Journal of
HOSPITALITY & TOURISM
Cases
Executive Committee President
Amit Sharma The Pennsylvania State University
Vice President Chris Roberts
DePaul University
Secretary
Alecia Douglas Auburn University
Treasurer
Toni Repetti University of Nevada, Las Vegas
Immediate Past President Mokie Steiskal
Columbus State Community College
Chief Executive Officer Kathy McCarty
Board Members APacCHRIE Federation President Samir Thapa Silver Mountain School of Hotel Management
EuroCHRIE Federation President Anders Justenlund University College of Northern Denmark
Central Federation President Godwin-Charles Ogbeide Indiana University-Purdue University Indianapolis
NENA Federation President Erinn Tucker Temple University
SECSA Federation President Melvin Weber East Carolina University
West Federation President Scott Smith Johnson and Wales University, Denver
Director of Conference Lea Dopson California State Polytechnic University, Pomona
Director of Education Catherine Curtis Oklahoma State University
Director of Industry Services Brooklynn Luedke Hyatt Hotels Corporation
Director of Marketing Michael O'Fallon James Madison University
Director of Member Services Eric Brown Iowa State University
Volume 6, Number 1 • 2017 • ISSN 2164-9987
EDITORIAL
Editorial....................................................................................................................................................... 5 By Marianna Sigala
WINNING CASE STUDY
Virginia, Richmond is Out: A DMO Case Study of LGBT Marketing Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Eric D. Olson and Heejung Ro
PUBLISHED CASES
American Tourist Travel to Cuba: A Case Study Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Kristen Kaminski and Miranda Kitterlin Event Management: Using a Servant Leadership Model Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Rebekah E. Sheets and Robert M. O’Halloran Where Did Our Server Go? A Case of Service Failure in a College Hotel Restaurant Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Christina H. Lesyk and Eric A. Brown Targeting Kenya's Coastal Gastronmic Market: A case study Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Anthony Pepela and Robert M. O’Halloran Surviving Minimum-Wage Hikes at a Seattle Restaurant Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Galen Collins The Innovative Competitive Advantage: A Case Study of Two Pioneering Companies Case Study ...............................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Elizabeth Whalen and JiYoon (Jennifer) Han Darden Restaurants, Inc. Is the Turnaround Happening? Case Study................................................................................................................................................XX Teaching Note..........................................................................................................................................XX by Murat Kizildag, Fevzi Okumus and Kevin Murphy
Director of Networking Ajay Aluri West Virginia University
Director of Research Qu Xiao The Hong Kong Polytechnic University
Volume 6, Number 1
The ICHRIE
JOHNSON & WALES Case Study Competition & Publication Series
is made possible by a generous donation from
JOURNAL OF HOSPITALITY & TOURISM CASES EDITOR • Marianna Sigala, University of South Australia EDITORIAL REVIEW BOARD
Robert Bennett, Delaware County Community College • Barry A. N. Bloom, Iowa State University • Michael Collins, University of San Francisco • Cynthia Deale, East Carolina University • Dori Dennison, East Carolina University • Mahmood A. Khan, Virginia Tech • Parikshat Singh Manhas , University of Jammu • Fredrick Mayo, New York University • Brumby McLeod, College of Charleston • Cynthia Mejia, University of Central Florida • Kevin S. Murphy, University of Central Florida • Robert M. O'Halloran, East Carolina University • Godwin-Charles Ogbeide, University of Arkansas, Fayetteville • Fevzi Okumus, University of Central Florida • H. G. Parsa, University of Denver • CharLee H. Puckett, Johnson & Wales University • Jan Roy, Kaplan University • Jack Samuels, Montclair State University • Donald Schoffstall, Johnson & Wales University • Rai Shacklock, EuroCHRIE • Sylvia Smith, Southern Illinois University • Nicholas Thomas, DePaul University • Jean-Pierre van der Rest, International University of Hospitality Management REVIEWERS Apostolos Ampountolas, Cesar Ritz Colleges Switzerland • Jane Boyland, Johnson & Wales University • Nancy Caldarola, Food Training Group • Chung Jee Fenn, Berjaya University College of Hospitality • Hana Kabeleova Gala, South Seattle Community College • Deborah J. Johnson, The PRIVATE Hotel School • Sowmya Kishore, Centennial College • Kevin N. Kovalycsik, Vancouver Community College • Ming-Lun (Miranda) Lee, University of New Heaven • Kunsoon Park, South Dakota State University • Sean T. Ruane, Shannon College of Hotel Management • Germaine Angelica Salvador, University of Philippines • Sheila Scott, Texas Tech University • Bill Thibodeaux, Nicholls State University • Rex Warren, Johnson & Wales University • Alistair Williams, Johnson & Wales University
2
Volume 6, Number 1
abstracts Virginia, Richmond is Out: A DMO Case Study of LGBT Marketing
Where Did Our Server Go? A Case of Service Failure in a College Hotel Restaurant
By Eric D. Olson and Heejung Ro
By Christina H. Lesyk and Eric A. Brown
This case study illustrates how Richmond Region Tourism in Virginia positioned the destination as Lesbian/Gay/Bisexual/Transgender (LGBT) friendly. After initial success with the campaign, Richmond Region Tourism faces the challenge of deciding what is next. The study takes the students through the segmentation challenge facing a destination marketing organization after success with an initial campaign to develop refined marketing strategies for maintaining LGBT tourists. Utilizing LGBT tourism literature and current LGBT marketing trends, this case study explores the opportunities and challenges in creating a LGBT marketing campaign.
Colleges rely on student employees for many campus departments, including foodservice facilities such as dining halls, pubs, and quick-service locations. These facilities serve as a source of income for the college as well as a “laboratory” for hospitality students. A college hotel restaurant serves both guests directly affiliated with the college and nonaffiliated guests, including dignitaries and revenue-generating event attendees. This fictional case study offers the opportunity to examine a service failure and discuss methods to train a workforce often made up of younger workers to provide outstanding customer service.
Key words: destination marketing, LGBT tourism, market segmentation, Richmond, Virginia.
American Tourist Travel to Cuba: A Case Study By Kristen Kaminski and Miranda Kitterlin
Relations between the United States and Cuba are slowly becoming normalized, making the possibility of leisure travel to Cuba for Americans feasible. This case study provides an overview of U.S. and Cuba relations, addresses potential tourism problems, and highlights the importance of dispute resolution. Key words: Cuba, American, tourism, challenges, dispute resolution
Event Management: Using a Servant Leadership Model By Rebekah E. Sheets and Robert M. O’Halloran
Leadership is an elusive term in business. Many companies boast that they are leaders in their industries or boast about training their employees to be the best leaders. What type of leadership is best for leaders in the hospitality industry? This case study suggests that Servant Leadership is different from other types of leadership because it focuses on leading by example and putting the needs of employees and organizations above the needs of an individual leader. Servant leaders, set an example of service for their employees to follow. In this case, a student leadership conference is an exemplar setting. Key words: Leadership styles, servant leadership, service, event management, training, humility.
Key words: Motivation, Service failure, Student labor
Targeting Kenya's Coastal Gastronmic Market: A case study By Anthony Pepela and Robert M. O’Halloran
Food, gastronomic or culinary tourism has increasingly become a valuable tool for tourism destinations enabling guests to differentiate one tourism destination from its competitors. However, many countries have not yet embraced it. This case study identifies the gastronomic market in Kenya’s leading tourism hub, the northern circuit of Kenya’s coastal strip. Research in this area also suggests that socio-demographic profiles could be used to segment and or predict guest participation in gastronomic activities in the region. The goal of food tourism is to enable a region to plan and diversify its tourism products and increase its profitability by using a food as a destination focus. Key words: food tourism, culinary tourism, gastronomy, socio-demographic profiles
Surviving Minimum-Wage Hikes at a Seattle Restaurant By Galen Collins
In 2014, the city of Seattle unanimously approved an increase in the city’s minimum wage to $15 per hour, highest in the nation. While citywide minimum-wage laws offer local governments a tool for helping lowincome workers, such laws affect restaurant businesses financially and operationally. Amy McMillian, the owner of Amy’s Café located in the heart of downtown Seattle, is now concerned with the future viability of her restaurant. She is contemplating actions to minimize the financial impact of the mandatory minimum-wage hikes. This case study scenario addresses this dilemma from multiple perspectives and factors and explores possible actions for mitigating the impact of minimum-wage increases on full-service restaurants. Key Words: minimum wage hikes, wage regulation, restaurants, financial impact, action plan
Journal of Hospitality & Tourism Cases
3
abstracts The Innovative Competitive Advantage: A Case Study of Two Pioneering Companies By Elizabeth Whalen and JiYoon (Jennifer) Han
By observing two existing organizations, this case study illustrates innovative strategies for value creation and competitive advantage through Porter’s generic strategies of differentiation and low-cost leadership. The Little Bay Restaurant represents differentiation through its no cost pricing strategy, while the Eatsa restaurant concept represents low-cost leadership through its replacement of front of house employees for technological services. These two organizations use innovation to create competitive positions within the highly saturated food and beverage market, not only through ingenuity but by creating value for both the organization and the customer. Key Words: innovation, competitive advantage, value, differentiation, lowcost leadership
Darden Restaurants, Inc. is the Turnaround Happening? By Murat Kizildag, Fevzi Okumus and Kevin Murphy
This case study discusses the recent strategic turnaround of the largest casual U.S. restaurant corporation, Darden Restaurants Inc. (NYSE:DRI). It explores the various reasons for a sharp decline in Darden’s growth and disappointing operational performance in recent years. It also examines the strategic measures taken by newly formed executive board for the company’s operational rebound. This case further details the implementation of the revival plan by performing a critical longitudinal financial assessment. Lastly, the company’s turnaround efforts and future prospects to re-energize its brands in the market are discussed. Key words: corporate turnaround, financial evaluation, Darden Restaurants, turnaround management, strategy, operational rebound
4
Volume 6, Number 1
editorial Professor Marianna Sigala University of South Australia Chair, ICHRIE Johnson & Wales Case Study Competition & Publication Series Editor, Journal of Hospitality & Tourism Cases
Dear ICHRIE members and esteemed colleagues,
Achievements in 2016 2016 represents a very successful year for both the ICHRIE Johnson & Wales Hospitality & Tourism Case Study Competition and JHTC ! •
•
self-sustained in the future and able to attract sufficient case studies. In relation to previous years, 2016 also attracted more submissions from Europe, Australia and Asia, which also highlights the growing internationalization of these two projects. To continuously support and encourage international scholars to get engaged with the competition and the
the ICHRIE Johnson & Wales Hospitality & Tourism Case Study
JHTC, case study workshops were organized again during the 2016
Competition has attracted a record number of 33 case studies,
EuroCHRIE conference in Budapest and in 2017 APacCHRIE conference
which is the greatest number of case studies submitted to the
in Bali, Indonesia. The case study workshops delivered by me and many
competition since it started in 2011
other experts that happily volunteered to help aimed to train scholars
two case studies were submitted directly and only to the JHTC,
how to write and review case studies as well as how to use them in class
but the case study competition managed to provide numerous
for educational purposes. If you would like to get involved in the future
good case studies for publication in the JHTC
organization of a case study workshop, please do not hesitate to contact
The competition has managed to keep and even increase the warm
me for more information. In addition, I also aim to record and release
support and interest from our community. It seems that a record number
two video talks through the CHRIE website explaining and giving more
of authors have managed to meet the competition deadline and submit
information to scholars how to write and submit case studies, but also
their case study to the competition on time. This might also explain the
how to use and integrate them into their teaching. The video talks will
very few submissions to the JHTC that followed later. It seems that so
be available online at the CHRIE website, so that we can hopefully reach
far JHTC is not in a position to be self-sustained by attracting enough
and help more potential authors to get aware of this opportunity and
submissions on its own, but at least the competition represents a good
develop their skills to write and submit case studies.
source of case studies for the journal. My sincere thanks to all those who have taken time and effort to submit a case study !
News about the ICHRIE Johnson & Wales Hospitality & Tourism Case Study Competition & the JHTC during 2016 2016 has been the fifth successful year of the I-CHRIE Johnson & Wales Hospitality & Tourism Case Study Competition and Publication Series and it has resulted in: many awards and public recognition to the winners; the submission of the greatest ever number of quality case studies so far; and the publication of five volumes (each volume consisting of 4 issues) of the Journal of Hospitality & Tourism Cases (JHTC). It is also great that both the quantity and the quality of the submitted case studies are improving every year, which is reflected in the continuous high acceptance rates and the high evaluation scores of the case studies.
The increasing number of case study submissions also mean that we continuously need a greater number of competent scholars to help with the review and evaluation process of case studies. Thus, I am always looking for new scholars to volunteer and act as reviewers of case studies. Case study reviewers are always recognized for their efforts and time by becoming members of the editorial board and committee of the case study competition and the JHTC (provided that the reviewers are also ICHRIE members, otherwise they are solely recognized by their name without inclusion in any committee / board). In addition, we also provide Best Reviewers’ Certificates in order to recognize and award those reviewers that have demonstrated an outstanding performance in reviewing case studies for both the competition and the JHTC. The Best Reviewers’ Certificates are presented to the winners during the annual ICHRIE summer conference. The Best Reviewers’ Certificates is also another good way to recruit but also motivate existing reviewers to provide quality and constructive evaluations. The recognition and support to our
The sixth edition of the competition has attracted 33 case study
reviewers are important, since the effective management of the review
submissions, while during the 2016, another two case studies have
and evaluation process of the case studies is at the heart of maintaining
been submitted directly and solely to the JHTC. It seems that the ICHRIE
the quality standards of the competition and the JHTC.
competition continues to be the major source of submissions for the JHTC, and so, increased efforts are still required to try to make the journal
Journal of Hospitality & Tourism Cases
5
Aims and information about the ICHRIE Johnson & Wales Hospitality & Tourism Case Study Competition and the JHTC Case studies provide innovative ideas, business (best) practices, professional dilemmas, and lessons learned from the tourism and hospitality reality. In this vein, case studies are an invaluable source of knowledge for educators, professionals and researchers alike. Simultaneously, case studies can nurture and strengthen knowledge exchanges between research, education and industry. Overall, case studies are also a fruitful and valuable tool that can significantly enhance the quality of both the process and the outcomes of the teaching & learning methods.
In this vein, the aims of the case study competition and the JHTC include the following: •
enhance the services and benefits to all ICHRIE members
•
offer an additional publication output of ICHRIE
•
provide a new way for ICHRIE and its members to participate in the advancement of tourism & hospitality education
•
foster and strengthen the communication between academia and industry within tourism and hospitality
•
establish ICHRIE as a valuable source for the production of tourism & hospitality educational material
•
reinforce the role of ICHRIE as a communication hub and as a facilitator of knowledge exchanges between research, academia and industry in tourism & hospitality. Case studies submitted to the ICHRIE Johnson & Wales Hospitality
& Tourism Case Study Competition are double-blind assessed by three reviewers following a rigorous process. The three most highly evaluated and commented case studies receive prestigious financial and material prizes as well as recognition and promotion in the annual ICHRIE conference and other promotional material. In addition, all submitted case studies go through a double-blind review and revision process. Case studies accepted through this review process are published in the JHTC, which is part of the ICHRIE Johnson & Wales Case Study Publication Series. More information about the competition (e.g. its rules, the submission guidelines) as well as guidelines and information about the submission deadlines for the 7th edition of the 2017 ICHRIE Johnson & Wales Hospitality & Tourism Case Study Competition are provided at the following website:
and professionals interested in using the case study method as a teaching, research and/or management tool. Case studies provide innovative ideas, business (best or failure) practices, professional dilemmas, and lessons learned from the tourism and hospitality reality. Hence, the JHTC is an invaluable source of knowledge providing understanding and lessons learned to tourism and hospitality academics, researchers, advanced students, and professionals alike. For more information about the JHTC, the submission guidelines and the past journal issues please visit the JHTC’s website at: https://www.chrie.org/i4a/pages/index.cfm?pageid=3333
Submissions and acceptance rates During the 2016, 35 case studies were submitted to both the 2016 6th edition of the Case Study Competition and to the JHTC (Table 1). After the completion of the double-blind peer review process, 31 case studies were overall accepted for publication in the JHTC giving a total acceptance rate in 2016 of 88.5%. The case studies submitted this year represent a wide range of topics featuring more disciplines and more tourism / hospitality sectors. So, for example, in addition to the traditional tourism sectors (i.e. accommodation, F&B), this year, the case studies also refer to business problems related to other sectors such as events management, sports, airlines, theme parks and resort hotels. This is also an encouraging development, as the competition and the JHTC now appeal to a wider community of scholars and researchers. The 6th edition of the Case study competition represents the best ever year with the greatest number of submissions since the competition started in 2011. This might also explain the small decrease of the acceptance rate of case studies that were submitted to the competition (i.e. more submissions so more likehood that some case studies cannot make it for JHTC publication). On the other hand, the number of case studies submitted directly to the JHTC has gone back to the low submission level that the journal received at its launch year in 2011. The long delays that we had in publishing the issues of JHTC in 2016 and the subsequent authors’ dissatisfaction in seeing their case studies being published in the JHTC might partially explain this. But whatever the reason, we need to make sure that issues of JHTC can be published on time in order to avoid any author dissatisfaction as well as to show a capability to publish JHTC in regular basis. The latter is also a major
https://www.chrie.org/i4a/pages/index.cfm?pageid=3336
criterion used to evaluate quality of journals and deciding to include
In addition, the JHTC welcomes and is open to receive case study
them in databases. In addition, it seems that sustained and continuous
submissions at any point of time. Case studies go through a double-blind
efforts should be done to widely promote and establish the JHTC in the
peer review process as soon as they are received, and provided that they
scholars’ publication consideration set.
get accepted until November, they are published in one of the issues of the JHTC in the following year. JHTC is an international refereed electronic journal (e-journal) that is published annually by ICHRIE. The mission of the JHTC is to distribute quality case studies to academics
6
Volume 6, Number 1
Table 1
Submissions and acceptance rates (2011, 2012, 2013, 2014, 2015 and 2016) 2011 (Number)
2012 (Number)
2013 (Number)
2014 (Number)
2015 (Number)
2016 (Number)
33
Case studies ICHRIE Johnson & Wales Case Study Competition Submitted Cases Studies
8
22
15
31
22
Accepted Case Studies
6
22
14
27
21
30
75%
100%
93%
87%
95%
90%
Submitted Case Studies
3
7
7
9
13
2
Accepted Case Studies
1
5
3
6
12
1
33%
71%
43%
67%
92%
50%
Submitted Case Studies
11
29
22
40
35
35
Accepted Case Studies
7
27
17
33
33
31
64%
93%
77%
82.5%
94%
88.5%
Acceptance rate JHTC
Acceptance rate TOTAL ANNUAL METRICS
Acceptance rate
Winners of the 2016 (6th) edition of the ICHRIE Johnson & Wales Hospitality & Tourism Case Study Competition
In addition, I would also like to extend my sincere congratulations and heartful thanks to the authors of all the case studies submitted to the 2016 ICHRIE Johnson & Wales Case Study Competition.
It is my pleasure to present below and to publicly congratulate the
The competition was really very intense, standards and quality have
following winners of the 2016 edition of the ICHRIE Johnson & Wales
risen substantially, and the evaluation scores of almost all submitted case
Hospitality & Tourism Case Study Competition and Publication Series.
studies have been above the usual average score of the previous years.
First prize Eric Olson, Iowa State University Heejung Ro, University of Central Florida for the case study Richmond, Virginia is Out: a DMO Case Study of LGBT Marketing
Second Prize Heather Monteiro, University of Nevada Las Vegas Daniel McLean, University of Nevada Las Vegas for the Case Study Making the Case for DineSafe: Incorporating Analytics into Managerial Decision-making in the Hospitality Classroom
Third Prize Brendan W. Davis, University of Central Florida Mathilda van Niekerk, University of Central Florida
Congratulations to everyone and looking forward to your submissions in the next competitions. And who knows. You may be the next winner ! Finally, it is also my pleasure to announce the Best Reviewers for 2016 ICHRIE Johnson & Wales case study competition. Please join me to thank the following scholars for the great contributions and review feedbacks in evaluating case studies during the 2016: Cynthia Mejia (University of Central Florida) Nicholas Thomas (De Paul University) June Clarke (Delaware State University)
Content of the four issues of Volume 6 of JHTC Volume 6 of the JHTC includes all the 31 case studies submitted and accepted for publication in 2016. Volume 6 features four issues; 3 issues include 8 case studies and one issue includes 7 case studies. Each of the first three issues of the JHTC starts by featuring one of the winning case studies; i.e. the first issue begins with the first wining case study; the
Fevzi Okumus, University of Central Florida
second issue starts with the second wining case study, while third issue
for the Case Study
starts with the third wining case study. The case studies published in
Effective Management Strategies: Millennial Leaders Managing a Multi-
the JHTC address various disciplines and management problems from
generational Workplace
the travel, tourism and hospitality sectors, including: marketing; sustainability; entrepreneurship; e-marketing; information and communications technology management; human resource management issues; op-
Journal of Hospitality & Tourism Cases
7
erations management; internationalization and franchise management; financial management; destination management; tourism development
Dear friends, dear colleagues, dear all, thank you so much for making
and management; events management; food & beverage management;
the 2016 edition of the ICHRIE Johnson & Wales Hospitality & Tourism
strategic management. Every issue of the JHTC provides a collection of
Case Study Competition and Publication Series one more hallmark suc-
various case studies in order to satisfy researchers and educators with
cess for ICHRIE !
diverse interests and disciplinary backgrounds. Each case study contains information and detailed analyses of the following issues: a) a background of the studied organization, destination and/or of the topic; b) an analysis of the dilemma and/or the teaching objectives; c) a section explaining the questions and dilemmas of the case study; d) related bibliography and additional reading. Each case study is also followed by a teaching note that offers further help and instructions on how to best integrate the case study in instruction methods and on how to use it in the classroom. In particularly, the teaching notes provide fruitful guidelines in terms of the following: a) explanation of the teaching objectives and the target audience; b) the teaching approach and strategy recommended to be adopted by other educators; c) an analysis of the teaching objectives and the theoretical concepts; and d) any other additional reading and/or references.
Recognitions and thanks 2016 hallmarks another success and record year of submissions for the ICHRIE Johnson & Wales Hospitality & Tourism Case Study Competition. However, these achievements would not have been materialised
We should all be proud of our work and efforts. Well done to everyone ! I appreciate your valuable support to this great initiative and I am looking forward to receiving your case studies in future ICHRIE Johnson & Wales case study competitions and the JHTC. And of course do not forget to volunteer for reviewing case studies. A good way to learn how to write good case studies is by reviewing and evaluating case studies. Please do contact me, if you have any idea and proposal on how to further enhance and improve the competition and/or the JHTC. I would be very happy to discuss these further with you. Enjoy reading Volume 6 of the JHTC and do use its case studies in your teaching. The journal is created by you and for you ! Thanks for everything that you have done, continue to do, and will do into the future for these initiatives. I very much look forward to continuing work with all of you, Yours sincerely,
without all the authors who have spent valuable time and efforts for
Professor Marianna Sigala
writing and submitting their studies. Thus, I would like to sincerely thank
Chair, ICHRIE Johnson & Wales Case Study Competition & Publication Series
all the authors who submitted a case study. Moreover, I would also like to
Editor, Journal of Hospitality & Tourism Cases
recognize and thank all the reviewers for their continuing commitment,
University of South Australia, Adelaide, Australia
support and valuable time to provide timely, critical, but also constructive feedback to case study authors. Your efforts play a major role in safeguarding the quality and the reliability of the competition and the JHTC and they are very much appreciated. I would also like to thank all those who personally send me their warm and kind messages and advices for what I am doing. Your words are inspiring, rewarding and motivational to me. Moreover, the ICHRIE office and specifically, Kathy McKarthy and Amie Garrett Grayson, also deserve recognition for the fruitful guidance, countless time and great work for supporting the implementation of these initiatives. Kathy and Amie: it is always nice to know that you are always there to help with whatever issue arises as well as support me in finding ways to implement new features and ideas for the competition and the JHTC. Thank you ! It is my great pleasure and privilege to work with all of you towards these projects and get inspired and motivated by your enthusiasm and commitment to contribute to the ICHRIE community. The achievements of the sixth edition of the case study competition and the sixth publication year of the JHTC provide strong evidence of the positive outcomes of everyone’s efforts.
8
Volume 6, Number 1
competition winner
Richmond, Virginia is Out: A DMO case study of LGBT marketing By Eric D. Olson and Heejung Ro
Introduction As Lesbian/Gay/Bisexual/Transgender (LGBT) travelers have emerged as an attractive market in the tourism industry, not only for the top LGBT destinations, such as San Francisco and New York, but also for many second-tier destinations, such as St. Louis and New Orleans. In this case study, a bold marketing strategy by a Destination Management Organization (DMO) to attract the LGBT market is highlighted. Specifically, this case study illustrates how Richmond Region Tourism (RRT) positioned themselves as a LGBT-friendly destination. RRT accomplished strong results by overcoming antiquated stereotype, stemmed from outdated typecasts and labels of this capital city,
potential new market segments, marketing leaders of RRT became interested in the LGBT tourist. In fact, other destinations had started marketing to the LGBT tourist with great success in the past decade. For example, “Philadelphia – Get Your History Straight and Your Nightlife Gay” marketing campaign generated 153 times revenue per dollar spent in the initial campaign (Greater Philadelphia Tourism Marketing Corp., 2011). Additionally, Philadelphia found that gay and lesbian visitors spent 57% more during their visits compared to other general visitors. With growing acceptance of the LGBT community and expansion of LGBT marriage in the United States, RRT thought the timing could be right to begin a campaign targeting the LGBT tourist.
and positioned the destination as a LGBT-friendly destination focusing on recreation, culture, and inclusiveness. The background, literature review, and challenges for this case study will be discussed.
Background of Destination Richmond
Figure 1
Driving Distance to Richmond, Virginia
The areas of Chesterfield, Hanover, Henrico and Hew Kent, and the city of Richmond make up the Richmond Region. RRT is a nonprofit organization that is tasked to grow the economy of the Richmond Region by attracting meetings, events, and conventions, and tourists to the region. RRT is funded by a lodging tax, the Greater Richmond Chamber, and local partners/sponsors (Visit Richmond, 2016). In 2014, total direct expenditures by domestic travelers was $29.5 million (Virginia Tourism Corporation, 2016). Richmond is two hours south of Washington D.C. and is within a day’s drive of half of the U.S. population (Figure 1). Tourists are attracted to the city for its Civil War history (the city is known as the former capital of the Confederacy), four seasons of recreation, and museums/ culture. Recently, leaders and business owners have been pursuing food, fashion, arts, and craft beers to diversify their product offerings to tourists. Additionally, music events, such as Richmond Folk Festival and sporting events, such as the NASCAR and The Washington Redskins Training Camp, complement the city’s attractions. Tourism leaders in Richmond called for a need to attract different
Note. Adapted from “Google. (n.d.). [Google Maps for Richmond, Virginia]. Retrieved March 30, 2016, from https://www.google.com/maps/@37.7592152,77.5756957,7z.”
A Destination Perception Problem The leaders of RRT were aware that they faced a vast challenge in overcoming a perception problem of the destination image for LGBT travelers. For many tourists, Richmond is thought of a Southern city,
market segments by revamping the perception of the destination to
with its connection to the Civil War and Reconstruction, and a city that
be more than just the capital of the Confederacy, which often links
until recently, was not perceived as being LGBT-friendly. Currently,
to an old-fashioned and conservative destination image. In search of
Virginia is a state where there are no statewide protections for LGBT employees in their workplaces regarding discrimination based on
Eric D. Olson is affiliated with Iowa State University. Heejung Ro is affiliated with University of Central Florida.
