Donald Trump: The Smackdown Strategy.

It has been fascinating watching the recent Presidential selection cycle in the USA.

On arrival, I started asking people who they were looking for as a Presidential candidate – and a surprising number of people I spoke to said, “anyone but Hillary” and Donald Trump was the person they would like to vote for. Several are serious, successful, thoughtful people whom I respect the opinions of – so it isn’t just the disenfranchised.

As a European coming to America, I was genuinely ambivalent about Trump. His candidature did not seem serious, despite the number of people who felt he was a legitimate political figure. Like many, I saw him as a celebrity critique insurgent, like Russell Brand in the last UK election; a man with support, who lacked credibility other than to inspire the disaffected and marginalised in society. His campaign made no sense. “I’m richer than these guys so I am right and they are wrong. These guys are hopeless, ugly and stupid. I will beat them to a pulp.” His policies were, “I am a tough guy and I will stop the bad guys who are foreigners, weak liberal elites, the establishment who are keeping “us” down.”

I didn’t get it.

Surely Presidential candidates are the peak of American society, experienced leaders with decades of public service serving as VP like Nixon (and Senator of California) and George H W Bush (who also headed the CIA). We want to elect the best among us, like Truman and Wilson, educated men with a firm moral compass needed  to make the hardest and most difficult decisions. Or we want the most congenial leaders, like Reagan, Roosevelt and Clinton who use charm and personality to bring people together. We want military heroes like Kennedy and Eisenhower, (among many) both of whom had demonstrated leadership in the battlefield. Even when we need the dirty stuff done, Presidents like LBJ have a firm grasp of the real world having been a teacher and public servant.

Donald Trump is none of these and unlike any other candidate.

As a student of the post-war American Presidency, I looked back at similar campaigns and the closest candidate is Barry Goldwater in the 1964 campaign. Goldwater was a southern businessman and politician, and perhaps the godfather of the southern conservative movement, of which Ted Cruz is now the flag bearer of. His policies are not so similar to Trump, but his positions were just as polarising. His bullying criticism of the Republican elites and hounding of Nelson Rockefeller, the grandest of grandees, has some similarities, but Trump is no Goldwater.

Goldwater, for all his opinions was a committed public servant, a thinker and had great rectitude. And, as we know, Goldwater lost the 1964 election by a landslide against LBJ.

And then it hit me today. Donald Trump is not following a traditional political strategy at all, he is NOT Goldwater, or anyone else. His campaign is a wrestling narrative and November the 8th is Wrestlemania. He is playing the playbook of “Stone Cold” Steve Austin, a 1990s character from the WWE.

Wrestling as Life

Back in the 1980s and 90s I was a wrestling fan. Each “character” represented a segment of American life.

Hulk Hogan was the bronzed all American super-hero. Roddy Piper and Jim Duggan, the American everyman, Sgt Slaughter the turncoat, Andre the Giant, The Iron Sheikh, Nikoli Volkoff, the foreign bad guys (who became good guys depending on prevailing US Foreign Policy!).

However, something strange happened in the late 1990s. A wrestler, a bad guy, Steve Austin, after winning a match against former “hero” Jake “The Snake” Roberts (below) came up with a persona where he took on the good guys and denigrated their personas.

Because of his character’s “personality”, nobody owned him, he said what he wanted and drank beer after a fight against the rules. The ruder and more obnoxious he became, the more people loved him.

As his popularity grew, the WWE created more “establishment” figures to try and stop him, to the point where the WWE created a long running feud – as part of the storyline –  with the owner of the WWE Vince McMahon. The narrative was that the WWE as a company wanted to stop Austin, but buoyed by his grassroots support, Austin became more and more popular and won the day.

Steve Austin remains one the most iconic wrestlers in history. There were many better technical wrestlers, many more articulate and charismatic speakers, but few who managed to win as much popularity and adulation.

Austin not only earned top billing, but changed the medium of wrestling away from the black and white narrative of good guy-bad guy, but shifted the entire wrestling business to a new phase known as “Attitude.”

