin items;
• Product m a n a g e m e n t ;
to each segment;
• Purchasing- and distribution-
systems design;
• Development of m u l t i u n i t
managers;
• Strategic planning;
• Information m a n a g e m e n t ;
• Logistics;
• Site selection; and
• Organizational development
and control.
1. Quick-Service
The a t t r i b u t e s of the quick-
service (QSR) segment m a y be
the most a p p a r e n t of all the
segments, because QSRs have
become such an integral p a r t of
consumers' lives and i n d u s t r y
thinking. P e r h a p s the most
obvious of the m a n y a t t r i b u t e s of
the QSR segment are its reliance
on narrow menus, its catering to
ext rem el y price-sensitive cus-
t om er bases, and its development
of "habit forming" purchases

28 THE CORNELL H.R.A. QUARTERLY

Menu Characteristics
• Narrow, single-item focus
• Limited or no customization
• Standard offerings and limited changes
• Broad: ~ n u appeal
ns
• Fashion and trendy items
• Seasonal changes
• Cross-utilization of products
• Limited inventory
• Moderate choice and customization
• High f ~ quality
• Menu ~ m p t e x ~ , daily s ~ i s l s
• Item p m s ~ t a t i o n
• High c u s t ~ l n t i o n
• Cyclical or rotational menu
• Specials and promotions
• Targeted d e m ~ r a p h i c profiles
• LOW cost, high margin
through top-of-mind advertising.
The discussion of these and other
key elements of the segment is
arranged around five sets of
attributes, which we have used to
develop this typology. The five
sets of attributes are use of brand
or trade name, customer-decision
attributes, menu characteristics,
key operational attributes, and
management tactics and strategic
focus.
Use of B r a n d or T r a d e N a m e
Brand identity is the quintessen-
tial attribute of QSR chains.
Jealously protected, brand names
and identifying marks appear in
virtually every aspect of QSR
operation, right down to the
napkins. The purpose is to keep
the brand name in the consumer's
eye.
Top-of-mind recall. Consum-
ers develop strong affiliations
with specific QSR brands. These
affiliations are often developed
JUNE 1994
Keys to Operations
• Customer self service
• Finished-goods inventory
• Process-driven technology
• Advertising effectiveness
• High cost control and margins
• Execution of process sten~ard$
• Size of facilities
• High concept and decor
• Menu mix
• Knowledgeable staff
• Theatrics
• Personsllzation of experience
• P r i ~ of ownership
• Uniqueness within s t e n d a ~ systems
• Replicable systems
• Unit management
• Cash flow
• Product management
• Purchasing and d l a ~ l b ~ i o n
• Strong systems d e i g n
• ~ v e l o p i n g muitlunit m s n ~
during the consumer's childhood
and typically play an important
role in purchase decisions. Top-
of-mind advertising, or immedi-
ate recognition, is important for
operators in this segment because
it encourages consumers to make
quick purchase decisions based
on advertising alone. In the QSR
segment the battle for market
share is won or lost in the mes-
sage conveyed to the public.
Managing advertising effective-
ness is a critical operations skill
in the QSR segment.
Market p e n e t r a t i o n and
distribution. QSR operators
cannot rely on logos and advertis-
ing alone. Those items are backed
by operating systems that build
brand affiliation through product
delivery, backed by high operat-
ing efficiencies, centralized food
processing, and mass-production
equipment. Those operating
systems provide a unique oppor-
tunity for operators in this
29
Strategic Focus
• Inventory, waste, and labor controls
• Low-price leadership
• Perform to standards
• Service
• High energy and activity
• Constant new-product introduction
• Differentiated product
•Quality
• Image
• Forecasting
• Product utilization
• Client relations
• Long time horizon
• Information management
and
segment to gain rapid market
penetration through franchising.
That is the reason why the top
five food-service companies in the
United States--McDonald's,
PepsiCo (Taco Bell and KFC),
Grand Metropolitan (Burger
King), Imasco (Hardee's), and
Wendy's--are all operators in
this segment.
