On October 24 of last year, our faculty member William K. Holstein reported on a fascinating project how a student of our Business School put his thesis into practice. It’s the story of a restaurant in Munich. Recently, Bill visited the Restaurant together with his wife Audrey. Here is his report:
By Bill Holstein *)
Update on “Lorange Thesis” Opens in Germany
As promised, here we are next to the cappuccino machine at the Eat. Life Kitchen in Munich during our last trip to Europe for a workshop and to attend the March graduation at the Lorange Institute. Ralph Detert, the author of the Lorange thesis on starting a restaurant in Germany and the subject of my earlier blog, was our very gracious host.
After a pleasant ride on the EuroCity train from Zurich, Ralph took us to visit several of the sights in Munich, including the incredible market in the old town, and to lunch in a very traditional restaurant near the “Hofbräuhaus” for the obligatory Bavarian sausages and beer. Ralph and his wife Barbara picked us up at 19:00 for dinner at the EAT. Life Kitchen and we closed the place at 23:00 – a successful evening indeed. Perhaps we should have had the server take the photos earlier in the evening.
The ambiance immediately strikes one as contemporary, tailored, and ‘cool.’ The furnishings are ‘top shelf’ as the British would say – real wood, real leather (the same used on BMW 7-Series seats), the decoration understated and ‘with it,’ certainly not garish or loud. The feeling is at once peaceful, welcoming, inviting, informal and comfortable. The restaurant was full on the Saturday evening that we were there. Ralph had reserved ahead; we wouldn’t have simply walked in on our own.
Most of our conversation was about what Ralph and Barbara have learned about the business since the opening in September. Neither is he a restaurateur; he is a hi-tech company CEO, she the VP of HR at another German company.
Ralph and four other investors in his investment group own the business, but only Ralph (and Barbara) and one other partner spend any real time with the business. The others are full financial partners, but ‘silent partners’ in terms of involvement with the business. We met the other active partner towards closing time – he often drops in and checks the day’s financial performance.
Ralph and Barbara’s relationship with the staff was immediately obvious when we walked in. Every one of the staff knew who they were, greeted them and warmly greeted us as their guests for the evening.
The fact that the restaurant was full almost all of Saturday evening was not anticipated in Ralph’s thesis. His analysis predicted a lively lunch business, slower at dinnertime. Once they secured the lease on the property, which was not finalized when he finished his thesis, his lunch prediction was even stronger, with the expectation of slower business at dinner and very quiet on Saturday evenings.
Their location is downtown, two blocks from the main station, not near the walking streets of the old city. They are on the intersection of two busy streets, Karlstrasse and Luisenstrasse, around the corner from the new 5-star Charles Hotel. Their building also houses McKinsey’s Munich offices. Their prediction made sense: Lots of daytime foot and car traffic in the area, several office buildings around the restaurant, many ‘Yuppies’ (young urban professionals) working nearby, but quiet in the evenings, not much foot traffic in the neighborhood after dark, and no other restaurants or bars nearby. It all spelled ‘lunch,’ not dinner.
Quite the opposite has developed; lunch business, as expected, is very good, but dinner is great, particularly on Saturday evenings. Indeed, the dinner business is so good that the restaurant opened on Sundays starting in April and, now that warmer weather is here, an outdoor eating area has been added.
Why the dinner business far exceeding forecasts? I’m not a restaurateur either, but my guess is that it is a combination of the ambiance, the pricing, and the menu. The ambiance and the whole approach to the customer invite interaction – visiting, chatting, and casual conversation.
While that may be important at lunch, it is much more important at dinner. There is more time, you’ve chosen the restaurant as a destination, not just for convenience, and you are more likely to be there with a person or a group that you care about. New dishes, drinks and wines are added to the menu each week, so even regular customers can find something new to try and to talk about. Prices are relatively low, too low according to some reviews, despite several increases since they first opened. Service is programmed to not interrupt, not to rush, but not to keep you waiting too long either.
Consider a small detail in the design of the furniture. As seen in the picture to the left, the height of the tables in the front of the restaurant, the large room that you enter, is high with similarly high chairs. The tables and chairs in the smaller room in an ‘L’ off the main room are conventional height.
This idea came from the interior designer: People who like to chat with those around them, who enjoy interactions, even with strangers, and who want to be seen, want to be close to eye level and not feel like they are sitting in a hole when talking to a person standing next to the table. You don’t want to feel that people walking by are towering above you. (Note the height of the standing server relative to the seated guest with his back to the window.)
Thus the tables and chairs in the main room are designed to promote interaction and a feeling comfort and ease with the people moving about and around you.
‘Diners,’ on the other hand, typically focus on their partner or the people in their group at the table and prefer conventional seating. A small detail perhaps, but a huge contributor to the ‘ambiance quotient.’
Consider service. Ralph’s thesis included an extensive case study of a new restaurant chain with locations in Munich that included many of the ideas incorporated in the Eat. Life Restaurant – self-ordering, charging to a restaurant card as you go and paying once on the way out, fresh, healthy food, and a contemporary ambiance.