After injury, Steve Austin’s appearances became less frequent, but Donald Trump, a long term supporter of WWE started to appear as a guest and latterly as a character, involving himself into storylines, ultimately becoming one of Steve Austin’s victims in the Wrestling ring.

It is clear to me, that Trump has copied Steve Austin’s strategy.

Like Steve Austin, he has ridiculed his opponents in the crudest and most obvious ways to make them become irrelevant and small compared to him. With Cruz and Rubio, expect the same standard stereotyping as seen previously, and against Hillary Clinton a new wave of sexism and misogyny not seen in public debate for decades. 

And like Steve Austin, he has changed the Republican Party through insurgency; the traditional rules of politics do not apply. The voters are his and not the Party’s.

So stop talking about historical precedent or anything else that has gone before. The fight for the Republican Nomination – and indeed the Presidency – has roots in WWE and not historical political strategies.

Opponents better hit first, and hit hard, as taking from Steve Austin’s signature move, it only takes a second before they are hit by the Donald Trump Stunner – and there is no getting up when knocked down.

OL March 2016

 

 

 

Reaching For The Stars..And The Starbucks

rev

It has been well documented that the sustainable success of Las Vegas over the past 20 years has been due to the rise of non-gaming revenues rather than gaming revenues. Non-gaming revenues account for c.64% of the total. Indeed, even with recent declines, Macau’s gaming revenues are over 6 times those of Las Vegas, but their non-gaming revenue is under 10%.

Developing the non-gaming offering has proved the saviour of Vegas, but this has not been easy or straightforward and the lessons of the operators here are worthy of some detailed examination.

The Starbucks Phenomenon

There are over 30 Starbucks coffee shops on the 4 miles of the Las Vegas strip; the latest, if blogs are to be believed, will be near the front of the Cosmopolitan. If he stood at the front of this unit, Tiger Woods could probably drive a golf ball into 3, and possibly 4 other units serving Seattle’s favourite coffee, pastries and sandwiches.

Starbucks has done well out of Las Vegas and the alignment is obvious; visitors – whether convention customers with limited time or tourists looking to log on to the free wi-fi – want their coffee the way they like it. Starbucks is the ubiquitous brand that helps in low-impact decision-making and is no more than a couple of hundred yards away from heavy population centres in every major city, always ready to meet the customer needs.

However, the roots of Starbucks’s dominance on mass-market Strip customers are not their own and one needs to look back 30 years to see the beginning of the brand story.

RIV 1984

It Started At The Riviera.

Dr David Schwartz of the UNLV Center for Gaming Research calls it the “Burger King Revolution.” In 1984 the then General Manager of the Riviera looked out of his window at the juxtaposition of the offer of a $2.99 buffet at Circus Circus and the line that formed outside the standalone McDonalds unit that had opened on the Strip. He concluded that from the customer’s perspective, the value proposition provided by a branded burger sold at a premium was greater than a subsidised buffet. On this basis, how could the Riviera capture the customers who had walked outside Circus Circus for lunch, and get them to come in to the Riv?

The GM, Jeff Silver, approached Burger King, and against the wishes and instincts of casino executives, gaming commissioners and industry experts, opened a Burger King at the front of the Riviera Hotel. This was the first fast food franchise to open in a Las Vegas casino and within 12 months this was the highest grossing Burger King in the company’s portfolio.

In 2015 White Castle, purveyor of square burgers in a white bread bun, opened their first branch in Las Vegas, but within 24 hours it had closed its doors. Not for violence or construction issues, but with an estimated 4,000 visitors per hour, the unit had simply not anticipated demand and had run out of stock.

 

WHITE-CASTLE-LAS-VEGAS-CLOSES

Food and Beverage

In 2007, the average Las Vegas visitor spent $254.49 on food and beverage, but by 2014, this had increased to $281.88. In a period where expenditures of lodging and gaming budgets had fallen 27.3% and 4.6% respectively, the increase in F&B spend of 10.8% is quite remarkable.

In further analysis between the ‘gaming visitor’ and ‘non-gaming visitor’s’ expenditures, the gaming visitor’s non-gaming expenditure had risen from $139.41 to $147.96, but the non-gaming visitor has risen from $201.15 to $254.60. Quite simply, the non-gaming visitor’s budget is increasing faster.

