Professor Chris EdgerProfessor Chris Edger, the author of ‘Effective Multi-Unit Leadership – Local Leadership in Multi-Situations’ and ‘International Multi-Unit Leadership’, is Professor of Multi-Unit Leadership at Birmingham City University where he researches and teaches the ‘art and science’ of high performance service-based retail, hospitality and leisure.

Over the past ten years some retailers (ie Signet, Intidex, Aldi US, Arcadia) have sought to exploit their assets/capital more effectively by simultaneously addressing both the value and upper/mid or premium ends of the consumer market with differentiated branded concepts. This is a strategy fraught with danger as the complexity of managing distinctive supply chains and service delivery systems poses particular problems. Value-based branded models are based around the principles of ‘standardised lean’ whilst premium branded offers are constructed around ‘customised quality’. Ensuring that both models flourish under the same corporate umbrella (in a variety of formats) requires agility and dexterity. Taking the Pub Restaurant sector, in particular, there have recently been a rash of announcements by multiple ‘managed’ chains who have stated that they are going to launch concepts touching the premium end of the market – partially in response to competitor activity – but also due to the key insight that craft/artisan pub offers, which (theoretically command higher margins) can balance their portfolios that have become replete with high volume, low margin value-based offers. Also, in an increasingly crowded value-based market, where homogeneous products owned by a variety of managed multiples offer the consumer minimal differentiation, ‘branching out’ with higher-end products – which have far more ‘segmental space’ – can seem attractive to behemoth operators with ‘cash to burn’.

The problems inherent in running two business models in tandem are obvious, particularly when organisations have designed their systems, policies and procedures (ie IT, Financial Reporting, HRM, Maintenance, Labour Scheduling etc) around a paradigm of centrally-driven control rather than local discretion/autonomy. Based on the research I have conducted to date which has covered a range of developed and international Multi-Unit Enterprises (44 case studies showcased in ‘Effective Multi-Unit Leadership’ 2012 and ‘International Multi-Unit Leadership’ 2013) how do service-based Multi-Unit Enterprises successfully run a ‘mixed’ branded portfolio and how can operators achieve the nirvana of optimising their operations in both (seemingly diametrically opposed) segments of the market?

  1. Architectural Alignment – The first thing that organisations who have a spread of brands addressing a range of customer segments with differential levels of pricing, product and amenity do is ensure that there is clear structural separation. That is to say that the architectural design of the firm ensures that roles/responsibilities both within the operational line and its support functions (ie Property, HR, Marketing, Finance, Administration, etc) are completely aligned to individual brands. Although expensive, the benefits of having ‘one team’ enfolding the brand, understanding and believing in both its emotional and functional raison d’etre, are obvious in terms of creating a vibrant culture, innovative community of knowledge and (theoretically) increased discretionary effort.
  2. Idiosyncratic Ratios – The next thing that needs to be understood and accepted by senior decision-makers is that the P&Ls of each branded segment will be fundamentally different. For instance in Value models, due to the compressed nature of the service cycle and simplicity of food and beverage delivery, labour might constitute 18-24 per cent of sales turnover. By contrast, within Premium brands – due to the need for more personalised service and complex ‘fresh’ production – labour might amount to up to 30 per cent of sales turnover. In addition, due to the need for a greater number of ‘investment sparkles’ to maintain amenity and higher maintenance spend to remedy defects, depreciation charges will also be more onerous in Premium rather than Value brands. Whilst higher margins will evidently offset these costs in Premium it is not unusual for brands that have encountered seasonal road bumps (ie a ‘bad’ summer) to suffer pain from the ‘suits’ who – in a misguided attempt to recover profit – attempt to turn Premium P&Ls into a mirror image of their Value cousins. Re-engineering ratios within Premium brands (particularly in relation to labour, training and maintenance) might produce short-term gains, but will (unless there is an obvious problem with productivity) lead to ‘brand drift’ into mid-market territory where a spiral of price decompression degrades service delivery.
  3. Distinctive Systems and Policies – The third thing that policy makers operating successful multi-branded formats do is ensure that – whilst basic auditing and checking procedures are standardised across the range – food production and service delivery systems, selection and training practices and (importantly) reward policies are designed around the specific requirements of both Premium and Value brands. That is to say they recognise that a ‘one size fits all’ approach does not work and, indeed (following on from the point above), the level of resources that are required to facilitate high-end Premium execution are significantly greater than those needed in branded offers servicing the Value segments. That is not to say however, that they should encourage a ‘class system’ to flourish where operators within Premium are treated with ‘kid gloves’ whilst those elsewhere are expected to labour with scarce resources in a harsh compliance regime. Equal acknowledgement should be made of the contributions of team members working in both paradigms BUT any attempts by the ‘suits’ to ‘level down’ Premium in response to political pressure from Value-led vested interests must be resisted!
  4. Tacit Expertise and Capability – As inferred above, the tacit skills required to service more sophisticated, discriminating and wealthy consumers who have (due to what they are being expected to pay) quite high expectation levels, requires technical skills, behaviours and cognitive problem-solving capabilities that are quite different in Premium compared to Value. Indeed one of the main issues the industry currently faces is a shortage of operators who can understand and service ‘higher end’ user groups. Whilst some ‘poaching’ of talent will fill some of the gaps, the plans that have been outlined by many multiples recently suggests that there will be ‘war for talent’ that organisations will only resolve if they devote sufficient resources to ‘growing their own’. A major issue they face is that the skills and behavioural profiles of their incumbent operators do not fit the demographic they are now seeking to address. Great effort must therefore be made to either ‘re-set’ extant talent or recruit staff with the right behavioural profiles that can be trained to a higher level of technical proficiency.

In summary, multi-branded Pub and Restaurant Operators who are attempting to operate a spread of Premium and Value brands in ‘simultaneous flight’ must acknowledge and act upon the insights outlined above in order to stand any chance of effective ‘coalescence’. Ensuring there is a requirement for clear architectural separation, differential ratio construction, distinctive systems and policies that require different levels of resourcing and heavy (in relative terms) investment in the co-option and development of expertise in Premium might afford strategic policy makers who are investing vast sums of money in the ‘upper end’ of the market some prospect of success.

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Chris Edger

Chris Edger

Professor of Multi-Unit Leadership at Birmingham City University