Journal of Hospitality & Tourism Cases
gender identity or sexual orientation in private sector employment. Additionally, the state does not include sexual orientation or gender
9
identity in its hate crime laws. Attitudes toward the LGBT community in the city had changed,
“Richmond is Out,” an extension of the “coming out” process, where a LGBT individual begins telling others about his/her sexual orientation.
and the city today is more open and accepting. While the city would
The marketing campaign took past stereotypes of the city “head on”
never be able compete against larger, well-known LGBT destinations,
and proclaimed the city was “coming out.” With a media budget be-
such as New York City, San Francisco, or Miami, the city could position
tween $16,000-$18,000 (Elliott, 2014), the campaign officially began in
itself as a second-tier choice for regional LGBT tourists. A decision to
Fall 2014. A video advertisement of the campaign said:
market to the LGBT tourist is ideal for Richmond for three reasons: •
•
Research has shown that the LGBT tourist travels more, spends
tal of the Confederacy, the stuck in the past, the unwelcoming,
more money while traveling, and is more likely to travel to des-
the intolerant Richmond…it’s time for the world to see the
tinations that are perceived as being LGBT-friendly (Pritchard,
LGBT community we’re proud to call our own, and the people
Morgan, & Sedgely, 1998; Weekes, 1989).
that have risen up to support it. We’re saying goodbye to the
Richmond offers a variety of activities and attractions for the LGBT
closet, and you’re going to have to say goodbye to your old
tourist, including more than a dozen breweries, 900 restaurants,
opinion of Richmond.”
vineyards, spas, theme parks, historical sites, and museums. •
•
“of course, outsiders think they know Richmond. The capi-
The campaign included a micro website (www.richmondisout.com),
Two “feeder” markets—Washington D.C. and northern Virgin-
print advertisements in Atlanta, Philadelphia, and Washington D.C., on-
ia—are nearby and could provide LGBT tourists to Richmond.
line advertisements, and a presence in social media including Facebook
For example, Washington D. C., two hours away, has the highest
(https://www.facebook.com/richmondisout), Instagram (https://www.in-
percentage of the LGBT population at 10% of the population of
stagram.com/outrva/), Twitter (https://twitter.com/OutRVA), and YouTube
any U.S. city (Gates & Newport, 2013b).
(https://www.youtube.com/channel/UC72DJW_8XO8J_7dWlLUVtzg).
The “Richmond is Out” Marketing Campaign
Additionally, the micro website included profiles of Richmond’s LGBT
RRT initially took a cautious approach in developing the mar-
community, called “insiders” and included photographs and interviews
keting campaign targeting the LGBT tourist by first laying out the
with locals and an opportunity to connect with individuals living in the
groundwork for the campaign. During 2009-2010, RRT engaged in
LGBT community in the region (http://www.richmondisout.com/insid-
marketing research of the LGBT tourist and consulted with Community
ers/). “Out RVA” stickers were released to create a strong welcoming
Marketing Inc., a marketing research firm based in San Francisco that
identity for the city. Available at numerous locations throughout the city,
specializes in LGBT travel research. A concern for RRT was to show the
the stickers were created through a grassroots efforts between RRT and its
authentic side of the region to LGBT tourists. Thus, an advisory board
LGBT advisory committee.
made up of a group of 10 members of the LGBT community in Rich-
Results of the Campaign
mond was set up to guide RRT. The advisory board provides quarterly input to ensure RRT was not missing the mark about the vibrant LGBT community in Richmond. In the early start of the campaign, RRT also reached out to LGBT media. Three press trips were arranged for travel writers. Instead of interacting with DMO representatives, the travel writers were encouraged to experience Richmond by connecting with the local LGBT community so they could write about Richmond in a real and authentic way. Stories were planted in LGBT media publications, such as Curve magazine, a publication devoted to the lesbian community; Passport magazine, a travel LGBT magazine; and Out magazine, a publication targeting younger, gay males. During 2013-2014, the theme of the marketing campaign was created with help of a group of students at a local university. RRT approached Professor O’Keefe at the Brandcenter at Virginia Commonwealth University, a development center for the advertising industry, to work on developing the campaign. Student teams worked on strategy, copywriting, and design of potential campaigns and pitched their ideas to RRT in Spring 2014. The winning team’s campaign was called
10
The “break out” success story of the marketing campaign was featured in The New York Times http://www.nytimes.com/2014/09/15/ business/media/richmond-va-makes-a-bold-appeal-for-lgbt-tourists. html?_r=1), and the article brought manifold extra attention to the media and public in nationwide. Overall, the campaign was considered a great success, and RRT received very little negative response with 5 million media impressions and 1.3 million advertising impressions. Additionally, Governor Terry McAuliffe, a supporter of the LGBT community, began office in January 2014. Governor McAuliffe was the first governor in the state to attend a Pride festival in September 2014 in Richmond. The Governor also created a LGBT Tourist Task Force to maximize opportunity for growth of the LGBT tourism and to provide recommendations on how to make the state more welcoming (Office of the Governor, 2014).
Case Study Dilemma: A Homogenous LGBT Market? The “Coming Out” campaign received national attention and was considered a success. However, RRT is interested in extending these efforts by thinking about the next phase of the marketing campaign. In other words, what is the next marketing strategy to effectively reach
Volume 6, Number 1
the LGBT community? Should RRT continue the current marketing campaign that aims to increase awareness of Richmond as a LGBT friendly destination by targeting the whole LGBT travelers’ market or should RRT revise the marketing campaign to target specific sub-segments of the LGBT market by diversifying strategies for each sub-segment? There are three environmental changes suggesting RRT may need
LGBT Tourism As the development of LGBT travel market has closely connected to social and political changes and advancement, LGBT tourism literature evolved accordingly. The discussion on the societal changes in relation to LGBT tourism is beyond the scope of this case; yet Vorobjovas-Pinta and Hardy (2015) offers an excellent discussion on the
to consider enhancing their marketing campaign efforts: (a) the pub-
historical background. Efforts to understand LGBT tourism naturally
lic’s increased tolerance and acceptance of the LGBT community has
led researchers to understand reasons for traveling.
promoted a greater visibility of LGBT travelers; (b) legislation to support LGBT rights (e.g., marriage equality laws and anti-discrimination protections) has expanded to a wide range of states, and corporations have incorporated them in their human resources practices; and (c) changing demographic trends within the LGBT community (e.g., LGBT families with children and increased visibility of transgender travelers) have advanced the notion that LGBT travelers could be viewed as a diversified market with multiple segments of the modern LGBT tourist. If the LGBT market is considered to have different sub-segments, more refined marketing strategies should follow to cater to the needs and wants of each sub-segment. This approach contrasts with the current marketing campaign assuming a marketing strategy with a one-sizefits-all approach. However, selecting right sub-segment(s) and creating tailored marketing strategies may require extensive research. Consequently, this selective approach may alienate other segments of the LGBT market and may result in a decreased number of LGBT visitors.
Literature Review LGBT Market Researchers have estimated approximately 3.5 percent of the total U.S. population identify themselves as LGBT (Gates & Newport, 2013a), and the number is likely to increase due to growing LGBT visibility efforts including same-sex marriage expansion, LGBT right movements (e.g., www.hrc.org), and public attitude changes. The LGBT market accounts for five percent of total domestic travelers, yet 10 percent of total spending on domestic travel (AH&LA, 2011). Apparently, the growing LGBT travelers demand the expansion of LGBT leisure and travel related spaces and services. The LGBT market has been generally described to be well-educated with higher disposable income (Oakenfull, McCarthy, & Greenlee, 2008; Um, 2012). The household income of the typical married/partnered gay man is $13,400 more than the straight married/partnered counterpart (Experian, 2013). Furthermore, gay and lesbian couples have often been identified as “DINK” which stands for double-income-no-kids, and this identification points toward that they have more disposable income for leisure (Lindström, 2005). Researchers also note that the gay and lesbian market travels more (Prichard et al., 1998; Weekes, 1989) and spends more while traveling (Harris Interactive, 2006).
Literature suggests that gay men travel in search of their identity to meet and socialize with other gay men and escape from social restrictions (Holcomb & Luongo, 1996; Monterrubio et al., 2007). Clift and Forrest (1999) identified three motivations of gay travelers: gay social life/sexual encounters, culture and sights, and comfort and relaxation. Additional studies have found motivation factors including the desire to engage in social interactions and self-exploration, self-fulfillment, and escapism from daily routines (Hughes, 2005). In the review of gay travel research, Vorobjovas-Pinta and Hardy (2015) summarize that two major motivations for gay travelers are the need of freedom and a sense of belonging. According to Hughes (2002), gay travelers choose a travel destination based on “push” factors (i.e., disapproval, desire to relate to others and be oneself) and “pull” factors (i.e., gay space, tolerance). Traditionally, gay destinations in the United States are urban centers with gay neighborhoods such as New York (especially Greenwich Village and Chelsea), San Francisco (the Castro) and sun-and-beach destinations with gay resort reputations such as Miami-South Beach and Key West in Florida (Holcomb & Luongo, 1996; Ivy, 2001). Lesser known destinations, such as Austin, Texas and Seattle, Washington, also attract LGBT visitors through established LGBT friendly reputations. However, a recent trend from CMI indicates while major cities including Chicago, Los Angeles, and Washington D.C. continue to be among the most popular LGBT destinations, medium-size cities like St. Louis (MO), Rochester (NY), and St. Petersburg (FL) are emerging as regional destinations (Rosenbloom, 2014). Along with the growth of this market segment, LGBT festivals and events have become key motivators for LGBT tourists to travel. Pride events, for instance, are considered to be ‘parties with politics’ (Browne, 2007; Kates, & Belk, 2001, Waitt & Stapel, 2011) and have roots in demonstrations and rioting following a police raid of Stonewall Inn, a gay bar located in New York City in 1969. Currently, numerous gay and lesbian art and documentary film festivals are celebrated (e.g., New York, Boston, Chicago, and Miami). These events have become more public and larger in scale and also have become increasingly popular amongst non-LGBT tourists (Johnston, 2007; Smith & Forest, 2006). Similarly, LGBT sports are also key motivators for LGBT tourists to travel. Mega LGBT sports events, such as Gay Games (http://www.gaygames.org/) and Outgames (LGBT events are significant to the tourism industry because they are important pull factors for both LGBT and
Journal of Hospitality & Tourism Cases
11
non-LGBT tourists (e.g., Markwell, 2002; Pitts, 1997) and can encourage
Gender/Sexual Orientation and Generation Differences
the development of new destinations and rejuvenate mature destinations by bringing tourists to the destination and surrounding areas during the event (Osti, Disegna, & Brida, 2012).
Motivational factors and travel behavior differences by gender/ sexual orientation and generation exist within the LGBT community. For example, younger gay men may not find the need to spend time in
As recent literature points out, the existent LGBT tourism litera-
a specific physical gay space, such as a gay bar, in order to meet others
ture has failed to adapt to altering reflections of current realities in
(Visser, 2014). Table 1 states spending priority differences by gender
society and predominantly focused on gay men travelers (Browne &
(gay and bisexual men vs. lesbians and bisexual women) and age
Bakshi, 2011; Vorobjovas-Pinta & Hardy, 2015). The term ‘gay’ some-
groups (Millennials vs. Gen X vs. Boomers).
times includes homosexual women and even generally refers to the ‘LGBT,’ and the LGBT market is facilely perceived as one cohesive group in the media and academic studies. As a result, the findings and implications of gay men’s research are assumed to apply to the whole LGBT group. For example, the implications pertaining to sexual motivations for gay travel within the existing literature are unlikely to be reflective of the travel motivations of lesbians or LGBT families (Vorobjovas-Pinta & Hardy, 2015). However, gay men, lesbians, bisexuals, and transgender tourists may have profoundly different needs and preferences in travelling and destination choices. Thus, there is a need to better ex-
In addition to spending priority, differences exist between participation in LGBT activities while on vacation by gender and age groups (Table 2). For example, 66% of gay and bisexual men stated that had visited a gay/lesbian bar when on vacation in a different city compared to only 38% lesbian/bisexual women.
LGBT Weddings LGBT marriage became legal in Virginia in October 2014, and in June 2015, the U.S. Supreme Court ruled in favor of a constitutional right for same-sex marriage. The Williams Institute at UCLA estimates
amine current trends in LGBT tourism.
that LGBT weddings will be worth about $2.5 billion from 2015 – 2018.
Current Trends in LGBT Tourists Market
2,069 – 6,210 jobs created. Richmond is already marketed as a wedding
Additionally, states are expected to see $47.7 million in tax revenue and
This section presents current trends in LGBT tourists market via
destination, and marketing the destination as a LGBT wedding destina-
sub-group categorizations that could be used by RRT to segment the
tion could be a logical extension. In April 2016, Richmond is hosting the
LGBT community: demographic differences by age and gender, LGBT
state’s first gay and lesbian wedding show (https://richmondweddings.
weddings, and LGBT families.
com/upcoming-events/), featuring 60 wedding vendors.
Table 1
Spending Priority Differences by Gender and Generation When you travel to a city or destination, what are your spending priorities? Please mark all that apply. % High Spending Priority
Gender
Generation
Gay & Bisexual Men
Lesbians & Bisexual Women
Millennials
Gen X
Boomers
Dining out/Restaurants
58%
58%
64%
59%
56%
Quality hotel
37%
33%
30%
37%
38%
Museums
29%
33%
29%
25%
35%
Popular local tourist activities (such as boat rides, zip lines, theme parks)
27%
28%
29%
32%
26%
Nightlife/Bars
25%
10%
29%
20%
11%
Show tickets
23%
19%
18%
20%
22%
City tours or day trip tours in region
23%
24%
18%
22%
28%
Spa experiences/Massage/Treatments
7%
7%
5%
9%
7%
Gaming/Casinos
5%
5%
3%
4%
5%
Note. Adapted from “CMI’s 20th Annual Survey on LGBT Tourism & Hospitality: U.S. Overview Report,” by Community Marketing & Insights, 2015, p. 22. Copyright 2015 by Community Marketing & Insights.
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Volume 6, Number 1
Table 2
Participation in LGBT Activities while on Vacation by Gender and Generation In the past 12 months, have you particiapted in any of these LGBT-specific activities while on vacation in a different citiy than you live? Please mark all that apply. When on vacation in a different city, I have…
Gender
Generation
Gay & Bisexual Men
Lesbians & Bisexual Women
Millennials
Gen X
Boomers
Went to a gay/lesbian bar
66%
38%
60%
56%
46%
Went to an LGBT neighborhood
61%
39%
56%
53%
46%
Went to a restaurant in the LGBT neighborhood
61%
37%
49%
51%
48%
Went to a gay/lesbian nightclub
47%
22%
48%
39%
28%
Purchased clothes or other retail items in the LGBT neighborhood
35%
18%
31%
22%
19%
Used a dating website or mobile app to meet others
31%
4%
29%
20%
13%
Attended an LGBT pride event
25%
19%
28%
19%
18%
Attended an LGBT party event other than pride
24%
17%
22%
30%
28%
Spent a night in an LGBT-dedicated hotel or guesthouse
20%
7%
10%
8%
8%
Visited the local LGBT community center
10%
9%
8%
8%
11%
Attended an LGBT fundraising gala costing $100 or more
7%
4%
8%
14%
16%
Attended an LGBT conference
7%
9%
4%
6%
7%
Note. Adapted from “CMI’s 20th Annual Survey on LGBT Tourism & Hospitality: U.S. Overview Report,” by Community Marketing & Insights, 2015, p. 23. Copyright 2015 by Community Marketing & Insights.
LGBT Families According to the Williams Institute, it is estimated that 37% of
destination? •
the LGBT community?
LGBT adults have had a child at some time in their lives, and 3 million LGBT Americans have had a child (Gates, 2013). Additionally, more
What are the advantages and disadvantages for marketing to
•
If RRT segments the LGBT community into diverse segments,
than 125,000 same-sex couple households include nearly 220,000
each with differing needs, wants, and motivation factors, how
children under the age of 18. LGBT households with children is highest
should they do this?
in the South, Mountain West, and Midwest parts of the United States
•
the segments?
(Gates, 2013). According to CMI (2015), the majority of LGBT parents are motivated by child-friendly destinations and child-friendly hotels (68%) over LGBT-friendly destinations (32%). Although multi-generational travel is increasingly becoming common with heterosexual families, LGBT persons are increasingly becoming grandparents who travel with grandchildren. A survey by CMI (2015) found 56% of LGBT parents that had a child over the age of 18 also had children, making LGBT grandparents a more visible segment. Furthermore, 28% of those surveyed indicated going on a vacation
Activity As one of the DMO managers at RRT, you have been asked to submit a marketing proposal for sub-segment(s) within the LGBT market that RRT should focus as a next step. In the proposal, identify the target sub-niche segment(s), include an evaluation of those segments, and make specific recommendations with respect to the following questions:
Marketing Strategy Analysis The “Richmond is Out” marketing campaign has been successful
with their grandchildren in the past year.
Discussion The major questions in this case study are: • •
What marketing research would be needed to examine each of
to overcome RRT destination stereotypes and increase destination awareness among LGBT travelers. Evaluate the RRT’s current marketing campaign by applying a Strengths/Weakness/Opportunities/Threats
Should RRT continue to market to the entire LGBT community
analysis.
with similar needs, wants, and motivation factors?
Market Potential
What are the motivational factors for the LGBT tourist to visit a
Journal of Hospitality & Tourism Cases
•
Based on the information provided, is the LGBT market attractive 13
enough to justify an extended marketing campaign for RRT? •
Should the LGBT community be segmented into diverse segments with differing product needs and wants or can the LGBT community be marketed homogeneously?
•
Which sub-segment market(s) could be attracted to Richmond? Which sub-segment market(s) are likely to repeat their visits? What specific products/services would a sub-segment market(s) need?
•
Besides increased visitation and overnight stays, are there any other benefits to marketing to the LGBT community?
Stakeholder Involvement •
Who are the private and public stakeholders that would need to be involved if RRT segments the LGBT community?
•
Are there any LGBT education and training programs a DMO would have to employ in order to educate/train the local community and/or businesses about the LGBT community?
Marketing Research •
Is there any additional marketing research that would be needed in understanding these market sub-segments?
•
How could RRT evaluate the attractiveness of each potential sub-segment?
References AH&LA. (2011). AH&LA commissions study of multicultural markets. (2011, January 31). American Hotel & Lodging Association. Retrieved from http:// www.hospitalitynet.org/news/4050016.html Browne, K. (2007). A party with politics? (Re)making LGBTQ pride spaces in Dublin and Brighton. Social and Cultural Geography, 18(1), 63-87. Browne, K., & Bakshi, L. (2011). We are here to party? Lesbian, gay, bisexual and trans leisurescapes beyond commercial gay scenes. Leisure Studies, 30(2), 179-96. Clift, S., & Forrest, S. (1999). Gay men and tourism: Destinations and holiday motivations. Tourism Management, 20(5), 615-625. Community Marketing & Insights, (2015). CMI’s 20th annual survey on LGBT tourism & hospitality. U.S. Overview Report. December 2015. Elliott, S. (2014, September 15). Richmond, Va., makes a bold appeal for L.G.B.T. tourists. The New York Times. Retrieved from: http://www.nytimes. com/2014/09/15/business/media/richmond-va-makes-a-bold-appeal-forlgbt-tourists.html?_r=0 Experian. (2013). The 2013 LGBT report. Available from http://www.experian. com/assets/simmons-research/white-papers/2013-lgbt-demographicreport.pdf Gates, G. J. (2013, February). LGBT parenting in the United States. The Williams Institute. Retrieved from http://williamsinstitute.law.ucla.edu/wp-content/ uploads/LGBT-Parenting.pdf Gates, G. J., & Newport, F. (2013a, February). Gallup special report: New estimates of the LGBT population in the United States. The Williams Institute. Retrieved from http://williamsinstitute.law.ucla.edu/research/census-lgbtdemographics-studies/gallup-lgbt-pop-feb-2013/ Gates, G. J., & Newport, F. (2013b, February 15). LGBT percentage highest in D.C., lowest in North Dakota. Gallup. Retrieved from http://www.gallup.com/ poll/160517/lgbt-percentage-highest-lowest-north-dakota.aspx
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Greater Philadelphia Tourism Marketing Corp. (2011). Philadelphia’s Gay and Lesbian Visitors. Retrieved from: http://c526532.r32.cf0.rackcdn.com/ Philadelphias-Gay-and-Lesbian-Visitors-2011-FINAL.pdf Harris Interactive (2006). The gay, lesbian, bisexual and transgender (GLBT) population at-a-glance. Retrieved from: http://www.witeck.com/wp/files/ glbt-market-research-highlights.pdf Holcomb, B., & Luongo, M. (1996). Gay tourism in the United States. Annals of Tourism Research, 23(3), 711–713. Hughes, H. (1997). Holidays and homosexual identity. Tourism Management. 18(1), 3-7. Hughes, H. (2002). Gay men’s holiday destination choice: A case of risk and avoidance. International Journal of Tourism Research. 4(4), 299–312. Hughes, H. (2005). A gay tourism market: Reality or illusion, benefit or burden? Journal of Quality Assurance in Hospitality & Tourism. 5(2-4), 57-74. Ivy, R. L. (2001). Geographical variation in alternative tourism and recreation establishments. Tourism Geographies, 3(3), 338-355. Johnston, L., (2007). Mobilizing pride∕shame: Lesbians, tourism and parades. Social and Cultural Geography, 8(1), 29–45. Kates, S. M., & Russell W. Belk. (2001). The meanings of lesbian and gay pride day: Resistance through consumption and resistance to consumption. Journal of Contemporary Ethnography, 30(4), 392-429. Lindström, M. (2005). Brand sense: Build powerful brands through touch, taste, smell, sight, and sound. New York: The Free Press. Markwell, K., (2002). Mardi Gras tourism and the construction of Sydney as an international gay and lesbian city. GLQ: A Journal of Lesbian and Gay Studies, 8(1–2), 81–99. Monterrubio, J.C., Hughes, H., Miller, A., & Mason, P. (2007). Gay men’s sexual behaviour in a holiday destination. e-Review of Tourism Research, 5(3), 56-63. Oakenfull, G.K., McCarthy, M.S. & Greenlee, T.B. (2008). Targeting a minority without alienating the majority: Advertising to gays and lesbians in mainstream media. Journal of Advertising Research, 48(2), 191–198. Office of the Governor, & Virginia Tourism Corporation. (2014, November 17). Governor McAuliffe kicks off VA-1 tourism summit, announces new task force to promote LGBT tourism. [Press release]. Retrieved from http://www.virginia.org/pressroom/release.asp?id=453 Osti L, Disegna, M. & Brida, J.G. (2012). Repeat visits and intentions to revisit a sporting event and its nearby destinations. Journal of Vacation Marketing, 18(1), 31–42. Pitts, B.G. (1997). From leagues of their own to an industry of their own: The emerging lesbian sports industry. Women’s Sport and Physical Activity Journal, 6(2), 109-139. Pritchard, A., Morgan, N.J. & Sedgely, D. (1998). Reaching out to the gay tourist: Opportunities and threats in an emerging market segment. Tourism Management, 19(3), 273-282. Rosenbloom, S. (2014, May 30). The evolving world of gay travel. The New York Times. Retrieved from http://www.nytimes.com/2014/06/01/travel/theevolving-world-of-gay-travel.html Smith, M., & Forest, K. (2006). Enhancing vitality or compromising integrity? Festivals, tourism and the complexities of performing culture. In D. Picard & M. Robinson (Eds.), Festivals, tourism and social change – Remaking worlds (pp. 133-151). Clevedon, Buffalo, Toronto: Channel View Publications. Um, N.H. (2012). Seeking the holygrail through gay and lesbian consumers: An exploratory content analysis of ads with gay/lesbian-specific content. Journal of Marketing Communications, 18(2), 133-149. Virginia Tourism Corporation. (2016). Richmond Travel Economic Impacts. Retrieved April 4, 2016 from Virginia Locality Economic Impact Data.
Volume 6, Number 1
Visit Richmond, VA. (2016, May 30). About us. Retrieved from http://www.visitrichmondva.com/about/ Visser, G. (2014). Gay and lesbian tourism practices. In A. A. Lew, C. M. Hall & A. M. Williams (Eds.), The Wiley Blackwell companion to tourism (pp. 435-444). New Jersey: Wiley-Blackwell Vorobjovas-Pinta, O., & Hardy, A. (2015). The evolution of gay travel research. International Journal of Tourism Research. Waitt, G., & Staple, C. (2011). “Fornicating on fl oats”? The cultural politics of the Sydney Mardi Gras. Parade beyond the metropolis, Leisure Studies, 30(2), 197-216. Weekes, R. V. (1989). Gay Dollars, American Demographics, 10(Oct), 45-48. The Williams Institute (2014). New Williams Institute data visualization: U.S. benefitting from $2.6 billion same-sex wedding spending boom. [Press release]. Retrieved from http://williamsinstitute.law.ucla.edu/press/press-releases/
Journal of Hospitality & Tourism Cases
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teaching note Richmond, Virginia is Out: A DMO case study of LGBT marketing
data-visualization-same-sex-spending-boom/
LO2. Apply marketing concepts and techniques to assess market opportunities and develop creative solutions to destination marketing
Case Study Summary In this case study, a bold marketing strategy by a Destination Management Organization (DMO) to attract the lesbian/gay/bisexual/ transgender (LGBT) market segment is highlighted. Specifically, this case study illustrates how Richmond Region Tourism (RRT), the city’s DMO, positioned themselves as a LGBT-friendly destination. RRT accomplished strong results by overcoming antiquated stereotypes of the city, stemmed from outdated typecasts and labels of this capital city. Now that RRT has successfully implemented the marketing initiative, its leaders are wondering what the next step is to maintain LGBT tourists continue visiting and encourage repeat visitation to Richmond. Suppliers of LGBT tourism have failed to adapt to altering reflections of current realities in society and predominantly focused on treating the LGBT community as homogenous, as reflected in marketing campaigns for a “one-size fits all” approach. The case study provides a literature review including motivational factors of the LGBT tourist and destination choices. The case study provides students with background information and characteristics of potential sub-segments of LGBT tourist segments.
Learning Objectives The aim of this case study is to examine how RRT managers should continue to market to the LGBT community. First, students need to discuss the question, “Should the LGBT community continue to be treated as a homogenous market segment, with LGBT tourist sharing similar motivations, needs, and wants” or “should the LGBT community be treated as a diverse community with differing sub-segments, each requiring products/services and marketing.” Second, students need to address which sub-segment(s) of the LGBT community RRT should market. Students can utilize this case study to identify factors of sub-segments of the LGBT community, develop a plan that targets sub-segment(s), and evaluate each market segment for attractiveness.
problems. LO3. Critically analyze, discuss, and evaluate the literature on LGBT tourism in relation to destination marketing. LO4. Demonstrate secondary research skills to collect, collate, and integrate scholarly works on applied marketing topics. LO5. Use oral and written skills to demonstrate their understanding of this case study and to create a coherent and rigorous argument in analysis and solutions. LO6. Construct an awareness of the LGBT community, an underrepresented and diverse community.
Target Audience The case study is designed for undergraduate students in a hospitality, tourism, or events management program studying destination marketing. Since this case study involves higher level of thinking in terms of identifying marketing segmentation attractiveness for a DMO, it is recommended that this case be used in upper level classes. Additionally, this case study would be appropriate for an undergraduate marketing business class. Since many universities and colleges have a diversity requirement, this case study could be used in a class about diversity as the case study’s content is about the LGBT community, an underserved and increasingly visible minority segment. For industry, this case study would be appropriate for destination marketers and managers responsible for identifying new tourist sub-segments.
Teaching Approach and Strategy It is recommended that three 50-minute class periods (or two 75-minute class periods) be devoted to this case study. For this case study, there are eight elements of the teaching approach and strategy: pre-readings, pretest, class instruction/lecture, group assignment, group assignment report out, class discussion, posttest, and selfreflection. Table 1 provides the outline of the case study including
Utilizing Bloom’s Taxonomy (Bloom, Engelhart, Furst, Hill, & Krathwohl, 1956), the following objectives have been created for this case study. The learning outcomes (LO) of this case study are to develop knowledge/skills to enable students to: LO1. Critically evaluate and reflect upon specific marketing decisions and marketing strategies in relation to the dynamic nature of the environment in which marketing decisions are made and assess the implications for marketing strategy determination and implementation.
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Volume 6, Number 1
instructions, sources, time devoted to each activity, and the learning outcome affiliated with the activity.
Table 1
Case Study Teaching Approach Activity
1. Pre-Reading
Instructions
Before the start of the case study module, assign students the following article as well as this case study to provide students with a brief background of RRT.
Source 1. Elliott, S. (2014). Richmond, VA., makes a bold appeal for L.G.B. T. Tourists. New York Times. Retrieved from: http://www.nytimes. com/2014/09/15/business/media/richmondva-makes-a-bold-appeal-for-lgbt-tourists. html?_r=0
Time Devoted
Learning Objective (LO)
Pre-Reading before class
LO1, LO6
2. Case Study: Richmond Virginia is Out: A DMO Case Study of LGBT Marketing
2. Pretest
On the first day of the case study, give students a pretest to measure and benchmark their current understanding of market segmentation and this case study.