Breaking this down further, per available room, food sales total $34.24 per day and beverage Sales total $20.82. So where the ADR of the Las Vegas hotel room in 2014 was $116.73, the spend on F&B was $55.06 – slightly over 47% of room rate!

At last count, there were over 700 food and beverage options on the Las Vegas Strip.

Operating models

There are three operating models for food and beverage on the Strip. The first is the fully leased model, where the retailer leases the space from the casino resort (or landlord) and operates independently. Secondly is an incentivised lease, where there is an outsourced model where there are opportunities for shared revenues, so a retailer may have a rent, a turnover provision and a management agreement, and points of revenue are carved out across the operating business. The final model is where the casino operator operates the food and beverage outlet.

Of course there are various advantages and disadvantages to each of these. Steve Wynn makes a point that his businesses have always operated their own food and beverage – and that the non-gaming revenue has historically been higher than their gaming revenue, but that comes with operational risk, higher costs and the inability to bring in brands that customers have resonance with.

On the other hand, other properties have been able to bring in external brands that their customers value and align with the property. The likes of STK at the Cosmopolitan, Gordon Ramsey at Caesars and Yardbird at Venetian have all been great successes, with the resorts gaining increased visitation, revenue and brand equity through alignment, without taking operational risk or making significant expenditure.

For those of us who study strategic marketing in Las Vegas, this is a fascinating area.

Strategic Competitive Advantage

As regular readers will note, my core work is on strategic competitive advantage within casino resorts, for which there are two factors – location and loyalty.

Assuming location is nothing that a management team can change once the asset has been built, the challenge for management is in building customer loyalty.

However, the core product of gaming is not differentiable by price and in any meaningful way by product. Indeed, in the rooms and customer experiences, all the major operators offer similar customer centric experiences.  In the area of functional loyalty, customers are loyal to particular aspects, experiences and brands that they identify with.

As we notice with the Riviera back in 1984, certain customer segments want brands, which reinforce preconceived experiences and allows for an instant alignment for the customer to relate to in the crowded Las Vegas market.

The food and beverage offering is one of the key ways in which operators can differentiate their offering; research suggests that 60% of Las Vegas visitors see the range of dining options as either key or important in influencing their decision of where to stay when in Las Vegas.

Las_Vegas_89

The Dilemma

Caesars’ new Linq hotel has seen a successful relaunch, with increased occupancy and rates that average at over $100 per night. The Linq promenade has been an experiment of bringing brands for the Millennial customer into one place. Some original, like Guy Fieri’s diner and Purple Zebra, but others like Yardhouse, Flour and Barley and, of course, Starbucks have supplemented this range.

With over 40m visitors, Las Vegas is certainly the place to be for entertainment and there is a proven market for global food and restaurant brands ready to advance on the Las Vegas market- not just in the low impact decisions such as fast food and coffee, but the F&B super-brands and celebrity chefs which feature in all the places that the chic set like to frequent. Moreover, it is clear that by bringing in the external brands, this is an easy win for the operators.

For every Burger King and White Castle, Nikki Beach, Bagatelle and the entire SLS, prove that a strong brand does not guarantee instant success, however with alignment, it certainly de-risks the operation.

For me, Las Vegas has flourished because that it is a hub of innovation and uniqueness where the high margin gaming revenue has allowed developer’s imaginations run riot and people to take risks– where else can you dine with Picasso paintings or overlooking a fountain dancing to Sinatra?

Without the creation of these unique and special experiences, Las Vegas will just become another corporate shopping mall, with the best of the rest coming to town to scoop up a bit of the action.

Originality works when you understand your customer, look at Downtown Las Vegas, with Oscar’s at the Plaza and Siegel’s 1941 at the El Cortez, which note their customer’s needs and play to the strengths of the properties in questions.

Since moving to Las Vegas, I have been working with operators to understand their market and customer and help develop appropriate strategies for competitive advantage.

Las Vegas of 2016 is very different from Las Vegas of 1984.

