Yesterday morning, the 2012 Entrepreneurship Winterim met with UCLA alum Richard Pink, owner of Pink’s World Famous Hot Dogs, headquartered in Los Angeles. During the session, I probably wrote about 6 pages of notes–put simply, he had so much insight on topics ranging from employee compensation, to product differentiation, to family business conflict management, to business risk diversification, that I couldn’t help but try to accurately capture every word Richard spoke. I was especially impressed with the frankness in which he spoke, and the sincerity in helping educating future businessmen and women. And just as an aside, he has a law degree, practices real estate law on the side, and teaches at USC. I won’t hold that against him, but I do not agree with his decision to attend USC post-grad after being a Bruin (my parents are both UCLA alums).
His parents, while not college educated, were very wise. They bought a hot dog cart towards the end of the Great Depression, figuring that “everybody’s gotta eat” and “people like hot dogs.” We can call hot dogs a consumer staple good, which, if priced correctly is basically recession proof. At the same time, they didn’t put all their eggs in one basket, but instead went the route of diversification to smooth out their business risk–they also were in the flower business (somewhat of a luxury good in those times, but it was still affordable enough that people were able to splurge now and then), with a shop eventually located next door to their hot dog stand. The third smart decision they made was deciding to buy their properties, rather than continue renting. Third, after opening Pink’s, the landlord raised the rent from $15 to $25 a month, so Richard’s parents went to BofA and secured a loan to purchase the properties (I am sure everyone living in Los Angeles currently has seen the BofA commercials featuring the Pink family). According to Richard (and a lesson we also heard from Kimberly Fowler of YAS), it is critical to own a property because the rent is the single biggest expense in a retail establishment.
And, of course the Pink’s hot dogs didn’t suck either. If you have a product that is really good, really memorable, really unique (and they did), it will survive for the long haul. Let’s talk about the product. The “hook” for Pink’s has always been the hotdog snap when it is bitten in to (which I remember vividly Wednesday night while we were sampling different varieties)–research and experimentation was done until this was just right. And initially, the product offering was very simple, with one single product (of course more were added over the years once the initial concept was proved). The second unique factor of the product is actually atmosphere (New York style atmosphere), while the third differentiator is the service, especially for those people that wait in line for over an hour. According to Richard, a product gets people in the door, but service gets people to come back. Pink’s Famous Hot Dogs are not just a commodity that can be bought anywhere because of the intangibles.
To guarantee great service, Pink’s makes sure the employees are happy (happy customers come from happy employees). The majority of Pink’s employees have been with the business for 15-20 years (very low turnover for the industry). This can be attributed to a number of factors. For one, Pink’s bonuses their employees every weekend so that they are always friendly, always happy, and always saying nice things about the owners. The bonus is based on volume, and is a check ($35 to 50 per employee per week). Second, there is no limit on the salary increase. Because of tactics such as these, Pink’s are able to differentiate on good moral, and customers actually get to know the employees over time, establishing a relationship with the employees and the business (which leads to more repeat business). In total, the combination of wages, tips, bonuses, recycling (with a bonus side effect of employees wanting to clean the tables faster) is about $14/hour per employee, much higher than competitors. Pink’s creates a company culture where “if one employee become a bad apple and steals, the others will report on them. We build up loyalty so that people will not steal.” Pink’s also incorporates compassion, as can be seen in the loan program. Finally, once an employee leaves Pink’s, he is always let go with severance. But once you’re gone, you can’t get your job back at Pink’s. And why do people get fired? Attitude. The rule is “you don’t say no.” If an employee argues with the customer, after two warnings, he is let go.
Richard and Gloria have used all the staples of out of home media to promote. Gloria is in charge of radio. She calls the radio stations and says she will bring free hot dogs to the radio station, in hope of a shout out or an interview. As for TV, anytime an Ellen or Rosie show is in LA, Pink’s will serve the cast and crew backstage, and will typically get shout outs in return. This product giveaway costs maybe $3000/year, but circumvents the usual process of paying for radio and TV spots, which are order of magnitudes higher. Charity is another means of promotion, where food is given away at various benefits. The main costs here are mostly employees and not the product. But, through charity, Pink’s is able to reap the reciprocal benefit of goodwill from the citizenry.
There have been various tipping points in the history of Pink’s (in terms of reach). The first big one was during the 59th anniversary, when they put together an event called “Chili Dogs for Charity.” Pink’s would sell dogs for 59 cents for an hour, and a celebrity would come in during that time period and sign autographs. They would put it out on the Business Wire–they would report a celebrity line-up (the celebrity would get $2500-3000 donated to the celebrity’s favorite charity)–and would always get on TV due to the celebrity star power. Night after night they would get coverage for this. For 60th anniversary, Pink’s used a similar tactic of 60 cents for 60 minutes for 11 straight days. This propelled the restaurant from being a local to a regional hot dog stand. Hotdogs + Hollywood = fabulous promotion strategy. The final tipping point was cable TV, which, always looking for new content, got Pink’s national. Along with cable TV, Pink’s is also in a lot of guide books, etc.