Pretest (Appendix A)
15 minutes
LO1, LO2, LO3
3. Class Instruction/ Lecture
Instructor engages in class facilitation and lecture.
Class Facilitation/Instruction based on Class Instructions: LGBT Terminology (Appendix B), Market Segmentation & Positioning, RRT Problem, LGBT Sub-Segments
40 minutes
LO1, LO2, LO3, LO6
4. Group Assignment
Teams will be divided into teams to complete assignment.
Group Assignment (Appendix C)
Out of Class
LO1, LO2, LO3, LO4, LO6
5. Group Assignment Report Out
Teams will briefly present their group assignment.
In Class
30 minutes
LO5
6. Discussion Questions
Instructor will engage with discussion questions and answers.
Discussion Questions
20 minutes
LO1, LO2, LO3, LO5, LO6
7. Posttest
Posttest will be used to measure and benchmark students’ understanding of case.
Posttest (Appendix D)
8. Self-Reflection
Students will reflect on their understanding of the material.
Self-Reflection Assignment (Appendix E)
Journal of Hospitality & Tourism Cases
15 minutes
Out of Class
LO1, LO2, LO3
LO6
17
Table 2
Segmentation Variables Segmentation Variable Geographic
Segmentation Dimensions
Example
Tourist Location (country, state, city, neighborhood)
Tourists that live in Washington, D.C., two hours from Richmond.
Demographic
Age, Gender, Sexual orientation1, Gender identity2, Occupation, Family status, Household income
LGBT families who are middle-class
Psychographic
Lifestyle, Attitudes, Beliefs
LGBT tourists who prefer to travel to unique destination
Behavioral
Rates of usage, Benefits sought from destination, Readiness to visit the destination
Repeat tourists vs. first-time tourists
Class Instruction/Lecture First Class Session 1.
Start the class by having students complete the pretest (Ap-
1.
faced by RRT. 2.
Lead a discussion on the potential LGBT sub-segments discussed and the products and services the segment would want
pendix A) (15 minutes). 2.
Next, lead a class discussion on the current industry problem
in a destination:
Review the background of LGBT tourism, LGBT terminology (Appendix B), LGBT motivation factors for traveling, market
A. Gender/sexual orientation differences
segmentation and positioning, and sub-segments (40 minutes).
B. Age differences (Millennials vs. Generation X vs. Boomers) C. LGBT families
Market Segmentation & Positioning
D. LGBT weddings
Market segmentation is often used by DMOs to divide a large mar-
E. LGBT festivals and events
ket into subsets of tourists that have similar needs, wants, interests, and priorities. The four main segmentation variables are: geographic, de-
3.
plain the group project (Appendix C) (10 minutes)
mographic, psychographic, and behavioral characteristics (see Table 2). Once a market has been divided into different subsets, unique advertising and communication, as well as differentiated tourism products and
Second Class Session 4.
services can be developed for the specific market. Once a destination marketer has segmented the market, the
A. Substantial – the market needs to be large enough and financially attraction enough in order to warrant success. B. Measureable – the market segment must be able to be counted in terms of current and potential size and potential spending. C. Accessible – the market must be reachable through traditional and new marketing channels. D. Actionable – the destination and marketing communications
Each team will have five minutes to present their findings from the group project (30 minutes)
5.
destination marketer needs to evaluate if each segment is effective. Marketers can do this in a combination of four distinct manners:
Divide the class up into groups of five to seven people and ex-
Facilitate a conversation with the following discussion questions and answers (20 minutes)
6.
Have students complete Posttest (Appendix D) (15 minutes)
7.
Assign and explain the Reflection paper (Appendix E) (5 minutes)
Discussion Questions & Answers 1.
Should RRT continue to market to the entire LGBT community with similar needs, wants, and motivation factors? Richmond’s marketing campaign “Richmond is Out” for LGBT market began in 2014 and is considered to be successful. However, evidence and recent trends consistently suggest that LGBT market is not homogenous but there are different sub markets
for a segment need to be appealing in order to attract the
with different needs, wants, and desires when seeking out a
segment; in other words, the segment needs to want to visit
tourism destination. Similarly, recent academic literature also
the destination.
suggests that the LGBT travelers should not be treated as one cohesive market. As RRT continues their effort to attract the LGBT
1 Sexual orientation is defined as the sex to whom one is sexually, emotionally, and romantically attracted (APA, 2011). 2 Gender identity is defined as one’s sense of oneself as male, female, or transgender (APA, 2011).
18
tourists, they should consider identifying sub-niche markets that match with the region. Then, RRT should refine their marketing
Volume 6, Number 1
strategies by tailoring and highlighting tourism and hospitality
provide insight to the best way to reach the sub-segmentation
products to reach those niche market(s) effectively. For example,
and which marketing channels would be most appropriate to
after the legal recognition of LGBT marriage in Virginia in Octo-
reach the sub-segment.
ber 2014, Richmond is hosted the state’s first gay and lesbian wedding show (https://richmondweddings.com/upcomingevents/), featuring 60 wedding vendors in April 2016. 2.
What are the motivational factors for the Gay/LGBT tourist to visit a destination? Literature suggests that gay men travel in search of their identity to meet and socialize with other gay men and escape from social restrictions (Holcomb & Luongo, 1996; Monterrubio et al., 2007). Clift and Forrest (1999) identified three motivations of gay trav-
Blain, C., Levy, W. E., & Ritchie, J. R. B. (2005). Destination branding: Insights and practices from destination management organizations. Journal of Travel Research, 43, 328-338. Destination Marketing Association International (http://www.destinationmarketing.org/faq).
tion factors including the desire to engage in social interactions
Pike, S. (2011). Destination Marketing Organizations. New York: Taylor & Francis.
and self-exploration, self-fulfillment, and escapism from daily
Pike, S., & Page, S. (2014). Destination Marketing Organizations and destination marketing: A narrative analysis of the literature. Tourism Management, 41, 1-26.
gay travel research, Vorobjovas-Pinta and Hardy (2015) summarize that two major motivations for gay travelers are the need of freedom and a sense of belonging. Please note that LGBT tourism research has focused on gay travelers and these research findings are based on gay men and may not reflect different subgroups within the LGBT tourist market. What are the advantages and disadvantages for marketing to the LGBT community? The LGBT market has been generally described to have higher disposable income, travels more, and spend more money while traveling compared to his/her heterosexual counterparts. Destinations that market the LGBT community are often viewed as being more progressive and accepting. Disadvantages include a potential backlash against the destination, alienation by current visitors, and political pressure faced by a DMO. RRT faced minimal backlash with their marketing efforts toward the LGBT community. If RRT segment the LGBT community into diverse segments, each with differing needs, wants, and motivation factors, how should they do this? RRT could segment the community, based on current trends in LGBT tourists’ sub-segments. RRT could segment by geographic, demographic, psychographic, and behavioral differences. Differences exist by age and gender. Additionally, recent ad-
Wang, Y., & Krakover, S. (2007). Destination marketing: Competition, cooperation or coopetition? International Journal of Contemporary Hospitality Management, 20(2), 126-141. Wang, Y., & Pizam, A. (2011). Destination marketing and management: Theories and applications. CAB International: Oxfordshire, UK. Wang, Y., & Xiang, Z. (2007). Toward a theoretical framework of collaborative destination marketing. Journal of Travel Research, 24, 75-85. Tourism Segmentation, Target Marketing, and Positioning Chen, J. S., & Uysal, M. (2002). Marketing positioning analysis: A hybrid approach. Annals of Tourism, 29(4), 987-1003. Cox, C., & Wray, M. (2011). Best practices marketing for regional tourism destination. Journal of Travel & Tourism Marke4ting, 28(5), 524-540. Dolnicar, S. (2002). A review of data-driven market segmentation in tourism. Journal of Travel & Tourism Marketing. Gupta, S., & Pirsch, J. (2014). Consumer evaluation of targeting marketing to the bottom of the pyramid. Journal of International Consumer Marketing, 26(1), 58-74. Hanlan, J., Fuller, D., & Wilde, S. (2006). An evaluation of how market segmentation approaches aid destination marketing. Journal of Hospitality & Leisure Marketing, 15(1), 5-26. Pike, S. D. (2002). Destination image analysis: A review of 142 papers from 19732000. Tourism Management, 23(5), 541-549. LGBT Tourism Boyd, N. W., (2011). San Francisco’s Cast district: From gay liberation to tourist destination. Journal of Tourism & Cultural Change, 9(3), 237-248.
weddings and LGBT families.
Browne, K., & Bakshi, L. (2011). We are here to party? Lesbian, gay, bisexual and trans lesiurescapes beyond commercial gay scenes. Leisure Studies, 30(2), 179-196.
What marketing research would be needed to examine each of
Community Marketing & Insights. http://www.communitymarketinginc.com/
the segments?
Guaracino, J. (2007). Gay and lesbian tourism: The essential guide for marketing. Elsevier: Burlington, MA.
vancements have created new sub-segments, such as LGBT 5.
Baker, M. J., & Cameron, E. (2008). Critical success factors in destination marketing. Tourism and Hospitality Research, 8(2), 79-97.
comfort and relaxation. Additional studies have found motiva-
routines (Hughs, 2005; Waitt & Markwell, 2006). In the review of
4.
Destination Marketing Organizations
Gretzel, U., Yuan, Y., & Fesenmaier, D. R. (2000). Preparing for the new economy: Advertising strategies and change in destination marketing organizations. Journal of Travel research, 39, 146-156.
elers: gay social life/sexual encounters, culture and sights, and
3.
Additional Readings & Resources
Additional marketing research needed would need to examine any sub-segments’ potential size, potential visitor spending, and the sustainability of sub-segments. Marketing research can Journal of Hospitality & Tourism Cases
Heney, P. J. (2015). Focus on LGBT travel. Retrieved from: http://www. travelweekly.com/Travel-News/Travel-Agent-Issues/Focus-on-LGBT-travelfamily-travel.
19
IGLTA. https://www.iglta.org/. Lifelong Adoption Statistics. Retrieved from: http://www.lifelongadoptions. com/lgbt-adoption/lgbt-adoption-statistics. Out Traveler (2016). Retrieved from: www.outtraveler.com Visser, G. (2003). Gay men, tourism, and urban space: Reflections on Africa’s ‘gay capital.” Tourism Geographies, 5(2), 168-190. Teaching Note References APA. (2011). Definition of terms: Sex, gender, gender identity, sexual orientation. Retrieved from: https://www.apa.org/pi/lgbt/resources/sexuality-definitions.pdf Bloom, B. S. (Ed.). Engelhart, M. D., Furst, E. J., Hill, W. H., Krathwohl, D. R. (1956). Taxonomy of Educational Objectives, Handbook I: The Cognitive Domain. New York: David McKay Co Inc. Clift, S., & Forrest, S. (1999). Gay men and tourism: Destinations and holiday motivations. Tourism Management, 20(5), 615-625. Elliott, S. (2014). Richmond, VA., makes a bold appeal for L.G.B. T. Tourists. New York Times. Retrieved from: http://www.nytimes.com/2014/09/15/business/ media/richmond-va-makes-a-bold-appeal-for-lgbt-tourists.html?_r=0 Holcomb, B., & Luongo, M. (1996). Gay tourism in the United States. Annals of Tourism Research, 23(3), 711–713. Hughes, H. (2005). A gay tourism market: Reality or illusion, benefit or burden? Journal of Quality Assurance in Hospitality & Tourism. 5(2-4), 57-74. Monterrubio, J.C., Hughes, H., Miller, A., & Mason, P. (2007). Gay men’s sexual behaviour in a holiday destination. e-Review of Tourism Research, 5(3), 56-63. Vorobjovas-Pinta, O., & Hardy, A. (2015). The evolution of gay travel research. International Journal of Tourism Research. Waitt, G., & Staple, C. (2011). “Fornicating on fl oats”? The cultural politics of the Sydney Mardi Gras. Parade beyond the metropolis, Leisure Studies, 30(2), 197-216.
20
Volume 6, Number 1
Appendix A
Pretest 1. What are characteristics of the LGBT target market? 2. Describe the problem/challenge facing RRT. 3. What are the advantages in marketing to the LGBT tourist? 4. Explain the “push-pull” motivations of LGBT tourists. 5. Describe current trends in LGBT tourist segments.
Appendix B
LGBT Terminology •
Bisexual – a person emotionally, physically, and/or sexually attracted to males/men and females/women. This attraction does not have to be equally split between genders, and there may be a preference for one gender over others.
•
Coming Out – may refer to the process by which one shares one’s sexuality, gender identity, or intersexed status with others (to “come out” to friends, etc.)
•
Gay – 1. Term used in some cultural settings to represent males who are attracted to males in a romantic, erotic, and/or emotional sense. Not all men who engaged in “homosexual behavior” identify as gay, and as such this label should be used for caution. 2. Term used to refer to the LGBT community as a whole, or as an individual identity label for anyone who does not identify as heterosexual.
•
Homosexual – a person primarily emotionally, physically, and/or sexually attracted to members of the same sex.
•
Lesbian – term used to describe female-identified people attracted romantically, erotically, and/or emotionally to other female-identified people.
•
LGBT – a common abbreviation for lesbian, gay, bisexual, and transgender community
•
Sexual Orientation – the desire for intimate emotional and/or sexual relationships with people of the same gender/sex, another gender/ sex, or multiple genders/sexes.
•
Transgender – A person who lives as a member of a gender other than that expected based on anatomical sex. Sexual orientation varies and is not dependent on gender identity.
Note. Adapted from “LGBTQI terminology,” by Green, E. R., 2014. Retrieved from: http://www.lgbt.ucla.edu/documents/LGBTTerminology.pdf
Journal of Hospitality & Tourism Cases
21
Appendix C
Group Project Objective: to illustrate the principles of market segmentation and target marketing in a DMO setting. To help you think about market segmentation and destination marketing, your team is to analyze potential sub-segments of the LGBT community for RRT and select the most appropriate sub-segment(s) for RRT. After reviewing the case study “Richmond, Virginia is Out: A DMO case study of LGBT marketing,” spend some time thinking about which sub-segment(s) RRT should market within the LGBT community. Utilize the data presented in the case study as well as your own outside research. For example, could RRT target different groups by gender/sexual orientation, age cohort, family status or by interest (e.g. festival/events and sports events)? For this group project: 6.
Create a customer profile for your proposed sub-segment based on the geographic, demographic, psychographic, and behavioral variables.
7.
Find a picture to illustrate your sub-segment.
8.
Create an advertisement aimed at your target.
Additionally, be prepared to answer the following questions: 1.
Describe the product/service offerings that would be needed to target your selected sub-segment.
2.
Is this sub-segment substantial, measureable, accessible, and actionable?
3.
State the aim/theme, marketing channels that would be needed to reach this sub-segment.
4.
Could the product/service offerings help RVA capture both LGBT sub-segment and non-LGBT travelers? Develop strategies for both markets.
Appendix D
Posttest Questions
22
1.
Define the following terms: (1 point a piece) a. segmentation b. target market c. geographic segmentation d. demographic segmentation e. psychographic segmentation f. behavioral segmentation
2.
Discuss the motivational factors of the LGBT tourist. (3 points)
3.
What challenges does a DMO face when segmenting a target? (3 points)
4.
What are three reasons why the LGBT tourist is attractive for DMOs? (3 points)
Volume 6, Number 1
Appendix E
Self-Reflection Assignment During the past few classes, we have discussed the case study, “Virginia, Richmond is Out: A DMO Case Study of LGBT Marketing.” This self-reflection assignment will assess your thoughts and views on this case study. Utilize the following questions as a catalyst for your reflection: 1.
Destination manager need to be constantly monitoring the external market to be aware of new trends, etc. How can destination managers do this effectively and efficiently?
2.
How should a destination should approach the LGBT market? Should a destination treat the LGBT market as homogeneous or different groups?
3.
What surprised you the most about this case study?
4.
What additional tools, market research, or support would you need to continue these efforts in researching potential segments?
Your reflection should be a minimal of 500 words, which is about one-page. Please utilize Microsoft Word, Times New Roman, font size 12, and single spacing. (Footnotes) 1
Sexual orientation is defined as the sex to whom one is sexually, emotionally, and romantically attracted (APA, 2011).
2
Gender identity is defined as one’s sense of oneself as male, female, or transgender (APA, 2011).
Journal of Hospitality & Tourism Cases
23
case study
American Tourist Travel to Cuba: A Case Study By Kristen Kaminski and Miranda Kitterlin
Background The majority of tension experienced between the United States
exchange, the U.S. affirmed an invasion on Cuba would not ensue. For more than five decades, the U.S. and Cuba have had a tumul-
and Cuba began once Fidel Castro seized power by overthrowing the
tuous relationship with seemingly no reconciliation in sight. Once
corrupt Batista dictatorship in 1959. Relations deteriorated at a constant
diplomatic ties were cut and a full economic embargo was imposed in
rate for approximately two years before diplomatic ties were eventu-
1961, all tourism and business transactions between the two countries
ally severed in 1961. Not only was the Cuban government convinced
came to a screeching halt. However, for the first time since relations
the U.S. was utilizing the embassy as a hub for espionage, but Castro
were severed more than fifty years ago, it was announced in Decem-
signed a trade treaty with Soviet Union which raised a major red flag.
ber 2014 that the U.S. and Cuba “would seek to normalize relations”
The Eisenhower administration concluded Cuba was anti-America and
(“U.S., Cuba Announce Embassy Openings”, 2015). Moreover, since
quickly lost trust in the Cuban government. Uncertain of Cuban loyalty,
negotiations to re-establish embassies in both countries began, a con-
Eisenhower developed a plan in March 1960 to overthrow Castro and
tinued effort has been made by both the Obama administration and
establish a non-communist government in Cuba. Moreover, diplomatic
Castro to see the plan through. On July 1, 2015, President Obama an-
relations with Cuba were officially severed on January 3, 1961. Prior to
nounced that an agreement has been reached by the U.S. and Cuba to
his inauguration on January 20, 1961, John F. Kennedy was briefed on
open embassies in Havana and Washington, effective July 20 (“Obama:
the plan set in motion by Eisenhower. A group of Cuban exiles were
U.S. and Cuba will resume relations”, 2015). This declaration was proof
recruited and trained for approximately one year by the CIA in secret
that great strides towards mending relations between the two ad-
camps throughout Guatemala to fulfill the mission. However, what was
versaries are being made. However, with the embargo still in place,
supposed to be a covert operation became common knowledge among
barriers remain at the forefront of the travel and tourism industry.
Cuban exiles in Miami. Once this information was intercepted by Cuban
While Americans are still unable to travel to Cuba for leisure, the
intelligence, Castro became cognizant of what was about to transpire
possibility is within reach. However, it is important to note that Cuba
in the upcoming months. Consequently, the Bay of Pigs invasion which
lacks credible dispute resolution entities (Thomas, Kitterlin, & Lorenzo
occurred on April 17, 1961, was a colossal blunder.
Del Valle, 2015). This is problematic in the event an American tourist or
Despite the failed attempt to vanquish Castro, continued efforts
business has a mishap while in Cuba. The purpose of this case study is
were made to keep the Cuban government at bay. A full economic
to provide an overview of U.S. and Cuban relations, address potential
embargo restricting trade and travel between Cuba and the U.S. was
tourism problems, and highlight the importance of dispute resolution.
imposed on February 7, 1962. A few months after the economic em-
The Canadian Hot Spot
bargo was established, President Kennedy discovered nuclear armed Soviet missiles in Cuba which led to a 13-day standoff known as the Cuban Missile Crisis. On Oct 22, 1962, President Kennedy announced the decision to create a naval blockade or “quarantine” around the island to prevent further military supplies from being imported in from the Soviet Union. Kennedy demanded the missiles to be removed and the missile sites destroyed. With the strong possibility of a nuclear war looming, Soviet leader Khrushchev and President Kennedy publicly agreed to an arrangement that would deter such a catastrophic occurrence. The Soviets consented to the dismantlement of the weapon sites and, in
Even though Americans have been unable to visit Cuba for leisure purposes since 1961, there has been a steady stream of annual Canadian tourists to the island for over fifty years. Cuba’s proximity, affordability, and exotic landscape appeal to Canadians seeking refuge from the brutal winter months. Cuba ranks third most popular international destination for Canadians; $748 million in Canadian tourist expenditures contributed to the local Cuban economy in 2012 according to Statistics Canada (McQuigge, 2014). Moreover, Canada is the leading source of visitors over any other nation and 1.1 million Canadians accounted for 40 percent of all Cuba’s tourists in 2013 (Ossowski, 2014). It is important to note that the number of visitors from Canada may not truly reflect
Kristen Kaminski and Miranda Kitterlin are both affiliated with Florida International University.
24
the amount of actual Canadians; the number of Americans routing themselves to Cuba via Canada is on the rise (Fieser & Gayol, 2015). Table
Volume 6, Number 1
1 illustrates the top 10 visitors to Cuba by country of origin from 2010
It is important to note that although there is currently no dollar
to 2014. By 2014, the number of Canadian tourists increased nearly 2
limit on authorized expenses, but travelers are only allowed to return
percent to 1.2 million shown in Figure 1 (Oficina Nacional de Estadística
to the U.S. with up to $400 of Cuban goods for personal use, including
e Información de Cuba, 2014). However, these numbers may eventu-
$100 of alcohol and tobacco products (U.S. Department of the Treasury,
ally decrease as more Americans pour into the island. According to
2015). Moreover, Cuba is quite expensive for tourists and currently has a
McQuigge (2014), Canadians are likely to encounter an entirely different
rather complex and confusing dual currency system in place. While the
vacation experience once Americans have full access to Cuba.
elimination of this complicated system is expected, a quick and seam-
Even with the proper clearance, getting to Cuba is not an easy task.
less transition back to a simplified, single currency is highly improbable
Flights must be booked through third-party charter companies and long
(Frank, 2015). Both the Cuban convertible peso (CUC) and Cuban peso
delays at the airport are unavoidable. However, more transportation
(CUP) are not internationally supported currencies and the exchange
options are slowly becoming available. While traditional cruises oper-
rate is quite high for the U.S. dollar (“Money”, 2015). Most U.S. banks
ated by American companies are currently prohibited, Cuba is quickly
won’t process credit and debit card transactions, especially since the
becoming a leading cruise destination in the Caribbean. Non-American
cardholder needs to have an authorized reason to be in Cuba which is
owned cruise companies have been traveling to Cuba for years, but the
burdensome to authenticate (Friedman, 2015).
passenger count has been under a thousand per ship (Faust, 2015).
What to expect?
Travel opportunities are quickly becoming more available and there is a growing interest to cruise to Cuba in lieu of the recent transition to less constrictive travel regulations for Americans. On July 7, 2015, the prominent U.S. - based cruise line Carnival Corp. revealed Cuba has been added to their sailing itinerary in a recent deal (Sloan, 2015). The company’s new Fathom brand, focused on social impact trips, will offer voyages from Miami to the Dominican Republic and Cuba aboard the 710-passenger ship “Adonia” (Sloan, 2015). Pending Cuban approval, these “people-to-people” sailings will allow Americans to visit Cuba solely for cultural or humanitarian exchanges and are forecasted to launch in May 2016 (Sloan, 2015). Havana’s close proximity to the ports of Miami, Key West, and the Gulf Coast make it easily accessible from the U.S.; an influx of mainstream cruise lines can be expected if and when the travel embargo is lifted.
A thriving relationship with the Soviet Union kept Cuba afloat for nearly 30 years after the full economic embargo was imposed. As a result, tourism was not a major contributor to the Cuban economy; therefore, emphasis was not placed on keeping the tourism sector in pristine condition. Since Cuba was heavily dependent on the Soviet Union, the collapse of the Soviet Union in 1991 decimated the Cuban economy. In an instant, 85 percent of imports and 75 percent of trade, finance, and credit quickly unraveled (Nayeri & Lopez-Pardo, 2005). Moreover, as Cuba’s Gross Domestic Product dropped by 35%, the quality of living deteriorated and unemployment skyrocketed (LeoGrande, 2005). This economic crisis led to an aggressive tourism campaign in the hopes tourism would become a major contributor to the economy’s revival. Despite this, Agarwal (as cited in Elliott & Neirotti, 2008) noted Cuba’s tourism sector currently lacks any
Table 1
Top 10 Visitors to Cuba by Country of Origin, 2010-2014 2010
2011
2012
2013
2014
Canada
945,000
1,000,000
1,005,000
1,100,000
1,200,000
Germany
93,000
95,000
109,000
116,000
140,000
England
174,000
176,000
154,000
150,000
124,000
Italy
112,000
110,000
103,000
96,000
112,000
France
81,000
94,000
102,000
97,000
104,000
United States
63,000
74,000
98,000
92,000
91,000
Mexico
67,000
76,000
78,000
85,000
83,000
Venezuela
31,000
34,000
36,000
46,000
79,000
Spain
105,000
101,000
81,000
73,000
77,000
Russia
56,000
78,000
87,000
70,000
69,000
Source: Oficina Nacional de Estadística e Información de Cuba Journal of Hospitality & Tourism Cases
25
Figure 1
Current U.S. Market (Who can travel?)
Top 10 Visitors to Cuba by Country of Origin in 2014 1,200,000 1,100,000 1,000,000
Number of Visitors
900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
Source: Oficina Nacional de Estadística e Información de Cuba. New rules have been established by the U.S. Customs Office of Foreign Assets Control (OFAC) on January 16, 2015 reCurrent Market (Who canantravel?) garding legal travel to Cuba. While strictly leisureU.S. travel is still prohibited, American citizen is authorized to travel to New rules have been established the Customs of Foreign Assets (OFAC) Cuba without a specific license or paperwork as by long asU.S. the purpose of Office travel falls under one of theControl twelve following categories: on January 16, 2015 regarding legal travel to Cuba. While strictly leisure travel is still prohibited, an • American family citizen visits is authorized to travel to Cuba without a specific license or paperwork as long as the
purpose of travel falls under one of the twelve following categories: official business of the U.S. government, foreign governments, and certain intergovernmental organizations family visits • journalistic activity official business of the U.S. government, foreign governments, and certain • professional research and professional meetings intergovernmental organizations • educational activities journalistic activity professional research and professional meetings • religious activities educational • public performances, clinics,activities workshops, athletic and other competitions, and exhibitions religious activities • support for the Cuban people public performances, clinics, workshops, athletic and other competitions, and exhibitions • humanitarian projects support for the Cuban people • activities of private foundations or research or educational institutes humanitarian projects • exportation, transmission of information or information materials importation, activities oforprivate foundations or research or educational institutes • certain authorized export transactions (i.e. agricultural or medical products, tools) exportation, importation, or transmission of information or information materials certain authorized export transactions (i.e. agricultural or medical products, tools) •
Source: Oficina Nacional de Estadística e Información de Cuba.