My message to operators is this, by developing a unique brand and experience, you are creating a real strategic advantage for you and your business in this most competitive environments. It is worth the effort. Except in the area of coffee – people just want Starbucks!

Venice, Vegas and Kirk Kerkorian

I visited Venice again earlier this year. Russian dissident, Alexander Herzen wrote of Venice;

To build a city where it is impossible to build a city is madness in itself, but to build there one of the most elegant and grandest of cities is the madness of genius.”

Venice has evolved over the past two thousand years, always innovating to offer value to its citizens and visitors, as a trading outpost, a transport hub, an industrial complex and of course a centre of tourism. It remains one of the most iconic and impressive cities in the world and reminded me a lot of Las Vegas, not just of the themed casino resort.

Incidentally,  the origins of the modern casino are found in the Ridotto, in the private wing of the Chiesa di San Moisè, which opened in 1638. Unlike other gaming saloons, it was Government owned and offered games of chance where the house offered bets against the players.

Las_Vegas_89

Kirk Kerkorian 1917-2015

America’s Venice is Las Vegas and this week we saw the passing of Kirk Kerkorian, a gambler, a builder and a visionary, who had more to do with the development and evolution of modern Las Vegas than any other.

Others will write tributes focusing on Kerkorian’s daredevil entrepreneurship, his legendary company building and aggressive corporate manoeuvrings, however my tribute is somewhat different. We look at Venice and instantly recognise the landmarks that have gained iconic status over centuries – St Mark’s Basilica and square, The Rialto Bridge and Doge’s Palace. Kerkorian’s influence on Las Vegas is as pronounced.

In the 1960s, post-war entrepreneurs Howard Hughes and Kirk Kerkorian introduced the corporate world to Las Vegas and as respected and respectable business leaders, they saw the vision of what Las Vegas could be. However Kerkorian stands apart; he was genuine visionary. Whereas nothing remains of Hughes’ Las Vegas properties, Kerkorian’s legacy is evident in the kaleidoscope of colours when viewing the modern Las Vegas Strip.

Without Kirk Kerkorian it is certain that Las Vegas wouldn’t exist as the same town. Notwithstanding the clean finance and strategic investment via corporate acquisitions, his influence is felt in so many ways that even the casual visitor would be aware of his legacy, if not his name.

Kirk Kerkorian

Backer

Kirk Kerkorian was originally a land investor. Indeed MGM is still one of the largest landowners on the Strip area and have been proactive in supporting external ideas and innovations on or near their current properties. Without Kerkorian’s acquiescence as a landowner, Jay Sarno wouldn’t have built Caesars Palace, which was on Kerkorian’s land. So no Caesars means no hedonistic escapism, no themed properties, no illusionary excess and a whole chunk of gaming iconography just wouldn’t exist.

MGM 1993
MGM Grand 1993

Developer

Without Kerkorian’s gamble, the integrated mega-resort wouldn’t exist as it was the International (now Westgate) which opened as the largest hotel in the world in 1969 and which first tested the Y-shaped building structure, subsequently seen from the Mirage to the Bellagio in resort design. Again he broke the mould with the MGM Grand (now Ballys) in 1973 and the new MGM Grand in 1993. All three were the largest hotels in the world on opening. Without these bold steps, gone is the grandeur and spectacle.

Entertainment

Kerkorian was in the entertainment business. His desire to entertain the post-war generation and integrate Hollywood to Las Vegas was pivotal. It was he that introduced Elvis Presley, the first post-war icon, at the heart of the International, where Elvis played every one of his 626 sold out concerts – see the video above! The assimilation from a gaming city to an entertainment town owes much to Kerkorian and MGM. From leading sporting events, magic shows, theme parks, singers and nightclubs, MGM has consistently pushed the envelope and tried to innovate.

Venice wasn’t built in a generation. Las Vegas was, and much of that is due to Kirk Kerkorian, a genius among men and one that never seemed to want to take any credit. May his memory blow through the desert wind for many years to come.

Electile Dysfunction Disorder

Bits of me are not working correctly. Maybe it is my age or lifestyle over the past 20 years, but I have a problem.