C u s t o m e r D e c i s i o n Attributes
The pursuit of brand affiliation
requires QSR organizations to
spend considerable resources in
identifying attributes that will
satisfy the greatest number of
potential customers. PepsiCo's
Taco Bell division, for instance,
widely credited with spearhead-
ing the rush toward value pricing,
has built an operational philoso-
phy around four attributes,
identified by the acronym FACT--
Fast food, Accurate orders, Clean
locations, and food served at the
right Temperature. QSRs' adver-
 tising and promotion seek to
reinforce the attributes--low
price, speed or time savings, and
consistency--that cause consum-
ers to purchase meals at these
Product managers must chains.
become brand managers.
A product is what a co mp an y Menu Characteristics
To m a i n t a i n m a r k e t position,
makes; the brand is what
menus for all segments of the
customers buy.
m u l t i u n i t i n d u s t r y need to be
targeted to specific demographic
profiles. This allows the menu-
decision and the siting-location
decisions to be equally matched,
both to corporate objectives and
local consumer preferences.
Chief characteristics of the
QSR m e n u are:
• Simple menus and illumi-
nated m e n u boards;
• S t a n d a r d offerings;
• Single-item focus; and
• Limited substitutions.
K e y s to O p e r a t i o n s
Because low-price leadership is a
strong QSR attribute, most of the
chains' operating attributes are
focused on cost controls t h a t
make low m e n u prices possible.
Key concerns for QSR operations
include:
• Customer self service;
• Labor costs;
• Finished-goods inventory;
• Process-driven techno-
logy; and
• Advertising effectiveness.
Strategic Focus
To deliver a consistent, low-cost
product, management's basic
strategy must be to set operating
standards and controls and
ensure t h a t they are achieved.
QSR m a n a g e m e n t should
focus on:
• Inventory, waste, and
labor controls;
• Performance standards; and
• Low-price leadership, sus-
tained by increasing
low-cost productivity.
30
2. M i d s c a l e
The midscale segment, often
called the family-dining or coffee-
shop segment, operates restau-
rants with full-service tables and
counters, and broad m e n u offer-
ings over extended periods of the
day. (Examples of this segment
include Denny's, Shoney's, and
Friendly's.) The strongest rev-
enues are earned primarily
during breakfast and lunch.
Recently this segment has been
expanded to include operations
offering food bars and buffet
service, as well as the traditional
la carte service modes.
Barriers to entry are perceived
to be low in the midscale seg-
ment. This perception comes from
the belief t h a t a sophisticated
product mix and high level of
professional expertise are not
requirements for ownership. As a
result, this segment probably
competes more directly with a
variety of independent operators
t h a n does the QSR segment. The
midscale segment has a notable
number of attributes in common
with QSR restaurants, including
brand loyalty, high volume, low-
price leadership, strong cost
control, and a reliance on
standard-operating procedures.
U s e o f B r a n d or T r a d e N a m e
The midscale segment is charac-
terized by relatively low check
averages. Therefore, r e s t a u r a n t s
in this segment m u s t rely on high
traffic to achieve acceptable
revenues. Frequency of use is
crucial to this segment, and
operators often develop expecta-
tions t h a t a patron will visit
three or more times per week.
Even more t h a n QSRs, which
use advertising to m a i n t a i n
top-of-mind awareness, mid-
scale r e s t a u r a n t s rely on
customers who are creatures of
habit. Family dining has tradi-
THE CORNELL H.R.A. QUARTERLY
tionally been built on a strong
relationship with brand-loyal
customers. This brand loyalty is
forged from a pattern of familiar-
ity between patron and staff and
is often accentuated through
comfortable or even home-style
surroundings. A highly personal-
ized approach is enhanced by
the service of simple or s t a n d a r d
food ("home cooking"), with the
perception t h a t good value is
driven by low prices and ample
portion sizes.
C u s t o m e r D e c i s i o n Attributes
Customers who might alterna-
tively choose a QSR are drawn to
midscale r e s t a u r a n t s by a num-
ber of key attributes:
• Menu mix and choice;
• Convenience (often
24-hour operation);
• Comfort;
• Value (price and
portion size); and
• Table or counter service.
Menu Characteristics
The menus in midscale restau-
rants reflect the homey appeal of
the concept and the basic cus-
tomer decision attributes of
selection and value:
• Broad m e n u appeal;
• Substitutions and special
orders;
• Commodity items;
• Large portions; and
• Batch cooking.