26
Volume 6, Number 1
long-term plans for transition or development and remains among the
ing in sex tourism (Cabezas, 2004); not only is it convenient, but the steady
slowest in making any real progress.
stream of tourists offers an array of prospective clientele. Even though
Even though Cuba prides itself as being the largest island in the
prostitution is illegal in Cuba, it still flourishes making it a notorious sexual
Caribbean with abundant diversity, Miller, Henthorne, and George (2008)
playground in the Caribbean. Moreover, Clift and Carter (as cited in Elliott
found Cuba to be simultaneously pursing multiple tourism strategies,
& Neirotti, 2008) classified Cuba as a top seven destination for sexual tour-
instead of having one major focus. Consequently, an overall low quality
ism. With that in mind, potential American tourists need to realize that the
tourism product has been generated with no clear goal or strategy in
streets are riddled with conspicuous sex workers and the probability of
place. Although Cuba has much more to offer tourists than other islands
being propositioned is very high.
in the Caribbean due to its size and topography, sun and sand tourism
Babb (2010) asserts that hustling thrives on the streets of Cuba,
centered around Havana remains the only clear objective. The Ministry
which not only is a safety concern for tourists, but it fuels a lucrative black
of Tourism maintains an aggressive focus on high-end hotel develop-
market. Cuban tourism helps facilitate this silent economy due to the ease
ment on the basis of differentiation such as unique period architecture or
and accessibility of hard currency obtained. Moreover, Elliott & Neirotti
music (Miller, et al., 2008). This strategy discriminates against the budget
(2008) emphasize that stealing goods from the workplace with intent
traveler since four and five-star resorts only cater to those willing to pay a
to sell on the black market is common practice among employees and
premium for a specialized product. Moreover, with all tourism efforts con-
management of Cuban businesses. Tourists traveling to Cuba need to
centrated towards beefing up high-end resorts surrounding the nation’s
be aware that petty theft and corruption are tolerated and therefore, are
capital Cuba’s overall infrastructure, tourist attractions and smaller towns
likely to occur. Cash, credit cards, valuables such as jewelry and electronic
located ubiquitously around the island have been neglected.
devices, and important documents such as passports and driver’s licenses,
Cuba’s exotic, tropical location and historical richness help increase
are highly coveted and need to be safeguarded. The Cuban tourism indus-
its’ tourism potential. Elliott and Neirotti (2008) found the beautiful beach-
try has become a breeding ground for crime and transgressions. Oddly
es, music, culture, friendliness of the locals, a highly educated work force,
enough, Cuban professionals highly educated in medicine, engineering,
the development of joint venture hotels, and prospective niche tourism
and education have abandoned their trades in pursuit of work in the tour-
confections, such as ecotourism and adventure tourism, to be appealing
ism sector (Elliott & Neirotti, 2008). Consequently, tourism jobs are in high
attributes. Drawbacks and unresolved issues that hinder the tourism sec-
demand and are sought after by the majority of the Cuban population.
tor from flourishing were exposed which, unfortunately, overshadowed
Topnotch hospitality is quintessential to the tourism industry and
the island’s strengths. While American tourists may be drawn to the
is expected by all those who travel. The overwhelming popularity of
unprecedented beauty and culture of Cuba, one must bear in mind that
tourism jobs in Cuba has adversely affected quality and service. Little
it does not currently offer many of the local luxuries Americans may take
emphasis is placed on employee satisfaction in Cuba; not only are
for granted. Non-potable water, unreliable power, scarce and unstable
incentives virtually nonexistent, but hospitality employees have de-
internet services, and a multitude of transportation deficiencies such as
veloped disdain and resentment towards tourists and the industry as
imprecise maps, poor road signage, poorly lit and perilous roads, and
a whole (Elliott & Neirotti, 2008). As a result, service and quality suffer
insufficient service stations are among Cuba’s fundamental weaknesses
and have fallen to the wayside. Coupled with disgruntled employees,
(Elliott & Neirotti, 2008). Moreover, Cuba’s infrastructure, including histori-
the lack of standards in accommodations and restaurants across the
cal buildings and sites, is in shambles and in dire need of a face lift.
island create tricky and hazardous circumstances unfit for tourists. For
Communist ideologies remain prominent throughout Cuba; self-em-
example, Elliott and Neirotti (2008) found substandard sanitation prac-
ployment licenses are difficult to obtain and private property ownership
tices throughout public restrooms, swimming pools, and restaurants.
is not allowed which further complicates matters (Elliott & Neirotti, 2008).
The ability to implement a meticulous action plan in the event of an
Limited opportunities make it more difficult for the local population to
emergency was also questioned and miscommunication between tour
earn a decent living. Since poverty runs rampant throughout Cuba, the
groups and tour operators was observed. These key findings are im-
locals have turned to alternate means of making money. Young men and
portant to note when considering travel to Cuba.
women migrate to tourist areas specifically to engage in sex and partake
Dispute Resolution
in assorted liaisons with tourists (Cabezas, 2004). Additionally, a surge of international travelers visit Cuba for the sole purpose of pursuing sex with the locals (Clancy, 2002). As a result, it is not uncommon for local sex workers to have repeat clientele they see throughout the year. These illicit trysts not only provide supplemental income, but may also serve as a catalyst for better opportunities. Hotel and resort workers are notorious for engag-
Journal of Hospitality & Tourism Cases
As exciting as travel to a foreign country may be, the traveler assumes some sort of risk when venturing beyond the comforts of home. Cuba is riddled with problems, crime, and neglect; legal action may be required depending on the severity of a situation or crime. As the number of American tourists and companies doing business in Cuba increase,
27
the need for business-consumer dispute resolution becomes increas-
pitfalls and challenges prevail across the island. These shortcomings
ingly significant. According to Roberts (2003), the primary role of dispute
are of particular interest to the American tourist interested in visiting
resolution is legitimately managing disputes in a cost effective and timely
Cuba since leisure travel to the island may soon be possible. While the
manner. Successful dispute resolution also reduces international tension.
future looks relatively bright for the U.S. and Cuba, the once tattered
Thomas et al.(2015) affirm there are currently no resolution of dispute
relationship certainly faces a long road to recovery.
mechanisms between the U.S. and Cuba, which means court judgments within the others’ jurisdiction are not recognized. However, given that the lack of dispute resolution disrupts commercial relationships, “Cuba has signed and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a development which does offer a substantial inducement to foreign investment in Cuba” (Thomas et al., 2015, p.11). Cuban laws require state agencies, generally protected from liability by sovereign immunity, to form a joint-venture partnership with any hospitality or tourism business (Thomas et al., 2015). Many tourism facilities are controlled by the Cuban military; if a tourist (consumer) experiences a problem while in Cuba, the opportunity to resolve the dispute in court does not exist. Moreover, private practice is not allowed; lawyers work directly for the government (Adams, 2015). Disputes between a private person and the state are resolved through dubious arbitration measures (Thomas, et al., 2015). Businesses need to have contractual agreements that include international commercial arbitration to protect the contracting party if something goes awry. As relations between the U.S. and Cuba improve, more opportunities for international companies to do business in Cuba will become available. Cuba has already welcomed the American company Airbnb, a website which allows people to rent unique accommodations from local hosts around the world, to the island in April 2015 (Helft, 2015). A Cuban local can now list their home through Airbnb which provides tourists with an alternative lodging option. However, without credible dispute resolution, if the host’s house is damaged or destroyed the manner in which the case gets resolved is unknown. Foreign companies, particularly those associated with
Discussion Questions •
If you manage a hospitality business in Cuba, what would be your strategy for targeting American tourists?
•
How would you market your business to American tourists?
•
According to trends, what problems may develop if the U.S. travel embargo is lifted?
•
What are the benefits to the U.S. if the travel embargo is lifted? What are the drawbacks?
•
What types of tour packages / shore excursions would appeal to the American tourist?
•
As an American tourist, how can you prepare for a trip to Cuba?
•
If the opportunity to travel to Cuba arises, would you want to visit? Why or why not?
•
Why would an American tourist choose to travel to Cuba over another Caribbean destination?
•
Do you think Americans would prefer a cruise to Cuba over flying?
•
In what ways could the Cuban black market be controlled?
•
How would you improve employee motivation among hospitality employees?
•
How would you fine tune quality and service for consumers?
•
Provide examples of previous dispute resolution cases involving Cuba.
•
Do you think sex tourism will increase/decrease if the travel embargo is lifted? How will the sex tourism industry be affected?
•
Cuba is a leading sex tourism destination- What can we learn from other prominent markets such as The Netherlands and Thailand?
hospitality and tourism, may be reluctant to pursue potential business
References
opportunities in Cuba without a reliable dispute resolution system in
Adams, D. (2015, May 26). Eyeing the next frontier, Miami law firms ramp up Cuba strategy. Retrieved 21st of November 2015 from http://www.reuters. com/article/2015/05/26/us-cuba-usa-lawyers-idUSKBN0OA0TM20150526#X 1Vdrsytj7taAbeJ.97.
place. Thomas et al. (2015) note a few years ago Italy’s government alleged that Italian companies conducting business in Cuba were not being equally or fairly treated and, therefore, brought an arbitration claim against the Cuban government which was ultimately dismissed. Not only is dispute resolution important for businesses looking to establish a base in Cuba, the aforementioned challenges American tourists may encounter highlight the importance of having dispute
Babb, F. E. (2011). Che, Chevys, and Hemingway’s Daiquiris: Cuban Tourism in a Time of Globalisation. Bulletin of Latin American Research, 30(1), 50-63. Cabezas, A. L. (2004). Between love and money: sex tourism and citizenship in Cuba and the Dominican Republic. Signs: Journal of Women in Culture and Society, 29(4), 987-1015.
resolution in place, especially between a business and the consumer.
Cuban Missile Crisis. (n.d.). Retrieved 11th of November 2015 from http://www. jfklibrary.org/JFK/JFK-in-History/Cuban-Missile-Crisis.aspx.
Final Thought
Elliott, S. M. & Neirotti, L. D. (2008). Challenges of tourism in a dynamic island destination: The case of Cuba. Tourism Geographies, 10(3), 375-402.
Although Cuba has been off-limits to American tourists for half a century, it continues to pique the interest of would-be travelers as the opportunity to visit becomes increasingly viable. However, numerous
Faust, C. (Ed.). (2015). Q&A: Can Americans Travel to Cuba on a Cruise? Retrieved 7th of December 2015 from http://www.cruisecritic.com/articles. cfm?ID=1839. Feiser, E., & Gayol, R. (2015, July 13). Tourism is Surging in Cuba. Retrieved 2nd
28
Volume 6, Number 1
of June 2016 from http://www.bloomberg.com/news/articles/2015-07-13/ tourism-is-surging-in-cuba. Frank, M. (2015, June 15). Cuba likely to end dual currency system-FT.com. Retrieved 21st of November 2015 from http://webcache.googleusercontent.com/ search?q=cache:WOO0M-s5CX4J:www.ft.com/cms/s/0/b34fd7b8-fb12-11e49aed-00144feab7de.html&cd=1&hl=en&ct=clnk&gl=us#axzz3u2HmBXzm. Friedman, G. (2015, April 8). In Miami, Lawyers Making More Trips to Cuba. Retrieved 21st of November 2015 from https://bol.bna.com/in-miami-lawyers-making-more-trips-to-cuba/. Helft, M. (2015, September 6). Why Airbnb Thinks Cuba Can Become A Case Study. Retrieved 7th of December 2015 from http://www.forbes.com/sites/ miguelhelft/2015/09/06/inside-airbnbs-cuba/. LeoGrande, W. M. (2005). The Cuban Economy (review). The Americas 61(3), 544-545. Cambridge University Press. Retrieved November 25, 2015, from Project MUSE database. McQuigge, M. (2014, December 17). U.S.-Cuba thaw means holiday is over for Canadian tourists. Retrieved 2nd of June 2016 from https://www.thestar. com/news/canada/2014/12/17/uscuba_thaw_means_holiday_is_over_for_ canadian_tourists_experts_say.html. Miller, M. M., Henthorne, T. L., & George, B. P. (2008). The competitiveness of the Cuban tourism industry in the twenty-first century: a strategic re-evaluation. Journal of Travel Research, 46(3), 268-278. Money. (2015). Retrieved 21st of November 2015 from http://www.frommers. com/destinations/cuba/777910. Nayeri, K., & López-Pardo, C. M. (2005). Economic crisis and access to care: Cuba’s health care system since the collapse of the Soviet Union. International Journal of Health Services, 35(4), 797-816. Obama: U.S. and Cuba will resume diplomatic relations, open embassies. (2015, July 1). Retrieved 11th of November 2015 from http://www.cbsnews.com/ news/obama-us-cuba-will-resume-diplomatic-relations-open-embassies/. Oficina Nacional de Estadística e Información de Cuba. (2014). Turismo. Retrieved 2nd of June 2016 from http://www.one.cu. Ossowski, Y. (2014, January 14). One Million Canadians to Cuba Every Year. Retrieved 2nd of June from https://panampost.com/yael-ossowski/2014/01/14/one-million-canadians-cuba-every-year-us-citizens/. Roberts, L. D. (2003). Beyond Notions of Diplomacy and Legalism: Building a Just Mechanism for WTO Dispute Resolution. American Business Law Journal, 40(3), 511-562. Sloan, G. (2015, July 7). Cruise giant Carnival Corp. to launch sailings to Cuba. Retrieved 7th of December 2015 from http://www.usatoday.com/story/ cruiselog/2015/07/07/carnival-cruise-fathom-cuba/29805319/. The Bay of Pigs. (n.d.). Retrieved 11th of November 2015 from http://www.jfklibrary.org/JFK/JFK-in-History/The-Bay-of-Pigs.aspx. Thomas, J. H., Kitterlin-Lynch, M., & Lorenzo Del Valle, D. (2015). Cuba’s Future Hospitality and Tourism Business: Opportunities and Obstacles. Cornell Hospitality Reports, 15(11), 6-16. U.S., Cuba Announce Embassy Openings. (2015, July 1). Retrieved 7th of December 2015 from http://www.huffingtonpost.com/2015/07/01/us-cubaembassy_n_7704638.html. U.S. Department of the Treasury. (2015). Cuba Sanctions. Retrieved 26th of October 2015 from https://www.treasury.gov/resource-center/sanctions/ Programs/Pages/cuba.aspx.
Journal of Hospitality & Tourism Cases
29
teaching note American Tourist Travel to Cuba: A Case Study
Summary The U.S. and Cuba have had a tumultuous relationship which has lasted for over five decades. Diplomatic ties between both countries
topics which can be analyzed from many different angles in a variety of courses. This case may be used as an example for developing strategies and providing insight to tourists and international businesses seeking to
were severed and a full economic embargo was imposed on Febru-
travel or conduct business in countries facing similar problems.
ary 7, 1962. However, in December 2014, both countries have finally
The recommended approaches for use of this case by audience are
agreed to efforts that would eventually normalize relations. Even
listed below:
though the economic embargo has not yet been lifted, embassies
Undergraduate Students:
in both countries have been re-established on July 20, 2015. Recent
Students should be encouraged to read the case and absorb the
efforts are being made to bridge the gap between the two countries
material/information prior to class. Students are expected to provide
which will result in a spike of American tourist travel to Cuba. However,
answers to discussion questions through a written report, oral presen-
potential travelers and businesses interested in Cuba must be aware of
tation, and/or an essay item(s) on an exam.
the numerous pitfalls and challenges that exist throughout the island,
Graduate Students (and Industry Professionals):
which are highlighted in this case.
Teaching Objective It is important that students understand historical relations between the U.S. and Cuba prior to discussing the current state of affairs and addressing potential tourism problems an American tourist or business may encounter. A deeper understanding may be promoted through the reflection of historical events. The purpose of this case study is to provoke thought and discussion, and enhance critical thinking and problem-solving skills. It offers students an opportunity
Students should be encouraged to read the case and absorb the material/information prior to class. Discussion questions may be utilized to promote class discussion and may also be included as an essay item(s) on an exam. In addition, graduate students are expected to conduct research and be able to propose a tourism strategy and/or business plan. This case can easily expand into a full research project. Graduate students and industry professionals are expected to be able to analyze, evaluate, and put into practice what was learned through research proceedings. Studying previous experiences in such places as
to explore current tourism industry issues in Cuba, issues that may
China and Vietnam will be instructive.
result if and when the U.S. travel embargo is fully lifted, and develop a
Suggested Assignments
strategy to overcome those issues. By reviewing this case, students are expected to: •
Apply what has been learned in various hospitality and tourism management courses to business dealings in a country (Cuba) which has no history or logistical support of high quality hospitality and tourism operations.
•
Analyze challenges pertaining to both American tourists and companies looking to conduct business in Cuba.
•
Develop a strategy/business plan to overcome challenges and improve the overall quality of hospitality and tourism in Cuba.
Suitability for Use
For each of the following hospitality and tourism courses, students are expected to perform tasks individually and/or in groups: Strategic Tourism Planning & Management Courses •
strategies. •
Develop a clear tourism strategy (for Cuba).
•
Develop an understanding of international travel to an exotic destination.
•
in this case are not exclusive to Cuba; this case incorporates an array of
30
Understand and discuss the importance of sanitation and public regulations in tourism.
•
Examine the ways in which cultural and heritage assets can become viable tourism attractions and contributions to com-
This case is designed to be used in various courses to explore various challenges that impact the tourism industry. The topics highlighted
Understand and discuss the importance of developing visitor attractions and the primary issues involved in their management.
•
case is also suited for hospitality and tourism industry professionals.
Teaching Approach
Develop an understanding of economic impact on a destination and its various tourism sectors.
•
This case is suited for use by undergraduate and graduate students enrolled in hospitality and tourism management courses. This
Discuss the benefits/drawbacks of pursuing multiple tourism
munity development. •
Recognize the importance of historical events and how they influence current issues and trends.
Volume 6, Number 1
•
Effectively forecast the future which will ensure long-term prosperity for the business.
• •
Discussion Questions 1.
Understand and discuss the significance of sex tourism and its
be your strategy for targeting American tourists?
economic and social impact on travel/tourism (destination).
2.
How would you market your business to American tourists?
Consider the environmental effects of increased tourism and
3.
According to trends, what problems may develop if the travel
prepare suitable management plans •
Apply climate change predictions to hospitality and tourism
embargo is lifted? 4.
facilities and formulate appropriate management solutions. Organizational Behavior Courses • •
•
be directly or indirectly influenced by workplace behaviors.
6.
As an American tourist, how can you prepare for a trip to Cuba?
Discuss how to successfully manage employees that are con-
7.
If the opportunity to travel to Cuba arises, would you want to visit? Why or why not?
Explain organizational and individual sources of resistance to
8.
Discuss the relationship between motivation and employee
9.
performance.
10. In what ways could the Cuban black market be counteracted?
Develop a plan to effectively motivate state-controlled employ-
11. How would you improve employee satisfaction among hospi-
Foodservice Courses Understand and discuss the importance of sanitation and pub-
•
Understand and discuss the importance of customer service.
•
Learn to overcome customer-employee related management challenges.
12. How would you fine tune quality and service? 13. Provide examples of previous dispute resolution cases involving Cuba.
serving food.
Thailand?
Understand and discuss the importance of sanitation and pubUnderstand the impact of supply deficit and logistical difficulties on operations.
•
Review risk/crisis management practices that should be in place.
•
Survey the limitations in transportation infrastructure for people and products and provide workable solutions.
•
embargo is lifted? How will sex tourism industry be affected? 15. Cuba is a leading sex tourism destination- What can we learn from other prominent markets such as the Netherlands and
lic regulations in lodging and tourism facilities. •
14. Do you think sex tourism will increase/decrease if the travel
Develop a training plan for safely acquiring, preparing and
Operations Management Courses •
Discuss the improvements required to improve communica-
Potential Answers to Discussion Questions Note: These questions are meant to be thought-provoking; the brief answers provided are one of many potential answers. 1.
Hospitality Law Courses •
Understand the primary role of dispute resolution.
•
Discuss the significance of credible business-consumer dispute
which was once off-limits. A trip to Cuba offers the chance to be a part of history. 2.
Review related cases involving disputes between businesses
American tourist. 3.
Propose improved solutions for responses to consumer complaints about services or facilities.
in sickness due to poor sanitation practices on the island, and an increase in crime. 4.
Some benefits to the US could be a positive economic impact and the creation of more jobs; drawbacks could include potential overcrowding and longer wait times at cruise terminals and airports.
5.
All-inclusive packages would appeal to the American tourist traveling to Cuba.
6. Journal of Hospitality & Tourism Cases
Potential problems that may develop as a result of lifting the embargo are overcrowding at airports/cruise terminals, an increase
operating in Cuba. •
A business could be marketed to American tourists by highlighting special discounts and travel packages exclusive to the
resolution and the options available for satisfactory dispute mechanisms.
American tourists would be offered the opportunity to experience a trip of a lifetime by being allowed to visit a country
tions to world class standards.
•
Do you think Americans would prefer a cruise to Cuba over flying?
tality employees?
lic regulations in foodservice.
•
Why would an American tourist choose to travel to Cuba over another Caribbean destination?
ees and control work output. •
What types of tour packages / shore excursions would appeal to the American tourist?
Understand and discuss how organizational effectiveness can
change. •
What are the benefits to the U.S. if the travel embargo is lifted? What are the drawbacks?
5.
trolled by the state (Cuba). •
If you open/manage a hospitality business in Cuba, what would
Before traveling to Cuba, research should be done so the trav31
eler knows what to expect. It is imperative that all documents such as passports are valid and valuables are left at home. The American tourist should understand that Cuba does not offer most luxuries found in the States. 7.
If the opportunity arose, I would want to travel to Cuba because it has been a restricted destination for so long.
8.
Americans may want to travel to Cuba because they haven’t been able to for quite some time. Also, Cuba has old-world charm that may appeal to the American tourist.
9.
A cruise may be preferred by American tourists because they can still enjoy modern luxuries of the ship that they may not be able to get on the island.
10. By lifting the embargo, the black market may be counter-acted because of the increase in American tourists who are willing to spend money and contribute to the overall Cuban economy. However, the black market may thrive on the influx of American tourists. 11. Employee satisfaction can be improved by boosting overall morale; employee’s opinions and suggestions should be taken into consideration. 12. Quality and service could be fine-tuned by improving employee satisfaction and following other business models of successful companies. 13. Dispute resolution is not a common practice in Cuba; this will be an area to monitor as relations between the US and Cuba strengthen. 14. Sex tourism may decrease as a result of tighter restrictions and harsh punishments for those caught engaging in such acts. 15. American tourists need to be properly educated on the harsh realities of the sex trade and human trafficking.
Suggested Research Topics •
Examine private foreign companies currently conducting business in China/Vietnam (foreign companies conducting business in China and Vietnam face similar challenges as those
Additional Reading for Students: Anders et al. (1999). Sun, sex, and gold: Tourism and sex work in the Caribbean. Rowman & Littlefield Publishers. Blight, J. G. (1998). Bay of Pigs Declassified: The Secret CIA Report. P. Kornbluh (Ed.). New Press. Carney, C. V. (2010). Looking into the Future: Training Management Students to Do Business in Cuba. Global Business Languages, 3(1), 5. Casey, L. (2011). Still the” Ashes of the Old”: Human and Labor Rights in Castro’s Cuba. Dissent, 58(1), 23-26. Clancy, M. (2002). The globalization of sex tourism and Cuba: A commodity chains approach. Studies in Comparative International Development, 36(4), 63-88. Dickerson, T. A. (2013). Cruise Passenger’s Rights and Remedies 2014: The COSTA CONCORDIA Disaster: One Year Later, Many More Incidents Both on Board Megaships and during Risky Show Excursions, The. Tul. Mar. LJ, 38, 515. Domínguez, J. I. (1997), U.S.-Cuban Relations: From the Cold War to the Colder War. Journal of Interamerican Studies and World Affairs, 39: 49–75. Golden, F. (2015, September 1). Cruising to Cuba: Lines that will get you there. Retrieved from http://experience.usatoday.com/cruise/story/best-of-cruising/2015/09/01/cruising-cuba-lines-get-you-there/71537298/. Gough, J. (2010). Workers’ strategies to secure jobs, their uses of scale, and competing economic moralities: Rethinking the ‘geography of justice’. Political Geography, 29(3), 130-139. Hingtgen, N., Kline, C., Fernandes, L., & McGehee, N. G. (2015). Cuba in transition: Tourism industry perceptions of entrepreneurial change. Tourism Management, 50, 184-193. Khrushchev, S., Henthorne, T. L., & Latour, M. S. (2007). Cuba at the Crossroads: The Role of the US Hospitality Industry in Cuban Tourism Initiatives. Cornell Hotel and Restaurant Administration Quarterly, 48(4), 402-415. Linz, S. J., & Semykina, A. (2012). What makes workers happy? Anticipated rewards and job satisfaction. Industrial Relations: A Journal of Economy and Society, 51(4), 811-844. Simoni, V. (2013). Revisiting hosts and guests: Ethnographic insights on touristic encounters from Cuba. Journal of Tourism Challenges and Trends, (6.2), 39-61. Suárez, J. A., Beatón, P. A., Escalona, R. F., & Montero, O. P. (2012). Energy, environment and development in Cuba. Renewable and Sustainable Energy Reviews, 16(5), 2724-2731. Vertovec, John, “Street Hustling, Wanderlust and Two Currencies: Contemporary Transitions Within Cuban Socialism” (2012). Undergraduate Honors Theses. Paper 314.
conducting business in Cuba). •
What is the impact that the cruise industry will have on Cuban tourism? Provide an analysis of similarities with the burgeoning cruise industry in China and Southeast Asia.
•
Sex Tourism – public health and safety challenges; compare with other similar countries
•
32
Environmental protection issues – regulation and enforcement
Volume 6, Number 1
case study Event Management: Using a Servant Leadership Model By Rebekah E. Sheets and Robert M. O’Halloran
Introduction In his book, Managing Employees Attitudes and Behaviors in the Tourism and Hospitality Industry, Kusluvan (2003) states that researchers have theorized that the concept of leadership is continuing to evolve. Therefore, the definitions of leadership must also evolve. The context of leadership is constantly changing because it is contingent on situations and the people involved (Kusluvan, 2003). While a leadership action is successful in one situation, the same concept or model of leadership may be ineffective if used in a different context with different people. Variances in results are illustrated in a definition of leadership: the “interaction among members of a group that initiates and maintains improved expectations and the competence of the
However, other leaders have chosen models, which focus on supervision and strict adherence to the rules and regulations. These leaders believe that their employees will be successful at their jobs only if the company procedures are followed precisely (Mind Tools, 2015). Another leadership model, called transactional leadership, focuses on reward for performance. These leaders evaluate their employees based on their performances and reward them based on predetermined goals. In this model, the leader views the tasks to be performed as transactions between leader and employee. Rewards, such as wages and benefits, are a fair price for completing the tasks. Transactional leadership is considered as the subordinates’ rewards through their efforts and performance. Not all leaders choose to implement these models. Some lead-
group to solve problems or to attain goals” (Bass & Stogdill, 1990:20). This definition eliminates situational differences and focuses on inter-
ers chose to lead by motivating and inspiring their followers to enact
action between people.
positive change. This model is defined as transformational leader-
Leadership Defined As previously noted, the concept of leadership in the hospital-
ship because leaders who use this model cast a vision for the future thereby motivating the employees to aspire to reach their goals (Mind Tools, 2015). Transformational leadership theory is deemed to improve
ity industry is continuing to evolve, as the industry’s needs change.
the subordinate’s performance by changing the motives and values
From Mahatma Gandhi and Winston Churchill, to Martin Luther King
of employees. Transformational leadership has the characteristics of
and Steve Jobs, there can be as many ways to lead people as there are
individual influence, spiritual encouragement and intellectual stimula-
leaders (Mind Tools, 2015). Effective leadership style is also necessary
tion. By communicating the goals and expectations, the leader holds
to reduce the attrition rate (Nanjundeswaraswmy & Swamy, 2014).
himself and the employees accountable to each do their best to ac-
Some note that leadership is a social influence process in which the
complish the company’s goals. (MindTools, 2015 and Enotes, 2016).
leader seeks the voluntary participation of subordinates in an effort to reach organization goals. One hundred years ago, the popular leadership model had a monarchial framework with one leader at the top (Brownell, 2010). This leadership model adopts an autocratic approach to decision making.
Kurt Lewin developed a framework for leadership styles in the 1930’s. These leadership styles included authoritarian, democratic and laissez-faire. These classical leadership styles, as noted above vary in the degree of control that they give their followers (Enotes, 2016). •
Instead of encouraging or even allowing others to contribute their
without any input from their employees or staff and expect
opinions or ideas, the autocratic leader insists on having total authority and making all decisions alone (Johnson, 2015). Others, in order to
Authoritarian leadership is characterized as domineering employees to comply with their decisions (Enotes, 2016).
•
Democratic leadership focuses more on collective decision-
avoid becoming an autocratic leader, have chosen the Laissez-Faire style
making, i.e. involvement offering employees choices and
of leadership that gives little to no direction to the subordinates. These
support (Enotes, 2016).
leaders expect the team to figure out how to accomplish their tasks with
•
Laissez-faire leadership is characterized as uninvolved and in
minimal supervision and feedback. Some suggest that high tech indus-
some cases is described as an absence of leadership style. This
tries that focus on creative behavior embrace the laissez-faire model.
style of leadership denotes providing support and presumes that workers are capable and reliable and will do their jobs
Rebekah E. Sheets and Robert M. O’Halloranare both affiliated with East Carolina University.
Journal of Hospitality & Tourism Cases
(Enotes, 2016).