As a strategist I love elections and political campaigns.

Like the columnist and politician, Daniel Finkelstein, I mark key life events around general elections, but his is the first general election since 1992 where I have not campaigned. In fact I will be out of the country on election day and will not be able to vote.

In 1997, I was in the middle of my Undergraduate degree. After graduation many of my contemporaries in student politics moved in to polling, policy and politics – as did I.  Five years ago I was undertaking an Executive MBA where my main focus was strategy. Subsequent to finishing this, I have continued to research and advance my thinking in the area of Strategic Marketing and approaches to customer loyalty – which I suppose is the aim of political parties in campaigning season.

I have met with senior politicians of all stripes in the past 5 years and shared some of my insights with them, so I think I have an understanding of what goes on both on the ground and in the sky.

crosby_2627575b

Strategists and the Message

Ideological philosophy is not enough to win an election – indeed it is arguable hasn’t been for decades. Voters are looking at their political parties to present a competent, coherent and credible strategy for government and have it communicated.

A strong political strategy starts with understanding the core values and needs of the electorate and providing a policy response.

Philip Gould’s The Unfinished Revolution features this insight from Tony Blair:

“One of the most common fallacies in Politics is that you can have great communications and lousy policy and win. You can’t. People may admire the campaign, but it won’t prevent defeat. The 1987 election was a classic of this genre… Owing to Peter Mandelson’s brilliance, the campaign was stunning. We still lost by a landslide.”

Political strategists poll. In Netflix’ series House of Cards, everything is polled, from the colour of the candidate’s spouse’s hair to the use of keywords in speeches and the same is true in reality. Political strategies are created in two ways, either top down or bottom up, however even the most patrician of strategies must try and understand the voter.

Watch old party political broadcasts (I am sad enough to be an owner of the old VHS tape acquired from Politico’s Bookshop, back in the day). This was top down politics, from all parties, but with the advent of targeted polling, big data and the ability to customer segment, all political strategies now have an element of bottom up, even if they are really top down. Segmentation by not just demographics, but also psychographics.

dave

It strikes me that the Conservative Party’s entire election strategy is based on three tactics:

The first is the appearance of economic competence. This is nonsense. Yes the economy is improving, but after a sustained period of recession, it was difficult not to get growth, and they nearly managed that! There is a collective short memory and the coalition’s economic strategy did a 360 turn and when the cutting didn’t work, they shifted to spending to stimulate. So when the monetarist strategy failed, they went back to Keynesian-lite. They implemented the policy that they opposed when it was proposed by Labour.

Secondly, the opposition leader is unfit to govern. I comment on this below, but by painting the opposition leader as weak, then ruthless, then “red” even that strategy is comical. This is an import from the USA and Australia, however the big difference from those countries and indeed past elections is that this is no longer two or even three party politics. Indeed the last national election was won by UKIP, the SNP are the largest party in Scotland. Negative campaigning directly against a leader is becoming a zero-sum-gain as the Conservatives reinforce perceptions of their nasty side.

Finally, Identify swing voters in marginal seats and bribe them with things that will make them money. So far we have seen Conservative plans to freeze rail prices, but criticise Labour for calling for an energy freeze, to criticise Labour for unfunded promises, but promising an unfunded amount to the NHS, but worst of all, by promising renters the right to buy from private companies with state money is a scandal, if not illegal! It is like saying a Government will force McDonalds to give free food to all hungry people!

Over the past decade the Tories have hopscotched from “Are you thinking what we’re thinking”, which never really meant anything, other than appealing to people’s fears and concerns, to this opportunistic bag of tactics, rather than a coherent strategy.

Today’s Labour is very similar. Everything is polled and analysed. Labour had had time and resources to build a map of Britain. However when creating the policy responses to Britain’s problems, the response is not strategic, but tactical. And tactically wrong.

The Liberal Democrats will struggle, how can a political strategy sustained for decades as the opposition campaign as incumbent?

