Monday, April 4, 2011

Restaurants Test New Ways to Shop

In the competitive market, a single company does not have the ability to decide a price. In order to own maximum profit, companies should find the best way to control their cost. Those who are bad at controlling cost will obtain nothing from market.

Many restaurants try to use diverse strategies to blunt the impact of higher price of raw material. Starbucks, for example, wants to team up with other companies to buy milk, sugar and other essential food items. Darden Restaurants Inc., owner of the Red Lobster and Olive Garden chains, is moving to a system where it buys only what they knows they needs.

The unfavorable fluctuation prices of grains, meat, sugar and other essential ingredients will be a block for businesses to earn a stable profit and will bring the restaurant industry a financial risk. Especially, in cases such as the recent period of a rising global demand for protein, unfriendly weather in key growing regions, and government mandates to turn corn into ethanol.

There is a very useful strategy called commodity-price hedging to guard against large swings up or down. However, this can only apply for large companies like Starbucks and McDonald's, which have the capital to hedge effectively.

Another strategy, supply-chain management, is much more important and applicable for most companies. For instance, Darden faces similar risks with its plan to automate its supply chain where it buys and ships only what it needs, when it's needed. It might buy and store only the amount of biscuit mix its Red Lobster restaurants are expected to use in a given month.

Moreover, if Darden combine the two strategies together, it will create a bigger benefit. In regards to the biscuit mix Darden purchases for its Red Lobster chain, the company breaks down the cost of each ingredient, such as flour and shortening, as well as the packaging cost, so it understands exactly how much it should pay for a product. The company then hedges the price of the wheat that goes into the flour to avoid price fluctuation and earn a nice profit.


Sunday, April 3, 2011

No-Smoking Policy

Lyndon Sanders was entrepreneurial in the hotel industry 30 years ago. Given the fact that his father, uncle and 12 close friends had died of smoking, he decided to open a hotel called, “The Non-Smokers Inn” in an attempt to reduce the amount of smoking in hotels for many reasons. First, smokers and non-smokers would often alternate rooms, and in order to keep the quality of the hotel up to the non-smokers standards, they would have to “take the draperies down, shampoo the carpet, strip the beds completely down—even the plaster shower curtains.” He then went on to say, “You should see the yellow nicotine stains on the cleaning rags. I tell you, it would gag a buzzard.”


That being said, the hotel industry was focused on maximum profits and people told him he was “nuts when he announced that he was building a hotel in which guests would not be permitted to smoke.” Even though that idea may have seem farfetched in that time, more recently, hotels have taken huge strides to provide their guests with non-smoking floors, and sometimes even took on Sanders idea of non-smoking hotels all together. There has recently been some legislations passed about smoking in hotels. It was said that now, “more than 12,900 lodgings in the U.S. now allow no smoking at all in any of their rooms—nearly 4,600 than the figure was in 2008.


It seems obvious that Sanders was ahead of his time. It is crazy to see that it took 30 plus years to see significant changes in the hotel industry when it came to smoking, but nonetheless, change did happen. This is a great example of an entrepreneur who saw the need for change in an industry, and took it upon himself to open up the “Non-Smokers Inn.” It will be interesting to see what other changes are made in the hotel industry in the next few years. I would expect the majority of hotels to convert to 100% non-smoking hotels, and require their guests to smoke outside. It seems like it would take a hit on the companies profit if they consistently need to clean the smoking rooms.


New Labeling Requirements for Restaurants

The Food and Drug Administration (FDA) has proposed new regulations that all restaurants in the nation should provide menu-labeling; adding calorie counts on menus and menu boards of chain restaurants.

The proposal was released this past Friday with the details of how menu labeling should be implemented in the restaurant industry. The FDA hopes to issue these final rules by the end of 2011 and predicts that they should become effective six months later.

Another detail that has been proposed to be added to the labeling of menus is for them to provide a reference point of appropriate caloric intake for customers. An example of this would be to include phrases such as “A 2,000 calorie diet is used as the basis for general nutrition advice; however, individual calorie needs may vary”.

The FDA proposal added that such guidelines would “help the public understand the significance of the calorie information provided”.

Although many chain restaurants – especially fast food franchises – already post the nutritional information of their menu online and in stores, the new regulations will probably hit the “casual and upscale dining sector” harder since most of them don't already provide nutritional information.

Dawn Sweeney, the President and CEO of The National Restaurant Association stated that “The publication of the proposed regulations in the Federal Register today is the next step forward in providing the industry with consistent, national requirements on how to implement the new uniform nutrition information standard”. It is true that these regulations are a major step in providing people nationwide with guidelines on how to lead a healthy lifestyle and will encourage them to make more educated decisions on their nutritional intake. Furthermore, menu-labeling is sure to induce customer appreciation, because not only does the information help those who want to watch their weight or prefer to eat healthy, but it expresses a certain concern for customers well-being.

The NRA will provide the FDA with details on how to ensure that restaurants are given the appropriate time to comply with the new regulations effectively and on how to present the information to consumers in the most useful and direct way. Furthermore, what with the nation's obesity problems, the new regulations will encourage a more educated and healthier America.


Appealing to the Customer

A secret about the U.S. hotel industry is that every night the industry struggles with an average of 40% of its rooms empty. Surprisingly, this has helped influence the market of the hotel industry tremendously by creating great innovation. Hotels have now adopted online models that have helped create a demand to fill more rooms. For example, getaroom.com displays the lowest published rate for a particular room and then promises to beat it when you phone them. However, the catch is the customer will not know that exact price until Getaroom bills their credit card. The only guarantee is that you will not pay more than the published rate, where Getaroom averages about 25 % below the lowest published rate.

Even though the hotel industry has experienced recent innovation, hotel “shopping” by room numbers has not caught on yet. A new strategy of the hotel industry, an online company called Room 77, where diagrams of the hotel and specifically hotel rooms are available for guest to see. Co-founder of the website made an interesting point, “I found it quite odd that here we are 10 years into online travel … but the room I’m going to be staying in is a complete black box. You just don’t know until that fateful moment that you open that hotel door whether the room they gave you is a good room or a bad room.” The website collects the customer’s preferences and rank each room according to one’s criteria, which the customer is then sent to Orbitz or the hotel’s site to book the room. As of right now, you don’t get to view pictures or select the exact room of your choice on the website. Yet, this option is in the near future if hotels may agree to allow specific room selection for an extra fee.

Such innovation in the technology environment is necessary to the hotel industry in order to advance its influence in modern business. Such websites accommodate to the customer and appeal to the preferences of their clientele, making one’s experience more personal.