Big Red Horseshoe - Vanderbilt Owen MBA Students on Business Strategy

Miscellaneous 'Shoe

-- "Lights! Cameras! Sales!" at WSJ.com. How small businesses can use YouTube to increase sales. "For one thing, it's hard to beat the price: It costs nothing to put something on a video-sharing site, unlike buying television time or a regular Internet ad. And the videos let companies use a creative and personal touch that wouldn't work in traditional ads."

-- Sears is prepared to bid for Restoration Hardware but claims it is being shunned by the Restoration board. Catterton Partners has bid $6.70 a share and Sears will offer $6.75. Sears recently disclosed it purchased 13.9% of Restoration's shares and is none too happy that Restoration is making things hard for Sears during its contractual "go shop" period.

-- Zoho Writer allows multiple users to edit the same document online. Changes made offline are automatically synced when the user goes online again. The competition for online office applications is heating up -- Google has Google Gears while Adobe has its Buzzword word processor. There's a lot of hype behind these new applications, but are they going to put a dent in Microsoft Office?

-- "What's Going On At Skype?" "Have they just decided that they have too many toes, and are trying to shoot them off one at a time? The list of gaffes and blunders is impressive..."

Applebees, McDonalds, Fast Casual and Cheaper Lattes

For whatever reason -- not because I like the food, not because I hang out in restaurants located in shopping mall parking lots -- I've been following Applebee's attempt to rise out of the current casual dining slump. And that has me following the trials and tribulations of the fast casual restaurant segment. Weird, huh?

A little background: Earlier this year, Applebees agreed to acquired by IHOP. There has been some recent news about that deal closing. One proxy advisory firms recommended that shareholders approve the deal. Another one recommended shareholders to reject the deal. Finally, on October 30th, Applebees shareholders approved a $1.9 billion sale to IHOP.

A few weeks back, the New York Times carried an article about Applebees' new ad campaign. The chains' comeback, says the Times, "starts with a sass-talking apple." The apple is a plain apple with the voice of comedian Wanda Sykes. There are a bunch of video shorts on YouTube -- mock apple spokesperson auditions, for example -- and the Applebees website has a page dedicated to the auditions.

As I read the article, my initial thought was that Applebees needed something more than a new ad campaign. What about the menu? The Times has some info. The new menu will "retake ownership of grill and bar classics." Employee uniforms will be updated to look more modern and nearly all of the chain's 2,000 locations will be renovated. IHOP just announced a new menu yesterday: BBQ chicken and ribs, grillied tilapia hollandaise and some pancake-related items.

Interesting comment from an analyst at RBC Capital Markets about Applebees' main competiton: "Fast food has become what we are calling ‘fast casual. They’ve stretched the top end of their check average with better, healthier products and better environments, and it’s really eating into the casual-dining lunch period."

But fast casual has a big problem: Revenues are slipping and the competition is heating up. (The result of higher gas costs says this report at NPR.) Just yesterday I saw a report that some fast casual chains are giving out coupons/discounts to get people in the door while they're out shopping for Christmas presents. (It was on CNN, and I can't find a link to an article.) Interpretation: The scramble for fast casual dining dollars is so intense that restaurants are willing to get into a pricing battle...and those rarely have a happy outcome.

Where are all those former fast casual diners going? If an article in today's Wall Street Journal is any indication, they're going back to McDonalds. An since an expensive item at McDonalds is still cheaper than a reasonably priced item elsewhere, McDonalds sees some room for prices to creep upward and will introduce high-margin coffee drinks to not only bring in some Starbucks customers but to soak up some of those dollars that have migrated away from the likes of Applebees.

"Cash-strapped diners who have cut back on sit-down meals are defecting to the Golden Arches for $1.49 chicken snack wraps and $1 sundaes. ...

In 2008, the food chain plans to significantly increase drink offerings at its U.S. locations, a move that could put lattes, cappuccinos and smoothies in thousands of its restaurants. Janice Fields, chief operating officer for McDonald's U.S. restaurants, says it will be its largest single menu initiative since introducing breakfast in the 1970s.

The program amounts to a bet that middle-class consumers still want to splurge. In test markets, McDonald's has priced espresso drinks including caramel lattes and iced mochas near $3. That is cheaper than at Starbucks, but higher than much of the rest of McDonald's beverage offerings."

 

Miscellaneous 'Shoe

-- "Walt Disney Plans To Launch Cellphone Service In Japan" (Wall Street Journal). Disney will lease bandwidth from Softbank, the nation's third-largest mobile operator, and sell phones and services through Softbank. The WSJ notes that Disney is entering an "already tough market."  There's a good amount of hubris in large media companies when it comes to the mobile space (and not enough operators to work with). Look at the poor mobile showing by MTV and the disastrous showing by ESPN, plus MTV's tepid performance in digital music. Where there's money there's a will...but not necessarily a way. Disney has failed to get its U.S. mobile initiative (with Sprint) going and will drop it at the end of the year. Is there any way to keep these media giants out of mobile? Not a chance. Though the market is immature, everybody knows it's the future and knows grabbing market share is important. Just as it took companies years to figure out the Internet, it will take a while for them to figure out mobile.