The SNP, UKIP, Greens and others fall into the category of identity politics, which I have written about earlier. To counter this strategy it is very difficult as the premise of debate is not even as the vote isn’t about power or even policy, but identity.

ed

Why I Left The Labour Party

When I cancelled my direct debit late last year, I felt, to paraphrase President Reagan, “I didn’t leave the Labour Party, the Party left me.”

Fairness, equality and social justice, not to mention opportunity, meritocracy and social mobility remain as core to my identity as they always were, but the leadership of the Labour Party no longer had resonance with me. What I saw was opportunistic, ignorant and a lack of judgement on issues that were of key importance to me.

Specifics? Well, first of all is the rejection of the Blair Government. Britain was transformed under Tony Blair’s leadership. The cities were renewed, London became a key global city and opportunities for people from all backgrounds became enhanced. The response to this from the leader was some kind of rejection, perhaps embarrassment. When the financial system collapsed, the Government supported it. If it had not, then everyone – except the most wealthy – would have been wiped out. This is the reason for the increase in the national debt. Britain got better after decades of neglect and in crisis, the Government stepped in to save ordinary families, their savings and their pensions.

Phrasing the debate as rich versus poor, bashing Stephen Hester at RBS (who did an exceptional job) and the financial sector is the politics of envy. Quite frankly, if the rich got richer, I don’t care – as long as they pay their taxes. Incidentally, I have some support for the “non-dom” argument, not that those who are not domiciled in the UK should have to pay tax on foreign earnings, but how the status of non-domiciled people are determined; that a tax benefit is inherited on a hereditary basis is nothing short of farce! But that is not the way that it is being sold, it is a “them and us” argument, which is not palatable in my view.

Likewise, the producers versus predators rhetoric is also misleading as efficient financing and capital structures are business strategy and not a matter of morality or Government. It is the role of business leaders to maximise returns for their shareholders – including the millions of investors and pension holders – and to form and shape their company’s ethics to the point that CSR is a core part of what they do, but it clearly not the role of the Government.

For over 20 years I have been aware of the rise of radical Islamism, a vicious, fascistic doctrinal movement that is in diametric opposition to the liberal views of modern society. It makes me sad to say this, but throughout history, there is no evidence that a liberal response to this type of evil works (please see my earlier post on Chamberlain).

As tens of thousands of Yazidis were murdered in Syria, what did the Labour leader do? When thousands of radical Islamists hijacked the cause of the Palestinians in Gaza and called for the murder of Jews on the streets of London, what did the Labour leader do? When a Member of Parliament leads a charge to recognise a terrorist backed State, what does the Labour leader do?

Labour took polls, it found bandwagons and the leader jumped on them. These gross errors tell me more about the Labour leader than any campaign. I don’t think he is weak or stupid or indecisive or uncharismatic or anything else thrown at him. I think his lack of real world experience does not give him the perspective to have good judgement and as a result is just plain wrong on the issues that matter to me.

As alluded to, Labour needs to keep the core base in tow especially in those key marginal seats, which includes a large amount of British Islamic votes. Labour’s leader’s response to Islamic radicalism and the Middle East tells me his thoughts are about more about those votes than mine.

I support the Labour Party and wish them well. But I cannot pay money to be a member of an organisation, which has a leader with such poor judgement.

1-2014-uk-opinion-polls

Analysis

I remember in 2010, I spent the day leafleting in a marginal, but winnable constituency with a first class Labour candidate. By 5pm news was filtering in that Gordon Brown had called Gillian Duffy a bigot when a microphone has been left on him. The Conservatives held the seat, Labour lost a great potential MP.

I am not a pollster with insights other than what is printed in the media.

A million things could change and what I write could be irrelevant as soon as I publish, but as I stand, with three weeks of campaigning to go, this is my reading.

Tony Blair claimed of David Cameron’s Conservatives, that “If we can’t beat this lot, we don’t deserve to be in politics”. He was right.

Labour will not win this election. They don’t deserve it.

Neither do the Conservatives.

The electorate is far more sophisticated than of yesteryear. I don’t believe that their argument surrounding economic competence is such a major driver as the Conservatives want it to be. Ed Miliband is proving he is not a weirdo now that as he has direct media exposure and on reflection voters see right through the bribes on offer as they can’t reconcile the language of “austerity” with unaccounted giveaways. This is bad strategy.

