Operators blast lawmakers; charge Clinton, 'big government' with threatening industry's profits - Multi-Unit Foodservice Operators conference

LOS ANGELES - Fearful that President Clinton's demand for employer-paid health benefits will annihilate restaurant profits, industry leaders present at the four-day Multi-Unit Foodservice Operators conference repeatedly shifted focus from customer service issues to assail "big government."

Throughout the slate of briefing and seminars addressing the "Making the Customer Count" theme of the 34th annual MUFSO meeting, irate and apprehensive foodservice executives railed against funding provisions of Crinton's universal health-care initiative.

Striding angrily to a general-assembly microphone during questioning of television's "McLaughlin Group," former Pizza Hut president Arthur G. Gunther asserted that "the world is upside down" when politicians who have "never made a payroll" plot to saddle restaurateurs with 80 percent of the cost of their employees' medical insurance.

Under the Clinton proposal, Gunther said, his company - a three-unit Pizzeria Uno franchise that would not qualify for the plan's small-business subsidy - would have to pay $600,000 in premiums to cover its 200 employees despite having a profit margin of only $200,000.

"The problem with the Clinton plan is it's "huge injection of government," responded Fred Barnes, senior editor of the New Republic and a veteran McLaughlin Group commentator.

For its part, Gunther Restaurant Group of Scotts Valley, Calif., would be forced to cease operations if the Clinton prescription as drafted were enacted, Gunther said bitterly.

His impassioned comments infused the Nation's Restaurant News-sponsored conference with drama and characterized the government-bashing sentiments of many attendees opposed to elements of the Clinton plan and such things as Congress' recent 50-percent cap on the tax deductibility of business meals.

But MUFSO's emotional high point was the triumphant return of Brinker International chairman and chief executive Norman Brinker to moderate the convention's annual presidents' panel for a 10th consecutive year following his almost-fatal polo accident and weeks in a coma.

Just minutes after a long, standing ovation for the clearly moved trinker subsided, the celebrated chain impresario was attacking the Clinton plan from the dais in a Century Plaza Hotel ballroom filled with some 1,200 of his colleagues.

Proffering a strategy for combating aspects of the health-care legislation in Congress, Brinker cited leverage that the foodservice industry - as the largest retail employer - could exert to influence lawmakers.

"The one thing they seem to be sensitive to is jobs and job opportunities," said Brinker, referring to the probability of widespread staff cutbacks if mandated 80-percent employer funding for workers' medical insurance were a provision of the final legislative remedy for the nation's health-care ills.

Substantiation for those anticipated cutbacks was provided in the form of estimates quoted by two MUFSO speakers. Dr. William C. Mohlenbrock, a physician whose company develops clinical systems to monitor and control health costs, cited statistics indicating that the restaurant industry faces a potential 16-percent increase in labor costs under the Clinton plan and could be hardest hit of all industries.

However, John McLaughlin, creator, producer and host of the televised public-affairs debate program that bears his name, questioned whether one restaurant industry lobbyist's estimate of jobs that would be lost because of employer obligations under the plan was "excessive."

"It's going to cost jobs and slow business; it's as simple as that," answered Barnes, who suggested that the nation's current health-care system is "best" - a notion that prompted McLaughlin Group colleague Eleanor Clift, White House correspondent for Newsweek, to retort that Barnes' "best" system is inordinately costly because it forces the poor to use "the most expensive" mode of health care - emergency rooms.

In response to Gunther's criticisms, Clift predicted, "Congress isn't going to pass legislation that is going to drive that gentleman and hundreds of others out of business."

Nevertheless, "if we don't take on the government we're all going to be big losers," president's panel speaker Lawrence Levy, chairman of Chicago-based Levy Restaurants, said later.

Fellow panelist Chris Sullivan, chairman and chief executive of the Outback Steakhouse chain, urged foodservice leaders to forge a "coalition" of allied industries and lobbying groups to battle harmful aspects of the Clinton plan.

"We just have to get the message out about how important this industry is to the economy of this country," Sullivan implored.

After several years of economic doldrums, "the consumer is used to having price increases flat," Brinker said, "and we're talking about a 6 or 7-percent increase" in menu tariffs in order to cover the anticipated costs of the Clinton proposals.

According to one panelist, the industry's best customers may be those who are most put off by government's force-fed diet of food inflation. Because of unacceptable menu-price hikes that would stem directly from government regulations, "you're going to see [dining-out frequency] down to two or three times a week" among patrons who currently eat out five or six times weekly, predicted Abe J. Gustin Jr., president and chairman of Applebee's International.

Olive Garden president Ronald N. Magruder, California Pizza Kitchen co-chairman Rick Rosenfield and others on the panel also exhorted restaurateurs to close ranks and redouble their efforts to fight business intrusions by regulators.

Earlier, in welcoming remarks by Los Angeles Mayor Richard Riordan - a venture capitalist and restaurateur turned politician - MUFSO attendees heard how empathetic government officials can be enlisted to work with foodservice constituents.

Recounting a recent City Hall meeting with Burger King franchisees who told him they had expended 20 percent of their $2.5 million start-up budget on permits and entitlements, Riordan said, "This is crazy and stupid, and we're turn that around."

