Loud Harbours Restaurant Inc. Case Study PDF

Loud Harbours Restaurants Inc. Author: David Cleary.  Table of Contents Case Study Narrative and Questions...........................................................................Pages 2-11 Case Appendix................

Loud Harbours Restaurants Inc. Author: David Cleary.  Table of Contents Case Study Narrative and Questions...........................................................................Pages 2-11 Case Appendix......................................................................................................... Pages 12-16 Appendix A..................................................................................................................... Page 12 Appendix B…................................................................................................................. Page 13 Appendix C…................................................................................................................. Page 14 Appendix D............................................................................................................... Pages 15-16 1  Loud Harbours Restaurant Inc. Case Study Abstract: This case study has been developed for undergraduate university students studying leadership. The case takes a food service view point and puts the reader in the mind of a senior decision maker within a restaurant chain. The restaurant is suffering from poor loyalty and guest satisfaction scores that have been caused in part by poor associate engagement and motivation. The latter is being caused by a lack of good leadership and leadership development. Given the case issues, students should identify that the restaurant could benefit from leadership development and the implementation of the service profit chain. The introduction of both will help correct the issues identified and even create a positive change in profitability. Keywords: Service profit chain, leadership development, employee engagement, employee motivation, customer loyalty, customer satisfaction, leadership. 2 Introduction It was the Friday evening of February 1 st, 2016 and Holly Davis (Holly), a Regional Operations Manager for Loud Harbours Restaurants (also referred as LH.) decided to make a surprise visit to her Loud Harbours Bronte location. As Holly walked through the door of the restaurant she immediately had a sense that something was a miss. There was no host to greet her, servers were frantically running around and there was no manager in sight. As she looked around to see if she could pin point a source of the problem she was suddenly snapped out of her concentration by a server and line cook who were having a loud verbal disagreement. She also witnessed servers walking by tables that were not in their section and ignoring guests who were visibly trying to get their attention. To make the situation even more chaotic, Holly noticed four servers, who were not busy, standing at the server station talking instead of helping. She then walked into the bar/ lounge only to find the LH General Manager, Matt Kenneth (Matt) sitting at the bar chatting with the bartenders and having a beer. Holly, having become increasingly frustrated, decided instead of speaking to Matt in the moment, to cool off and return in a few minutes. After cooling off and returning to the bar, she approached Matt and asked him what was going on and why he was not helping. Matt told her that Jim, the closing Manager for that evening, had quit earlier that day and that he could not cover the shift. She again asked why he was not helping and he replied that he had already worked for 12 hours and left a server in charge of the dining room. Now having a better understanding of the situation and what caused it, Holly began to see the bigger picture. She considered the idea that this situation could be a symptom of a larger issue. Keeping good managers has always been hard in the food service industry, in fact, most of her region suffered from a shortage of good managers or managers in general. She speculated that shortage stemmed from not being able to retain her good managers. She began to think how she could fix this. As she stood and let these questions and thoughts bounce around her mind, a guest walked up to her and asked her if she was the manager. Holly said no, that she was the Regional Manager and asked if she could help the guest. The guest declined Holly’s offer and instead suggested the she help her staff as the guests could not get service or food and had decided to leave. The guest also told Holly that this is probably why her restaurant only has two out of five stars on Yelp and left. In Holly’s mind, there was nothing worse than a guest leaving unhappy or walking out because they had not been served. Holly had reached her frustration threshold and decided it was best for her guests and the business to close down for the rest of the evening. Holly, now at home, was not convinced that this was an isolated incident in her region. However, given the severity of what happened it did represent a last straw, something needed to be done. Given her experience and expertise in leadership, she knew that her region did little with regards to leadership development. She wondered if some of these issues could be solved by introducing a new leadership development program to heighten leadership abilities in her region. 