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What happens when you A-S-S-U-M-E….

Last week there were two items in the news that caught my eye, and for essentially the same reason. One was a national story about Appelbee’s and its failed attempt to rebrand itself as a destination for Millennials. (You can read the story here: http://www.npr.org/sections/thesalt/2017/08/15/543707953/applebees-ditches-millennials )

The other story was from my local paper, the Boulder Daily Camera, about a new downtown development that had been slated to include an arthouse cinema – but would instead house a gym. (http://www.dailycamera.com/news/boulder/ci_31233043/gym-muscles-aside-plans-cinema-at-boulders-pearl ) Let’s take a look at each by itself, and then we’ll see what these two very different scenarios have in common.

Exhibit A: Appelbee’s

For the past several years, the chain of over 2,000 restaurants nationwide has attempted to, in the words of CEO John Cywinski, “lure a more youthful and affluent demographic with a more independent or even sophisticated dining mindset, including a clear pendulum swing towards millennials.” That was a pretty bold initiative for a restaurant whose identity was built around a predictable menu of big portioned middle-American comfort food – at affordable prices. The move was perhaps understandable: Applebee’s, along with competitors like Ruby Tuesday’s, TGIFriday’s, and Chili’s (all essentially interchangeable in terms of cuisine, price point, atmosphere, and locations), had been experiencing weak sales since the Great Recession. If the chain was to thrive in the extremely competitive industry of casual-dining restaurants, it was going to have to differentiate itself from the other clones in that market. So Applebee’s decided to go after the Holy Grail of markets these days: Millennials. To do so, they switched up the menu to include things like hand-cut meats for the grill, sriracha-lime shrimp, chicken wonton tacos, and other items deemed appealing to millennials. Along with the more selective, quality-ingredients menu came higher prices, too, something that millennials were assumed to be willing to absorb if it meant the kind of quality they desired.

How’d it work out? It didn’t. According to Business Insider, same-store sales were down 7.2% from the same quarter a year ago, and overall revenue for Applebee’s parent company, DineEquity (which also owns IHOP) was down 10%. This was just the most recent set of disappointing results, and it was enough to pull the plug on the quest to re-brand for a younger, more urban market of customers. The chain is returning to its previous menu, and bringing back popular promotions like “Two for $20” specials. In the words of Raymond James analyst Brian Vaccaro, “They’re going back to the roots of their business, which is middle America.”

 

Exhibit B: Boulder’s Pearl West development

There isn’t much in downtown Boulder that hasn’t already been built out, so when a major new development comes along, it receives a tremendous amount of attention from city planners. When a large building at the corner of 11th and Pearl Streets was vacated by its long-time tenant (the same Daily Camera in which this story was reported), it presented the largest development opportunity downtown in decades – and possibly the largest one that would come along for many future years as well. As the planning commission and city council negotiated with developers, one of the elements required in every plan was what has been termed “community benefit,” a rather ill-defined concept that boils down to community spaces, cultural venues, or affordable rental space – in other words, square footage that might not make much (if any) money for the developers. But such is the price of doing business in Boulder, and so would-be developers played along, offering a variety of options for “community benefit.” In addition to an outdoor plaza, the plan receiving approval included space for an arthouse cinema, something that cultural leaders in the city have been trying to make happen for a number of years. When Pearl West was constructed, a space was left in the basement of the building to house the theatre, but it would require a public-private partnership to build it out and make it a reality. At last week’s meeting, however, the city council failed to approve funding for the project; another tenant – a high-end gym – will be moving in instead.

Sean Maher of the Downtown Boulder Partnership, which has been spearheading the effort to bring a cinema to downtown, conceded defeat: “I wish we could tell you we had some other options up our sleeve, but the city funding was really our last opportunity.” Given how rarely new space of the necessary size and configuration opens up in downtown Boulder, he’s probably right.

Maher also said this: “I think an art cinema downtown would do really well. I know there’s demand for it, because I hear people every single day expressing their desire for it.” Hmm….hold that thought; we’ll return to that statement in a moment…

So what do the Applebee’s and Pearl West stories have in common? Both stories hinge on mistaken assumptions about what the market wants. The particulars of the assumptions are different, but they both boil down to the same thing: misjudging the needs and sensibilities of the market they were hoping to reach.