K e y s to O p e r a t i o n s
Companies in this segment are
often "price takers" who are
forced to respond to the pricing
pressures of the QSR operations
and other competitors in their
market. Operators t h a t do not
have a strong set of operations
standards can face low profit
margins on m a n y items. Opera-
tional success for the manage-
ment of a family dining restau-
r a n t demands t h a t operators find
JUNE 1994
those items t h a t can break
through the competitive noise
while providing high margins and
long-term profitability. With
broad menus, low prices, and
higher service levels t h a n QSR The moderate-upscale
chains, midscale operators face a segment combines the broad
challenging set of operational menu appeal of midscale
concerns. Among the most impor- restaurants with an upscale
t a n t is the need to m a i n t a i n cost price and service level.
controls (especially through
inventory management) to allow
for competitive prices. Other
concerns include:
• Strong cost controls and high
margins;
• Flawless execution of all
process standards; and
• Appropriate size of facilities.
Strategic Focus
The midscale strategy resembles
t h a t of QSR chains: be available
to build traffic counts and keep
costs down. To t h a t end, midscale
operators must focus on:
• Building traffic volume;
• Clustering facilities and
management;
• Developing s t a n d a r d
operating procedures;
• Setting appropriate mar-
ginal-cost price points; and
• Dealing with changing
demographics.
3. M o d e r a t e U p s c a l e
The moderate-upscale or casual-
theme segment grew out of the
success of specialized concepts
t h a t combined the broad m e n u
appeal of midscale chains with a
price and service level borrowed
from upscale restaurants. Ex-
amples of r e s t a u r a n t s in this
segment include T.G.I.Friday's,
Olive Garden, Fuddrucker's,
and Chili's.
Use of B r a n d o r T r a d e N a m e
One distinctive characteristic of
the moderate-upscale r e s t a u r a n t
31
is its ability to convince consum-
ers t h a t the r e s t a u r a n t is an
extension of their own self image
and group identity. Consumers'
identification of their peer group,
as represented by the restau-
rant's customers, is simultaneous
with their identification of a
brand image, and in effect,
creates brand loyalty.
Key customer decision attributes
for the casual-theme segment are
closely tied to the strength of the
concept-driven design. Consum-
ers' identification with a concept
is a kind of fashion statement. In
contrast to the midscale seg-
ment's emphasis on consistent
execution of process standards,
the moderate-upscale operator
concentrates on the consistent
execution of concept standards.
Therefore, the concept design
(decor, activity, and emotional
intensity) contributes signifi-
cantly to the chain's competitive
position in the market.
A m b i e n c e . Casual-theme
r e s t a u r a n t s m u s t have a compo-
nent of the theatrical to distin-
guish themselves in a cluttered
marketplace. Ambience is more
important in this segment t h a n in
others because it contributes
strongly to customers' self and
peer-group identification. In fact,
chains in the moderate-upscale
segment rely on concept ambience
for m a r k e t segmentation.
F l e x i b l e use. Use by dispar-
ate consumer groups is built into
both the design of the facilities
and the menu offerings. Typi-
cally, moderate-upscale restau-
rants provide opportunities for
multiple use, including business,
pleasure, small groups, large
groups, and even special-event
catering. As a result, m a r k e t
analysis, especially as it relates
to siting and population mix, is
crucial to individual units.
Menus in the moderate-upscale
segment can be f a i r l y broad, but
the key attribute is that menu
items are a n y t h i n g but commodi-
ties. Almost every item is a
signature item.
F a s h i o n a b l e items. The
m e n u mix in this segment m u s t
be trendy, with changes designed
into the system to m a i n t a i n the
freshness of the concept. Food
fashions, like all other fashions,
change quickly, and moderate-
upscale operators m u s t be able to
respond to their rise and fall. Due
to the fashion-driven n a t u r e of
casual-theme chains, there m u s t
be considerable time and money
devoted to the menu-development
process. Although price and
portion size are important to the
QSR and midscale segments, and
quality and complexity are
important to the upscale seg-
ment, the moderate-upscale
operator must m a i n t a i n the
appearance of being on the
cutting edge of "hot" dining
trends. F e a t u r e d items, such as
mesquite grills, gourmet ham-
burgers, goat-cheese pizza,
blackened anything, fresh pasta,
and Thai noodles, have appeared
and disappeared on every moder-
ate-upscale menu, to be replaced
by the next trend being estab-
lished in Los Angeles, New York,
or Seattle. When the target
m a r k e t has a young outlook and
a serious sense of the avant-
garde, it is crucial t h a t new menu
items be brought out and added
to a solid base of consistent
signature fare.
