Sunday, October 14, 2018

The Cost Guy


Truth be told I became multi-unit operator before I knew how to operate a restaurant. In fact, I had never been restaurant general manager when I started Four n‘ 20 Pies, was Vice President of Sveden House smorgasbords, Executive Vice President and General Manager of Pewter Pot Restaurants or any of the companies I ran. I had opened and been an assistant manager of a pizza restaurant in Fort Lauderdale in 1966 but running a shift and putting the money in the safe is not the same thing as being a full charge manager responsible for every damn thing. Being a chain operator with no real grounding in the nuts and bolts of running a single unit would seem to be the very definition of the Peter Principle and yet there I was, a chain operator at 27. I was never a mechanic. I was always a manager of managers.  Which is not to say that being an accomplished unit manager wouldn’t have helped. It would have. A lot.

Someone told me years ago that the hardest move is from being a unit manager operating your own little fiefdom to operating two restaurants, meaning that you’re managing two managers. So maybe not being an experienced unit manager was a blessing in disguise. There's some spin for you.The tendency for new multi-unit managers who were presumably skilled unit managers is to attempt to be the manager of both units. I was spared that indignity. Learning to operate more than one restaurant through the manager, managing managers, is a real leap for normal humans but not for mutants. The same wise soul who told be about the dizzying leap from one to two restaurants said, “If you can manage two restaurants you can operate a hundred.” That’s a stretch but the principle of that old saw abides. The skills it takes to manage managers are totally different than the ones a unit manager employs. Never had the latter.

The only company that trained me to operate a store or restaurant was Baskin-Robbins. I trained in LA’s Larchmont store for a week though that was mostly learning how to scoop a perfect three-ounce ball of ice cream every time. That entailed putting a piece of wax paper on a Pelouze scale and scooping over and over again till you could scoop three ounces in your sleep. We were supposed to do it before every shift. The same kind of repetition applies to pouring a dependable 1-1/2 ounce shot of booze by feel and by sight. It’s the art called free pouring. A skilled bartender can pour the perfect shot, 1-1/2 half or 2 ounces, every time. She can tell by the feel and the motion of the bottle. An intermediate step is to count the pour, 1, 2,3, but a real pro just knows. Got a problem with liquor cost? Tell your bartenders and, if they’re real pros, they’ll shave every pour just a hair. Not to mention that real bartenders in real bars free pour. It looks cool and you think you’re getting more. You are not.

The essence of being a multi-unit manager is to convey expectations and to measure performance against those goals on a timely basis; be it sales performance, costs, food quality, service, or the physical condition of the restaurant. That’s the thing I called QSC in an earlier chapter, the three-legged stool of the restaurant business. It’s an oversimplification but defines the major components of the operation. Quality, Service and Cleanliness.

From the start I somehow recognized the importance of planning. So, as early as 1969 at Four n’ 20 Pies I asked my managers to plan daily sales based on recent performance and to allocate labor accordingly. Labor hours must reflect sales, period. I also required weekly inventories and food costs. Food cost is Beginning Inventory plus Purchases minus Ending Inventory. Right out of Accounting 101. As basic as that calculation is I found many a seasoned manager who couldn’t grasp the concept.

I brought those fundamentals to Betty Crocker Pie Shops and Sveden House Restaurants but when I became Executive Vice President and General Manager of Boston’s Pewter Pot Restaurants in 1973 I became a true expert in managing labor. KFC Corporation had purchased Pewter Pot, one of several flyers it took with small, promising chains. It had created the RVC, Retail Venture Corporation, to shepherd these companies, among them H. Salt Fish and Chips, The Original Pancake House and Pewter Pot. KFC bought Pewter Pot while it was in receivership and I, along with a bankruptcy consultant, became the receivers. We co-signed every check till I righted the ship. That took about six months.

The shallow breathing you hear is Pewter Pot on its deathbed. The 22-unit coffee shop concept had been founded by Vinny Catania who ran the enterprise like a mafia Don. That is not to suggest that Vinny was connected, and he was Sicilian after all, but he operated the struggling chain top down and without middle managers capable of managing managers. They were Vinny's lap dogs at best. Many of his unit managers were inept, dishonest and blind to the condition of their restaurants. And no one was requiring performance of any kind from them. Esprit de corps was null and void. The units were filthy, there were phantom inventories that masked the real food cost and labor was out of control. I recall that the Salem Pewter Pot had food in the walk-in refrigerator that was so old that there were maggots on the ground beef. The stench was horrific. We had to trash all the product, strip the joint down to the bare walls and start from scratch. I am understating the awfulness.

KFC was rabid about having me run the restaurants profitably from the get-go and shoved a team of efficiency experts down my throat. They were from the Alexander Proudfoot Company which I nicknamed “those fucking Indians.” I thought that I was already the world’s best cost manager. I was a grinder from birth. A grinder is a cost control freak, a person who might try to run costs below the level at which food quality, friendly timely service and a clean well-maintained establishment were possible. I teetered on the edge of too cheap.

