The Butterfly Effect is a popular term used in discussions of Chaos Theory. It refers to is the seemingly insignificant actions that have a dramatic impact in systems like weather and climate. In business we often don’t look at an insignificant action and connect it to the resulting change in business. You must keep in mind that dots aren’t always connected by a straight line.
I have to add a small aside here. I was going to tell the story of fictitious restaurant, the story is true but I didn’t want to use the actual name of the restaurant so I thought I would use the name of a small Mexican restaurant that was located in my home town which closed over 40 years ago. To be safe I Googled the restaurant name and there are a bunch of them with this name in Virginia. My next choice was a take off on a restaurant we visited in San Diego many years ago. The restaurant was Tio Leo’s, we had a wonderful meal and enjoyed the experience. So my idea was Tio’s Taco and it turns out a restaurant by that name is located in Riverside California. Well then how about a name that isn’t Spanish sounding like Rocky’s Taco, oops Chicago, Taco Train, McFishy’s . . . let’s just say Restaurant X. Nope, that’s located in Congers, New York and it’s part of the Xaviars Restaurant Group. Well let’s go with it but name a different town.
Restaurant X is a successful little restaurant in the town of Bentley, Alberta. Bentley is in central Alberta near popular Gull Lake. In the winter months the town businesses cater to locals. Summer brings an influx of tourists and cottage owners that spend time at the lake during the warmer months. The owner of Restaurant X hires a new manager that comes with what appears to be a great track record and a promise to increase profits. This new manager starts in April just before the beginning of the busy summer season and he slowly makes changes to reduce costs. First, it’s a change in a few suppliers from the meat supplier they have used for the last four years to the paper products. At first things look great. The cost reductions quickly show up on the bottom line. But there’s growing dissatisfaction with the local patrons. The food quality and serving size has gone down. Heck even the toilet paper leaves a poor impression on these good folk. They don’t frequent the restaurant as often, and they talk about their disappointment with their friends and neighbours. Before this becomes apparent, the summer patrons arrive.
Time goes by and after the influx of summer traffic goes away Restaurant X struggles through the following winter. The owner wonders what happened to his successful little restaurant. What are the other restaurants in town doing? Maybe it’s the economy, people aren’t dining out as often. No one connects the dots and Restaurant X closes.
It’s important to look at your businesses “big picture” and make sure your customers are happy. Analyse everything about the business especially the guest/customer experience. Think like a customer, talk with your customers, or hire someone to survey.
What we have here is a shot of an ad on the back of a Calgary Transit bus. It says “Faster. Easier. Cheaper.” and under that is says “Two outta three ain’t bad.” Many Calgary drivers would argue vigorously, but first a little background. The ad is for the Calgary Parking Authority which has eliminated parking meters in all zones they control and have implemented a system called “ParkPlus.” This system requires that the driver pay at a pay station located somewhere nearby, or if they set up an account and link it to their cell phone they can activate and deactivate parking sessions with their cell phone. With this method of payment, money has be deposited in the account in advance. This program has recently been expanded to include all of their surface lots and parking structures.
Parking in downtown Calgary is often reported to be the most expensive in Canada and among the most expensive in North America. As the downtown has been developed, the city has discouraged parking development and encouraged the use of public transit. This has lead to parking being in short supply, and demand has driven up rates. Parking in most of downtown is $5.00 per hour. Parking rates are a hot button issue with drivers that have to park downtown. I suggest the Calgary Parking Authority shouldn’t even go here. By including the word “Cheaper” on this ad they are reminding people of something that they are angry about. “Faster and Easier” doesn’t come close to outweighing the fact that their rates are a long long way from “Cheaper.” Two outta three ain’t nearly good enough.
Today’s post is about that all important decision on the part of a retail business owner, where to hang the shingle. It’s one that has such far reaching consequences and I’ve seen struggles that have resulted in making a poor decision. Location by itself isn’t the whole issue however. The location needs to fit within the overall approach of the business.
There are two basic options. One is to locate in a high traffic space and rely on that traffic to develop into a customer base. The second option is to choose a location that doesn’t deliver traffic; the retail business sets out to bring their own traffic and become a destination store. Think of this dichotomy as opposite ends of a continuum with high rent at one end and high marketing costs at the other.
Option one, high traffic locations must be chosen with care. Is the traffic desirable? If you are locating a craft store, do you want to be locate in a fashion mall? The two aren’t mutually exclusive but they also aren’t complimentary. The primary advantage of this option is that a well run retail business can get up and running more quickly if it captures the wallets of the people that make up the existing traffic. The disadvantages are that the retail store is at the mercy of changes in traffic patterns and if the economy slows the rent remains high. Another common mistake is assuming that by paying for the traffic, that nothing else needs to be done. This issue will be addressed in future posts.
Option two, becoming a destination and marketing to bring traffic to your business takes longer, and in some cases takes too long. I have seen businesses fail, waiting for the business to come. The classic in this regard is the business that the owner is passionate about but is started on a shoe string. The owner chooses the cheapest space they can find, due to inexperience they don’t do a very good job of merchandising, make use of hand made signage and has no money left for marketing.
One of my favorite examples of a business that is out of the way but very successful is the Salt Lick BBQ in Driftwood Texas. In 2004 Driftwood had an estimated population of 21. Over the years the population has never exceeded 0ne-hundred. I’ve had the pleasure of dining here. The Salt Lick has a seating capacity of 150 (keep in mind the population of the town) and on a Friday night, even with a reservation, and it took our group over an hour to get a table. It was worth the wait. Patrons wait in the garden. This is a dry county, so the restaurant isn’t making customers wait just to sell alcohol. The restaurant is so popular that they have parking lot attendants directing traffic. The food is excellent and patrons can choose to eat “family style.” The food is served in bowls, a bowl of potatoes, a bowl of beans, a platter of meat, and when one is emptied, staff bring another. It’s a pleasant way to dine.
You need to do some serious planning before you decide on your location. Don’t decide on the cheapest space you can find unless you are prepared to do some serious work on delighting customers and great marketing.