Cross-use of products.
Products stocked by moderate-
upscale r e s t a u r a n t s must be
designed with a potential for high
cross-use. Flexibility can be
facilitated by m a i n t a i n i n g stan-
dardized products t h a t can be
combined in new ways to present
a fresh image to consumers.
32
S e a s o n a l c h a n g e s . While the
midscale segment m u s t m a i n t a i n
broad m e n u choices, the moder-
ate-upscale r e s t a u r a n t can
change menus seasonally to
m a i n t a i n variety and freshness
and to minimize the effects of
m e n u fatigue. Repeat patronage
is usually not a problem in this
segment because most units draw
from large m a r k e t bases. As a
result, menus can be narrower
t h a n in the midscale segment.
L i m i t e d i n v e n t o r y . Having
a narrower menu mix allows
managers to m a i n t a i n lower
operating costs by focusing
inventories on fewer items. Even
with a moderately broad menu,
however, inventories are manage-
able due to cross-use of products.
Cross-use also contributes to the
operator's ability to m a i n t a i n
purchasing efficiencies.
Moderate choice and
c u s t o m i z a t i o n . Moderate-
upscale r e s t a u r a n t s are able to
offer moderate choice on menus
through their cross-use, flexibil-
ity, and seasonal changes. Moder-
ate choice and customization
allow the operator to m a i n t a i n
higher prices and correspondingly
higher profit margins.
K e y s to O p e r a t i o n s
Customers entering a moderate-
upscale r e s t a u r a n t will not
mistake it for the homey comfort
of midscale r e s t a u r a n t s or the
stark utility of quick-service
outlets. Every aspect of the
moderate-upscale r e s t a u r a n t
reinforces its theme or concept.
To reach through the market-
place clutter, the moderate-
upscale chain m u s t have a
theatrical component. A story line
m u s t be developed t h a t involves
both customers and service staff.
H i g h c o n c e p t a n d decor.
With this in mind, and in con-
t r a s t to the midscale m a r k e t with
its focus on the consistent execu-
THE CORNELL H.R.A. Q U A R T E R L Y
tion of process standards, the
moderate-upscale operator must
focus on the consistent execution
of concept standards. The same
exacting attention to detail is
present in both concept and
process standards, but, like the
producer of a Broadway musical,
the moderate-upscale manager
must maintain continuity of the
story line throughout a custo-
mer's meal (theater) experience.
Knowledgeable staff.
Servers' skill levels need to be
greater in moderate-upscale
r e s t a u r a n t s than those in the
QSR and midscale segments (but
less than in the upscale segment),
especially in the areas of service
and product delivery. A profes-
sional presentation, extensive
product knowledge, and a high
level of energy are keys to success
for moderate-upscale waiters.
The effect of brand identification
extends to the employee as well
as the guest, which, along with
the promise of higher wages and
gratuities, makes this segment
attractive as an employment
opportunity. Labor costs are
higher than in the midscale
chains but less so than in upscale
outlets. Ironically, staff costs
relative to food revenues are
lower (even though pay and
benefits may be higher) than in
the QSR and midscale segments
because moderate-upscale chains
are able to maintain higher profit
margins. Employee recruitment
for moderate-upscale chains is
usually easier than in the QSR
and family segments because of
the "fun" factor associated with
working in r e s t a u r a n t s in this
segment.
The core strategy for moderate-
upscale r e s t a u r a n t s is to focus
on the theme, which should be
reflected in menus, service,
and decor.
JUNE 1994
Service. Service delivery is
usually tied to the concept. That
means different chains may have
a different definition of good
service. In some cases, good
service is intended to be friendly
and casual, while in others it m a y
be more formal. Customers are
typically knowledgeable and
expect to receive the service
advertised by the concept.
High energy and activity.
Theme r e s t a u r a n t s rely on high
energy. As a result, management
must work to ensure that the
staff consistently delivers ener-
getic service appropriate to the
concept design.
Constant product innova-
tion. The downside risks of this
segment are linked to the re-
quirement that the r e s t a u r a n t
maintain fashionable offerings.