3 About Holly Holly was a Regional Operations Manager (ROM) for LH. and was very well regarded amongst her peers. Holly had been working for the brand of restaurants for over 15 years in multiple roles including service staff, Manager- Guest Experience (MGE) as well as General Manager/Operating Partner (GM). Apart from her more formal roles within the corporation she also held the position of Super Coach, an individual that conducted yearly, 1-day leadership seminars for associates within the corporation. Holly had been with LH. In 2011 when Canadian First Restaurants (CFR) purchased the brand from the original owners in British Columbia, Canada. After the purchase, the brand was brought to Ontario, Canada and had tremendous success within the first seven years of breaking into the market. Within the first 7 years, LH. grew from four to a fifteen unit operation. This was largely due to prior financial success and overwhelming consumer demand for high quality menu items served in a casual fine dining atmosphere. During this golden era, Managers and Chefs had been maxing out on their bonuses and nearly doubling their annual salaries. There was little concern about controlling labour, food, beverage or operational costs given the high level of sales. The main focus and operational strategy had been simple: execute. This was done very well. After those golden seven years had passed, sales had begun to wither and taper off. This was due to a dramatic increase in competition in the food service industry. Given the increase in competition, the majority of stores in Holly’s region have seen or have begun to see negative same region sales (SRS), dropping guest counts, and lower average guest checks (AGC). As Holly sat in her office and recalled the previous visit to LH. Bronte she began to think of new plans and strategies to fix the problem. She knew that whatever she would to roll out had to be practical and have a positive effect on operational outcomes such as; guest satisfaction, loyalty, employee engagement, motivation and average guest cheque (AGC). Given her experience in leadership training she immediately began to think about leadership development within her region (or the lack thereof). Loud Harbours Restaurants: Corporate Management The first LH. location opened their doors during 2006 in British Columbia, Canada. The concept was an immediate success, serving local, seasonal inspired items and providing guests with a comfortable and approachable casual fine dining atmosphere. While the average price per entrée was quite high ($21.00), guests had no problem paying it because of the quality of food and service they received. The food and service were so impressive at LH. that they attracted food bloggers and critics from all around Canada. They came so they could weigh in and determine if the restaurant was really as a great as everyone made it sound. 4  Within the next 5 years the hype over LH. had become so great that the original owners began to sell franchises within British Columbia. Three new restaurants had opened within that time and each was met with the same level of success as the very first LH. In 2011, a hospitality and food-service umbrella corporation called Canada First Restaurants purchased the successful B.C. brand. The proven track record of operational excellence and profitability made LH. a great acquisition target for Canada First Restaurants. LH was also a great acquisition target because at the time Canada First Restaurants was not a competitor in the casual fine dining segment and LH. provided a great opportunity to access this market. To make the most of the new acquisition, Canada First Restaurants assembled a new corporate team that would represent the LH. home office team. The individuals were picked from across all brands within the corporation and were people known for their enthusiasm, professional conduct, teamwork and love for great food and service. This new home office team would represent the cream of the crop that Canada First Restaurants employed and would ensure great support for new and current LH. operators. Prior to the acquisition, the President of LH., was Joe Cutting. He was retained as the new President of the LH. home Office Team. He was an executive that believed in leading with people first and was known for making frequent personal and professional visits to each restaurant within the chain. His name and face were well known to all under him and his restaurant staff had nothing but great things to say about him. One thing that set Mr. Cutting apart from other top executives was that he was a firm believer of delivering great service both inside the restaurant and from the LH. home office team. He believed that the quality of the service received by the operators from the home office associates would translate in to better service for their guests. His mantra was: “lead by example.” By the end of 2015, the LH. chain had begun to show declines in sales and guest counts. The sales that had hid the high variable costs of the previous years were now exposed as sales had dropped and had a great impact on the profitability of LH. This pivotal point in the LH. financial history marked the end of Mr. Cutting’s leadership and the induction of Mrs. Andrea Gill as the new President of LH. Mrs. Gill was chosen among a small group of very experienced hospitality executives and was known for her stern stand on completing tasks efficiently and effectively. It was known that Mrs. Gill also had a short temper. Mrs. Gill came from the quick service restaurant industry (QSR) and was chosen for her ability to analyze and correct operational costs amid declining sales. This would be her focus and main goal during her tenure with LH. Within months of starting as president she rolled out a corporate goal statement, “Controlling and reducing costs during times of sales decline is our new focus. This will continue our business into the future and with some new supplier contracts, and keep our profitability relatively stable. We, as the home office must now hold people accountable to the money they are spending (or wasting) in operating our businesses.” Holly’s Region 5  Holly’s region was composed of 3 restaurants, Loud