But those fucking Indians showed me that I was an amateur. I had no idea how low labor costs could be. Senior management must have recognized my willingness to attempt the impossible. Or maybe they recognized hubris when they saw it. So, I found myself in the re-opened Salem Pewter Pot surrounded by gray men with stopwatches timing every activity. Our goal was 100% productivity. That’s 100% as in 100%. Not a wasted second. And we did that. 100% productivity. It’s possible no restaurant in the history of the world had ever accomplished that miracle. A doff of the hat to me.

I told my boss, Tom Frank, that the methodology that those fucking Indians used was brilliant but that achieving 100% productivity over the long haul wasn’t possible, that employees had to have time to go to the john. I suggested that we retain our humanity and aim for a sustainable 90% productivity instead. He bought my argument and I embarked on a journey that took my management system called Daily Operations Control or DOC to hundreds of restaurants over the next forty years.

First, I installed the Management System in all my Pewter Pot restaurants, took it with me when I became vice president of KFC, first in my 229 units, then in all 800 company owned and operated locations. At KFC our managers, area managers and district managers were extraordinarily skilled at making and adhering to hourly labor plans and to managing food costs against Ideal Food Cost. Ideal means no waste of any kind and is the fraternal twin of 100% labor efficiency. Neither is actually possible, but you can get really close. 90% labor productivity and 2% over Ideal Food Cost became our goals and we achieved them across the board whatever the concept; café, fried chicken, pizza, Italian, fusion or fine dining.

Not only did we deliver the costs, but we measured them on a timely basis; labor costs hourly with daily totals and food cost weekly. The managers tallied all of their costs each month and delivered a complete profit and loss statement before lunch the day after the month ended. In actual fact we used 4 week, 4 week, 5 week periods so we could compare year to year performance using the same number of days per period year to year. The day after the period ended I had unit, area and district income statements on microfiche on my desk. That was three weeks before “corporate” delivered its useless PandLs. You can’t wait three weeks to find out how you did last month. You need to know immediately so you can fix what’s broken. That means now. For labor cost that means daily and for product cost it means weekly. I always told my managers and clients, “You can’t screw up more than a day if you measure labor costs daily and you can’t have more than a week of bad food cost if you measure it weekly. In an emergency situation I’d require that food cost be calculated daily. That was rarely needed.

Our managers logged actual labor hours against planned labor hours by job function every hour of the day. Labor by job function was planned by the hour according to an established Labor Matrix. The sales and labor plans had to be approved by the area manager who called each unit every single morning to see if the plan had been met. Frequently, managers would boast of beating their sales goals and of using less labor than the plan. It was a game in which everybody won. Take care of the hours and the days will take care of themselves.

We were a juggernaut. Not only did we lead the country in costs and profitability but in sales growth and QSC, too. Appropo of which is this nugget: The best managers have the highest sales, the greatest sales growth, the highest standards, the lowest turnover and the lowest costs. “It’s the truth. It’s actual. Everything is satisfactual.” The worst managers? The same thing in but in reverse.

The very essence of our collective performance in 1976 and 1977 was brought into focus at a monthly regional meeting held in Columbus, Ohio. We held monthly wrap-ups that rotated through the five districts. Wunderkind Bill Roquemore, still a close friend, was our DM in Columbus and was a superior performer across the board. Refer to the paragraph above. He is the point of reference for doing everything well.

Anyway, Hicks Waldron, the president of KFC’s parent company, Heublein, was in attendance as each District Manager presented his district’s performance using an overhead projector. In these presentations the DMs showed sales and costs compared to plan, compared to last year and compared to the accounting department’s useless because they were late income statements. We called it “reconciling.” This was done in spreadsheet format. I remember so clearly that the profit from one of Bill’s Columbus units was lower by $181.13 than the corporate PandL. Bill calmly showed that our higher costs were correct. Corporate accounting had missed a bill for straws and we could prove it.  Waldron was dazzled. Bill Roquemore was so confident in his numbers that he defended them even though accounting's income statement would have made his store, area and district $181.13 more profitable. We were a bunch of showoffs. Boy, we were a proud bunch.

From this and other such experiences comes this truism. “If your accountant knows the numbers better than you do you’re a lousy manager or owner.” Write it down. There'll be a quiz later.

As I recount this treatise on operating restaurants and especially the Hicks Waldron vignette, I realize that the meeting in Columbus and a similar one in New York marked me as one to watch. In the clarity of hindsight, it’s why Hicks Waldron pressed me so hard to become President of Zantigo a year later. The good news is that got I promoted. The bad news is that I would have been better off if I hadn’t.

Maybe you can be too good for your own good. Just saying.

2 comments:

Daryl Black said...

The Cost Guy? Well, with multiple restaurants and restaurant chains and associated cost analysis under your belt, and throwing yourself into those situations, with the confidence to learn the ropes and bring eateries back from the brink, I now know why photography cost analysis has been a struggle. Also why it would be a great idea for you to teach a management and cost course for photographers. Sign me up.

This is another meaty post and another chapter in a book that people will be unable to put down! Kudos, Esteban!

Steve Immel said...

Thank, Daryl. I'm now at 33,000 words do a book is looking doable.