33
Part of the discussion of leadership styles is the ability of the leader to know what style of leadership to use in different situations.
personality and motivational structure (Fiedler & Mahar, 1979). While each of these leadership models may be the right fit for a
For example, research on this premise was conducted in 1964 and de-
specific situation, today’s hospitality industry requires something more
veloped the Blake-Mouton Managerial Grid, which highlights concern
from its leaders. The Management Research Group (1987) identified
for people and concern for tasks and production (Blake and Mouton,
leadership functions as management focus, production concern, peo-
1964). In addition to the leadership styles noted above, Goleman et
ple concern, excitement, and restraint (Management Research Group,
al (2002) noted six emotional leadership styles. These styles include
1987). Instead of dictating orders or even inspiring people to change,
visionary, coaching, affinitive, democratic, pacesetting, and com-
hospitality leaders need to set an example of service for their employ-
manding (MindTools, 2016). Additionally, others refer to charismatic
ees (Brownell, 2010). LaBier (2015) references a study by S. J. Wayne on
leadership, human oriented leadership, and task oriented leadership.
servant leadership when he quotes “the best business leadership style
Charismatic leadership and human oriented leadership are related to
is far from, ‘Do this. Don’t do that.’ A servant leader looks and sounds
communication style (deVries et al, 2009).
a lot more like, ‘Is there anything I can do to help you?’ Or ‘Let me help
Spinelli (2006) noted, for the healthcare field, that a new type of leadership will be needed. The argument here is that hospitality and
you’…this approach helps employees reach their full potential”. Additionally, it is important to understand that people need to be
tourism requires new styles of leadership to face the new issues and
treated with mutual respect and care for others, as they would like to have
challenges of the service industries. In addition, there are multiple
others care for them. Sometimes referring to the “golden rule”, do unto
studies across industries that look at the use of leadership styles and
others, as you would have them do unto you, a leader must treat his or
even destructive or what may be referred to as tyrannical or abusive
her employees and customers with the same respect and consideration
leadership (Skogstad et al, 2014). There is a need for training in emo-
as they would want to receive. This leadership model may be as simple as
tional competencies for emotional leadership and success for manager
talking directly with employees and actively listening to their concerns.
roles. Muller and Turner (2005) have reviewed the literature on leader-
Small actions by a leader can go a long way to showing respect and con-
ship and have identified six schools of thought. The six schools are
sideration for others. The success of this style of leadership focuses on the
Trait, Behavior, Contingency, Visionary, Emotional intelligence, and
culture of an organization and the tone being set at the top.
Competency (Rodney et al, 2009). Effective leaders are differentiated from other leaders through the exercise of a relatively small range of skill or competencies areas. In ad-
Leadership and Communication Bass & Stogdill, (1990) defined leadership, as not commanding
dition, effective leadership requires being yourself with skill. Dulewicz
or dictating, but as mutual communication between the people in
and Higgs (2004, 2005) identified three different leader styles, which
the group. An article shared in a college publication, from the Broad
they called goal oriented, involving and engaging.
College of Business at Michigan State University, states that com-
• •
•
Goal oriented leadership is a style that is focused on delivering
munication is the most important quality a leader must have to be
results within a relatively stable context.
successful. While other qualities are significant, communication is vital
Involving leadership is a style that is based on a transitional
to the company because the leadership team must be able to com-
organization, which faces significant changes in its business
municate to their employees, customers and each other in order to be
model, and
successful (Broad, 2015). Without a well-defined communication pro-
Emerging leadership is based on a high level of empowerment
cess, a leader cannot listen to the needs and desires of employees and
and involvement in a highly transformational context. The fo-
customers and the business could suffer. Event managers for example,
cus here is to produce radical change (Rodney et al, 2009).
must be able to actively listen and communicate to be effective.
One model, the leader match concept is based on a contingency
In an article on effective listening for leaders, Glenn Llopis states
model. This postulates that the effectiveness of a leader depends upon
that actively listening “goes well beyond being quiet and giving some-
the correct match between the leader’s motivational structure (task
one your full attention. It requires [the leader] to be aware of body
or interrelationships) and situation control (Fielder and Mahar, 1979).
language, facial expressions, mood, and natural behavioral tendencies”
The theory focuses heavily upon the personality of leaders in differ-
(Llopis, 2013). It is also a good idea to take notes while listening to upset
ent situations. The premise is that your effectiveness as a manager will
attendees or employees. It is essential to establish an atmosphere of
depend on how well your individual personality and leadership style
trust and openness in order to clear up miscommunication and find a
fit the requirements of your leadership situation (Fiedler & Chemers,
successful resolution to the problem. As an event manager, commu-
1976). The contingency model suggests that it is considerably easier
nication happens months before the day of the event and afterwards.
for a leader to modify the leadership situation than to change his/her
Clear communication will help ensure the contractors set up the equip-
34
Volume 6, Number 1
ment in the right place, the tickets sold to the attendees at the right rate,
them; instead, they empower their employees to seek out ways they
and the vendors and speakers show up to the event at the right time.
can serve their customers. If a manager is exemplifying servant leader-
A practical example of servant leadership took place at a Ser-
ship through doing simple but important things like opening doors,
viceMaster board meeting where the CEO, William Pollard, spilled a
carrying luggage or mixing a cocktail, they will inspire their employees
cup of coffee just before the board meeting started. Instead of calling
to work hard and stay committed to a shared vision of their business.
for someone to clean up the spill, he asked for a cleaning solution
For example, a number of lodging organizations have started programs
and a cloth. Getting down on his hands and knees, he cleaned up the
where executives have participated with employees at their hourly posi-
spill himself without hesitating. He could have easily justified calling
tions. A leader, by showing that they are not above carrying luggage or
someone to clean up the spill by saying that he was too busy because
checking in a guest, communicates to employees that all employees,
he needed to be starting the board meeting, or that he needed to be
management and staff compose a team that works together.
discussing changes with his upper level leadership. Instead, his leader-
Leaders can also serve their employees by striving to place each
ship style humbled himself and cleaned up the spill without ceremony
employee in a position where they can use their gifts and talents to their
or reluctance (Heskett, 2013). The CEO set the example of servant lead-
fullest capability. When employees feel valued and understood for who
ership by openly showing that no menial task was beneath anyone,
they are and the value they bring to a company, they are motivated to
even the CEO of the company. Servant leadership means that a leader
work with excellence (Trompenaars & Voerman, 2009). Therefore, serv-
genuinely cares for his/her employees and that they are willing to do
ing the employees actually means serving the customers of a company,
any task to benefit the company. This operating framework will result
which in turn creates profit and makes a company successful. This case
in admiration and respect that manifests itself through commitment,
study focuses on Servant Leadership as a choice for leaders as compared
loyalty and excellence exhibited by the employees.
and/ or combined with various other styles of leadership.
A leader’s humility and servant leadership qualities will become a role model of how the employees should act and together they will create a culture of servant leadership in the business (LaBier, 2015). Humility is a huge part of servant leadership. If a leader makes an effort to serve his/ her employees, they will begin to develop a similar attitude of service and humility when serving customers. Humility does not imply meekness or that the person is a pushover. In fact, it is quite the opposite. It takes great strength of character and will to choose to be humble and put the needs of a company above fighting for self-recognition or acclaim. In his book, Good to Great (2001), Jim Collins talks about a type of leader that is humble and puts the needs of the company and its employees above him or herself. He states, “these leaders channel their ego away from themselves and into the larger goal of building a great company…. it’s not that [these] leaders have no ego or self-interest. Indeed, they are incredibly ambitious – but their ambition is first and foremost for the institution, not themselves” (Collins, 2001:21). This attitude shift to humility and servant leadership puts the needs of the employees and the company as a whole before the leader’s own ambitions. Leaders
Servant Leadership An example of a leader who displayed servant leadership traits is David Maxwell, former CEO of Fannie Mae. When Maxwell retired from Fannie Mae, his retirement package became a topic of dispute in the United States Congress because Fannie Mae is a government-chartered company and yet Maxwell’s retirement package was valued at $20 million dollars. Maxwell thought that the publicity and controversy over this issue could have a negative effect on the company as a whole and could possibly hurt their company image resulting in a loss of revenue in the future. Based on his thinking, instead of demanding the remaining 5.5 million dollars owed to him, he asked the new CEO to turn the money over to a charity run by the company. Arguably, David Maxwell chose what was best for the company, and subsequently the employees that worked there, over his own needs and ambitions (Collins, 2001:21). This type of leader wants the company to be healthy and successful whether they benefit from the company’s success or not. The mindset of service and putting the company before one’s
who embody servant leadership serve their employees and customers
personal needs will permeate throughout the culture of a company
by setting the example of service and humility.
and change the way a company operates. A business that truly serves
The idea of servant leadership has been around for centuries. However, the hospitality industry is just starting to embrace this style of leadership. Servant leadership can be a valuable leadership style in any situation, but in the hospitality industry, it is the optimum leadership model. The hospitality industry is focused on service and therefore, a manager who exemplifies service through their leadership will be more effective in creating a service-centered restaurant or hotel (Brownell, 2010). A servant leader does not seek to control the employees under
Journal of Hospitality & Tourism Cases
each other and its customers will be attractive to customers, especially in the hospitality industry. The service culture among leadership and employees will set a hotel or restaurant apart from its competitors as a true example of customer service. People are constantly seeking out hospitality businesses that are committed to a high level of customer service and it is argued that the return on investment of servant leadership is much higher than any other form of leadership because it will produce a higher level of service.
35
True leadership in the hospitality industry is servant leadership. An
establishing a hierarchy of leadership during a crisis such as who will call
industry that is focused on providing customer service must have an
911, who will manage guest problems, and who ultimately will make
example of true service to emulate. Hospitality managers must emulate
decisions. Above all, it is crucial to communicate the contingency plan
servant leadership in order to inspire their employees to become servant
to all staff so that everyone knows their exact duties during a crisis. No
leaders so that together they can provide excellent customer service.
matter how well planned an event may be, there is always the chance of
Events Sector and Servant Leadership: Be Prepared While it is easy to understand how servant leadership can benefit a company and its leadership in theory, it is not always easy to put into action. In the event management industry, leaders have to juggle details of the event, the various stakeholders involved and their own event staff all under the pressure of the event schedule. It can be difficult to know how to set the example of servant leadership as the event manager while producing an event. Several ways that event managers can implement the servant leadership model are through their planning, communication, and response to problems. In the event management industry, the planning stage is arguably the most important part of an event. It is the time to create the design and layout of the event, calculate the staffing needs, assign tasks and create the event schedule. Without the planning stage, there would be miscommunication and confusion because no one would know what to do and when to do it. There are numerous sources for event planning checklists. These can be a starting point for a well-planned event. For example, the University of Washington has posted several checklists for event management: http://www.washington.edu/marketing/ events/planning-checklists/ (2015). Additionally, WildApricot.com (2015) is another source for event planning timeline structure (http:// www.wildapricot.com/articles/eg-event-checklist.). It is imperative to plan, but it is even more important to have a contingency plan. No one plans to have a crisis at their hotel or event, but a good leader knows that accidents, technical failures, and more crises e.g. terrorist attacks, and natural disasters happen and so they plan for them. Crisis management is “an organization’s pre-established activities and guidelines for preparing and responding to significant catastrophic events or incidents in a safe and effective manner” (Lockwood, 2005:2). In business, several criteria generally define a crisis. The first characteristic is potential for injury to guests or staff and the second is damage to company assets. The third is how fast events are occurring and the fourth, how fast decisions have to be made (Brewton, 1987). Leaders
something going wrong. Good event managers prepare a contingency plan. However, it will not matter how prepared the event manager is for the event itself and for the contingency plan if there has been clear communication to the event staff and attendees. Communication, planning and crisis preparation are key skills for a leader. It may also be tempting, as the leader of the event staff, to redirect blame to the staff of the area that failed. For instance, an employee forgets to reserve special seating for VIP guests or fails to place guides along the hall to the breakdown session so hundreds of people are wandering around the hallway outside of the arena. Redirecting the blame to the employees would cause the stakeholders to see who actually caused the problem as the failures instead of the event leadership. If blame fell on the leader, it could jeopardize their personal reputation and make them look like an ineffective event manager. Servant leaders take a different approach to mistakes and failures. Instead of deflecting blame onto employees, servant leaders take the full force of the blame on themselves. They know that they were not personally at fault, but as the team leader, they accept the responsibility to come alongside the staff to correct the error and compensate the guests for the inconvenience. They also take the responsibility because if the mistake occurred due to lack of training, the leader knows it is their responsibility to train and equip their staff. Servant leaders do not stop to wonder if taking responsibility for their staff will hurt their personal reputation, they care more about serving their employees and protecting the company’s reputation. They also use the mistake as a way to teach their employees and encourage their staff to reflect on how they could have handled the situation differently. In a model event staff, no one is demoted or reprimanded for their mistakes; employees have the opportunity to learn, which allows them to grow to be better leaders in their areas of the event. The servant leadership method focuses on developing others to become leaders while setting the example of service for the employees and the attendees of the event.
Leadership Dilemma As an example of example of servant leadership in an event com-
must be prepared for crisis ahead of time because in the chaos of a
pany, Scott Williams, the Event Manager for a leadership conference for
crisis, people will look to the leader for direction. Preparing a crisis man-
students, recently hired a new Arena Manager named Tonya. The Stu-
agement plan includes planning procedures and delegating who will
dent Leadership conference is a two-day event starting on Friday night
be in charge of each area of the event. A precise hierarchy is established
at 6pm and ending the next day at 9pm. More than 2,000 people attend
ahead of time in order to avoid confusion and delay.
the general sessions with 300-500 people attending the six breakout
A crisis plan needs to be specific and identify who is involved, what they should do and how they will get the job done. This also includes
36
sessions that occur during the event. Tonya, the new event manager, had the responsibility for overseeing arena volunteers, seating issues
Volume 6, Number 1
and distribution of materials to attendees during the event. Prior to
things as the guest speaker was calling for the survey cards: 1) the
flying out for the North East Regional Student Leadership conference
cards were placed in buckets, 2) there were no volunteers located in
in Amherst, MA, Tonya went through extensive training. Her training
the front sections and 3) Williams saw that the attendees in the front
included customer service simulations practice runs of the event during
three sections were getting upset. Knowing how important the survey
pre-production, and in-class training on managing volunteers, and on-
was for the speaker’s message, he pondered what he needed to do to
the-job training shadowing an upper level manager. A good source for
correct the situation.
training material for event volunteers is How to Produce Fabulous Fund-
He looked for Tonya and found her standing in the middle of the
raising Events (1999). This book focuses on the importance of volunteers
arena, unable to determine what she should do next. You are working
and how to effectively communicate and inspire volunteers to create a
with Mr. Williams and he asks you to quickly provide input on this situ-
successful event (Stallings & McMillion, 2004).
ation and then create recommendations for correction and prevention
Mr. Williams personally signed off on her management training and approved Tonya for the Student Leadership conference in Amherst, MA, at the Mullins Center Coliseum. This is Tonya’s first event as a manager, and she was feeling the pressure. Some logistical factors compounded this pressure such as the ticket office over selling the forecasted number of seats. The revised attendance estimate was over 3,000 attendees, more than 500 than originally forecasted. Prior to the event, Mr. Williams instructed Tonya to distribute survey cards in buckets already placed in each section of the arena. The cards were to be distributed by volunteers at a specific point in the program when the guest speaker requested they be distributed to attendees. The guest speaker requested the cards withheld until needed so that no one filled out the survey before listening to the session. After placing sufficient cards for each seating section, she then positioned the buckets for easy access for the volunteer in each section. When the local volunteers for the event arrived for training, she carefully went over exactly when to pass out the survey cards and how to pass out and collect the cards in an efficient manner as instructed during training. The volunteers appeared to grasp the task and Tonya quickly assigned the volunteers to sections before the doors opened for the attendees. Tonya’s first event seemed to be going smoothly. The first two hours of the event went as planned. Then in the second session, the guest speaker called for the volunteers in each section to pass the survey cards out to each attendee. As she looked around the arena, Tonya could see her volunteers passing out cards just as she had instructed them to do. However, to her dismay, when she looked on the floor level of the arena, she did not see any volunteers at all. While the volunteers on the second and third levels were busy passing out cards, the sections right in front of the guest speaker were not receiving any cards. The attendees in the front sections began to look around for survey cards and the guest speaker is even starting to notice that whole sections of attendees were not receiving survey cards. Mr. Williams was standing in the back of the arena to oversee the session to make sure that everything went according to plan. Additionally, he is also watching how his new manager had communicated to the volunteers and how she handled the distribution of materials. From his vantage point in the back of the Arena, he noticed several
Journal of Hospitality & Tourism Cases
of this issue.
References Bass, B. M., & Stogdill, R. M. (1990). Bass & Stogdill’s Handbook of Leadership: Theory, Research, and Managerial Applications. New York, New York, USA: The Free Press. Blake, R.S. and Mouton, T.S. (1964). The Managerial Grid, Houston, Texas, Gulf Publishing Company,1964, 160. Brewton, C. (1987). Managing a crisis: A model for the lodging industry, Cornell Hotel, Restaurant Administration Quarterly, p. 10 -13. Brownell, J. (2010, May 21). Leadership in the Service of Hospitality, Cornell Hospitality Quarterly: http://cqx.sagepub.com/content/51/3/363.abstract. [Accessed the 4th of September 2015]. Broad College of Business, Michigan State University (2015). Leadership Challenges of Hospitality Management, University Alliance: http://www. michiganstateuniversityonline.com/resources/hospitality/leadership-challenges-of-hospitality-management/#.Ven2Isb-9FI, [Accessed September 4, 2015]. Collins, J. (2001). Good to Great. New York, New York: HarperCollins Publishers. de Vries, R., Bakker-Peiper A. and Ostenveld, W. (2009). Leadership= Communication? The relations of leaders’ Communication styles with Leadership Styles, Knowledge sharing and Leadership Outcomes, Journal of Business Phycology (2010) 25: 367-380, DOI 10.1007/s10869-009-9140-2, [Accessed 7-22-16]. Dulewicz, V. and Higgs, M. (2005), “Assessing leadership styles and organisational context”, Journal of Managerial Psychology, 20 (1) 105-23. Dulewicz, V. and Higgs, M. (2004), A new approach to assessing leadership dimensions, styles & context, Competency & Emotional Intelligence Quarterly, Winter. Enotes, (2016). http://enotes.com/research-starters/authoritarian -democraticlaissez-faire, [Accessed 7-22-2016]. Fiedler, F.E. and Chemers, M.M. (1976). Improving Leadership Effectiveness: The Leader Match Concept, New York: John Wiley and Sons Inc., 64. Fiedler, F.E. and Mahar, L., (1979). The Effectiveness of The Contingency Model Training: A Review of the Validation of Leader Match, Personnel Psychology, 32, 45-62. Goleman, D., Boyatzis, R. and McKee, A. (2002), The New Leaders, Harvard Business School Press, Boston, MA. Heskett, J. (2013, March 1). Why Isn’t ‘Servant Leadership’ More Prevalent? Harvard Business School. Higgs, M. (2003), “Developments in leadership thinking”, Leadership and Organization Development Journal, 24, 5, 273-84. Johnson, R. (2015). 5 Different types of leadership styles. Houston Chronicle Small Business: http://smallbusiness.chron.com/5-different-types-leadership-styles-17584.html [Accessed December 3, 2015]. Kusluvan, S. (2003). Managing Employees Attitudes and Behaviors in our
37
Tourism and Hospitality Industry, Hauppauge, New York, USA: Nova Science Publishers, Inc. LaBier, D. (2015, July 29). Leaders Who Serve Their Employees Have Greater Business Success: Here’s Why. Huffington Post: http://www.huffingtonpost. com/douglas-labier/leaders-who-serve-their-e_b_7887448.html , [Accessed November 2015]. Llopis, G. (2013, May 20). 6 Ways Effective Listening Can Make You A Better Leader, Forbes.com: http://www.forbes.com/sites/glennllopis/2013/05/20/6effective-ways-listening-can-make-you-a-better-leader/, [Accessed November 28, 2015]. Lockwood, S. G. (2005). Crisis management in today’s business environment, Society for Human Resource Management Research Quarterly, 2. Management Research Group (1987). Management Effectiveness Analysis: Facilitator’s Materials, Portland, Maine. Mind Tools. (2015). Leadership styles, https://www.mindtools.com/pages/article/newLDR_84.htm, [Accessed 7-22-2016]. Müller, R., & Turner, J. R. (2010). Attitudes and leadership competences for project success. Baltic Journal of Management, 5(3), 307-329. doi:http://dx.doi. org/10.1108/17465261011079730. Nanjundeswarasmy, TS, Swamy, D.R., (2014) Leadership Styles, Advances in Management, 7.2 (Feb), 57-62, http://search.proquest.com/ docview/1502695803?pq-origsite=summon [Accessed 7-22-16]. Rodney, T.J. Muller, R. and Dulewicz, V., (2009). International Journal of Managing Projects in Business, 2.2 198-216. http://search.proquest.com/ docview/232638723/fulltext/633F22E2C, Accessed 7-22-16. Skogstad, A., Schanke Aasland, M., Birkeland Nielsen, M., Einarsen, S (2014). Relative effects of constructive, laissez-faire, and tyrannical leadership on subordinate job satisfaction, Zeitschrift fr Psychologie; 222(4):221–232, DOI: 10.1027/2151-2604/a000189, [Accessed July 27, 2016]. Spinelli, R. (2006). The applicability of Bass’s model of transformational, transactional and laissez-faire leadership in the hospital administrative environment, Hospital Topics, Spring, 11-8, Proquest.com/printviewfile?accountid=10639, [Accessed 7-25-2016]. Stallings, B., & McMillion, D. (2004). How to Produce Fabulous Fundraising Events. Building Better Skills. Trompenaars, F., & Voerman, E. (2009). Servant Leadership Across Cultures, Oxford, United Kingdom: Infinite Ideas Limited. University of Washington. (2015). Planning checklists and templates. Retrieved from University of Washington, web site: http://www.washington.edu/marketing/events/planning-%20checklists/, [Accessed November 8, 2015]. Wild Apricot. (2015). Event Checklist, http://www.wildapricot.com/articles/egevent-checklist, [Accessed November 8, 2015].
38
Volume 6, Number 1
teaching note Event Management: Servant Leadership Model
Summary of the Case
•
Given that:
Tonya, the newly hired arena manager for a student leadership
• Tonya has been trained for this role
conference is working her first event as manager. Scott Williams, the
• She was given specific directions to keep a situation like
Event Manager who hired Tonya, has personally trained Tonya for her
the one above mentioned from happening.
responsibilities and instructed her on specific details for this event.
• Is there something that Mr. Williams could have done to
Tonya fails to communicate with her volunteers and then forgets to check to make sure the volunteers are in position. As a result, the guest speaker’s survey cards were not distributed to attendees in several
prevent mistakes like this from happening? •
Event Manager, must respond to the situation in order to appease the disgruntled attendees and continue to educate and train Tonya for future events. To frame this discussion, leadership can be thought of as the critical element that harnesses other resources for organizational and business success (Abomeh, 2013).
Class Goals •
Students will be able to define Servant Leadership, and how to apply it in their own careers.
•
• •
Given this example of servant leadership in the event sector, how can servant leadership be utilized at a hotel? A restaurant?
•
How could a supervisor or manager apply servant leadership to their job?
•
Do you believe servant leadership is applicable for all leadership positions?
Outcome of Leadership After quickly assessing the situation, Mr. Williams did not hesitate
ership and perhaps why a servant leadership model is the
pass out the survey cards himself. He knew that the most important
optimal model for the hospitality industry.
thing in that moment was to take care of the needs of the attendees and
Students will understand how important it is for leadership to
honor the wishes of the guest speaker. As Tonya saw Mr. Williams step
inspect and assess what they expect from their employees.
in to help, she also jumped to help pass out the survey cards in one of
Students will learn how important it is to “over” communicate
the other front sections. The example of servant leadership displayed
in order to avoid miscommunication.
by Scott Williams prompted Tonya to respond in servant leadership by
Students should be able to clearly define what it means to be a Students should be able to assess and respond to a situation using the servant leadership model.
Teaching Framework and Sequence of Discussion Questions It is important for leaders to equip employees to handle different types of situations so that they are prepared to handle the stress that comes during an event. However, it is the leader’s job to be prepared to step in when needed in order to ensure the success of the event. Servant leaders choose to lay aside their personal agendas to meet the needs of the organization. Some questions to prompt student discussion might include: •
•
to pick up the bucket in the front section closest to him and begin to
leader and specifically a servant leader. •
attendees?
Students will also understand and debate the models of lead-
Teaching Objectives •
How should Mr. Williams respond to the attendees that are now frustrated that they do not have survey cards like the rest of the
sections, leaving attendees confused and frustrated. Tonya struggled to determine how to repair the damage of her miscommunication. An
How should Mr. Williams respond to the new Arena Manager?
As the Event Manager, how should Scott Williams respond to this situation?
Journal of Hospitality & Tourism Cases
filling in where there was a need. Instead of shouting at Tonya to fix the problem or even pointing out her mistake, Mr. Williams simply served Tonya by helping where it was most needed, no matter how menial the task. Because of Mr. Williams’ example of grace and service to Tonya, she also served her absentee volunteers by reminding them of how important was for them to be in position when needed and thanking them for volunteering. After the event, during Tonya’s evaluation, Mr. Williams simply asked Tonya how she could have handled that situation differently and what she learned from that situation. By allowing Tonya the opportunity to reflect and apply what she learned, Mr. Williams was developing Tonya into a better leader. Tonya learned from her mistakes at the first event and applied Mr. Williams’ example of servant leadership to her own leadership model as an arena manager.
Framework for Classroom Use This is a simple case study example based on a student internship. The topic can be used as a catalyst to discuss leadership and planning for events. This case is recommended for a Meetings and
39
Table 1
Event Objectices and Goals Outline Spatial and Resource Planning
Human resources required
•
Likely demand based on historical information
Infrastructure: one stop all services
•
Transportation
•
Food and Beverage
•
Level of wealth
•
Other services
•
Interests
•
Sophistication in organizing events
Stakeholder Input
Nature of population
•
Members
•
Clients/ Families
•
Advantages over competitors
•
Event Organization
•
Geographic distribution
•
Infrastructure Components
•
Center based
Market research
Impact analysis
Market penetration
•
Segmentation
•
SWOT
•
Potential customers
•
Factors effecting interest in the area
•
Safety & health
•
Needs of guest relative to event
•
Food and beverage
Product Development
•
Fair share
•
Demand captured
Essential Services
•
Communications
•
Image
•
Comfort
•
Organization development
•
Information
•
Packages
•
Accessibility
•
Pricing
•
Setting/ site
•
Determine costs
•
Facilities
•
Revenue evaluation
Promotions
Pricing
•
Licensing
•
Impact Evaluation
•
Break even analysis
•
Regional Strategy
•
Cost recovery
•
Link event to allied services
Image Massaging
Criteria for a setting •
Site suitability
•
Create a need for additional services
•
Capacity
•
Push and pull factors
•
Security if necessary
•
Authenticity
•
Correct Negative Images
Concept Plan
40
•
•
Accessibility •
Traffic Control
•
On Site-Flow
•
Infrastructure requirements
•
Main location or Staging area
•
Financial resources needed
•
Theme
Volume 6, Number 1
Event Management course and could be used at the sophomore level or above. The case can also be used in a course that focuses on leadership. Some learning outcomes for a class could include: 1.
of their careers as managers and leaders.
Students can make recommendations on how the Event ManStudent should be able to identify what additional training and these errors. Instructors can use this case study to discuss how to train and manage volunteers at large events.
5.
These activities and questions will provide students an orientation to leadership styles and functions and assist in the development
follow-up with the new Arena Manager could have prevented 4.
ployees interact with guests?
discussing how they would respond as if they were the Event
ager could have prevented this situation. 3.
How does your reaction with guests affect the way your em-
Students should be able to produce a short response paper Manager, Scott Williams.
2.
•
Have students create leadership questions and create an assignment for them to identify leaders in the local community and interview a sample of those leaders.
Suggested List of Leadership Interview Questions •
What do you think it takes to become a leader?
•
In your business, who would you identify as a leader?
•
Have you always considered yourself a leader?
•
Did you develop into a leader through your job?
•
What type of leader would you consider yourself? Be prepared to give them choices, just in case
Finally, a classroom exercise focused on leadership self-assessment will assist student to better understand the leadership process. There are multiple instruments available for this process. For example, the Leadership Practices Inventory by Kouzes, Posner, and Biech (2010) is a tool used in some hospitality leadership curriculums. In this process students conduct a self-assessment that examines their performance based on: model the way, inspire a shared vision, challenge the process, enable others to act, and encourage the heart. Utilization of this or some other tool can assist students to understand their leadership styles.
References Abomeh, O.S. (2013). Assessment of leadership style among hospitality businesses in Abuja, Arabian Journal of Business and Management Review (Oman Chapter) 2.6, January, 43.56, http://search.proquest.com/ docview/1395288686?pq-origsite=summon. [Accessed 8-17-2016]. Kouzes, James M., Posner, Barry Z., and Biech, Elaine (2010, 2016). J-B Leadership Challenge: Kouzes/Posner: A Coach’s Guide to Developing Exemplary Leaders: Making the Most of The Leadership Challenge and the Leadership Practices Inventory (LPI) (1). Hoboken, US: Pfeiffer, 2010. ProQuest ebrary, http://site.ebrary.com/lib/eastcarolina/detail. action?docID=10395539. [Accessed Web. 17 August 2016].