Harbours Bronte, Trafalgar and Mavis. Each location varied in age as well as annual sales but all were similar in profitability (Appendix B). Each of the restaurants within her region was managed by a General Manager whom reported directly to Holly each day. Each location also had an Assistant General Manager (AGE) and two other Managers- Guest Experience (MGE), all of which reported to their respective General Manager (Appendix A). The General Manager- Matt Kenneth Matt was another seasoned operator within LH, he started the same year as Holly and was the General Manager of LH. Bronte. As a result of his tenure during the LH. golden age he had maxed out on his bonuses and salary and was earning roughly $115,000 per year. Matt is a true family man, is married and has with 5 children with whom he likes to spend a lot of time. Matt has been reluctant to relocate to different locations around Canada (given his large family) and declined the Reginal Operation Managers role that is now Holly’s. It was rumoured that Matt declined the offer because it would impede on his family time and create more stress than his current role. Matt believes in taking a very “hands on approach” to accomplishing tasks. When Matt declined the job offer, the Vice President of Operations reminded him that he could be involuntarily relocated to any store within a 20 km radius of LH Bronte. Matt has no formal education in hospitality, just a long-proven record of operational excellence within his restaurant. However, most of his staff feels he is unapproachable at most times. Given his bad temper, Matt does not take criticism well. On a weekly basis Matt holds management meetings with his team. During these times he outlines what the upcoming week looks like, reviews any specials the teams needs to be aware of and has a round table discussion about the staff. After the meeting, there is little exchange between Matt and his Managers unless there is a severe problem. Other than Matt’s weekly management meeting he rarely communicates with other team members unless they are working on the same shifts as him. From previous meetings, Matt believes that he is doing a great job managing his location and that he is well received by his management team as well as hourly associates. In reality this is not the case. Holly has had conversations with staff as well as Managers and they all feel that he could be more of an effective leader to his team. It was those conversations that led Holly to recall the time Matt went through her leadership training. Matt completed the work but she concluded that overall, he didn’t take it seriously. The Management Team There are 3 front of house managers at LH. Bronte, Emily, Jim and Megan, who all report to Matt. At LH., each front of house managers takes on a “package” (portfolio?) for which they are responsible. A package is a combination of responsibilities and tasks that focus on a 6 particular portion of the restaurants’ operations. The specific types of packages individual Managers are responsible for are: Beverage, Operations and Developer. Each package also details which portion of hourly associates for whom they are responsible (Appendix A). Emily is the Beverage Manager at LH. Bronte and is responsible for the bar inventory, bar staff and beverage costs. While Emily is a very thorough person with regards to her costs, she has very little knowledge about beverage management. The LH Bronte bar staff consistently score lower than company averages on bar knowledge tests. Emily is aware of her staff’s lack of knowledge but gets defensive when confronted about it. She justifies the scores by saying the bar staff have a lack of willingness to learn. When staff are asked, there are quite a few interested in learning about liquor, wine and beer. Emily has an intense approach to her inventory and costs and she believes that there are some bartenders and cocktail staff that are stealing beer. The staff believe some of them have been wrongfully and destructively confronted about previous product outages. Many bar staff find it difficult to confide in Emily because of this lack of trust which has made the possibility of personal connections nearly impossible. The Operations Manager who quit on February 1 st was Jim. Jim inventoried all operational supplies such as takeout containers, takeout bags, cutlery and anything else the restaurant requires to operate. Jim was also responsible for the host team, whom seat guests when they arrive. While Jim was well liked among most staff, his performance with ordering and inventorying operational supplies was less than ideal. Although Jim knew when the order dates were for his package, he continuously missed them and left other managers to place the orders for him. The other managers believed Jim was a good person, however, they had come to question his leadership given his low level of interest in his package. When asked how well Jim liked his position he replied with, “I order napkins and help resolve the conflicts of teenage hosts, I love my job!”