While government was the subject of much MUFSO discourse, customer-related topics and other key issues were covered by a host of keynote speakers as well as by scores of panelists in more than a dozen seminars.

Leonard Schlesinger, professor at Harvard University's Graduate School of Business Administration and a former vice president of the Au Bon Pain cafe chain, pointed out the service ironies inherent in the fact that chain executives "who decide what customers get are farthest from them."

Employee satisfaction and loyalty are factors that lead directly to customer satisfaction and loyalty, Schlesinger stressed.

Lawrence D. Slocum, foodservice vice president of Walt Disney World, underscored that message by stressing that "there is nothing more important than exceeding customer expectations, not even the bottom line; attention to service will take care of the numbers."

James Near, chairman and chief executive of Wendy's International, echoed that belief, pointing out that inattention to customers can lead a company down a rocky road. Near, who was recruited to lead a much-needed turnaround at Wendy's nearly eight years ago, explained, "We weren't customer-driven any more; we were intimidated the accountants."

Techniques for encouraging enhanced service were offered in abundance during the MUFSO sessions. "Ownership" - made available through opportunities to purchase Rally's Inc. stock at a 15-percent discount - is that chains ultimate service incentive, said Bruce Ley, Rally's executive vice president of marketing.

A debate erupted during the presidents' panel when Levy disputed the wisdom of California Pizza Kitchen's promote-from-within policy for naming vice presidents and department directors. But CPK co-chairman Larry Flax stressed that a company's service empathies can be enhanced by such career tracks for talented managers. "We have to be willing to give them a chance and bend with them and let them make some mistakes," Flax said.

Bob Spivak, chief executive of Los Angeles-based Grill Concepts, informed a seminar on children-oriented marketing that even a white-tablecloth operation like his Daily Grill chain can benefit from the addition of special menus and services for kids.

The placement of butcher paper under high chairs to put parents at ease about scattered food is one service technique for maximizing the traffic-building advantages of children's menus, Spivak said.

"We saw an immediate 5-percent [sales] increase, which has held, and it;'s going on 18 months now," said Spivak, illustrating a goal with a slide of a Daily Grill interior: "You see the [glassfuls of] crayons in the foreground and the bar in the background, and that's where we are going to take those kids one day "

At the other end of the age spectrum, a panel on marketing to mature customers focused on America's graying population and the prudence of tailoring services to affluent seniors an aging Baby Boomers. Panelists cited the efficacy of enhanced decors and comfort amenities and also cautioned about the use of buzzwords or images that might offend older guests.

Health and nutrition were subjects of debate in a seminar on customer-focused menu development. Citing an analysis that 69 percent of the calories in a typical chef's salad come from fat, operations director Steven Goldstein of New York-based Creative Food Solutions, said, "This is what we consider in this country to be a healthy lunch, and I don't see it that way."

But Monterey, Calif., restaurateur and former National Restaurant Association president Ted Balestreri expressed concerns about whether competitive business can afford to lead customers toward more healthful eating habits. "Don't let all this hysteria about health change the way you've been successful," Balestreri advised.

MUFSO '93 closed with a seminar on franchisor-franchisee relations. "Encroachment concerns us," said Eileen Harrington, assistant director of the Federal Trade Commission's Bureau of Consumer Protection. "We get a lot of complaints from franchisees." Even though many disputed contracts lack specific encroachment protections and thus raise no issue of legal breaches, "this certainly is a fairness issue," Harrington said.

Other criticisms of franchise relations were made against the backdrop of statistics divulged by Frandata Corp. president Jeffrey Kolton that only 32 percent of 40 sampled franchise contracts allow franchisees to transfer their contracts under existing terms while 22.4 percent grant no specific right to renewal and 48 percent provide no territorial protections.

Voicing the concerns of many franchise operators who feel that their long-term investments are threatened by such circumstances, KFC franchisee Daniel Dorsch, president of Valenti Management in Tampa, Fla., said, "We've built something on the promise ... that there will be something at renewal time or at the time to sell."

Referring to an earlier MUFSO roundtable on the proliferation of branded kiosks and other non-traditional units, Dorsch addressed cannibalization fears among conventional franchise operators by observing that a predicted "l million new points of distribution could ruin us."

During the earlier roundtable, the president of PepsiCo's new non-traditional-restaurant division, Mauricio Pages, was challenged on the cannibalization issue by an irate KFC franchisee who questioned PepsiCo's kiosk-and-cart penetration tactics. "It makes sense to a lot of our customers, and it makes sense to us," Pages responded firmly.

The FTC's Harrington cited the frequent confusion of franchisees octser renewal provisions - such as those of 95.2 percent of Francorp's sampled contracts that void original a cements and require renewal under currently prevailing terms. Franchising often involves "contract rights that feel like property rights, but they're not," she warned.

Nonetheless, "if the franchisor proposes new terms that substantially lower the value of the franchise ... that's where the problems arise," Harrington added.

Roger Thomson, senior vice president and general counsel for Brinker international and formerly with Burger King in the same capacity, warned any franchisor who pushes renewal terms unfavorable to franchisees that such terms are "probably going to be generating more ill will than you're going to be generating [increased] revenue."

COPYRIGHT 1993 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
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