We visited the competitor in the afternoon. It was crowded at 15:00. There were several lines for different menu items and drinks. To get a complete meal, customers had to go through several lines and then search for a table. Two or more people eating together had to split up, go to the lines for the food they preferred, and then gather at a single table that the first one to get through the lines had commandeered. Order something else? Have another drink? Back in line.
How different is Ralph’s concept – no lines, no jockeying for a table, no carrying your own tray. You are taken to your table by the maitre de and each person is given a slip of paper about the size of a business card with a QR Code on it. At each seat is an iPad on a swivel mount that serves you and the person seated across from you. It knows who is who by scanning the QR codes. You bring up the menu and order by choosing from the items offered in several categories: drinks, wines, salads, soups, main dishes, desserts, after-dinner drinks, etc.
As you choose each item, you are directed to hold your card up so the camera on the iPad can read it. You simply orient the card so that the QR-Code is visible on the screen. You can order everything, from aperitif to after-dinner drink all at once if you wish, or one thing at a time.
Now comes the masterstroke of the system that Ralph and his partners developed: The custom-developed iPad software and your server keep an eye on your group, watching as your dining experience develops. The server brings what you have ordered in a relaxed, but strictly-timed sequence. If you order a drink, and then 15 minutes later order soup, s/he knows to bring your soup right away. If you order both together, the soup will come when it appears that you are slowing down on your drink or perhaps have finished it.
Ralph explains that this timing of service was not at all obvious at the beginning and that he thinks there are still improvements possible. Our impression was that the service was almost flawless, but congratulations to Ralph and his partners that they are concerned about service and continue to improve the relationship between the software, the server and the customer.
At the end of the evening, the cards with the QR-codes are scanned by the cashier near the exit door. If the host has collected all of them, s/he pays. If each person is responsible for their check, they can pay individually or the group’s cards can be aggregated in any combination. The process appeared effortless and smooth.
The reviews on Qype.com that were outstanding, approaching 5 out of 5 during the first few weeks, have fallen off a point or so, which is a great disappointment to Ralph. At first he took every negative comment personally but he is becoming inured to the occasional negative, even vicious or cruel, comment. “It just seems to come with the territory” he says.
He now realizes that pleasing everybody is an impossible goal, particularly in the shakedown phase of opening a business with so many innovative features. In answer to my last question: “When and where does the second restaurant open?” he was quite clear. “Not until we have studied and improved this one quite a bit more. There are still things to do that we know need doing, and until we’ve done all of them we won’t think about expanding.”
Lessons for us from Ralph’s Experience
- In an already overcrowded market, think niche strategy and think differentiation, or what I call perceived value. In the Strategy Block I discussed ‘out-performing’ strategies which combine high perceived value with low delivered cost – not just high value, but value that is clearly perceived by the customer; not just low cost, but low cost throughout the whole business system or value chain. The perceived value is certainly visible in the restaurant, and the low prices relative to the competition suggest that Ralph is also handling delivered cost effectively.
- Seek out the best advice and follow it. This shows in several areas of the business. The design and execution of the interior of the restaurant was expensive, but it is striking and makes a very good impression. The iPad software was developed specifically for their application, not purchased off-the-shelf or adapted from existing software. They are tweaking the software, incorporating new features like translation into languages beyond German and English, and constantly making it fit the needs of the business better. A top consultant chef advises them on menu items, visits once a week to work with the staff on new items, and keeps an eye on overall quality and visual appeal.
- Hire good people, train them well, and listen to them. The kitchen staff, the wait staff and the management were carefully selected and trained. Selection and training of quality replacements remains a top priority. Many ideas for improvement come from management and the staff. Ralph and Barbara and the other active partner are constantly ‘tuned in’ to feedback. Certainly reviews on Internet sites contain some useful feedback, but the most important inputs are come from people who really know and who are living the experience, not just dropping by occasionally or who may be chronic complainers.
- Don’t expand too quickly. Perhaps because of his background in high-tech industry working with things at the nano level, Ralph comes across as a perfectionist. It has to be perfect and improved to the point where no more improvement is obvious before he will turn to growth. Perhaps not good advice those operating in an ultra-high-frequency environment like Facebook, but probably very good advice for the rest of us.
Once again for those who find themselves in Munich and are looking for a delightful experience:
Luisenstraße 14 | 80333 München | T 089 638 591 21
*) Dr. William K. Holstein
The former assistant at Harvard who earned his PhD in mathematical economics was (among many other teaching activities ) visiting professor at IMD.
Today, he has been an associate Partner at Crystal Partners AG, Zürich since 2008 and Senior Advisor at Lat Link-Partnership in Change Consultancy, Buenos Aires, Argentina. He is the author of three books on Information Technology, BASIC programming, Operations Management. One of his recent publications include ‘Efficient and Effective Strategy Implementation’.