Labour has the best candidates and the best communication. However, their strategy is flawed.

Creating a strategy to win an election is about understanding needs and providing the policy response that works. Neither party has provided a clear policy response. The Conservatives are cynical. Labour’s leader has demonstrated terrible judgement.

This entire election campaign is dysfunctional. I am not enjoying it.

I am delighted to have no emotional investment in this election campaign and even happier to be abroad for the final weeks of it. However, I don’t think it will be long until we will be having another one, hopefully with a different dynamic and different outcome.

Making Dough: Getting it right and wrong in pizza market positioning.


Getting A Pizza The Action

Most of us love pizza and Italian food, whether this is sitting lakeside in Garda with a glass of wine or munching through a New York style pizza at 2am, it is amazing how such a simple dish has traversed the globe and is eaten by all members of society. In the UK the pizza market has been dominated by several large brands. Allegra Strategies report that the UK Pizza market (2013) breaks down as follows:

Outlets Restaurant Market Share
Pizza Hut 650 10.90%
Pizza Express 406 8.60%
Prezzo 198 3.80%
Zizzi 130 2.60%
Strada 68 1.50%

The product is pretty generic but Pizza Hut, the market leaders, successfully differentiated their own product over the past 15 years developing a total market strategy. Pizza Hut offered salads, pasta and a full range of pizza bases and shapes catering to all members of the family. The UK brands – Pizza Express, Prezzo, Zizzi and Strada also followed the total market maxim with pizza at the core, plus salads and other broad menu items.

So what we effectively see is a market dominated by two large players and three smaller players offering a similar offering, but more interestingly, there are several insurgents and niche operators which are challenging the big boys as a credible alternative.

In order to capture market share, these new operators have segmented the market and have focused on targeting customers with what they want.

There is Franco Manca, which is targeting the casual dining crowd featuring a smaller menu with a focus on ingredients, differentiating mainly on the sourdough base, which should appeal to the younger customer and not the family dining space.

This is closely followed by Pizza Pilgrims, which has evolved from a market stall and focuses on heritage and authenticity of the pizza in the modern age, again targeting the individual or social diner.

Sunday Lunchtime

Over the recent holidays I visited two of the London based pizza challengers aimed at the family pizza market, which is dominated by the big five above.

In each, the intention was to have a nice family lunch and enjoy the food.

Prior to the holidays I had not been to either of these restaurants before. I was unaware of the menus, history or ownership, but as an MBA with a curious mind, I have given some thought to my experiences – and indeed the follow up.

For all students of marketing, finance and strategy, this is a very interesting case study.

Pizza East

Pizza East

Pizza East is owned by Soho House Group and has four units, in east, west and north London, and Chicago. We visited the Shoreditch unit in Derwent’s Tea Building.

We went on a Sunday lunchtime, expecting to be part of the Shoreditch hipster set, but were surprised to be surrounded by lots of families eating good food and an amazing family friendly menu. So whilst the marketing and positioning of the brand and content is for the “hip” crowd, the family crowd are happy to buy into this, especially in the day time.

The key conceptual differentiators are the environment and experience; there is more exposed concrete in Pizza East than on Derwent’s current development on the other side of Old Street and the informal engagement with friendly servers and the easy going nature worked just so well. But the winner was the food. This was first class pizza and very well done sides.

We live nowhere near Shoreditch, which is why we hadn’t been since the place opened, but would we make the effort to drive 40 minutes through London for pizza – yes, and we have done subsequently.

Here you have a successful strategy, which has a concept, several defined markets and is executed well. The owners have not sought to rapidly exploit at a pace that dilutes the brand and the experience, and for long-term sustainable success, this is a strong proposition.

Unknown

Rossopomodoro

The UK restaurant market is dominated by institutional and private equity backed investment. I have a little bit of knowledge in this space and once met Luc Vandevelde, the Founder Chairman of Change Capital Partners who have invested heavily in Sebeto, the Italian group that owns and operates Rossopomodoro both in Italy, and in the UK.