As more theme concepts flood the
market, existing chains face
decreasing customer counts as
consumers try the latest concepts.
Market saturation is j u s t as
possible in this segment as any
other, and competitive pressures
rise with the introduction of new
concepts. Moderate-upscale
operators must establish strong
brand positions to maintain high
prices. While the price premiums
associated with branding are
desirable, they come with the
inherent costs of higher advertis-
ing, a commitment to new prod-
uct innovation, and flawless
service execution.
4. Upscale
Many have described the fine-
dining segment as "the real
r e s t a u r a n t business" because it
has long been controlled by back-
of-the-house food experts who
specialize in a single cuisine.
Until recently, upscale dining has
been the province of independent
operators. While independents
may, indeed, still predominate in
this segment, they are no less
33
immune to the incursion of chains
than operators in other segments.
The key to creating a fine-dining
r e s t a u r a n t is to create a unique
identity that includes the highest
service levels and a singular
menu. By their nature, chains
eliminate the possibility that
each unit can be unique or have
a singular menu, but they can
substitute other attributes to
compensate for that perceived
uniqueness.
Use of Brand or Trade Name
The reason that the upscale
segment was controlled by inde-
pendents much longer than other
segments is attributable to the
belief that the successful fine-
dining r e s t a u r a n t must have a
strong owner-operator identifica-
tion. The development of new
systems and technologies have
allowed multiunit operations to
seize a portion of this market in
recent years through the replica-
tion of the "uniqueness" of fine
dining establishments. For
example, Outback Steakhouses, a
rapidly expanding full-service
operator, has applied an interest-
ing technique to capture "pride of
ownership." Each unit's manager
has an equity stake in that
operation, and his or her name
appears above the front entrance.
Personal identification
with the customer. Fine dining
relies heavily on personalization,
particularly with the chef-owner.
Some of that personalization is
being replaced today by other
factors. Special locations (e.g.,
waterfront, scenic views, historic
buildings), specialty menu offer-
ings (French, prime steaks,
Imperial Chinese), and high
concepts (nostalgic, Tuscan,
Pacific Rim, classic French and
Asian combinations) often substi-
tute for personal ownership. In
addition, owner partnerships
have been created that in m a n y

Upscale operators have been
reluctant converts to batch-
process cooking, finished-
goods inventories, and
limited customization.
instances replace the traditional
independent chef-owner.
Customer Decision Attributes
One of the key attributes of the
upscale segment is the customer's
perceived sense of style, ambi-
ence, and service. For m a n y
customers in this segment, the
highest satisfaction comes from
the personalization of the service
encounter. The regular fine-
dining customer, known as easily
by m e n u favorite as by his or her
name, expects the recognition
t h a t comes from loyalty. This
sense of dining in a high style is
distinct from other segments
where the primary emphasis is on
eating (or gathering as a group)
r a t h e r t h a n dining. Although
individual customers m a y be
well-known in midscale or moder-
ate-upscale restaurants, the
difference is t h a t recognition in
these r e s t a u r a n t s is on a "first-
name" basis, while recognition in
upscale r e s t a u r a n t s is based on a
formal server-guest relationship.
Menu Characteristics
Fine dining is characterized by a
commitment to product quality
and variety, and complex m e n u
offerings. Menu complexity is
magnified by the "market-basket"
approach of a daily m e n u based
on currently available products.
This short-term inventory style,
often t a k e n by a chef-owner to
highlight her or his creativity,
severely limits any economies of
scale. Since each meal is indi-
vidually prepared, it is not
difficult to personalize a m e n u to
suit the particular dining expec-
tations (whether due to health,
diet, or personal idiosyncrasy) of
any single diner. Fine-dining
operators have long been reluc-
t a n t converts to batch-process
cooking, finished-goods invento-
ries, or the economies t h a t come
from limited customization.
34
P r e s e n t a t i o n . Unlike other
segments, fine dining relies
heavily on product and service
presentation to create a sense of
style in dining. In m a n y cases the
operator a t t e m p t s to create a
presentation t h a t becomes a
sensual experience for the diner
through the visual appeal of the
food on the plate, the pacing of
the service, and the ambience.