. Outside of work Jim is an avid homebrewer, he loves to create new twists on wine varietals and seasonal yet unique beers. His 5-10 year plan includes opening up a microbrewery in the country where he grows his own hops, wine grapes and barley. When the staff were asked about Jim’s departure they told Holly that he left because he wasn’t engaged, challenged or motivated anymore with his position. Megan, the Assistant General Manager, also the Developer Manager is a graduate from the University of Guelph, and specialized in hospitality. She has a very outgoing personality and loves the food service industry because of its complexity and constant interaction with new and exciting people. Her fiancé had proposed 3 months ago and she is now in the process of planning her wedding. While the staff of LH. respect Megan they, find that she’s never there when they need her. The running joke around the restaurant when someone asks where Megan is, most joke that, “she’s planning her wedding in the office”. Megan’s responsibilities within the restaurant are: hiring people, conducting semi-annual reviews and doing the front of house schedule. Megan is not terribly experienced with hiring and as a result has had some good and bad hires. When a staff member is hired there is a 3-month probationary period for the employer to decide whether or not the employee will be a good fit for the business. If they are not likely to succeed in the organisation the employer can fire them without repercussions. Trainees or new employees have been fired in the past, however, most of the new staff are now outside of their 3 month 7 grace period and will be difficult to terminate their employment. It appears that Megan has a very good relationship with the front of house staff. As a result, Megan has quite a few personal relationships with her hourly staff, which included normally going out together to a local bar or party after work. Megan is also responsible for semi-annual reviews of front of house staff’s performance. Since she’s been the Developer Manager she has yet to conduct any reviews. She defends the fact that she has not by saying her efforts are better spent elsewhere, like running the restaurant or making sure labour numbers are on target. While Matt tends to agree with her, Holly believes she avoids conflict with staff due to her personal relationships with them. Holly’s perception (or if you asked the LH. staff,) of the current state of management team is summed up with descriptors such as: bored, unchallenged, destructive, not present, conflict-avoiding and stagnant. The Front of House Service Team The hourly service staff at LH. is an interesting combination of people. Due to high turnover in the industry, LH. Bronte has had to mass hire 10 new service staff within the last 4 months. In addition to the new service staff there are also 10 other service staff that are regarded as the “veterans” of LH. The new servers hired by Megan are all young, their ages range from 19-24 and they all get along well together. Although they are admittedly chatty they are not afraid to ask for help or give help. While this portion of the staff work well together, they find the veterans of the restaurant a little overbearing and criticize them for being over critical. On one occasion, Patrick a lifelong server, and veteran with the restaurant made a new server cry because he questioned why she was serving a guest a glass of Cabernet Sauvignon in a champagne flute. In general, the new servers believe that the veterans of the restaurant dislike them because of their age difference, and comment that they are millennials. The other portion of the front of house service team are the veterans, most have worked for the restaurant for over 6 years each. They are servers who can handle high intensity service as well as larger sections in comparison to their newer counterparts. Given the sales decreases over the past year they haven’t been making as much money as in years past. There have been a number of servers that have left the restaurant to work somewhere else because they weren’t making as much money. This is why Megan had to hire so many new servers, to cover the gap in server coverage. When asked why the veterans of LH. have such a poor relationship with the new servers, each one of them says that the management team does not hold the new servers accountable for their jobs. It’s servers like Patrick that feel they need to manage the new staff in order for a shift to be successful. He is not the only veteran to feel this way. In fact, most veteran servers complain about the current state of the service that the restaurant offers and continually cite that “this is not what used to happen.” With respect to the current quality of service, the veteran servers feel like the management team has caused this by not enforcing standards and letting the new staff define their own way of conducting business. 8 Current Food Service Market Trend Over the past two years the full-service segment of the food service industry has been seeing sales declines. Some brands more than others but as a whole, most brands have been experiencing the same negative sales SRS. The only brand within Canada First Restaurant’s umbrella that had seen positive sales growth is a quick service chicken cook house that competes based on value, cost and speed of service. A major cause of sales decline in Full Service Restaurants (FSR) is a combination of external elements that are making consumers more aware of how much they are spending when they are eating out. This comes as food prices are increasing in both retail and FSR while incomes are remaining relatively unchanged. A Canada wide survey was conducted which revealed that the price increases in food, especially between 2007 and 2012, were the highest seen in 20 years (Rollin, 2015). As a result of this, the equilibrium or balance between value paid and value received has been affected. People who could pay to eat out twice a week are now eating out once a week as a result of increasing prices at the grocery store. Given this new economic climate, food service has begun to increase their service offerings in order to provide more value added to their guests. Better service may help consumers justify paying the prices they’re being charged to eat out. This has been particularity difficult for FSR who have streamlined service blueprints as they have had to become very creative in their approach to better service. Current Guest Satisfaction and Loyalty In measuring and communicating guest