The PE investors in the restaurant sector have both done very well in terms of investment return, but also have enabled the expansion of the sector to grow, although some would say that the ‘Pizza Expressisation’ of the high street is not such a good thing for independent restaurateurs, it has forced under-par operators to shape up and give customers what they want

The premise of Rossopomodoro is this; casual restaurant concept focusing on a menu of genuine Neapolitan pizza and Neapolitan recipes aimed at targeting the family customer, so all parts of the family can order something different.

Having read the franchising pack, the brand premise is based on visible attraction and to target people who are not looking to travel “too far” on an average expense mission.

So the basic strategy of Rossopomodoro is to position a similar offering to the mainstream market, at the exactly the same customer segment as Pizza Hut, Pizza Express, Zizzi, Prezzo and Strada.

The rationale, I assume, is that if you think that this is an established market, by creating an offering on par with the market, you will achieve a natural proportion of market share.

The problem is that based on my experience Rossopomodo is a real mess – in so many ways.

Here are my thoughts:

You are in a competitive space, if you are going to make food your differentiator, try and get it right:

  1. If you are advertising burrata on your menu, sell burrata, not mozzarella. There is difference.
  2. If you are selling focaccia, it shouldn’t thud when knocked against a table – the bread was so stale, Churchill could have built his garden walls at Chartwell with it!
  3. Pizza – and even Neopolitan pizza – is not served with a pool of olive oil on it. Poor.
  4. Finally, when you point this out to the manager – after waiting some time – the customer doesn’t like to be told that he “doesn’t know what he is talking about and clearly has no idea what Neapolitan food is like.” We don’t like being insulted very much.

Becoming A Brand Terrorist

If you are not seeking to have food as your differentiator it isn’t that important what the food is like. The likes of Hard Rock, Planet Hollywood and Rainforest Café do not make the food the key aspect and they survive as they appreciate the key is the experience to the customer.

Yum! Brands realised this some times ago. I have discussed this before in my blogs, but only too happy to do so again as I cannot believe how few restauranteurs are aware of these principles which have been around since 1994- when social media was sharing a newspaper. Heskett et al. talk about the Service Profit Chain, where customer loyalty drives profit and growth.

When customers are happy they remain loyal, when customers are very unhappy, they become “terrorists”. A Satisfied Customer Is Loyal Today, more than ever, your customers are the key to your business.

Just as Pizza East has become popularised through word of mouth rather than unit proliferation, companies have to give disaffected customers the ability to address their issues.

When these complaints continue to fester, customers can become brand terrorists, which I fear Rossopomodoro would consider me to be – with some merit! I repeatedly asked them on twitter to contact me, tried in vain several times to contact head office to alert them to my experience (as a marketing academic, and social science undergrad I strongly believe in “voice of the customer” programmes and am always happy to informally feedback) but there is no way of contacting the head office.

Having asked Rossopomodoro several times to contact me on twitter, they have blocked me; so in trying to feedback without success, I am now, as Heskett would say, a very dissatisfied customer. Not only is the food bad and the staff insulting, there is no way to complain about it!

pizza

(FYI – this isn’t the pizza in question!)

Conclusions

So here are my pieces of advice to all students of marketing and branding – and a special piece of free advice to Change Capital and their investors.

1. Pizza East have done it, Franco Manca have done it, Pilgrims Pizza have done it. Rossopomodoro have failed. This is an evolved market, unless you can deliver something different and better than the existing offering, you have no purpose.

2. Deliver. Irrespective of your ingredients, if you have rude employees, locals will be gone and these businesses cannot grow sustainably on tourism alone. For sustainable growth and success you need loyalty. By alienating potential customers into brand terrorists is the worst kind of customer service; indeed it is criminal in this day and age that a customer complaint is just ignored.

3. When developing a brand or concept define your customer’s needs. If nobody needs your concept, don’t waste your time and money. It is now 55 years since Marketing Myopia and people still don’t get it!

And for Change Capital, the outcome of a balanced menu concept of Italian food aimed at the mass market – anyone for a Sbarro?

OL Jan 2015