•
What does the term Servant Leadership mean to you?
Additional Readings
•
Do you think Servant Leadership is an effective style of leader-
Business Pundit (2011). The economic impact of natural disasters. http://www. businesspundit.com/the-economic-impact-of-natural-disasters/ [Accessed the 24th of January 2014].
ship in the hospitality industry? •
What motivates your employees?
•
For young leaders, what advice would you give? Be sure to…, Has there ever been a time when “peer pressure” or other’s
Camilleri, M. (2014). Tourisms impact on economic development and competitiveness, http://drmarkcamilleri.com/2014/03/24/tourisms-impacton-economic- development-and-competitiveness/ [Accessed the 24th of March 2014].
point of view affected the way you led?
Dall, T. (2013). New Orleans officials say 2013 another booming year for tourism.
•
How should a leader balance work and home life?
•
What leadership skills have you learned/developed in the last
http://www.wwltv.com/news/city-Officials-Say-2013-Booming-Tourism-YearFor-New-Orleans-238190781.html, [Accessed the 24th of January 2014].
Be sure NOT to… •
five years? •
How do you define quality at your company?
•
What have you determined to be the most underestimated threat to success?
•
How do you deal with complaining/bitter employees?
•
Who are some of your leadership role models?
•
Are there any trends in the hospitality industry that are changing the way you lead your employees?
•
What characteristics make a good leader?
•
Who are some of your leadership role models? Why?
•
How do you handle conflict between employees/peers?
•
What are some qualities for leaders that are specific to the hos-
Day, D. (2000). Leadership development: A review in context. Leadership Quarterly, 11(4), 581-613. Mueller, A. (2011). Vacation destinations affected by natural disasters, http://www.investopedia.com/financial-edge/0511/vacation-destinationsaffected-by-natural-disasters.aspx, [Accessed the 24th of January]. Pudney, A. (2010). The economical impacts and aspects of the 2004 Indian Ocean tsunami on Indonesia, http://indianoceantsunami.web.unc.edu/the-economical-impactsand-aspects-of the-2004-indian-ocean-tsunmai-on-indonesia/, [Accessed March 25, 2014].
pitality industry? Journal of Hospitality & Tourism Cases
41
case study
Where Did Our Server Go? A Case of Service Failure in a College Hotel Restaurant By Christina H. Lesyk and Eric A. Brown
Introduction In an ideal world, hospitality businesses would take great care
Case Study Scenario Upstate College, a public, 4-year college located on the east coast of
to hire, train, and develop their employees and employees would be
the United States, offers a hospitality degree program. In 2014, thanks to a
equipped and motivated to deliver consistently flawless service. Yet all
successful capital campaign and a generous endowment from William ‘68
businesses must anticipate the eventual (and sometimes disastrous)
and Mary MacArthur ’69, the college constructed a medium-sized hotel
service failure. In fact, without a business first experiencing a service
and conference center on campus. The College’s vision was for this facility
failure, they have no opportunity to excel in service recovery.
to be self-sufficient within 10 years and to serve as a training ground for
Turnover and poorly trained workers are major concerns in the
hospitality students. The MacArthur Hotel and Conference Center (“ho-
hospitality industry. These factors contribute to the likelihood of ser-
tel”) had a “soft” opening during Fall Homecoming in October 2014 and its
vice failure in an industry whose “product” is service. For educational
grand opening in December, 2014. The facility held several small holiday
institutions whose primary focus is not hospitality, there may be addi-
luncheons and dinners in November and December, primarily for campus
tional challenges, including a unique source of workers. Colleges rely
departments. The first major conference was in January, 2015.
on student employees for many campus departments, including food-
This particular conference happened to be an annual hospitality
service facilities such as dining halls, pubs, and quick-service locations.
education conference attended by industry professionals, faculty, and
These facilities serve as a source of income for the college as well as a
students from around the world. The booking of this conference was
“laboratory” for hospitality students.
a coup for Upstate College. It was an honor to be chosen as the host
Some colleges may also operate conference centers and/or ho-
hotel, and Upstate’s hospitality students would have a prime opportu-
tels that incorporate foodservice operations, including full-service
nity to network with key industry representatives. The conference was
restaurants. Such a restaurant may serve campus constituencies (e.g.
also going to be the first major challenge for college and hotel staff. It
students, faculty) and nonaffiliated guests, including dignitaries and
was a large-scale, multi-day event with plenary sessions, workshops,
revenue-generating event attendees.
breaks, lodging, and meals (including a formal awards dinner) taking
This case study offers the opportunity to discuss several hospitality management issues for such a setting, including leadership, decisionmaking, employee motivation, and service failure and recovery.
Teaching Objectives By the end of this module, students should be able to: (1) rec-
place in the hotel. Staff would have their abilities stretched to provide the necessary services and resources. With the 2008 economic downturn in mind, college administrators made several operational decisions for the hotel. Each major department would have full-time permanent managers, but the number of line staff would vary depending on guest demand, event bookings, and staff
ognize and describe the point(s) when service failed, (2) identify,
availability. Student labor, would play a key staffing role, both in front
describe, and evaluate attempts at service recovery in the case study,
and in back of the house. As most students attending Upstate College
(3) suggest ways to prevent similar service failures in the future, (4)
were local commuters, administrators anticipated that many would wel-
suggest feasible resolutions for such service failures, and (5) demon-
come the opportunity to work during the school breaks.
strate an understanding of factors that might impact an employee’s performance.
In addition, as the hotel was considered an auxiliary, for-profit arm of the College, the human resources functions would be handled by the individual managers for their own departments, not by the College’s Human Resources Office. Each manager was expected to have a basic understanding of the legalities involving each function as a condition of employment, but could contact the College’s Human
Christina H. Lesyk and Eric A. Brown are both affiliated with Iowa State University.
42
Resources Office for the occasional question. The College intended to revisit these decisions in the future.
Volume 6, Number 1
The First Night of the Conference On the first night of the conference, three hospitality faculty members from different schools met during the hotel’s evening mixer. They got along well immediately and decided to continue their conversation
minutes, one of the faculty members interrupted Erica to ask for menus. She stopped talking and looked embarrassed. As Erica distributed the menus, she giggled nervously and said, “I hope you’re good tippers!” The faculty members asked about some of the local specialties on
over dinner. As it was late in the evening, they decided to patronize
the menu. Erica’s previous station had been away from the food prep-
the hotel restaurant.
aration area, so she was unfamiliar with these items and had to go ask
The restaurant closed at 10:00 p.m., so the faculty members decided to freshen up and meet back at the restaurant. They arrived at
the chef. Erica then returned to take the faculty members’ orders and left. The faculty members noticed the other diner in the restaurant
8:00 p.m. and were seated quickly and pleasantly by the hostess. There
had finished his meal and departed, leaving them the only guests.
was only one other diner in the restaurant.
Where’s Erica?
First Impressions The tables in the restaurant were clean and set with standard place settings. The faculty members thought it was serendipitous to have been seated with a partial view into the kitchen and service area. They saw two staff in the kitchen dressed in kitchen uniforms. The server, who arrived at 8:20 p.m., wore a name badge saying “Erica” and “Student Server.”
Erica’s Background Erica is a hospitality student at Upstate College and entered college immediately after high school. As a single mother, she needed to work as well as study. Her advisor suggested that since Erica was interested in the restaurant industry that she apply for a position in the conference center restaurant. Erica obtained a dishwashing and cleaning position in the kitchen. Erica liked her co-workers and her hours. She also felt satisfaction at seeing everything clean at the end of her shift. An added benefit was that kitchen positions paid more than other student jobs on campus. Erica was suddenly reassigned to be frontline wait staff in the college’s conference center restaurant the morning the conference started because of a shortage of student workers. She was concerned because she had no work experience in front-of-the-house restaurant operations. Additionally, the usual staff orientation for new employees would not be held because the conference started that day, but Erica’s supervisor told her that since she had been a customer at least once in
The faculty members chatted for a while, but eventually noticed that there seemed to be a delay in receiving their meals. Erica was not in view, but the group saw what they believed to be their meals placed under a heat lamp on the pick-up counter at approximately 9:00 p.m. The faculty members jokingly asked each other if they should retrieve the meals themselves. Instead, they waited to see what happened. At about 9:30 p.m., the faculty members saw Erica get up from a booth that had hidden her from view. She was texting on her cellphone while she walked to the pick-up counter. At the pick-up counter, one of the kitchen workers seemed upset at Erica and pointed at the meals on the counter. She shrugged and then brought the platters to the table. After she placed the meals down, she asked if she could bring anything else. The faculty members said “no.” Without further comment, Erica left.
Worth the Wait? The faculty members noticed that the appearance and quality of their meals were generally poor. The hot meals were cool or cold. A local specialty, fried plantains, were gummy and greasy. Two of the faculty members had ordered hot beverages, but they were not accompanied by the usual condiments such as sugar, cream, and lemon slices. Only one faculty member decided to eat his meal. The others were too dissatisfied and annoyed since it was quite late to be eating or to try and find someplace else in town. When Erica returned, they asked that the restaurant manager be summoned. Erica stuttered that
a restaurant, she had to know how to serve people. She was also quite
she would find somebody and hurried away.
shy, but her co-workers tried to reassure her, saying she would “do
The Restaurant Manager Arrives
great” because she was a hard worker and had a nice smile. Erica’s biggest concern though was that her wages would be lower because she would be expected to supplement her base pay with tips.
Second Impressions The faculty members noticed that Erica was dressed in a white button-down shirt, plain black slacks, and black sneakers. The shirt and pants were somewhat wrinkled, but clean. One sneaker had a stain. Erica seemed a bit nervous as she greeted the faculty members, and apologized profusely when she splashed a little water on the table. The faculty members attempted to put Erica at ease by making small talk, but after a few
Journal of Hospitality & Tourism Cases
The restaurant manager arrived. As she was speaking with the guests, Erica was telling her co-workers in the kitchen that she wanted to quit. She had been happy where she was, but now she believed she was going to be paid less and she was very uncomfortable dealing directly with customers. The older staff member chided Erica, saying she should “keep her eye on the ball” and think of the job as a beginning, reminding her that many a manager started in the kitchen. “With the experience and education you’re getting, you might even manage a top restaurant or hotel someday,” he said. Back in front of the house, the restaurant manager told the
43
guests that she would not charge for the meals and offered them free
69 percent of those 18-24 reported that their first paid position was in
desserts, but these were declined. She commented that it was very
the restaurant industry (NRA, 2014).
difficult to find and retain good employees, especially when the ho-
However, the United States Bureau of Labor Statistics (BLS) has in-
tel was dependent on part-time student labor. She also wished that
dicated that the 16- to 24-year old age group is shrinking. This group
student workers could be more engaged and motivated, even in “just”
represented 24 percent of the total labor force in 1978 and is predicted
part-time or entry-level positions. One of the faculty members gave
to shrink further to only 11.3 percent by 2024 (BLS, 2015). While the
the manager her business card and offered a consultation.
reliance on youth labor will incur turnover (Poulston, 2008), and man-
Concepts Related to the Case Study
agement often considers such labor to be inherently transient and
Misleading Initial Foodservice Experiences For many foodservice staff, “restaurant work [may seem to be] neither a fun lifestyle choice nor the fulfillment of a foodie dream.
relatively uncommitted (Blenkinsopp & Scurry, 2007), meeting future employee and management needs will require proactive efforts to attract and retain employees. With younger employees specifically, Poulston (2008) notes that
It’s a job, a way to feed and house themselves and their families”
the hospitality managers should not only ensure that their employees
(Woolever, 2012, p. 26). There are also often arduous physical respon-
are trained, but especially in the case of young people, also offer “some
sibilities with line-level positions. Employees can be required to work
degree of pastoral care” (p. 422). Young people are seen as a vulner-
at a fast pace at peak meal hours or during catering events, and these
able group that is “likely to need more rather than less training, if they
periods of intensive responsibility are often interspersed with long pe-
are to make a realistic contribution to their workplace” (p. 422).
riods of waiting, often on one’s feet. Food preparation areas are often hot, cramped, and hazardous. Employees are apt to become wet and dirty because of food preparation, dishwashing, and spillage. In many colleges, therefore, student workers in foodservice line-level positions are typically paid a higher hourly wage. Receiving a higher wage, however, may not be enough of an incentive for these employees to stay or to perform well (Tudor, 2011; Woolever, 2012). Employees may need to be motivated by additional or different factors, both intrinsic and extrinsic, and be motivated by different factors at different stages of their lives (Adams, 1963; Herzberg, 2003; Maslow, 1970). For example, it would be important to note in employee orientation and training that the restaurant industry is the second-largest private sector employer in the United States and offers many opportunities for promotion. According to a recent study by the National Restaurant Association (NRA), 75% of restaurant employees believe that restaurants offer a career path of upward mobility and indeed, the first restaurant job held by 9 out of 10 restaurant managers, supervisors and chefs was an entry-level one. Moreover, 9 of 10 restaurant employees and owners indicate that they are “proud to work in a restaurant,” and 7 of 10 restaurant employees and 9 of 10 restaurant owners indicate that they “plan to work in the restaurant industry until [they] retire” (NRA, 2014).
Youth Labor Understaffing and turnover are major human resources issues in the hospitality industry and the impact can be significant (Alonso
Motivating factors for working and working in hospitality Although Erica was enrolled in a hospitality program and was working in a hospitality setting, she didn’t seem to be aware of the field’s growth potential, which could have motivated her to see her job change as an opportunity. This isn’t necessarily unusual for youth labor. Pay, convenience, and flexibility may be more common motivators (Blenkinsopp & Scurry, 2007). These seem to be important current motivators for Erica, a single mother who may need to have her basic survival needs met before attending to higher-order needs such as social, recognition, or achievement needs (Maslow, 1970). Tews, et al. (2014) postulated that enjoyment in the form of “fun activities, coworker socializing and manager support for fun” (p. 925) could also play a key role in retaining employees, but it did not seem that Erica was experiencing any enjoyment either, at least on this particular day. For hospitality students in particular, Richardson (2009) noted that while there were many job factors that students thought were important, a low percentage expected that their industry would fulfill them. Therefore, students like Erica are possibly less likely to enter the field the further along they are in their studies unless they perceive and receive motivating cues and encouragement (Van Dyke, 2010). Otherwise, while employers may initially enjoy a large pool of ready labor, they may later face a dearth of qualified permanent employees and/or trained employees who can grow increasingly dissatisfied (Blenkinsopp and Scurry, 2007). This situation is not limited to the United States, where this case
& O’Neill, 2009; Poulston, 2008; Van Dyke, 2010). In the foodservice
study takes place. Blomme, Rheede, and Tromp (2009) note that re-
industry, a need for an additional 1.3 million restaurant employees by
taining trained hospitality staff is becoming a “primary challenge” for
2021 is predicted (Franchising World, 2011), and for many of them,
the hospitality industry internationally. Tews, Michel, and Allen (2014)
these employees will begin work at a young age as Erica does in this
indicate that annual turnover rates for entry-level hotel and restaurant
case study. Ninety-two percent of employees below the age of 18, and
employees can surpass a staggering 50 percent.
44
Volume 6, Number 1
vice recovery paradox? How so?
In the case study, Erica was plucked abruptly from one job and placed in a high customer contact situation without training. Unfortunately, in reality, the hospitality industry in general has a poor reputation for training (Poulston, 2008). This is ironic, as hospitality education providers typically expect students to have some industry experience during their academic careers (Shin & Lee, 2011). Managers, however, may not wish to invest in training short-term transient staff, or they may be too busy with other responsibilities (Alonso & O’Neill, 2009). All too often, a “sink-or-swim” training approach as depicted in the case study seems to be normal (Poulston, 2008). Yet, does it make sense to then expect employees to provide stellar service? Are organizations really setting the stage for poor service quality and in the case of the foodservice sector, unsafe food handling practices that can actually harm guests? The results of several studies on how to motivate hospitality employees, particularly low-paid ones, to perform well are discouraging (Ellis, et al., 2010; Shin & Lee, 2011; Tudor, 2011).
Questions for Students to Consider Before Class Discussion 1.
Recall and describe a service failure at a restaurant that you have patronized. a. Was the service failure preventable? If so, how might the service failure have been avoided? b. If the service failure was not in the restaurant’s control, did that change your attitude towards the incident? How? c. What did you do in response to the service failure? (Note: NOT doing anything is also considered an action). Why did you choose to do what you did? d. What was the response from the restaurant staff or management? (Note: If you did not make the staff or management aware of the failure, anticipate what the response might have been). If you weren’t totally satisfied with how the restaurant staff or management responded, what could they have done to satisfy you and encourage you to return?
2.
If you operated a restaurant, what are some of the possible service failures that you would prepare for, and why is it important to do so?
3.
What were the service failures in the case study?
4.
Evaluate how you think the manager dealt with the service failures in the case study. What might you have done differently?
5.
Based on what the manager offered as a solution, do you think that the guests experienced Magnini’s “service recovery paradox?” Why? Do you think that the fact that the guests were highly trained in hospitality had an influence on whether they (versus untrained laypeople) would experience Magnini’s ser-
Journal of Hospitality & Tourism Cases
6.
What factors may encourage and discourage workers to stay?
References Alonso, A.D. & O’Neill, M.A. (2009). Staffing issues among small hospitality businesses: A college town case. International Journal of Hospitality Management, 28, 573-578. doi:10.1016/j.ijhm.2009.03.004. Blenkinsopp, J. & Scurry, T. (2007). “Hey GRINGO!” - The HR challenge of graduates in non-graduate occupations.” Personnel Review, 36(4), 623-637. doi:10.1108/00483480710752830. Blomme, R., Van Rheede, A., & Tromp, D. (2009). The hospitality industry: An attractive employer? An exploration of students’ and industry workers’ perceptions of hospitality as a career field. Journal of Hospitality & Tourism Education, 21(2), 6-14. doi:10.1080/109663758.2009.10696939. Bureau of Labor Statistics (2015). Table 1 - Civilian labor force by age, gender, race, and ethnicity, 1994, 2004, 2014, and projected 2024. Retrieved from http://www.bls.gov/news.release/ecopro.t01.htm. Ellis, J.D., Arendt, S.W., Strohbehn, C.H., Meyer, J., & Paez, P. (2010). Varying influences of motivation factors on employees’ likelihood to perform safe food handling practices because of demographic differences. Journal of Food Protection, 73(11), 2065-2071. Franchising World (June, 2011). Developing tomorrow’s foodservice industry leaders: The restaurant industry needs dedicated, trained employees to drive future growth. Retrieved from: http:/bi.galegroup.com/proxy.lib.iastate.edu/essentials/article/GALE%7CA259959504/fb77fa140a0cc3ed8fd206 324dea5609?u=iastu_main. Magnini, V.P., Ford, J.B., Markowski, E.P., & Honeycutt, E.D. (2007). The service recovery paradox: Justifiable theory or smoldering myth? Journal of Services Marketing, 21(3), 213-225. doi: 10.1108/08876040710746561. Maslow, A.H. (1970). Motivation and personality (2nd ed.). New York: Harper & Row. National Restaurant Association Educational Foundation (2014). Who works in the U.S. restaurant industry? A nationwide survey of the restaurant workforce. Retrieved from https://www.chooserestaurants. org/NationalRestaurantAssociation/media/NRAEFimages/NRAEF_ RestaurantWorkforce.pdf. Poulston, J. (2008). Hospitality workplace problems and poor training: A close relationship. International Journal of Contemporary Hospitality Management, 20(4), 412-427. doi:10.1108/09596110810873525. Richardson, S. (2009). Undergraduates’ perceptions of tourism and hospitality as a career choice. International Journal of Hospitality Management, 28, 382388. doi:10.1016/j.ijhm.2008.10.006. Shin, S-H & Lee, T.J. (2011). Degree of motivation of international hospitality students in their workplace. Journal of Hospitality, Leisure, Sport & Tourism Education, 10(1). doi:10.3794/johiste.101.240. Sturman, M.C. & Ford, R. (2011). Motivating your staff to provide outstanding service. Retrieved from scholarship/sha/cornell.edu/cgi/viewcontent.cgi?arti cle=1242&context=articles. Tews, M.J., Michel, J.W., & Allen, D.G. (2014). Fun and friends: The impact of workplace fun and constituent attachment on turnover in a hospitality context. Human Relations, 67(8), 923-946. doi: 10.1177/0018726713508143. Tudor, T.R. (2011). Motivating employees with limited pay incentives using Equity Theory and the fast-food industry as a model. International Journal of Business and Social Science, 2(23), 95-101. Van Dyke, M. (2010, January 18). Motivation in the hospitality industry. Retrieved from theirf.org/research/motivation-in-the-hospitality-industry/181/. Woolever, L. (Spring, 2012). High-end food, low-wage labor. Dissent, 26-32.
45
teaching note Where Did Our Server Go? A Case of Service Failure in a College Hotel Restaurant
Summary The MacArthur Hotel and Conference Center (“conference center”)
allow students to work with those they may not have met before. Each group should be kept small enough to allow full participation by each
is a new venture by Upstate College, a 4-year public college. Besides
student.
serving as a revenue-generating facility, the conference center is meant
Class Instruction
to be a “living laboratory” for Upstate College’s hospitality students.
Approach I (50 minutes)
Erica is a hospitality student at Upstate College. A young single mother, she finds it necessary to work as well as attend school. Upon
1.
Provide a brief summary of the case study (5 minutes).
2.
Present a PowerPoint presentation to introduce/review the
finding out that dining service student workers are paid a higher
concepts of service failure, service recovery and motivation as
hourly wage than other student workers, Erica applies for a kitchen
they pertain to work behavior (including: Maslow’s Hierarchy
position. She is placed in the kitchen of the conference center’s res-
of Needs, Adams’ Equity Theory, and Herzberg’s Motivation-Hy-
taurant, performing dishwashing and cleaning responsibilities.
giene Theory) (10 minutes). Graphics illustrating the theories of Maslow, Adams and Herzberg are readily available on the
On the morning of the first day of the conference, Erica is abruptly
Internet.
reassigned as frontline wait staff in the conference center restaurant. Erica is concerned about her lack of preparation. She also knows that
3.
Divide students into their assigned groups. Have the students
wait staff ordinarily supplement their wages with tips, so she is also
introduce themselves, provide their contact information to
worried about a possible decrease in wages. Significant service fail-
each other and select a reporter. Assign each group a particu-
ures occur and attempts at service recovery are made.
lar question to answer (10 minutes).
Target Audience
4.
Ask each group to present their answers (10 minutes).
5.
Have students participate in brief two-question electronic poll
The intended target audience is undergraduate students enrolled
with either clickers or a free online service such as PollEvery-
in a hospitality human resources class. This case study may also be
where (www.polleverywhere.com) which is easy-to-use and
used for graduate-level students with additional readings and comple-
uses smartphones, computers, or tablets (5 minutes). Instruc-
tion of a “consultation” assignment, acting in the role of the faculty
tors may use a simple show of hands instead.
who offered to assist the manager in the case study. These students
- Question #1: Typically, how many people would you tell about a
would develop and present a short online customer service training
great service experience?
outline or workshop for student workers such as Erica.
- Question #2: Typically, how many people would you tell about a
Service failure and recovery issues and the importance of staff training are pertinent throughout the hospitality industry. However, this scenario is purposely set in a college-based hospitality facility so
poor service experience? 6.
points in the case study and electronic polling, and soliciting
that students participating in this class exercise will relate to a student worker such as Erica. Students are likely to have considered or have been employed in campus jobs like Erica, and may thus be able to suggest pertinent strategies for training and service recovery.
Prior to Class
Facilitate class discussion, filling in gaps, linking concepts with recommendations (5 minutes).
7.
Summary of key points (5 minutes).
Approach II (75 minutes) 1.
Provide a brief summary of the case study (5 minutes).
2.
Present a PowerPoint presentation to introduce/review the concepts of service failure, service recovery and motivation as they
Students will be expected to read the case study and to include consideration of the pre-class discussion questions in the group exer-
pertain to work behavior (including: Maslow’s Hierarchy of Needs,
cise and their group report. Use of this case assumes students have
Adams’ Equity Theory, and Herzberg’s Motivation-Hygiene Theory)
been introduced to basic concepts of intrinsic and extrinsic motivation
(10 minutes). Graphics illustrating the theories of Maslow, Adams
(e.g. Maslow) but students may be referred to such information prior
and Herzberg are readily available on the Internet.
to class. The instructor could also present a basic review of the case in addition to a review of the concepts at the start of class. Groups can be formed prior to class to save time, to ensure diverse groupings (e.g. mixing genders, ethnicities, ages, etc.) and to 46
3.
Divide students into their assigned groups. Have the students introduce themselves, provide their contact information to each other and select a reporter. Assign each group a particular question to answer (15 minutes). Volume 6, Number 1
4.
Ask each group to present their answers (20 minutes).
5.
Have students participate in brief two-question electronic poll
ure in the future?
with either clickers or a free online service such as PollEvery-
It should be emphasized that even the best hospitality orga-
where (www.polleverywhere.com), which is easy-to-use and
nizations will occasionally fail, and that it is important to plan
uses smartphones, computers, or tablets (5 minutes). Instruc-
for when (not if ) such service failure occurs. Students should
tors may use a simple show of hands instead.
offer ideas such as mandatory staff training, daily briefings,
- Question #1: Typically, how many people would you tell about a
rewards for staff initiative in resolving problems and making
3.
great service experience?
suggestions for improvement, soliciting guest evaluations, and following up with guests.
- Question #2: Typically, how many people would you tell about a poor service experience? 6.
7.
4.
their service recovery ability?
points in the case study and electronic polling, and soliciting
Students should offer ideas such as increased training, role-
recommendations (15 minutes).
playing, daily briefings, mentoring and empowerment to
Summary of key points (5 minutes).
resolve service failures. 5.
How might each of these responses influence a hospitality
Students should identify: compensation, sufficient work hours, work-life balance, advancement, recognition, training, work autonomy, and feelings of self-efficacy, equity, and commitment. 6.
would you have responded? If so, how? If no, why?
Students should identify responses such as: never returning,
Students should weigh the pros and cons to responding to on-
posting complaints, going to a competitor, and bad-mouthing,
line reviews, including issues such as the labor needed to track
and possibly responses such as seeking new legislation, filing
and respond to online reviews and becoming involved in online
lawsuits, organizing boycotts, and picketing. Students can also
disputes. Students may also discuss the ethics of a manager re-
consider how much responsibility a manager might have for (e.g. more forgiving)? Evaluate how the manager dealt with the service failures. From a guest perspective, how effective were her efforts? What else might you have wanted? Students should refer to Magnini (2007) and compare the severity of the case study service failures with what the manager offered as restitution. Would the offer of free desserts have been perceived more positively perhaps if it was earlier in the day when the faculty members could have anticipated having
If you were the manager and the guests in the case study posted a negative review of the restaurant on TripAdvisor,
organization?
the service failure. Could a guest’s response then be different
What can motivate a worker to stay or leave a job? Do these motivations change during an individual’s life span?
Besides how the case study’s guests responded to the service failures, how else might a dissatisfied guest respond?
2.
What could help student workers to be more confident in
Facilitate class discussion, filling in gaps, linking concepts with
Questions for Groups – Not all of the questions may be addressed. After working with the group to generate a summary of responses, the group’s reporter will submit the summary to the instructor. 1.
How can management better avoid this kind of service fail-
moving negative reviews posted to company-owned websites. 7.
What role do you think the college’s Human Resources Department or other departments (e.g. Alumni Relations) should take regarding the operation of the restaurant in this case study? Students should be able to identify legal liability, employee orientation, training, and assessment as important issues that Human Resources should address. As potential alumni themselves, students should also consider how Upstate College’s relationship with Erica as a future alumna could be jeopardized depending on how she perceives she has been treated as a student employee.
another meal, rather than late at night with little chance of
Additional Readings for Undergraduate Students
eating dinner elsewhere? Students should also consider what
Adams, J.S. (1963). Towards an understanding of inequity. Journal of Abnormal and Social Psychology, 67, 422-436.
types of restitution employees could be authorized to offer without involving the manager. As noted in Magnini (2007), students should also be encouraged to consider conditions leading to service failures that may not be in the control of hospitality managers (e.g. natural disasters, power outages, labor strikes). Would guests be more forgiving of such service failures?