satisfaction and loyalty, LH. uses a web-based feedback system that guests can use to provide feedback and observations based on their experiences. When completing the survey online guests are asked a series of questions that are based on measuring satisfaction as well as loyalty (Appendix D). The collection of multiple surveys during a particular period allows Managers to look at their satisfaction and loyalty score and compare them with the rest of the brand. Holly’s region has been scoring much below the brand average in both loyalty and satisfaction, this is also captured on other food blogger websites such as YELP (Appendix C). The collection of feedback for LH. is not just obtained online, it is also passed on by the guest in the moment of dissatisfaction. When there has been an error in service or anything else, Managers are supposed to “touch the table” and employ BLAST (Believe, Listen, Apologize, Satisfy and Thank) to remedy the situation. These situations usually translate into a discount for the guest that falls under the discount category of “guest satisfaction”. As such, discount lines are watched very closely as another way of measuring guest satisfaction. Guest loyalty is similar to guest satisfaction in the sense that loyalty scores are also not just collected from online. Over the past couple years LH. Bronte has had a large group of 9 regular guests. These guests rarely require a menu and the staff know exactly where to seat them based on their preferences. These guests also tip very well and are very kind to the staff. The veteran staff have noticed that there has been a shocking drop in regular guest attendance over the past year and have communicated that the regular guests are just tired of giving the restaurant another chance. On the night that Holly had visited LH. Bronte, it was a regular guest that approached her who had not gotten any service, that guest also filled out a satisfaction survey. Looking to the Future After her visit to the restaurant Holly had submitted a report to the VP. of Operations about what she had experienced. As a result of the report, the VP. wanted to know exactly what she was going to do to fix the issues and how she would measure it. Holly knew that whatever her plan was to be, it need to be effective in addressing the main issues facing LH. to be accepted by the VP. and rolled out to her region. As Holly sat in her office she began to compile of a list of immediate issues she thought should be tackled from her most recent visit to LH. Bronte. She wondered if there were some lessons or tactics that she teaches in her leadership seminar that could be used to fix some of the major issues the restaurant in her region were experiencing. She also wondered how to increase guest satisfaction and loyalty during a time of sales decreases. During a brief conversation about her ideas a colleague had mentioned an article about the service profit chain. He mentioned that by putting a business’ people first they can achieve happier associates which translates to happier customers. He did, however, warn that good leadership was necessary to employ a strategy like the service profit chain. Holly found this very interesting and wondered how she could employ the service profit chain and what else she needed to do to make it successful. It was now Monday February 4th and Holly needed to have a proposal in front of her VP. by Wednesday February 6th. Holly loved the idea of the service profit chain but how would she justify it to he\ 10 Appendix Appendix A) Regional Operations Manager- Holly David General Manager- Matt Kenneth Operations Manager- Jim Assistant General Bar Manager- Emily Mananger/ Developer Manager- Megan Host Staff Serving Staff Bar Staff 11 Appendix B) Yearly Earning For Loud Harbours Bronte For 2014 and 2015 Sales 2014 2015 Percent Change Food Sales $ 1,500,000.00 $ 1,303,756.00 -13.08% Beverage Sales $ 750,000.00 $ 610,000.00 -18.67% Total Sales $ 2,250,000.00 $ 1,913,756.00 -14.94% Cost of Sales Food Cost $ 525,000.00 $ 391,126.80 -25.50% Beverage Cost $ 217,500.00 $ 176,900.00 -18.67% Total Cost of Sales $ 742,500.00 $ 568,026.80 -23.50% Gross Profit $ 1,507,500.00 $ 1,345,729.20 -10.73% Controllable Expenses Salaries & Wages $ 132,980.00 $ 123,598.00 -7.06% Employee Benefits $ 50,356.00 $ 50,796.00 0.87% Other controllable Expenses Repair & Admin $ 668,217.00 $ 726,932.00 8.79% Total controllable Expenses $ 851,553.00 $ 901,326.00 5.84% EBIDA $ 655,947.00 $ 444,403.20 -32.25% Occupancy Costs $ 200,000.00 $ 250,000.00 25.00% Interest Expenses $ 150,000.00 $ 150,000.00 0.00% Depreciation Expenses $ 172,000.00 $ 172,000.00 0.00% Net Profit / Loss before Taxes $ 133,947.00 -$ 127,596.80 -195.26% Financial Notes: Between 2014 and 2015 Loud Harbours Bronte saw a 5,000 guest reduction in guest counts. Loud Harbours Bronte served 50,000 guests in 2014 and 45,000 in 2015. Furthermore the average guest check dropped from $30 per guest in 2014 to $28.97 in 2015. 12 Appendix C) 13 Student Questions 1) Put yourself in Holly’s shoes as the Regional General Manager of Loud Harbours. Write a letter to Matt Kenneth that gives feedback on the night of February 1st. Include some other suggestions that you have witnessed as the regional GM that connect to February 1 st and offer some suggestions on how he can improve as General Manager. In your answer recall: feedback, leadership, SBI, communication, EQ, followership. 2) Is the new corporate goal statement for Loud Harbours leadership or management focused? Cites 2 reasons to justify your choice. 3) What would you do to the management structure of Loud Harbours Bronte, would you leave it as it, fire the managers, or re organize it? Justify the reasons for your choice. 4) What kind of leader is Matt? Use specific examples to define your choice. 14