C u s t o m i z a t i o n . Where there
is a high commitment to hand-
made, single-unit production
technology, costs are hard to
control. Fine-dining menus are
not constructed with the same
commitment to efficiencies and
cross-utilization as is the case in
other segments. Customization
requires higher production costs,
greater commitment to a more
highly trained and highly paid
kitchen staff, and a clientele
willing to spend longer periods of
time immersed in the dining
experience.
K e y s to O p e r a t i o n s
Within this segment, the person-
alization of the experience and
the ability to make each dining
occasion a memorable one creates
a bond between the consumer and
the operator t h a t can be among
the strongest of brand loyalties.
Once the identification of self is
intertwined with the product
being offered, it is h a r d to alter
purchase behavior. This personal-
ization between chef-owner and
guest is being replaced through
the introduction of technologies
allowing the chain operator to
engage in "mass customization" of
products. Even in the fine-dining
segment there is more reliance on
convenience products, as simple
as precut and peeled carrots or as
complex as a fully table-ready
s o u s vide meal prepared to order.
Mass customization allows the
operator to penetrate more
markets t h a n previously believed
THE CORNELL H.R.A. QUARTERLY
possible and to broaden the
appeal of fine dining to a larger
m a r k e t base and to new demo-
graphic groups.
Pride o f o w n e r s h i p . Every
business hopes to instill in its
employees a "pride of ownership"
mentality. In the fine-dining
arena it is crucial that each
customer believes the "owner" is
intimately involved in every
meal, and that the hospitality
extended is coming directly from
that owner. The proxies men-
tioned above, which m a s k the
lack of an owner's hands-on
presence, can be effectively used
by the corporate planner to
give the impression of this
involvement.
U n i q u e n e s s w i t h i n stan-
dard systems. The customer's
perception of uniqueness,
whether through the use of
special characteristics or the
creation of an ownership mental-
ity, creates the opening into
which the multiunit fine-dining
r e s t a u r a n t of the 1990s m a y
profitably slide. The multiunit
organization brings with it a
culture accustomed to standard-
ization. Once the unique at-
tributes for the upscale unit are
identified, this culture allows the
application of a back-of-the-house
system that respects and even
enhances the singular front-of-
the-house characteristics.
Strategic Focus
Independent upscale-restaurant
owners and managers pride
themselves on the uniqueness of
their product. In the competitive
environment of food service, this
focus on a differentiated product
offering creates, in effect, a
monopoly for each unit. When the
multiunit approach is taken, the
expectation of standardization
has the potential to destroy this
monopoly effect. Chain managers
need to spend time capitalizing
JUNE 1994
on those attributes that magnify
the differences inherent in each of
their units.
Quality. One of management's
tools is high quality. A highly
competent staff (including a New technology, from precut
celebrity chef), featured use of and peeled carrots to table-
expensive ingredients, and ready s o u s vide meals, allows
uniquely styled menu items,
upscale operators to engage in
decor, and uniforms even an
"mass customization,"
abundance of fresh flowers--are
elements of perceived quality.
I m a g e . For the upscale opera-
tor, merchandising and the
m a n a g e m e n t of image are more
important than marketing and
advertising. Exclusivity, a dress
code, and a specialized customer
and event profile all need to be
carefully maintained by the
operator. Image is an ephemeral
product of the customer's mind.
Since m a n y fine-dining customers
use the product only once or twice
a year, this image needs to be
constantly reinforced and main-
tained by management.
P r i c e as a s c r e e n i n g device.
In the service industries, where
comparison shopping is difficult
for the average consumer, price is
an easy m a r k e t measure of
quality. If a service is more
expensive, it is generally consid-
ered to be better. The most
expensive restaurants, therefore,
are perceived to have the best
food and the best service. Where
price is more tightly competitive,
as in the QSR, midscale, and
moderate upscale segments, there
is an easy substitution of one
consumer choice for another, and
customers often trade up or down
depending on their time sensitiv-
ity and the unit's location. Where
high price is used as an attribute,
many people perceive fine dining
to be too expensive for their
dining tastes. As a result, the
upscale segment often attracts a
set of customers willing to say,
"Spare no expense; money is no
object!" It might also be pointed
35
out t h a t to a t r a n s i e n t group of
customers, such as business
travelers, the safety of brand-
name quick-service or moderate-
upscale r e s t a u r a n t s m a y be
appealing. Choosing a national
m u l t i u n i t r e s t a u r a n t for a few
meals, however, results in a lower
overall "search cost" t h a t creates
a lower aggregate dining cost and
opens up the opportunity for the
traveler to experiment with an
upscale, but untested, meal.