Journal of Hospitality & Tourism Cases
Herzberg, F. (2003). One more time: How do you motivate employees? Harvard Business Review, 81(1), 87-96. Magnini, V.P., Ford, J.B., Markowski, E.P., & Honeycutt, E.D. (2007). The service recovery paradox: Justifiable theory or smoldering myth? Journal of Services Marketing, 21(3). doi: 10.1108/08876040710746561 Richardson, S. (2009). Undergraduates’ perceptions of tourism and hospitality as a career choice. International Journal of Hospitality Management, 28, 382388. doi:10.1016/j.ijhm.2008.10.006
47
case study
Targeting Kenya's Coastal Gastronmic Market: A case study By Anthony Pepela and Robert M. O'Halloran
Introduction In Kenya, research on local foods relating to sustaining the local populace’s nutritive needs have been conducted (Kabuye & Ngugi, 2001; Maundu, 2001) and several menu cook-books, denoting some of the local signature foods and also their link to the local agricultural practices, (Kinyua, 2004) exist. However, there is little focus on how
(Indians, Pakistanis, Italians, Britons and Arabs) who have influenced the use of spices and cooking styles in the region. This has led to a diminished knowledge of preparation and utilisation of indigenous foods. This mixture of cuisines has created a variety of signature foods. The Kenya Coast is also the busiest tourist hub in the country (Akama & Kieti, 2007). Regrettably, not all destinations, including Kenya, capitalize on
these foods can be used to position the country as a gastronomic hub.
the potential opportunity gastronomy provides (Opole, 2001). Many
There is a need to diversify the variety of local dishes and increase mar-
destinations have not tried to use gastronomy as part of their market-
ket differentiation (Fukushima et al., 2010). The link between cuisine
ing activities or have not done so effectively (Richards, 2005). However,
and place often assumes the form of geographical indications (Bowen
in 2012, M. Ndegwa, Managing Director of the Kenya Tourism Board
2010). Proximity to urban areas is also important in developing local
stated that “We are keen on diversifying tourism products and Kenya’s
food tourism. Consequently, communities will find that where there is
rich cuisine is an ideal platform to support this effort”. Previously, the
some pre-existing tourism infrastructure, local food tourism is easier
government had emphasized sports and culture tourism. Currently,
and more cost - effective to develop (Dougherty, Brown & Green 2013).
plans are in top gear to promote culinary tourism (Xinhua News, 2012).
The Kenya government’s focus on tourism is to increase the num-
In a Business Daily Africa article, Fayo (2012) pointed out that the Kenya
ber of tourist arrivals per annum and tourist expenditures (Obonyo et al, 2013). The development of gastro-tourism and other food-related tourism has focused typically on cultural aspects of food such as how, when, why and where food is prepared and consumed (Gillespie, 2002). Additionally, gastronomic studies reveal a constant need for authentic tourism products and or unique culinary experience by food oriented tourists (Obonyo et al, 2013). However in western Kenya, for example, gastro-tourism is not well promoted or developed in the Western Tourists Circuit (Obonyo, 2013). The Kenyan Coastal Circuit has a variety of local dishes prepared in designate outlets though no promotional materials or positioning strategies are in place. Product suppliers need to provide a range of goods and services that will distinguish it from other destinations in order to attract a steady stream of visitors and be successful (Hashimoto and Telfer, 2006). With the intent to better develop Kenya Coastal food tourism. The Kenyan coastal region, which covers a 400 kilometer coastal strip, and constitutes the Mijikenda, Bajuni, Orma, Sagala, and Swahili ethnic communities has to date, 70 species of indigenous; wild fruits, vegetables tubers and other related groups (Pakia, 2001). The area also boasts of a record 731 fish species. These food types however, are seasonal and most of them are only consumed during drought and food shortage periods (NEMA), 2010). The introduction of a wide range of exotic food types, is a result of the attraction of a multiplicity of ethnic and racial groups Anthony Pepela is affiliated with Pwani University. Robert A. O'Halloran is affiliated with East Carolina University.
48
Tourism Board (KTB) has been spearheading the promotion of culinary tourism in the country and seeing it launch a Chefs Delight Award. At the inaugural Chefs Delight Award in Nairobi Kenya Tourism Board (KTB) Managing Director Muriithi Ndegwa, termed the award scheme as ‘an ideal platform’ for promoting culinary tourism in the country (Fayo, 2012). The new tourism portfolio is set to put Kenya on the global map amongst the countries known for their local cuisine such as India, China and Thailand. This effort has also created a number of well-known chefs. For example, Kenyan born and an internationally trained chef, Kiran Jethwa indicated that “Kenya has a chance to gain from culinary tourism by attracting both the domestic and international tourist” and that “Kenya has incredible ingredients that attract international tourism and it is a step forward to promote the cuisine market” (Fayo, 2012). Local cuisine is one of the most enjoyable activities that tourists undertake while on holiday (Getz, 2000). As such, many residents in source markets may be familiar with, and indeed develop quite a fondness for indigenous cuisine (Richards, 2005). As a result, food currently plays an important role in differentiating destinations because cuisines are branded by nationality (Boniface, 2006). Africa’s social life in general centers on good wholesome food. One key component of the relationship between food and tourism is that of the promotion of traditional foods. In Kenya, tourists mainly come for the wildlife safari and beach tourism attractions. The Kenyan tourism industry needs to diversify their products and include more cultural tourism based on components of which food and drink is especially important (Okech, 2014). Food tourism has Volume 6, Number 1
been hailed as a vehicle for regional development, strengthening local production through backward linkages in tourism supply-chain partner-
Gastronomy and Visitors Food and drink are a natural intersection of interests (Wolf, 2002).
ships (Renko, Renko, & Polonijo, 2010; Telfer & Wall, 1996). This regarded
A unique or particularly good dining experience may not necessarily
as an important vehicle in delivering sustainable tourism (Everett &
be why tourists visit a particular destination, but it can help make the
Aitchison, 2008; Simms, 2009; Everett & Slocum, 2013).
visit a memorable experience. A Longwoods Survey (1994) noted that
In Kenya, the promotion of food as a component of its destination
travelers experienced unique dining experiences in Denver, Colorado.
attractiveness is in its infancy at both the international and domestic
In that case, signature restaurants, such as the Buckhorn Exchange,
level. The context of this contribution is to underpin such developments
distinguished themselves by providing game foods such as Buffalo, Al-
using the rationale that, in order to maintain and enhance local eco-
ligator, and Rattlesnake. This theme may have helped to create an image
nomic and social vitality, creating back linkages between tourism and
of food uniqueness for Denver (O’Halloran, 1996). In another example,
food production sectors can add value to an area’s economy (Okech,
special guests at Timberline Lodge in Oregon receive a satchel of Chukar
2014). Okech (2014) also says that beyond the famous Big Five tourism
Cherries, a bag of Mt. Hood Trail Mix, a mélange of dried Oregon cran-
phenomena, the role of local communities in promoting culinary tour-
berries, and a package of Oregon Hazelnuts when they arrive in their
ism as part of cultural heritage development needs to be developed.
room (McDonald, 2003). Obviously, tourism related businesses benefit
Given that Kenya is not a wine growing destination, it needs to develop
from promoting local foods and cuisine (O’Halloran and Deale, 2004).
local culinary tourism tied to cultural heritage promotion in the local
In food consumption related literature, social-demographic
communities (Okech, 2014). Kenya is a multi-ethnic nation, with 42 dif-
variables are commonly used to predict food consumption patterns
ferent communities making up a highly diverse mix of cultures all with
(Shenoy, 2005). This is because one’s choice of food, the way it is pre-
food specialties. Kenya is currently interested in exploring a global mind
sented, served and eaten, speaks volumes about who one is and one’s
set for food as a tourism attraction for local and global visitors (Fuku-
position in a group (Richards, 2005). According to Shenoy (2005), social
shima et al., 2010). Recent research has linked gastronomy to Kenya’s
theorists and empiricists studying food consumption have generally
ability to create a niche market for the gastronomy guest and therefore
looked at the influence of socioeconomic and demographic variables
enhance the role of authenticity in gastronomy and a guest’s apprecia-
on dining out, frequency of eating out, and money spent on food at
tion of the region’s epicurean offerings (Pepela, 2013).
home and outside the home (Warde & Martens, 2000).
Kenyan native foods can be presented as an icon which the local
Food Physiological Theory (FPT) relates to the extreme traits of
population can identify as a common cultural unifying trait. Food tour-
food neophobia and food neophilia. Food neophobia influences the
ism can provide Kenya with a brand more powerful than a national dress
initial tasting of unfamiliar food. People with this personal trait are
and more easily identifiable than a Massai Moran (Okech, 2014). As most
reluctant to eat and /or avoid novel foods, food products, dishes and
cuisines are branded by nationality such as French, Italian or Spanish,
cuisine (Hobden & Pliner, 1995). This unfortunately then becomes a
the opportunity still exists for Kenya to create a positive and successful
major hurdle for destinations whose purpose is to increase demand
relationship between food, culture and the destination (Okech, 2014).
for their regionally produced foods. Neophiliacs, on the other hand,
Case Objectives
are able to discriminate food items in their taste evaluations and he-
After reading, analysing and reviewing this case and its content, students will: •
Have a working knowledge and be able to explain culinary, food or gastronomic tourism products and services on a global scale.
•
Be familiar with the terminology associated with cultural and heritage tourism and its relationship to food.
•
Identify target markets of visitors that may be interested in culinary tourism and their food preferences.
•
Be familiar with, and have a working knowledge framework of tourism planning and development focused on food.
•
Be able to develop a plan to develop culinary tourism in diverse locations.
donic ratings (Ritchey, Frank, Hursti & Tuorila, 2003). They tend to seek something new as a means of increasing sensation and pleasure (Kim, Sun & Eves, 2010). Guests taking gastronomic tours seem to show neophilic tendencies, a liking for novel food flavors, and a high foodinvolvement (Cohen and Aveli, 2004). The two traits, neophobia and neophilia, have a likelihood of predicting future food intake and could have a significant relationship with satisfaction and loyalty of the guest (Cohen and Aveli, 2004). To understand guests’ thoughts that could closely relate to their behavior in regards to appreciating novel foods, one has to understand their intrinsic inclination. One’s perception of what is exotic, inedible or palatable depends on one’s personal tastes, cultural preferences and aesthetics. These perceptions are developed from childhood and may affect future consumption of novel foods. In this case, Kenyan Coastal foods are framed as novel foods for the global
Journal of Hospitality & Tourism Cases
49
visitor. In fact, Cohen and Aveli (2004), posit that tourists who appreci-
the region’s gastronomic cuisine and some hotels often have food
ate and enjoy foreign food at home are more likely to experience the
theme nights where the local cuisine is served to visitors. However, it
local food at a destination. It is therefore imperative to consider the
is not clear whether tourists truly seek a region for their cuisine and
guests physiological inclination so as to adduce their appreciation of
or whether it may be used as a niche for positioning the region as a
local foods of a destination. Therefore, it can be argued that cuisine
gastronomic destination. In terms of gastronomic items, a sampling of
and tourism are natural partners. Visitors are interested in local and
popular signature foods of Kenya’s coastal strip region include:
regional foods and their ties to history and culture. Regional foods
•
Nyama ya mchuzi (Oriental Beef Stew)
could be a great addition to the tourism product mix and promoting
•
Biryani ya kuku (Chicken Biryani)
food tourism will require coordination from all aspects of the tourism
•
Samaki wa kupaka (Poached Stuffed Fish)
and business community. Local members of restaurant associations,
•
Pilau ya ngombe (Swahili Beef Pilaf )
tourism agencies, and chambers of commerce, plus product marketing
•
Kamba wa nazi (Prawns Cooked in Coconut Milk)
organizations such as the producers’ associations of the various prod-
•
Mbaazi ya nazi (Pigeon Peas in Coconut Milk)
uct groups all have a stake in developing food as a tourism attraction
•
Mushakiki (Marinated and Roasted Lamb/ Goat Meat Skewers)
that could benefit a region, and supply chain considerations can make
•
Matobosha (Sweet Swahili Dumplings flavored with Cardamom
food tourism become a reality in many places.
and Coconut Milk). This region is inhabited by a multiplicity of ethnic communities
Tourists on Kenya's Coastal Strip
(Mijikenda, Bajuni, Orma, Sagala and Swahili) and immigrant groups
Tourism trends along beach destinations are shifting from the four S’s (sun, sand, sex and surf ) to an overall lifestyle that corresponds to people’s daily activities (Hobson & Dietrich, 1994). Leading gastronomic destinations enjoy success stories due to carefully combining
(Britons, Indians, Pakistanis, Italians and Arabs) who have greatly influenced the region’s gastronomy. The majority of the in-bound guests seek accommodations from the 75 star rated hotels in the region. The majority of those living within the country reside in the 387 standard
the local food resources of the region together with cultural and
hotels found in the region and dine in any of the 411 restaurants or
environmental factors and also counting on the presence of tour-
food outlets located at attraction sites. The tourism industry is a major
ism partners such as restaurants, hotels and travel agencies. Guests
source of employment at the coastal strip, creating between 9-10% or
who visit local food outlets with the sole purpose of sampling the
175,700 jobs while generating an estimated 360,000 jobs in the infor-
cuisine may be referred to as gastronomic guests. According to Hall and Sharples (2003), a gastronomic tourist is someone whose primary motivation while visiting a destination is to sample local food prod-
mal sector (Republic of Kenya, 2009). Though tourism is a major contributor to the coastal economy, its popularity appears to be slowly diminishing. The question is; can
ucts. They may visit a region with a primary reason to attend food
Kenyan gastronomic or food tourism be an answer to the diminishing
festivals or secondary reason to visit restaurants to try local cuisine.
visitor numbers? Based on a study by Pepela (2013) a breakdown of
This implies that the local cuisine of a destination is likely to have an impact on tourism (Richards, 2005). For example, many inbound tourists are booked in hotels where food and beverage plays an integral
the number of food outlets sampled by segment in the study and food item popularity as rated by the respondents are presented for both the North coast and Mombasa Island in Tables 1 and 2, respectively.
part of their stay. The same applies to some domestic tourists and
Studies have also pointed out that the more one progressed in
tourists who reside in their friends or relatives homes while on vacation who end up being entertained in commercial food outlets. Along Kenya’s coastal strip, some of the outlets (restaurants and kiosks) serve
education, the higher the chances were of becoming more exposed to and appreciating a variety of novel foods of new regions. These find-
Table 1
Kenya Coast Food Outlets North Coast
Mombasa Island
Total
A
B
C
A
B
C
Total number of outlets
10
15
14
6
11
4
60
Total from each in the sample
3
5
4
2
3
1
18
A - Stands for eateries at guest attractions sites, B - Restaurants serving local cuisine, C- Hotels with local cuisine theme day(s) 50
Volume 6, Number 1
Table 2
Food Item Popularity in Kenya’s coastal region Food items
Percentage of respondents rating this item in the top five
Biryani ya kuku (Chicken Biryani)
(62.2%)
Samaki wa kupaka (Poached Stuffed Fish)
(48.1%)
Pilau ya ngombe (Swahili Beef Pilaf )
(38.4%)
Kamba wa nazi (Prawns Cooked in Coconut Milk
(27.5%)
Mbaazi ya nazi (Pigeon Peas in Coconut Milk)
(25.1%)
Matobosha (Small Baked Sweets)
(23.4%)
ings were in tandem with those of Verbeke and Lopez (2005) which indicated that one’s level of education could affect their appreciation of wine based on their intrinsic inclination. In relation to novel foods, the Burusnukul et al (2011) study among restaurant clients in Thailand found that the level of education did not affect guests’ appreciation of novel foods. However, like this study, other empirical studies have shown positive significant association between education and eating at ethnic restaurants as well as the number of places chosen for dining out ( Warde & Martens, 2000; Guzmán & Cañizares, 2011). These results suggest that, to appropriately capture the niche
Food Tourism Business Challenge To effectively understand the actual behavior of guests in regards to their appreciation of a region’s gastronomy and identify its niche, one has to understand a guest’s socio-demographic profile. According to Shenoy (2005), the socio-demographic indicators that influence what guests consume include; education, employment, type of job, household income, age, gender and marital status. By the mid 1990’s, Kenya had emerged as a key tourism destination in Africa receiving 6% of the total tourists on the continent, hence making it one of the major foreign money earners in Africa (Akama & Kieti, 2007). However, this
market for the Kenyan coastal signature foods based on the guest’s
could not be sustained despite the government’s effort in encouraging
socio-demographic variables, their marital status and level of educa-
more tourists to visit the country. In comparison to neighboring des-
tion should be targeted. In terms of marital status, guests who are
tinations that offer similar tourist attractions (Zimbabwe, Botswana,
single should be targeted. However, the married, who take the highest
Swaziland, Tanzania, Uganda and South Africa), Kenya currently seems
representation of the population, should not be ignored. Past stud-
to be in a disadvantaged position.
ies by Smallwood et al., (1991) and CAI Et Al., (1995) concur, as they posited, that the married population may also have a big impact on choice of food. This is because they take the bigger proportion of the population yet they have a higher probability of eating out. In terms of level of education, persons with a university degree
For example, in Kenya, one tourist earns the destination an average of $316, U.S. dollars (USD) or 23,700 Kenya shillings (KSH) per trip compared to an average Seychelles tourist of USD $1352, Maruritius; USD $1027 and Tanzania: USD $889 (Republic of Kenya (GoK), 2009). Additionally, one tourist in Tanzania earns the country more than twice
should be targeted as they are assumed to be more exposed to diverse
what a tourist earns for Kenya. This situation has occurred despite the
products and willing to try new items. This is not to overlook those
fact that Kenya currently accounts for 4.5% of the total International
with less education as they constitute a considerable percentage of
arrivals in Africa and contributes 10.47% of the country’s Gross Domes-
the population. For a product to appeal to a greater market segment,
tic Product (GDP). This implies that the relative tourist numbers have
a greater target marketing effort needs to be implemented that will
reduced by 1.5% in the last 15 years. Interestingly 60% of the total
enable the target segments to at least appreciate local cuisine. Ac-
tourist inflow is in Kenya’s Coastal strip (Akama, 2007). In order for local
cordingly, to position the region’s signature foods, efforts should
economies to earn commercial value from Kenyan coastal gastronomy,
also be made to establish the specific sensual qualities of the dishes
there is need to develop an integrated tourism model that can be
that appeal to Kenya’s target market tourists. This would help main-
used to explore possibilities of positioning the region’s gastronomy
tain or improve the appeal of the coastal signature foods and create
by improving its quality and branding it so that it can attract a greater
more demand for local foods among visitors. Additionally, a focus on
local and international market. In fact, gastronomy plays an important
authenticity and quality control will help the region develop a sustain-
role in differentiating destinations nowadays given that cuisines are
able brand for Kenyan signature foods. The Kenyan coastal strip could
branded by their regions or nationality of origin (Boniface, 2003).
then be positioned as a gastronomic destination.
Journal of Hospitality & Tourism Cases
It is clear that food/ gastronomic tourism though limited and not 51
well developed in some parts of the world, is an important activity. The issue for Kenya is how to develop, position and market gastronomic tourism. The premisee is that there is a relationship between the visitor’s food choices and their socio-demographic characteristics. More precisely, a guests’ marital status and their educational levels could be used to predict a visitor’s interest and appreciation of Kenyan coastal cuisine. Culinary or food tourism is a concept whose time has come and is a potentially lucrative niche that holds strong potential for economic growth (Wolf, 2002). Increasing numbers of travelers are stating that food is a key aspect of the travel experience and that they believe experiencing a country’s food is essential to understand its culture (Conde Nast Publications, 2001). Additionally, a careful analysis of the sensual appeal, authenticity and quality of the food could assist in decision making that will help tourism businesses meet the guests’ needs when positioning the region’s signature foods within the overall tourism strategy. This may help establish the Kenyan coastal strip as a gastronomic destination. For tourism planners and managers who are promoting area products, it should be noted that the best way to achieve a competitive advantage is to develop unique merchandise or customer service offerings. Kenya’s objective is to establish the gastronomic identity of the coastal strip. Your charge as a tourism consultant is to develop a model and strategy for developing a gastronomic tourism plan for the Kenyan Coast. You will need to develop a regional food tourism strategy and identify supply chain members to include tourism organizations and allied businesses that can assist and partner in this process with Kenya Tourism. These organizations will come from the public and the private sector and could include federal, state, regional and local tourism organizations; tourism businesses such as lodging and food service operations; as well as tour and travel companies, and retail and information distribution organizations (Deale and Stynes, 1987). You have been asked to make recommendations for developing food tourism on the Kenyan coast to include; product definition, signature items, defining a competitive set, identification of target market segments and the channels that you would recommend to promote this aspect of the Kenya tourism product.
References Akama, J. S. & Kieti, D. (2007). Tourism and Socio-economic development in developing countries: A case study of Mombasa resort in Kenya. Journal of sustainable tourism.15 (6): 735 – 748. Boniface, P. (2003). Tasting Tourism: Travelling for Food and Drink. Aldershot: Ashgate Publishing Ltd. Boniface, P. (2006). Dynamic Tourism; Journeying with Change. Clevedon: Channel View Publishing Ltd. Bowen, S. (2010). Embedding local places in global spaces: Geographical indications as a territorial development strategy, Rural Sociology, 75, 2, 209–243. Burusnukul, P., Binkley, M. & Sukalakamala, P. (2011). Understanding tourist patronage of Thailand food service establishments: An exploratory decisional
52
attribute approach.” British Food Journal, 113 (8): 965-981. Cai, L.A., Hong G.-S., and Morrison, A.M. (1995). Household expenditure partners for tourism products and Services, Journal of Travel and Tourism Marketing, 4(4): 15-40. Cohen, E. & Aveli, N. (2004). Food in tourism attraction and impediment, Annals of Tourism Research, 31(4): 755 – 778. Conde Nast Publications, Inc and Plog Research (2001). Gourmet Travel Study, In Deneault, M., “Acquiring a Taste for Cuisine Tourism: A Product Development Strategy”, Canadian Tourism Commission, Cuisine and Product Coordinator, 2002. Deale-O’Halloran, C. and Stynes, D., Tourism planning: Tourism information series No. 2, Cooperative Extension Service, Michigan State University, Extension Bulletin E-2004, 1987. Dougherty, M.L., Brown, L.E. & Green, G.P. (2013). The social architecture of local food tourism: Challenges and opportunities for community economic development, Journal of Rural Social Sciences, 28, 2, 1-27. Everett, S. & Aitchison, C. (2008). The role of food tourism in sustaining regional identity: A case study of Cornwall, South West England, Journal of Sustainable Tourism, 16, 2, 150–167. Everett, S. & Slocum, S. (2013). Food and tourism: An effective partnership? UK –based review, Journal of Sustainable Tourism, 21, 6, 789-809. Fukushima, T., Marimoto, Y., Maundu, P., Kahindi, B. & Fondo, J. (2010). Local preference of indigenous fruit trees in Coast Province, African Journal of Environmental Science and Technology, 4(12), 872 – 885. Getz, D. (2000). Explore wine tourism: Management, development and destinations, Cognizant Communication Corporation. New York. Gillespie C. (2002). European gastronomy into the 21st Century, Oxford, Butterworth-Heinemann. Guzmán, T.L. & Cañizares, S.S. (2011). Gastronomy, tourism and destination differentiation: A case study in Spain.” Review of Economics & Finance. Submitted on 2th September 2011. Article ID: 19237529-2012-01-63-10, 63. Hall, C. M., Sharples L., Mitchell R., Macionis, N. and Cambourne, B. (2003). Food Tourism Around the World, Oxford: Butterworth-Heinemann. Hall, C. M., & Sharples, L. (2003). The consumption of experience or the experience of consumption?: An introduction to the tourism of taste.” In Food Tourism Around the World: Development Management and Markets, (1) (1-24). Oxford: Butterworth Heinemann. Hashimoto, A., & Telfer, D. (2006). Selling Canadian culinary tourism: Branding the global and the regional product, Tourism Geographies, 8(1), 31-55. Hobden, K. & Pilner, P. (1995). Effect of a model on food neophobia in humans, Appetite, 25:101-114. Hobson, J.S.P., & Dietrich, U.C. (1994). Tourism health and quality of life: Challenging the responsibility of using the traditional tenets of sun, sea, sand and sex in tourism marketing, Journal of Travel & Tourism Marketing, 3(4): 21-38. Kabuye, C.S. & Ngugi, G.W. (2001). Nutritional and medical importance of indigenous food plants. National museums of Kenya, The potential of indigenous wild foods workshop proceedings, (57 60). Nairobi: (USAID/ OFDA). Kim, Y., Sun, B., & Eves, A. (2010). The relationship between food - related personality traits, satisfaction, and loyalty among visitors attending food events and festivals, International Journal of Hospitality Management, 29: 216-226. Kinyua, J. (2004). Towards achieving food security in Kenya. Assuring food and nutrition security in Africa by 2020. Prioritizing action, strengthening actors, and facilitating partnership. A paper presented by Kenya’s Permanent Secretary of Agriculture during the IFPRI Conference; 1 – 3rd April 2004, Kampala, Uganda.
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Longwoods Survey (1994), A Report on the Status of Tourism in the Denver Metro Area with Recommendations and Strategies for Future Planning and Development, Denver Metro Convention & Visitor’s Bureau, Denver, Colorado.
Wolf, E. (2002). Culinary Tourism: A Tasty Economic Proposition, Portland Oregon, International Culinary Tourism Task Force, August.
Maundu, P. (2001). Indigenous wild food plants: Their future in Kenya. The potential of indigenous wild foods workshop proceedings (pp. 61 – 62). Nairobi: USAID/ OFDA. McDonald, S., “Tourism Officials Seek to Promote Oregon’s Delights, The Register Guard, Eugene, Oregon, www.registerguard.com, exlibris.lib.memphis.edu, [Accessed December 11, 2003]. NEMA (National Environmental Management Authority), (2010). November, 21 Reasons to support local foods, http://www.nema.go.ke:Joomla [Accessed November 19, 2010]. Obonyo, G.O., Ayieko, M.A., Kambona, O.Q. (2013). An importance –performance analysis of food service attributes in gastro-tourism development in Western Tourist Circuit, Kenya. Tourism and Hospitality Research (2013). Sage Publications, DOI 10 1177/1467358413491132, [Accessed 8-16-16]. O’Halloran, R.M. and Deale, C.S. (2004). Food Tourism Supply Chain Management, ASAC Conference, June, Quebec City, Quebec, Canada. O’Halloran, R. (1996). Principal Investigator, A Report on the status of tourism in the Denver metro area with recommendations and strategies for future planning and development, Denver, Colorado, Denver Metro Convention & Visitor’s Bureau, 1996. Opole, M. (2001). Experience with indigenous vegetables: Conservation through use CIKSA. The potential of indigenous wild foods workshop proceedings (pp. 63 – 65). Nairobi: USAID/ OFDA. Pepela, A. (2013) Positioning the gastronomic identity of Kenya’s coastal strip: Perspectives of guests on the region’s signature foods, T130/21168/2010, A Thesis submitted in fulfilment of the Requirements for the Award of the Degree of Doctor of Philosophy in the School of Hospitality and Tourism of Kenyatta University. December. Renko, S., Renko, N., & Polonijo, T. (2010). Understanding the role of food in rural tourism development in a recovering economy, Journal of Food Products Marketing, 16, 3, 309–324. Republic of Kenya. (2009). Economic Survey July 2008. Nairobi: Government Printers. Richards, G. (2005). Gastronomy: An essential ingredient in tourism production and consumption, In Tourism and Gastronomy. A. H. Richards. London: Routledge Taylor & Group, 3-20. Ritchey, P.N., Frank, R.A., Hursti, U.K. & Tuorila, H. (2003). Validation and cross national comparison of the food neophobia scale (FNS) using confirmatory factor analysis.” Appetite, 40: 163-173. Shenoy, S. (2005). Food Tourism and the Culinary Tourist. Unpublished PhD thesis presented to the graduate school of Clemson University. Sims, R. (2009). Food, place and authenticity: Local food and the sustainable tourism experience, Journal of Sustainable Tourism, 17, 3, 321–336. Smallwood, D., Blisard, N. and Blaylock, J. (1991). Food spending in American households, 1980-88, Economic Research Service, May: U.S. Department of Agriculture, Statistical Bulletin No. 824: 98. Telfer, D. & Wall, G. (1996). Linkages between tourism and food production, Annals of Tourism Research, 23, 3, 635–653. Verbeke, W., & Lopez, G. (2005). Ethnic food attitudes and behavior among Belgians and Hispanics living In Belgium, British Food Journal, 107(11): 823-840. Warde, A. M. and Martens, L. (2000). Eating Out: Social Differentiation, Consumption and Pleasure, Cambridge: Cambridge University Press.
