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Wednesday, November 4, 2009

Big chains and little guys: observations from a reader

I recently got an email from a regular reader with some interesting observations about my statement that it's ironic that national chains with thousands of locations often seem to be better at turning out a uniform product than are much smaller local or regional chains, with far fewer locations to oversee. The reader referenced something I'd never heard of called "Six Sigma," which sounds like something out of a spy thriller, but I checked it out and it's for real.
Anyway, I found the reader's comments interesting enough to be worth sharing. I quote them here in full.

You comment: "A place like Domino's may be able to maintain uniformity throughout its stores, but ironically, smaller chains sometimes seem to have trouble with that"...is accurate. 1. On average, their is a specific reason for disparity, or lack of consistency in regards to local...or small...'owner operated pizzeria chains'. National chains such as Papa John's or Domino's utilize and implement a business methodology know as 'Six Sigma'. Six Sigma is sophisticated, difficult to implement and even more challenging to maintain. Six Sigma was heavily inspired by six preceding decades of quality improvement methodologies such as quality control, TQM, and Zero Defects, based on the work of pioneers such as Shewhart, Deming, Juran, Ishikawa, Taguchi and others. The vast majority of small, owner-operated chains lack the educational background, intellectual capital, or financial resources to implement and/or execute Six Sigma.
Additionally..(and Pizza Guy...what I am about to suggest is an 'observation'..not a 'criticism')..the majority of small chains are either owned or operated by individuals who have been in the 'pizza business' for a number of years, and over that time period have accumulated a great deal of "hands on experience'. Many, if not 'most' of these individuals, think or honestly believe they....'KNOW' and understand the pizza business...they also believe they have a 'system' or 'business model' that works..and therein lies the conundrum.
It is very difficult and often near..impossible for these owner-operators to re-calibrate their way of thinking and engage in 'behavier modification'. And the fact that some of these local chains such as Pontillo's, Mark's, Guida's..etc..are financially successful, makes adopting or even experimenting with a new or different business methodology even more daunting.
Unfortunately, many of these small chain operators adhere to the notion, "If it's not broken, why fix it. They often view 'success' as..growth..expansion and profit, yet historically, as the number of units of the small chains grows, consistency and uniform quality do not receive, the time, energy and attention they warrant. And why would they?..I mean if a small chain of 3-5 units is lacking in consistency, why would anyone assume or surmise that by growing to 6-10 units..that would make that small chain more consistent in regards to the quality of their product.

When I go into various Pontillo's, I feel like I'm a 'riverboat gambler'..I have to 'roll-the-dice''..and hope for the best. They are all similar, but very few are the same. This lack of consistency has contributed to Pontillo's achieving zero(0) growth over the last quarter century(25yrs). Twenty five years ago, there were 25 Pontillo's..today there are still...25 Pontillo's. And that fact...'in of itself' is alright..EXCEPT for the fact that their is still noticeable disparity in terms of quality and consistency,among the 25 Pontillo's locations. On a personal note, it's sad and frustrating, because when made correctly, Pontillo's creates what I consider a very good pizza.
As far a Six Sigma is concerned, an interesting paradigm has been achieved. The national chains in the Upstate, NY area..at their very best...CANNOT put out of business the local...quality pizzerias. Yes pizzeria's come and go..and yet in many cases, the good ones, I mean the ones that create a good..very good, or excellent product have weathered..endured , the influx of the national chains and continued to succeed. The strong quality of many of the local pizzeria's..is their...'edge'. This 'edge" provides the local chains and owner-operated pizzerias', arguably, their single most important advantage.
The flip-side to this paradigm is that despite producing(on average) far superior pizzas, the local pizzerias and small chains(on average) CANNOT put out of business the National Chains (Domino's, Papa John's, Pizza Hut etc..) The national chains(on average) have business models that are far superior in regards to efficiency(food costs, labor costs,purchasing power, name branding, advertising...etc...) which enables the national chains to generate much stronger 'gross margins'. This fact, encompassed with the virtually 'unmatched" capital reserves the National Chains have verses the local chain or owner-operated pizzeria, contributes greatly to this paradigm.
I would definitely not call this interesting paradigm detente. I would refer to this paradigm however, as 'co-existence'. EXAMPLE: A Papa John's location that generates $8,500/wk in gross sales can and will, achieve a greater 'net profit' than a local, owner-operated pizzeria, or local chain that generates $10,000/wk in gross sales. It's a classic text-book example of 21st Century business tactics verses 20th Century business tactics.

(Pizza Guy again:) In a nutshell, then, the big guys - and this isn't limited to pizza - can stay in business, very successfully, despite turning out a product that is not the best that consumers can find, because they have certain other advantages working for them, like economies of scale that allow them to price their product very competitively. They also employ an approach that allows them to offer a consistent, uniform product that offers the consumer the benefit of reliability and the comfort of knowing what to expect. (Many times when traveling I've opted for the mom-and-pop local diner over the chain restaurant next door, only to be disappointed by bad food and poor service, and wishing I'd gone to the chain instead.)
A small operation that makes a superior product will be able to stay in business, despite the competition from the big guys (barring other problems such as poor location or sheer business incompetence), because some consumers will always seek out the best product. But when the little guys try to expand, they often run into problems because they lack the resources, knowledge or desire to implement the kinds of methods needed to offer the same level of quality and service at multiple locations.
As a consumer - and in particular a pizza consumer - what all that means to me is that if you value pizza that's not only good but distinctive, try a bunch of local, independent shops until you find one that you love, and then support it. You may hit a few clunkers along the way, but in the end it'll be worth it.

3 comments:

  1. I couldn't agree more, the Big guys will always have a economic advantage, so take the time to find that Great local pizza joint and give it all the love you can. Even the really good local pizza joints can have a hard time making it in the current economy.

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  2. Another huge advantage the "little" guys have is selling slices. What national chains do you know of that sell slices? Until they start to do this (which I doubt they will), you will see the local shops dominate the lunch hour as people take their lunch breaks and stop in for a slice and a drink. Look at a place like Pizza Stop... they aren't open past 5:30 during the week (7:30 on Friday), or on the weekend at all. A majority of their business takes place during the lunch hour, when they sell slice after slice after slice to local businesspeople. The national chains have not captured this market at all. Pizza Hut has the lunch buffet of course, but that is a "sit-down" affair, not a "go in, get your slices and leave" situation as it is at many local pizza shops. They need to face it - not everyone wants to order a whole pizza for the office at lunch hour when they can go down the street and pick up a few slices.

    As far as pizza consistency goes - owners should write up a standard procedure for all dough-making and pizza building. Figure out how many cups of cheese go on each size of pie, and use measuring cups when building the pizzas. Same goes for sauce, and toppings. Type up a recipe for each item, and post it where the pizza maker can easily reference it. The owner is placing a great deal of trust with his pizza makers to produce a consistent, quality product day in and day out.

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  3. Hmm ... you're right, can't think of a national chain with slices. I can think of several possible reasons, but I'm sure it all boils down to economics. What it really shows, though, is that you can get a level of service at small independent places that the big guys can't match, provided that the small places put the effort into it. That's the problem when small places expand - too little supervision over too many employees who don't know or don't care about what they're doing.

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