-- An example of Facebook's new social advertising system. What's better, super-focused or broader Internet advertising? This kind of Facebook advertising holds promise for smaller advertisers who need to reach a specific niche. Most Internet advertising, in my experiences,  misses the mark. Ads at the New York Times occasionally interest me, but they're an exception to the rule. How many U.S. Army ads can I see online? Do those really speak to a grad student with no interest in the military? If I knew ads were better targeted, I might actually pay attention to them. The main question here is whether or not advertisers like the cost/results of targeting really small segments.

-- "How Marketing Hype Hurt Apple and Boeing" (HBS Working Knowledge). Boeing hyped its Dreamliner and then got behind in its production schedule. Apple hyped the iPhone and then dropped the price by $200 eight weeks after its launch. "The moral of the story: Do not risk marketing hype unless you are sure of both your supply curve and your demand curve. Hype can hurt stock prices and investor confidence when expectations are not met."

Learning From McDonald's Turnaround

I found Holman W. Jenkins Jr.'s op-ed in today's Wall Street Journal to be quite fascinating. General Motors, he wrote, can look to the turnaround success of McDonalds as inspiration for its bid to revamp the company's vision, cost structure and incentives. Think McDonald's menu and GM's lineup of vehicles don't have a connection? Jenkins offers some similarities.

Look past the headlines, however, and the Big Three have just engineered a sweeping overhaul of internal incentives. Out goes the UAW's ability to dictate headcount, wages and benefits. Out, therefore, goes the financial imperative that for decades kept the Big Three churning out unprofitable cars to cover a 'fixed' labor bill. Let's admit the truth: Detroit designed many of its cars to be sold at a loss.

The change is already visible. GM is now free to protect the desirability and profitability of its hot-selling new Buick Enclave by not overproducing them. Chrysler is free to protect the image of its future designs by pulling the plug on poorly performing existing models rather than keeping its factories humming and dumping the output on rental fleets and unhappy dealers.

Not all McDonald's franchisees were up to spiffing up their stores. Likewise, the Big Three have design, engineering and marketing departments that are used to pushing out low-cost fodder for volume sales. They'll need a new mindset to go with the new economics: Aiming for designs that stand a real chance of becoming winners in their categories.

There's another similarity. McDonald's bears a special curse as the most visible of the fast-feeders. Hence its moves to festoon its menu with salads and 'healthier' foods even though these account for less than 10% of sales. ...

Yet the healthier fare also helps bring the moms back and encourages better feelings about the chain even among customers who order the same old delicious Big Mac and fries.

Auto makers face their own curse. They're Congress's main target for empty gestures on global warming, hence the billions the auto makers are spending to develop hybrids, diesels and electric vehicles in hopes of preserving their regulatory freedom to sell the large, powerful pickups, SUVs and crossovers that Americans actually want.

They also hope a green halo will help solve a tough marketing problem they face: A sizeable contingent of U.S. car buyers simply won't consider a U.S.-branded car, believing them to be inferior and déclassé."

To Grow, IAC Splits Itself Up

Interesting news today that media conglomerate IAC will break itself up into five separate public companies. IAC shareholders will own stock in all five companies. It will be split up as follows: IAC will continue to manage web properties such as Ask.com and Match.com and will spin off Ticketmaster, Interval International, LendingTree and HSN home shopping network and catalogs.

According to the WSJ, IAC head Barry Diller is breaking up the company "to focus his energies on some of the fastest-growing parts of his conglomerate, including the media and advertising businesses such as Ask.com." Those Internet companies originally needed cash from other business units to grow. Now that they can stand on their own feet, says Diller, "it makes nothing but sense to me to reorganize the whole."

That may be good for Ticketmaster, which could start to face serious competition in the coming years. Its contract with Live Nation will end at the end of 2008. The concert promotion behemoth will probably use its MusicToday acquisition to handle ticketing to its shows. Ticketmaster could face competition from smaller promoters if mobile ticketing ever picks up stream.

Nice quote from a 2005 article on spinoffs at CFO.com: "In what has become a cyclical trend, fee-hungry investment bankers have gone through several phases of counseling companies to expand to non-core areas through mergers and acquisitions, only to advise them later to slim down when the deals don't work out as well as had been hoped. Now, even as merger mania heats up, companies that participated in the last M&A boom are moving in the opposite direction and shrinking to core, focused businesses."