In the case of Appelbee’s, management made the assumption that changing the menu and offering things like sriracha-lime shrimp would bring millennials flocking. No doubt this assumption was based on observing the sorts of dishes that were popular in restaurants that are successful within that market. But it overlooked a critical thing about millennials that a mere switch in the menu could never overcome: the fact that the very essence of what Applebee’s is – a mass-market chain with the same menu, building design, and atmosphere at every location – is completely anathema to the millennial ethos. To the extent that such generalizations are ever valid, it’s fair to say that millennials are much more interested in locally-sourced food, novel recipes, healthy ingredients, and venues that have a unique personality. Moreover, the Applebee’s brand identity is extremely well-established and entrenched: there is hardly a suburban commercial district anywhere the country lacking an Appelbee’s (or its equivalent); changing that identity is extraordinarily difficult (a testament to the branding concept that created it to begin with). Bottom line: a chain that is the very definition of conformity is never going to reach a market whose core sensibility is anti-conformity – sriracha-lime shrimp or no sriracha-lime shrimp.

And so Applebee’s made an extremely costly blunder based on an assumption about what its target market wanted. 135 restaurants and millions of dollars later, the chain is returning to what’s worked in the past. Given the spin the CEO put on the results, however, I’m not confident they’ve actually learned their lesson.

Meanwhile, here in Boulder, another market assumption was being made – though this time, fortunately, the venture was spared its likely demise by a wise city council. What was the assumption? Let’s go back to Mr. Maher’s statement: “I think an art cinema downtown would do really well. I know there’s demand for it, because I hear people every single day expressing their desire for it.”

Really? If that were true, then why was $2 million in public funding necessary just to get the space built out? Here’s the thing: “I know there’s demand because I talk to people all the time who tell me there is” does not constitute market research. I don’t doubt that Mr. Maher is telling the truth; but let’s take his statement at face value: let’s say that every day at least one person tells him how much they would like an art cinema in downtown Boulder (a highly doubtful scenario, but I’ll stipulate it). Assuming that there are no repeats, then we would have 365 unique individuals who have indicated interest in an art cinema downtown. Is that enough to sustain a business venture? It’s also safe to assume that if they’re talking with the public face of a well-known initiative, these 365 individuals are probably biased in favor of the idea; they are far from a representative sample of the community at-large. Instead, organizers might have looked at the small art theatre at our local arts center, or our own commercial house where things like the Met simulcasts, a classic movie series, and Fandango Events are screened: in both cases, crowds are sparse. Would another art-cinema screen in town fare any differently, just because it’s downtown? Not likely. And the arts center screen and the offerings at the commercial Cineplex don’t require success with their films in order to stay in business: the arts center is already operating as a public service non-profit, and the Cineplex relies on its blockbusters to subsidize smaller-market offerings. But a stand-alone entity devoted exclusively to arthouse cinema? There’s no empirical evidence that such a venture has any substantial support in the market. So it’s pretty easy to see how this would have turned out: several millions in public money would have been spent, a lovely venue would have been created, and after a few years it would have either needed more public funding to survive (duplicating what’s already being offered elsewhere in town) or reverted to a commercial enterprise divorced from its original purpose. Either way, it would not have likely been a success, not if the market indicators readily visible in the community are any indication.

“We know millennials like these kinds of foods…” “I talk to people all the time who tell me they’d like that…” Both statements might be true, but they aren’t enough to justify taking a plunge with a business venture, whether it be a multi-million-dollar corporate initiative or your own entrepreneurial venture. You have to do the research necessary to find out what those consumers actually want – and be open to the fact that the answer might not be the one you’re looking for, or the one you need to hear to justify moving forward.

Moreover, you have to consider information beyond the narrow bias you bring to the table. Appelbee’s might have had substantial data about the menu preferences of the young urbanites they hoped to attract, but they didn’t investigate the broader sensibilities of those consumers. And so they overlooked other aspects of the experience, like location and atmosphere and locale uniqueness, that are equally (or even more) important for the consumers in question. For Boulder, everything about the community suggests that there’s a market for arthouse cinema; but looking beyond that to existing outlets in town reveals that the market is limited in size.

So why do everyone from novice entrepreneurs to city planners to major corporations so often make the same mistake? Well, for one thing, we care about the things we care about. And whether you’re a community leader committed to fine cinema or a company seeking a new market, it’s easy to justify your business decisions based on easy assumptions about your customers and a narrow slice of data that confirms that assumption. But that very often leads to disaster.

This lesson is particularly hard for us in the arts, when the venture in question – our own performing career, or festival we’ve dreamed about starting, or the ensemble we hope will sustain us – is so very near and dear to our hearts, to our very identity! The emotional validation we get from friends or allies telling us, “What a great idea!” is a very dangerous drug. It can convince us we’re onto something, when perhaps we’re not. Of course, you can’t research all the risk away. And there’s no accounting for a vision that burns in your soul. When it comes to evaluating an opportunity, we have to develop the ability to remain as dispassionate as possible – something that’s admittedly not easy when the thing in question is an object of such intense personal passion! So try to remember: data is your friend – and assumptions, your enemy.

 

 

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