Home Food Service Navigating through the Storm

Navigating through the Storm

By  
SHARE

When the economic crisis hit Europe, Spain was undoubtedly in the eye of the hurricane. But unlike a storm, the crisis did not abate after a couple of days. The depression that reached Spain in summer 2008 is still gripping the nation and, of course, the local food service market. Only a few companies have managed to cope with the tough conditions. Amongst them is the Spanish Eat Out Group. “We are doing pretty well,“ said Ignasi Ferrer, CEO of Eat Out at the 13th European Summit in Zurich. In his emotional speech, he shared his own particular recipe for fighting the crisis. www.eatout.es

When Ignasi Ferrer took over the top position at the Catalan company, rosy times lay ahead. The Eat Out Group (core brands: Pans & Company, FrescCo, Ribs, Dehesa Santa Maria) would open more than 75 new restaurants every year and acquire several new brands; same-store sales and margins would go up continuously – until the summer of 2008. “We were having fun beating all records in terms of profits,“ the CEO remembered. “But suddenly, everything was different. We found ourselves in the middle of a perfect storm.” The market dropped, hyperinflation caused the price of raw materials to spiral upward, the purchasing power of the Spanish consumer crashed. “But in this climate, we have been doing well; we have been growing and have out-performed the market,“ said Ferrer.

So, what did the group do to sail successfully through the storm? How did Eat Out manage to grow while others were falling into pieces? “We might not have the secret to success, but we have found a recipe for our company.“ One of Ferrer’s first instincts was the urge to react as quickly as possible. “It sounds obvious now. But when you are in the middle of a crisis, it isn‘t. In our business, it‘s not only that you lose sales every day, those sales won’t come back! People won’t have two sandwiches tomorrow, if they don’t eat one today.” Ferrer felt that the further the company drifted away from the path of success, the harder it would be to get back into the game. One of the lessons to be learned at that time was: “It‘s a tough task to fight denial. Because, when things have been going well for a long time, it is very hard to accept the fact that suddenly something has to be changed.“ When the Eat Out Group analysed its business model in order to prepare for the new challenges, Ferrer made it clear that not a single part of the company’s mindset was excluded from the stress test. The entire structure of the company was reconsidered. “It took us a couple of months to make sure that the whole company was moving forward on the same path,“ admitted Ferrer.

Meanwhile, market research, usually one of the most popular tools in times of uncertainty, was rejected by the Spanish CEO: “Things were moving too fast and market research is too slow. By the time you come to a conclusion based on the research, it might already be too late.” Instead of relying on external advice, Ferrer suggested: “Let’s go outside on the street and look around – not only at our competitors but also at or . Which shops are busy? What are consumers doing there? What are they buying?“

Based on its own observations, the company drew its conclusions and defined a profile of the ‘post-trauma consumer’. According to their findings, the new consumers in Spain are …

a)Very polarised: They shop low budget at Zara as well as high fashion at Prada. They are torn between saving and investing money. The same of mixing pricey and economic options is applied to their choice of restaurants. By investing more thought into choosing between different options, the consumer is becoming smarter.

b) Nostalgic: The majority of consumers in Spain have suddenly lost a great deal of their purchasing power. For a long time, many consumers have spent more money than they should have. It leaves them with the feeling of having been rich in the past.

c) Longing for the lost quality of life: As people in Spain don’t go out as often anymore, those times when they do become more valuable. When they go to a restaurant, they don’t want to take the risk of a bad night. Picking the right place is an important task.

When the company had figured out how consumers had changed during the crisis, the next question was: How could the company meet consumers‘ altered expectations? How were they to adapt the common fields of pricing, segmentation, communication, experience and emotion? Ferrer’s strategy involved nearly every division of the company:

a) Eat Out Group should focus on its strong brands! “As we are not the biggest of companies, it was all about concentrating resources. We reduced the number of our brands.” Only those that were considered fit enough to cope with the environment remained in the portfolio. The group also made sure that the best people worked for the best brands.Sailing through a storm is a tough job, but people can still enjoy it. It is a matter of attitude.

b) As the consumer becomes pickier, operations have to improve. So the group invested in training. Remodelling was another task Ferrer has addressed over the past few years. “We wanted the customers to see that they were visiting a leading brand. We had to make it clear to them that they would get the best product at our restaurant.”

c) As the consumer cannot afford a weekend trip to Rome anymore, going to an Italian restaurant in his/her home town has to be nearly as good as going out in Italy.

d) Different groups of consumers have to be identified. Then, product prices have to be adapted to their needs and values. “Pricing was the most difficult aspect. We had to deal with higher raw material costs, whilst shareholders wanted higher margins. We invested in the business, whilst consumers could afford less,” said Ferrer.

e) The innovation cycle had to become shorter. The speed of innovation increased and went from a yearly to a weekly basis. In order to make sure that identified opportunities were responded to in the restaurants within three weeks, marketing, supply chain and R&D had to work hand in hand. A role model was found in the company’s home country: Textile group Inditex shows how it is done with the example of the fashion label Zara.

f) Internal control has to be reinforced. “You have to make sure that every restaurant is in line with the development. No variety allowed.”

g) People must know: this is still there and this is serious. It is not the time to relax.

h) The level of efficiency has to be increased. “We realised that during the good times we were lacking in energy and efficency. When the crisis is over, we shall still be able to use this new efficiency to achieve great things.” When this is over, we have to be amongst the industry‘s leaders.

Obviously, the success of all these measures depends on people – change is never achieved without people. “You have to prepare the whole company for the fact that dynamism and uncertainty are part of the game for the next 10 years. There‘s no magic trick to overcome the crisis. It will be like this for a long time, so don’t get frustrated.” Ferrer believes that everyone on board needed to understand why they were doing what they were doing. Long-term goals were set up, so that everyone knew where the company was heading. Sometimes, short-term issues had to be sacrificed to Ferrer’s global vision: “When this is over, we have to be amongst the industry‘s leaders.”