However, Pink’s has not ventured into social media or coupons, with the bread and butter still being celebrity and charity promotions after all these years (if it works, why change it?). Facebook and Twitter hasn’t been done yet, since people who want to run those programs typically cost $2500/month. Additionally, Richard doesn’t want negative comments and criticism to just be “out there.” On Yelp on Citysearch, there is some balance to the comments, so Pink’s can be found on those channels. But, in general, the strategy has been not to engage in order to avoiding managing and combating negative comments. As far as coupons go, Google is in conversation with them for discounts. But in Richard’s personal view/experience, “if a restaurant is giving discounts, or some certificate…they are in trouble.” It’s typically a last resort strategy, and ultimately isn’t good for a company’s image. Finally, with as many people in line as there are at Pink’s, customers would be upset if some customers had coupons and some did not:”We didn’t want it to hurt our image.” Finally, the 18 to 28 year old is Pink’s customer base, and this type of customers wants value for the money, which is what Pink’s deliver. “We don’t weigh our chili. If someone wants extra chili, that’s fine.” Coupons aren’t necessary to discount off of what Pink’s feels is already a very good price.
On expansion, Richard’s basic strategy has always been expand without investing any money or pitching partners. On the contrary, partners (casinos, hotels, amusement parks, etc.) actually come to Pink’s with a pitch. The partner will typically pay 5-6% of gross to use the Pink brand in a licensing scenario, with this construct being used at LAX, Knott’s Berry farm, and Cedar Point. Cedar Point, just outside Cleveland, has even agreed to do all the promotion and brand awareness as part of the contract. To ensure QA, Pink’s conducts a 2 week training program for new locations (and sends a trainer). The best tactic, however, to ensure QC, is steering clear of franchises and not dealing with small entities, which often dilutes quality to save cost, says Richard. Pink’s therefore only licenses to companies that have 500 or more employees in the business and a clear chain of command (a licensee company typically has a VP, senior VP, exec VP, and President). The other reason against the franchise model is that the law requires filing reports and financial statements with the franchise bureau, which is tedious and expensive. To avoid this filing, either a licensee must have a $5MM net worth, or invest $1MM into the build-out of the restaurant to be exempt from franchise law. $600-700k to build the store + rent, + competition + lack of business = unsuccessful franchise.
On the topics of family business, Richard’s parents didn’t want to create conflict within the family (and business) when it came to decision making, so they appointed one person to make all the decisions. Richard became the decision maker once he was ready to take over the business, and conflict has generally been avoided within the business, leading to stress being avoided in the family. For succession planning in a family businesses, appointing one person as the decision maker similarly helps, at least to mitigate conflict. And what are the traits that Richard wants in a successor? Experience (having worked in the fast food industry previously), some kind of coursework in restaurant management (from cost control to motivating employees, etc.), somebody who really enjoys food, fairness (integrity) with employees and customers, a long-term service-oriented view, and hard-working.
When talking about his personal academic education, Richard explained that it brought a certain discipline so that he had a conscious approach to a business, as opposed to an intuitive approach, by having a certain rule-set that can then be applied. The chief benefit of his law degree was analytical training, and a way to evaluate risk, which made him a little more conservative with risk-taking as well as finances. Additionally, his real estate law experience gave him the confidence to not intimidated by contracts, which has especially helped him in his licensing scenarios. Generally, “education gives “conscious competence” so that you practice rules that have worked rather than going on instinct which may take you longer.”
Some other basic lessons that has kept Pink viable after so many years: 1) Pink’s has never lowered the price (except for rare instances when world shortages on certain items existed and prices had to temporarily be raised). When raising the price, there are always resistance points that can be found typically by simply talking to the employees; 2) constantly innovating (bacon ranch french fry is newest creation), finding inspiration from others (original invention is not always necessary), and having multiple products so that people are constantly looking forward to coming back to try something else; 3) slow growth, which even now is part of his 5 year plan. The current vision is to continue to expand Pink’s through licensing. Richard has even hired a journalist to put articles in casino magazines, hotel magazines, cruise magazines, and amusement park magazines with the continued goal of having people pitch Pink’s with additional licensing opportunities, which is a pre-filter for QC (since these people are automatically the most interested and motivated).
All in all, Richard Pink spoke with us for two hours, and in this talk, was able to demonstrate practical applications in his strategies and tactics for Pink’s, that pulled together all the course-work we have collectively been taught at Thunderbird. I for one, and ready to take the lessons and put them into action.
And by the way, Richard, if you’re reading this, I think I just gave you an outline for you book, if you ever choose to write one :).
–Chandra Jacobs, Global MBA 2012
www.unemployedMBA.com
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