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June 28, 1999

Fourth Runner-Up

Douglas Smith
Wordsmith on the Fool Boards

Wake up and smell the java folks, because the new economy is going to effect the restaurant business as with every other business. Given this brash statement of mine, you can guess what I'm going to say. Planet Hollywood needs to "re-invent" itself and its business model. Here are some steps it would need to take.

1. Reduce debt by liquidating assets. This includes the memorabilia, which can sell for several million in on-line auctions. In fact, regularly auctioning of memorabilia can also be a concept. Once an item has been circulated, sell it!

2. Restructure remaining debt. It is better to do this outside of filing a chapter 11 as it leads to investor confidence in management. Create a restructuring plan that allows you to pay off debt over for instance, a five-year period.

3. Consider franchising operations rather than owning them outright. Franchising, especially in international operations, significantly reduces PH's financial risk of ownership while fostering business growth and a culture of innovation where owners could become involved in defining new approaches and solutions that are right for their markets.

4. Bring an international flavor to international operations. Europeans and others want to see their own stars and film industry represented, not just Hollywood! Remember, we live in a global economy, not just an American one, or did somebody forget to mention that?

5. Remember the golden rules of restaurants. You need to get people in and keep them in. The best restaurants present an interesting but comfortable dining experience with excellent food and service at REASONABLE prices. A gimmick is no excuse for upping the prices. This is a no-brainer and should be obvious. PH's restaurants need to be made more intimate, more conducive to conversation (if targeted to adults) and fun if targeted to children. In other words, dump the movie clips. They're crap and once you've seen them once, successive viewings just grate on your nerves like a bad TV commercial. And they are LOUD! Also, segment large seating areas into smaller rooms that are quieter, more intimate and allow you to make the restaurant look full even when it is half-empty!

6. Don't ignore the key success factors for restaurants. These are a) location, b) food quality & uniqueness, c) service quality and d) atmosphere. All four MUST be present in order for any restaurant to succeed and to remain profitable. A) Location determines traffic and adequate traffic guarantees customer flow. B) Food quality & uniqueness = a tasty and surprising consumable product which makes up part of the "dining experience. C) Service determines the overall impression customers have about the place. Bad or rude service results in a bad impression. Great and friendly service results in a good impression. D) Atmosphere ensures that the person is comfortable in the establishment and enjoys the feeling that they get being there, whether it brings about a homelike feeling, or a feeling of being a trendy hip person.

7. Refocus the Planet Hollywood brand. At the moment it is a poorly planned gimmick restaurant with a one-off appeal rather than the celebration of film translated to a unique dining experience that it is supposed to be.

   Refocus the brand experience to put people inside the films.
   Here, the strategy would be to recreate film experiences that we all have come to love. A great example of this is to create, for instance, Bogart's Caf� from Casablanca, complete with jazz and blues music, ceiling fans, waiters wearing fez caps, food with a Moroccan twist to it, and so on.
   

   Such film-based theme restaurants would introduce several key competitive and business advantages:

   1) Endless variety. Variety is the spice of life. In dining experiences, variety is one of the most consumer motivators for choosing a new restaurant. With this refocused approach, PH would be able to create an endless variety of truly unique dining experiences, each based in a different film with a completely different menu � differences that would encourage people to experiment with new PH restaurants.
   

   2) Local expansion opportunities. Within the currently defined PH concept, PH is handicapped from being able to open restaurants in multiple locations in the same city. Whereas, the film-based theme approach would allow PH to open several restaurants in each city, with each being different but evoking a common experience, that of putting the customer inside the film experience, while offering him/her predictable food quality and service as defined by the PH brand.
   

   3) Real atmosphere. Oddly, PH's restaurants fail in meeting even the most basic of consumer's expectations in terms of good atmosphere. With the film-based theme approach, PH would be able to create a truly unique atmosphere in each property. Imagine sitting inside of Bogie's Caf� sipping Pina Colada's. Or in the Tatooine Bar & Grill from Star Wars, complete with moody lighting, robots (or fake robots) and an alien jazz band!
   

   4) Reduced risks. In order to succeed, the concept requires securing rights from the movie holders. However, if PH succeeds with initial ventures, follow-up ventures could be co-financed by both PH and the film rights holder, reducing the risk of both parties.
   

   5) Cross exposure. While the film rights holder would benefit by gaining an additional outlet for their property's merchandise, (in restaurant shops) along with an additional usage for their property's concept and rights, PH gains cross-exposure by association to successful properties.
   

   6) A cycle of innovation. Every successful business is defined by its cycle of innovation (how often it can reinvent itself to stay competitive). Why should restaurants differ? With the film-based theme concept, PH would be able to create a culture of continuous innovation. As restaurants get old, they can be rejuvenated with a tie-in to another blockbuster movie and thereby regain popularity and profit.
   

   7) The ability to both focus and broaden targeting. Just as different movies appeal to different audiences, different restaurants based on different movies would equally appeal to different consumers. For example, a Star Wars restaurant concept would appeal to numerous young people and a selection of die-hard fans. A Toy Story or A Bug's Life restaurant concept would compete against other children-focused restaurants. While Bogie's Caf� would compete against Hard Rock Caf� and Jazz Clubs. In each concept, there also inherently exists numerous opportunities for various in-restaurant promotions, events, performances, joint on and off-line promotions, plus many more co-marketing arrangements as defined by their individual themes.

In short, PH would be able to revolutionize the cookie-cutter restaurant model of business. Instead of having every restaurant the same, no two would be the same! Only the quality of the experience, service and food would be the common predictable element as defined by the PH brand. Remember, we are entering into an age where people get bored fast and easily. In less than five-years time, all the old rules won't apply as consumers, especially young consumers, seek out more diverse experiences.

Good luck. Hope these ideas help you along on your way to becoming a richer Fool!

Next -- Fifth Runner-Up