5. B u s i n e s s D i n i n g
Traditionally, contract food
service has not been considered
part of the m a i n s t r e a m restau-
r a n t industry. Discussions of
contract food-service used to
involve only captive m a r k e t s and
so-called "cafeteria food." That is
no longer true. As the segment
has matured, contract food
service has become more driven
by the traditional forces of the
m a r k e t and has, as a result,
become competitive with the
other segments. Corporate dining
rooms, for instance, compete with
local r e s t a u r a n t s for lunch
volume more today t h a n they
have in the past; employee
cafeterias now compete with
pizza delivery, quick-service
restaurants, and even moderate-
upscale restaurants, particularly
on special occasions. One result
of this change has been t h a t
managerial skills required for
the business-dining segment are
comparable to those required
for other, more traditional
restaurants.
Use o f Brand or Trade N a m e
The establishment of proprietary
brands, items t h a t are intended
to compete head-to-head with
commercial products, are devel-
oped to increase usage. These
proprietary items, merchandised
in h a r m o n y with recognizable
consumer-product brand names,
help to create a loyal customer
base while increasing impulse
buys and brand-name price
premiums.
F r e q u e n c y o f captive
patronage. One other key at-
tribute for success in the busi-
ness-dining segment is the ability
to garner frequent patronage from
a relatively captive market.
Previously in this article, we
described the midscale operator
as looking for brand loyalty in the
form of thrice-weekly customer
visits. Business-dining operators
need to offer menu rotation and
a variety of products t h a t can
capture a customer five or more
times a week.
C u s t o m e r D e c i s i o n Attributes
One of the purposes for having an
on-site r e s t a u r a n t is to keep the
workforce within the confines of
the work place. Purchase deci-
sions in this segment, therefore,
are often tied to a combination of
factors t h a t include:
• Location (convenience);
• Discounted or subsidized
pricing t h a t creates a high
price-value appearance
(a thinly veiled perquisite);
• Ease of purchase (meal
cards, employee purchase
plans, and debit-card
programs); and
• Menus t h a t change often
enough to avoid losing the
captive market's interest.
Menu C h a r a c t e r i s t i c s
The m e n u challenge in this
segment is ironically similar to
t h a t of the upscale segment in
t h a t menus m u s t be changed
frequently, often weekly or daily,
to m a i n t a i n high customer counts.
When rotational menus featured
traditional meals and customers
were not expected to notice the
monthly reappearance of an item,
such as in hospitals and cafete-
rias, little time or effort went into
36
creative design and complexity
was minimal. As the business
segment has come of age, the
cycle times have shortened, and
customers, presented with m a n y
choices from delivery to drive-
through, are no longer satisfied
with repetitive m e n u offerings.
Frequent menu changes have
become a substantial part of
contract negotiations. This in
t u r n has created a new set of
management-skill expectations,
because m e n u complexity directly
influences cost considerations and
forecasting.
Special p r o m o t i o n s . The
s t a n d a r d promotional packages
(Presidents' Day, St. Patrick's
Day, and so on) have also found
new focus. Special promotions,
which feature regional cuisines or
highlight the cuisine of an inter-
nationally famous chef, are used
in the business segment to
enhance regular sales and en-
courage repeat patronage. High-
quality products are used, with
collateral support to diminish the
effect of repetition on the core-
customer base. (This approach is
also being used in other seg-
ments, most notably in the
moderate-upscale r e s t a u r a n t , due
to its need for m e n u innovation.)
Keys to Operations
The success of an individual unit
in the business-dining segment
largely depends on the expertise
of the unit-level manager. While
managers across all segments
m u s t be able to manage costs,
build demand and revenues, and
m a i n t a i n customer satisfaction,
managers in the business-dining
segment have an added layer of
concern: they m u s t make sure
their client representatives are
satisfied. The relationship of the
contract-company unit m a n a g e r
with the corporate host, based on
personal chemistry as much as on
business skills, can make the
THE CORNELL H.R.A. QUARTERLY
difference not only in the meeting
of profit objectives but also in
contract renewal.
Replicable systems. Cost
savings and economies of scale
come from standardization across
multiple units. But individual
food-service clients have particu-
lar concerns and expected out-
comes. To satisfy both the need
for profitable returns and the
need to meet customer demands,
contract food service m u s t cus-
tomize operations for each client
and yet m a i n t a i n as much repli-
cation of systems and procedures
as possible. As we mentioned
previously, it is difficult to set up
a customized front-of-the-house
profile while building standard-
ized systems for the back-of-the-
house operation. The areas where
this can most easily be accom-
plished are the m a n a g e m e n t of
purchasing and supply, labor-
scheduling and payroll functions,
standardized recipes and m e n u
cycles, and product testing and
development.
C a s h flow. Along with the
adoption of a systematic approach
to multiunit management, the
contract food-service operator
m u s t also spend a substantial
a m o u n t of time m a n a g i n g cash.
Cash flow, especially where the
forecasted income includes a
subsidy component, becomes a
considerable factor in profit
planning for the high-volume
business-dining account. Volume
purchasing (see the article in this
issue by Norkus and Merberg)
can be heavily leveraged where
business activity is at a steady
state of demand, where it in-
cludes a fixed or required mini-
m u m level of revenues, or where
it is easily predicted and follows
cyclical patterns of customer
demand. In a controlled m a r k e t
environment, such as the one j u s t
described, the firm t h a t focuses
successfully on the m a n a g e m e n t
JUNE 1994
of cash gains a significant com-
petitive advantage. Working the
n a t u r a l cash float can be a large
part of a contract food-service
firm's profitability.
Strategic Focus
Accuracy in forecasting, when
business is highly predictable and
cyclical, can offer significant
competitive advantages. Long-
term contracts offer incentives for
use of the commodities markets
through hedged contracts and
single-source purchasing plans.
Relying on accurate forecasting
also means t h a t margins can be
kept slim, giving a company an
edge in the competitive bidding
process for new business.
Client relationships. When
we previously discussed the need
for strong unit managers we
made the case t h a t a positive
relationship must exist with the
client representative. Fostering
a proactive, inclusive style of
m a n a g e m e n t is an important
managerial skill for the business-
dining-segment manager. Opera-
tors in this segment m u s t realize
t h a t client relationships depend
less on single meals t h a n they
do in other segments, and more
on character and trust, both
of which are built over time.
Long planning horizons.
The real customer in contract
food service is the contract client.
Since the client is looking for a
satisfactory performance from the
food-service operator over the
course of the life of the contract
(anywhere from one to five years),
the opportunity exists to extend
the normally short-term view to a
view concerned with long-term
cost structures and profits.
Purchasing contracts are written
with this in mind, and staffing
(particularly of salaried supervi-
sors and management) can be
designed to maximize the long-
term return to the food-service
37
company. Systems, always at the
top of every manager's list, m u s t
be finely honed in contract food
service, especially those systems
for forecasting and cost controls.
Where contracts are signed with
a long time horizon, short-term
mistakes in cost controls or
forecasting can be the difference
between success and failure in
any single account. Potential
demand is fixed on the upside,
so supply m u s t be tightly man-
aged. Marginal cost pricing,
price discrimination for impulse
purchases, and a competitive
focus on the value received by
the daily customer m u s t be
factored into each long-term
negotiation.
Redefining Restaurants
The corporate managers of
multiunit r e s t a u r a n t s across the
United States are refining the
systems and redefining the role of
the r e s t a u r a n t in the expanding
food-service economy. The at-
tributes t h a t guided r e s t a u r a n t
operators to success in the past
will not necessarily be those
which lead to success in the
future. Productivity will increase
as managers rely on new informa-
tion technology, better logistics,
and supply management. Signifi-
cant changes in the use of demo-
graphics to produce market-
driven site selections will demand
a new approach to concept design
and product innovation. Organi-
zational development, especially
in the control and m a n a g e m e n t of
growth, will breed a new genera-
tion of managers unlike those
currently in the industry. A
strategic focus on brand-name
m a n a g e m e n t will replace one t h a t
has focused only on product
management. Finally, consolida-
tion of the companies leading the
i n d u s t r y will continue, even as
the public continues to demand
greater r e s t a u r a n t choice. CO