Journal of Hospitality & Tourism Cases
53
teaching note Targeting Kenya's Coastal Gastonomic Market: A case study
Glossary •
Teaching and Learning Objectives
Cultural Tourism: cultural tourism occurs when participation in a cultural or heritage activity is a significant factor for traveling (Whyte et al, 2012). The Canadian Tourism Commission notes
After reading, analysing and reviewing this case and its content, students will: •
that cultural tourism includes sites such as historic sites, festivals, performing arts etc. (Canadian Tourism Commission in
or gastronomic tourism products and services on a global scale. •
Whyte et al, 2012). •
Food Tourism: refers to food or culinary items as part of the
•
Heritage Tourism: travel directed toward experiencing the
traditions, history and culture (Texas Historical Commission in
Develop a model and plan to position a region/ country as a food tourism destination.
Teaching Approach It is recommended that this case be used in conjunction with
Whyte et al, 2012). •
Understand and explain the global business of gastronomic, food and culinary tourism.
•
heritage of a city, region, state or country. This travel enables the tourist to learn about, and be surrounded by local customs,
Be familiar with and have a working knowledge framework of tourism planning and development focused on food.
•
gastronomy, [Accessed 1-9-16]. •
Identify target markets of visitors that may be interested in culinary tourism and their food preferences.
•
Gastronomy: the practice or art of choosing, cooking, and eating good food, http://www.merriam-webster.com/dictionary/
Be familiar with the terminology associated with cultural and heritage tourism and its relationship to food.
•
attractions for a destination. These can be locally grown foods and or specially prepared items.
Have a working knowledge and be able to explain culinary, food
Socio-demographic profile: of, relating to, or involving a
lessons focused on food or culinary tourism, heritage and/ or cul-
combination of social and demographic factors, http://www.
tural tourism and food as a component of this and/ or a marketing
merriam-webster.com/dictionary/sociodemographic, [Ac-
of tourism products lesson. A discussion such as this could be part of
cessed 1-9-16].
assembling a tourism inventory and more specifically, a food tourism
Introduction Food tourism is the focus of this case study. Kenya has some
inventory and creating a gastronomic niche for a destination market. For example, an instructor can explore signature foods with the students similar to those offered in the case. Table 3, Locations and
unique food offerings and as noted in the case study, the Kenya Tour-
Signature Foods, illustrates some examples of food tourism products
ism Board would like to develop and deliver Kenyan Foods as part of
in the United States. A discussion and introduction to food tourism us-
their tourism attraction mix. Using a combination of USA and global
ing some of these examples may be helpful for framing international
food products and venues, students can study the relationships of
and additional content. Table 3 is not intended to be an exhaustive list.
food and local and global tourism economies. Knowledge of the target markets for food tourism and those visitors eating preferences and or willingness to try new or novel foods will assist in positioning food tourism as an attraction in Kenya and elsewhere.
Intended Use of the Case This case is targeted at juniors and seniors (upper division) undergraduates and/ or graduate students studying the business of tourism. There is also a relationship between this topic and marketing courses with a focus on market segmentation. This case could also be used as a catalyst for documenting visitor demographics and psychographics.
Additionally, content on food tourism could be globalized using examples as noted in Table 4, offered below: A Sample of Global Signature Foods. A related assignment is recommended: Assign each student a country and charge them to research the food / culinary tourism for that country. This assignment might also be done locally to identify gastronomic products. The students would be asked to develop recommendations to position the food tourism of that country and or a region in that country for economic development through the tourism infrastructure of that area. The instructor could provide questions to stimulate the research
The case could also lend itself to the study of cultural and heritage tourism and its related products and services. Additionally, it will be an
opportunities and multitude of directions a student might pursue.
especially good fit for a tourism, hospitality and or marketing courses.
These questions could include: •
54
What is the tourism product the assigned country is known for?
Volume 6, Number 1
Table 3
Table 4
Locations and Signature Foods
A Sample of Global Signature Foods
Location/ Signature Food
Country/region, Sample Signature Food(s)
Alaska, King Crab, halibut, salmon
Bhutan, Aema Datsi
Arizona, Tamales
Brazil, Meats
Baltimore, Maryland Crab cakes
Canada, Poutine
Boston, Massachusetts, Clam chowder, baked beans, plus others
China, Peking Duck+++
Buffalo, NY, Beef on Wick, Buffalo wings
Egypt, Koshari
Cincinnati, Ohio, Chili
France, Cheeses, wines, banquets, cassoulet+++
Denver, Co., Game foods; buffalo, and elk
Germany, Sauerkraut, sausage
Florida Keys, Conch/ conch chowder
Ghana, Chichinaga
Georgia, Peaches
Greece, Tsatsiki
Louisiana, Cajun food, crawfish
India, Lamb Paneer ++++
Maine, Lobster
Italy, Pasta(s)+++
Memphis, Tennessee, Bar-B-Que
Japan, Sushi
Mississippi Delta/ Mid-south, Catfish
Korea, Kimchi
Montreal, Quebec, Smoked meat, bagels
Middle East, Hummus, falafel
Nebraska, Runzas
Morocco, Couscous
New York City, NY, Delis, bagels
Russia, Borschtsch
Northwest USA, Berries, Salmon
South Africa, Bobotie
Oregon, Hazelnuts
Spain, Paella
Panhandle of Florida, Apalachicola Oysters
Trinidad & Tobago, Curried Crab and Dumplings
Rhode Island/Cape Cod, Massachusetts, Quahogs, chowder, lobster
Turkey, Kebabs
Rocky Mountains, Rocky Mountain oysters San Diego, Fish tacos Southern U.S., Grits with cheese, shrimp Texas, TexMex, beef Upper Peninsula of Michigan, Cornish Pasties Vermont, Maple syrup, dairy products Wisconsin, Cheese (O’Halloran and Deale, 2004).
Journal of Hospitality & Tourism Cases
55
• • •
Is food / culinary tourism already in place or does it need to be
they might consider exotic foods, but given the broader knowledge of
developed?
food and its relationship with tourism, the development of food tour-
Should this food tourism marketing effort be coordinated by
ism is a logical tactic for many locations to promote their foods. Even
the tourism authority or should it be strictly local?
if food tourism is not focused on signature items, to best develop a
Are the foods identified based on local agriculture (raw prod-
tourism destination food and beverage outlets are considered a must.
uct) or are they culinary productions?
These outlets must provide good food and good service. This case
A bigger project could include the development of a marketing plan for food tourism in the selected country. That plan could include much or parts of the following: •
Define the Product: food tourism as it relates to the destination.
•
Conducting market research; who, what, when, where, how and why for Kenya and or other destinations?
•
Who are the target markets? In this scenario; what people, what kind of people, are being targeted?
•
What is the objective(s) of the plan?
•
Does the country’s tourism effort have a mission statement?
•
How will food tourism be positioned?
•
Assess overview of food, the destination and food tourism including a community profile.
•
Is there a competitive set? Who does Kenya compete with as a food tourism destination?
•
What are the competitors doing in the food tourism market?
•
Is there an estimated financial benefit? Dollars, jobs etc...
•
What is the action plan that would be recommended; inventory, media markets, supply chain?
Summary People in general are much more familiar with food and preparation methods. Twenty five years ago a cook book section in a library and or bookstore might have a basic and perhaps modest collection of cookbooks. Today the cookbook holdings are enormous. Related to this is also the number of television programs that focus on food, and such things as the Food Network that exclusively offer food preparation programs. It can also be noted that festivals and special events often feature local foods etc. that become part of the attraction to a destination. Food or gastronomic tourism as a topic can be utilized, as previously noted, in traditional classrooms. As noted above, course and/ or exercises focusing on special events and festivals could easily integrate food tourism. Signature food products and or specific ethnic dishes could also be integrated into culinary classrooms as well. One example is, in a hospitality kitchen lab course at a leading university focused on a partnership between the US school and an institution in Peru. The course introduced Peru signature dishes via online technology to the US students. The US course did the same, with the Peru course and its students. It can be argued that food or gastronomic tourism easily relates to everyone who likes to eat. Not all people will like or accept what 56
helps to define food tourism and highlight its importance in tourism.
References O’Halloran, R.M. and Deale, C.S. (2004). Food Tourism Supply Chain Management, ASAC, June, Quebec City, Quebec, Canada. Whyte, B., Hood, T. and White, B.P. (eds.) 2012, Cultural and Heritage Tourism: A Handbook for Community Champions, Federal Provincial Territorial Ministers of Culture and Heritage, Quebec, Canada.
Recommended Sources of Data/Additional Readings Kenya Tourism Board (2016). http://ktb.go.ke/trade/arrivals/, [Accessed January 6, 2016]. Parmar, P. (2015). How culinary tourism is becoming a growing trend in travel, http://www.huffingtonpost.ca/parmjit-parmar/the-rise-of-culinarytourism_b_7596704.html, [Accessed January 6, 2016]. Schmantowsky, C. Best Practices in Culinary Tourism development; Models and Applications Domestic and Abroad. http://chtalliance.com/archives/2008/ docs/pdf/CulinaryTourism.pdf, [Accessed January 6, 2016]. Skift, S. (2015). The big business of food tourism and why it matters, http://skift. com/2015/02/23/the-big-business-of-food-tourism-and-why-it-matters/, [Accessed January 6, 2016]. http://www.statista.com/markets/420/travel-tourism-hospitality/, [Accessed January 6, 2016]. Steinmetz, R. (2010). Food, Tourism and Destination Differentiation: The Case of Rotorua, New Zealand, A thesis submitted to the Auckland University of Technology in fulfillment of the requirements for the degree of Master of Philosophy (MPhil), http://aut.researchgateway.ac.nz/bitstream/handle/10292/1090/SteinmetzR.pdf?sequence=3, [Accessed January 6, 2016]. TOPOSOPHY BLOG (2015). Destination Marketing and the “FOOD” element: A Market Overview, June 21, 2010 | Manolis, https://aboutourism.wordpress. com/tag/culinary-tourism/, [Accessed January 6, 2016]. World Bank (2016). Data: International tourism, number of arrivals, http://data. worldbank.org/indicator/ST.INT.ARVL, [Accessed January 6, 2016]. World Food Travel (2015). Uniting Food and Tourism http://worldfoodtravel. org/, [Accessed January 6, 2016]. The World Food Travel Association (WFTA) http://worldfoodtravel.org/new2013-research/, [Accessed January 6, 2016]. World Tourism Organization (2015) Global Report on Food Tourism, http:// dtxtq4w60xqpw.cloudfront.net/sites/all/files/pdf/global_report_on_food_ tourism.pdf, [Accessed January 6, 2016]. World Tourism Organization, (2012). 07 Sep 12, PR No.: PR12050, 07 Sep 12, http://media.unwto.org/press-release/2012-09-07/food-tourism-importantpillar-tourism-growth-along-silk-road, [Accessed January 6, 2016]. World Travel and Tourism Council (2014). Travel and Tourism Economic Impact 2014 Kenya, http://www.wttc.org/%20-media/files/reports/economic%20impact%20 research/country%20reports/kenya2014.pdf, [Accessed January 6, 2016].
Volume 6, Number 1
case study
Surviving Minumum-Wage Hikes at a Seattle Restaurant By Galen Collins Introduction Amy’s Café is an old-fashioned, home-style restaurant and bakery located in the heart of downtown Seattle. It has provided wholesome meals since 1959. In 2014, the Seattle city council voted to increase the city’s minimum wage to $15 per hour in 2015, phasing in over a number of years. Increasing the minimum wage, a hotly debated
she had an epiphany that cooking was her passion and could lead to a successful and fulfilling restaurant career. The rest is history. Amy, now 81, is concerned with the future viability of her restaurant because of the of the minimum wage hike imposed by the city of Seattle, which far exceeds the federal minimum-wage rate of $7.25. In June 2014, the city of Seattle adopted a new minimum wage of
topic, has been a priority of labor and worker advocacy groups
$15 per hour, highest in the nation and eclipsing the state minimum
throughout the United States. Many would argue that increasing
wage of $9.47 per hour (City of Seattle Legislative Records, 2014). The
the minimum wage boosts consumer spending and reduces income
wage hike, which went into effect on April 1, 2015, phases in based on
inequality in the economy. The National Restaurant Association, how-
the schedule denoted in Table 1. After 2019, annual minimum-wage
ever, maintains that mandatory minimum-wage increases impose a
increases are tied to cost-of-living charges.
significant financial burden on restaurant businesses. Amy McMillian,
The idea of a $15 minimum wage first garnered attention in
the owner of Amy’s Café, is now concerned about the long-term vi-
2012 when fast-food workers from McDonald’s, Burger King, Wendy’s,
ability and stability of her business. The case study scenario addresses
Domino’s, Papa John’s, Kentucky Fried Chicken and Pizza Hut walked
different stakeholder perspectives on the minimum-wage issue and
off their jobs in New York City, New York in strike for higher wages
potential strategies for offsetting wage increases. It concludes with
and better working conditions. This effort, orchestrated by New York
discussion questions and suggested readings to help the reader
Communities for Change, Service Employees International Union,
identify, reflect on, and assess various factors involved in the wage-
UnitedNY, and the Black Institute, sparked a broad national move-
hike dilemma facing Amy’s Café. The purpose of this case study is to
ment and debate that has nudged various cities and states to raise the
broaden the reader’s critical thinking framework on possible measures
minimum wage. However, there are lobbyists, such at the National
for coping with mandatory minimum-wage increases in full-service
Restaurant Association, and politicians quashing efforts to enact
restaurant environments.
minimum wage ordinances or municipal regulations. They feel it will
Background Information
stifle job opportunities for minimum-wage workers. One governor is
Among the lively and exciting new restaurants in Seattle, the old reliable spots are sometimes forgotten. Nevertheless, these restaurants have stood the test of time, making them classic dining spots that are quintessentially Seattle. Included in that list is Amy’s Café, a 150-seat, full-service restaurant established in 1959. It is known for its fluffy omelets and healthy skillet dishes. Other menu items include soups, salads, and sandwiches. Everyday Amy’s bakers prepare fresh baked gourmet breads and rolls. Amy’s café was started on a shoestring budget after the founder
threatening to cut state-shared revenues in cities that hike the state minimum wage on their own. Harry Holzer (2015), a public policy professor at Georgetown University, argues that a $15 wage hike will incentivize employers with low-skill workers to learn how to economize on their labor costs. He suggests that replacing servers with robots could become a viable option at some restaurants.
Minimum Wage Financial Impact Amy called a meeting with her assistant manager, head chef, and bookkeeper. “I’m not sure how to cope with these wage bumps, the
Amy McMillen stumbled upon a neglected 5,000 square-foot-space in
first one starting next month,” stated Amy. “It is like an April Fool’s joke!”
the heart of downtown Seattle, Washington. Amy’s interest in the food
I wish it was,” stated Jerry Lopez, her longtime bookkeeper. “Twenty-
business began when she landed a job cooking at a basecamp in a re-
nine states, plus the District of Columbia, have set their minimum wage
mote wilderness of Washington. After a few short weeks at the camp,
above the federal level of $7.25 per hour. Now there is a push to increase the federal minimum-wage rate above $10.00. According to the National Restaurant Association, mandatory wage increases place a significant
Galen Collins is affliated with Northern Arizona University.
Journal of Hospitality & Tourism Cases
financial burden on restaurant owners who are also dealing with the 57
Table 1
throughout the industry (Moody’s Investor Service, 2015).The mini-
Schedule for 500 or Fewer Employees
mum-wage hike could also harm Seattle’s thriving hotel, tourism, and
Wage Rate
Wage Increase % (base $9.47)
center by 2020. Hotel development is flourishing to meet current de-
By April 2015
$11.00
16.16%
By January 2016
$12.00
26.72%
mum wage that is more than 50 percent higher than one faced by
By January 2017
$13.00
37.28%
competitors in nearby suburbs,” contemplated Mary. “Food sales may
By January 2018
$14.00
47.84%
decline for Seattle restaurants when competitors located just outside of
By January 2019
$15.00
58.39%
city limits are charging lower prices (Burtless, 2014). On the other hand,
Date
convention business. Seattle plans to double the size of its convention mand and in anticipation of the convention center’s expansion.” “I just wonder if Seattle restaurants will prosper if they pay a mini-
Seattle could win the competition for employees with higher wages.” additional costs and regulatory complexity associated with the Affordable Care Act (National Restaurant Association, 2015). Furthermore, remember that the state of Washington prohibits the use of the federal
Effects of Raising the Minimum Wage on Workers A server, Hank Thomas, brought coffee to the meeting. “I have
tip credit, currently $5.12 per hour. So instead of paying tipped servers
overheard your conversations about the minimum-wage hike,” stated
$2.13 per hour, we must pay the full minimum wage, even though our
Hank. “What are your thoughts on the subject?” asked Amy. “I think the
servers on average make about $16.00 to $18.00 per hour” (http://www.
minimum-wage hike is long overdue,” quickly responded Hank. “While
dol.gov/whd/regs/compliance/whdfs15.htm).
this may be viewed as a politically motivated mandate, it can be turned
“I’m struggling with the fact that we must give the biggest pay
into an advantage. For example, smoke-free legislation has resulted in
raises to our servers who already make a decent wage,” stated Amy with
cleaner restaurants environments, a proven drawing card for diners. So
a chagrined look on our face. “Our survival will require increased menu
many restaurant workers throughout this country do not earn enough
prices and/or the cutting back of employee hours,” replied the head
in wages or work hours to survive. Significantly boost their wage rates
chef, Mary Watson. “I know,” agreed the assistant manager, Bill Wertz. “In
and you will probably get one of the most loyal and productive work-
a Seattle blog, Jeremy Hardy, the owner of 15th Ave’s Coastal Kitchen,
forces as well as the lowest employee theft figures in the industry.”
stated that the initial rise in the minimum-wage rate is forcing him to
“Hank, that is a good point,” replied Amy. “A common assumption is that
increase menu prices four percent and re-engineer front and back of the
labor rates equal labor costs (Cascio, 2006). Our retention rate could be
house schedules. However, he feels that a potent elixir of adjustments
higher but pay, in my opinion, is just one contributing factor.”
would be necessary as the ramp-up to $15 moves ahead” (Cohen, 2015). “Our current profit margin is around six percent,” stated Amy. “The
“Amy, how are we going handle the implementation of the minimum-wage rate,” inquired Jerry. “For example, Henry’s current wage
current labor cost is about 33 percent. If we do nothing in 2015, the labor
rate is $11.00 per hour. He is a dependable line cook that has worked
cost could reach 38 percent with an $11.00 minimum-wage rate, wiping
at Amy’s Café for three years. If we raise a new employee’s wage rate
out profitability. Anthony Anton, President and CEO of the Washington
from $9.47 per hour to $11.00, will Henry expect a pay increase that
Restaurant Association, predicts that the $15 minimum-wage rate will
reflects his experience?” “Yes, we need to assess the effect of the mini-
result in an average labor cost of 47 percent if owners of full-service
mum-wage rate increase on our compensation structure,” replied Amy.
restaurants in Seattle make no changes (Jones, 2015). I think we all un-
“Our employees must be compensated fairly for their contributions.
derstand that if labor costs are not carefully established and monitored
What employees perceive as fair and not fair can affect their motiva-
in relationship to revenue, they will increase until profit is eliminated and
tion, attitudes, and behaviors” (Adams, 1963).
losses are sustained (Dittmner and Keffee III, 2009). We need to take action now if Amy’s Café is going to survive the minimum wage hike.” “A higher minimum wage represents a particular challenge for restaurants, which depend heavily on hourly workers,” stated Jerry. “I just read a research report that maintains that restaurant operators will have a tough time passing higher labor costs on to customers. The report predicts that increasing menu prices will be difficult due to soft consumer spending and the high level of promotions and discounts
Action Plan Amy thought about what actions could be taken to minimize the impact of the minimum-wage hike. “This situation is much more complex than it appeared at first,” uttered Amy. “We must avoid actions that at best only temporarily alleviate the problem or, at worst, may even trigger other problems. A framework or criteria (see Table 2) for evaluating possible actions is needed” (Lundberg and Young, 2009). Amy, let’s develop an action plan,” stated Jerry with a sense of
58
Volume 6, Number 1
Table 2
Action-Selection Criteria Criteria
Action Assessment Questions and Factors to Consider
Strategic Fit
Is the action consistent with the mission and values of Amy’s Café? Will it be acceptable to employees and/or customers?
Ethicality
Is the action legally and ethically appropriate for Amy’s Café? Is it understood as the right thing to do from an organizational, community, cultural, and societal perspective?
Pragmatic Feasibility
Is the action cost-effective? Is there enough expertise and resources available to support the action? Will it contribute to the longer-run well-being of the business and its employees?
Implementation Timing
Should the action be taken immediately? Or, can it be delayed somewhat? Or, is it best enacted over a period of time?
urgency. “We cannot afford to do nothing!” “I know Jerry,” replied Amy
be a way to increase menu prices to cover higher wages. Ivar’s Salmon
somberly. “I know of at least one restaurant that is shutting down.
House hiked the minimum-wage rate to $15.00 and removed tipping,
“The owner feels that it is hard to make a business plan work if you
raised their prices 21 percent, and allocated 8 percent of the sales as the
have to pay $15 per hour. She decided to exercise an escape clause
tip pool, which is distributed to all back and front of the house employees
in her 10-year lease, rather than lock in for another five years with her
based on hours worked. Guests are paying about four percent more for a
house as collateral” (Wang, 2015).
meal (Ivar’s Inc., 2015). Rather than raising menu prices, other restaurant
“Amy, we will survive the minimum-wage hike?” inquired Mary. “We
owners are eliminating tips but adding a service charge. The rules govern-
are a resilient business,” replied Amy with a determined nod. “Resiliency
ing service charges are confusing though. Both state law and Seattle’s
is derived from the Latin word resilire, meaning to leap back. Amy’s Café
minimum-wage ordinance require restaurants to disclose on menus or
has weathered many storms, always bouncing back stronger with new
receipts what percentage of a service charge goes to employees, even
strengths and abilities. When we stare down reality, we prepare our-
though it is not technically required for them to receive anything (Garbes,
selves to act in ways that enable us to survive hardships (Coutu, 2002).
2015). The Whales Inn has the following disclosure on its menu: ‘A 20 per-
We need to involve all the employees in identifying possible actions.”
cent service charge will be added to each check. One-hundred percent of
Jerry quickly added, “And we need to share the monthly profit and loss (P&L) statement with employees for them to understand the gravity of the situation. This approach worked well for one restaurant
this charge is paid to employees. Sixty-two and one-half percent of this charge is paid to employees directly serving the customer’.”“Interesting and perplexing information,” replied Amy. “The value that we offer to customers resonates with them, as
owner whose employees were unaware of his restaurant’s financial woes. After sharing the P&L and explaining what each line item
reflected in the popularity of Amy’s café. However, the rise in minimum
meant, he noticed positive attitudinal and behavioral changes in his
wage will require us to adjust our business model or way of doing
employees. In the kitchen, employees were more diligent in portion-
business to deliver the same dining experience. Key business-model
ing and handling products, and servers were more attentive to their
components that need addressing are the (Johnson, Christensen, and
customers than before. Consequently, profit margins improved. Trans-
Kagermann, 1996):
parency is the key to gaining employee trust and engaging them in
•
ates value for itself while still providing the same value to its
the task at hand” (O’Toole and Bennis, 2009).
loyal patrons through factors such as pricing, cost structure,
Amy sighed as she stood up and looked at Jerry and Mary with a steady gaze and thought carefully. “We’re an old fashioned business. Our building is in good shape but we have old kitchen and point-
and margin. •
bersome too. This and other processes could be streamlined to gain cost and operational efficiencies.” One more thing to consider is a no-tipping policy,” stated Jerry. “I
Resources: The assets required to deliver the value proposition to targeted customers, which includes employees, technology,
of-sale (POS) equipment. The menu has grown more complex and sophisticated over the years. The manual labor scheduling is a bit cum-
Profit Formula: The blueprint that defines how Amy’s Café cre-
products, facilities, and equipment •
Processes: How value will be delivered to both customers and Amy’s Café by using processes, such as scheduling, training, service, and prep to leverage resources.”
know that replacing the age-old tipping system is controversial but it may Journal of Hospitality & Tourism Cases
59
Discussion Questions 1.
In your opinion, what are the general pros and cons of raising the minimum wage?
2.
How should Amy’s Café restructure the pay scale to accommodate the minimum-wage rate hikes?
3.
What actions (e.g., profit formula, resources, and processes) would you recommend to mitigate the minimum wage increase to ensure the long-term viability of Amy’s Café? Use the framework in Table 2 for evaluating action options.
References
Suggested Readings David, S. (2014). Make sure your employees’ emotional needs are met. Harvard Business Review. Retrieved 10th of January 2016 from https://hbr. org/2014/07/make-sure-your-employees-emotional-needs-are-met. Herzberg, F. (2003). One more time: How do you motivate employees? Harvard Business Review, 81(1):87-96. Rynes, S.L., Gerhart, B, & Minette, K. (2004). The importance of pay in employee motivation: Discrepancies between what people say and what they do. Human Resource Management, 43(4):381–394. Ton, Z. (2014). A minimum-wage hike could help employers, too. Harvard Business Review. Retrieved 7th of January 2016 from https://hbr.org/2014/01/a-minimum-wage-hike-would-help-employers-too?cm_sp=Article-_-
Minimum Wage Financial Impact
Pros and Cons of Raising the Minimum Wage
Burtless, G (2014). Seattle’s min wage is America’s highest, but there is a downside. Fortune. Retrieved 19th of November 2015 from http://fortune. com/2014/06/06/seattles-min-wage-is-americas-highest-but-heres-thedownside/.
Suggested Readings
Cohen, B. (2015). Seattle’s minimum wage law kicks into high gear with 2016 bump. Capitol Hill Seattle Blog. Retrieved 27th of January 2016 from http:// www.capitolhillseattle.com/tag/minimum-wage/. Jones, S. (2015). Why are so many Seattle restaurants closing lately? Seattle Magazine. Retrieved 14th of November 2015 from http://www.seattlemag. com/article/why-are-so-many-seattle-restaurants-closing-lately. Moody’s Investor Service (2015). Moody’s: Higher minimum wages to weigh on US restaurants’ profits. Global Credit Research. Retrieved 3rd of January 2016 from https://www. moodys.com/research/Moodys-Higher-minimum-wages-to-weigh-on-USrestaurants-profits--PR_327700. National Restaurant Association (2015). Issue brief: Minimum wage. Issues and Advocacy. Retrieved 6th of January 2016 from http://www.restaurant.org/ advocacy/Minimum-Wage.
Suggested Readings Jones, S. (2015). Is the Seattle minimum wage law really “off to a bad start” for restaurants? Seattle Eater. Retrieved 14th of November 2015 from http:// seattle.eater.com/2015/8/13/9143329/is-the-seattle-minimum-wage-law-asbad-for-restaurants-as-the. Sanchez, Y.W. & Rau, A.B. (2016). Arizona cities react to Ducey’s ultimatum o minimum wage, labor rules. The Arizona Republic. Retrieved the 25th of January 2016 from http://www.azcentral.com/story/ news/arizona/politics/2016/01/12/ cities-react-ducey-threats-minimum-wage-job-laws/78694102/.
Effects of Raising the Minimum Wage on Workers Adams, J.S. (1963). Towards an understanding of inequity. The Journal of Abnormal and Social Psychology, 67(5):422-436. Cascio, W. (2006). The high cost of low wages. Harvard Business Review, 84(12):23. City of Seattle Legislative Records (2014). Minimum wage ordinance. City of Seattle Legislative Information Service. Retrieved 1st of February 2016 rom http://clerk.seattle.gov/~scripts/nph-brs.exe?s3=&s4=124490&s5=&s1=&s2= &S6=&Sect4=AND&l=0&Sect2=THESON&Sect3=PLURON&Sect5=CBORY&Se ct6=HITOFF&d=ORDF&p=1&u=%2F~public%2Fcbor1.htm&r=1&f=G. Holzer, H.J. (2015). A $15-hour minimum wage could harm America’s poorest workers. Fortune. Retrieved 25th of January 2016 from http://fortune. com/2015/07/30/1223726-15-hour-minimum-wage-workers-fast-food/.
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Aaronson, D, & French, E. (2006). Product market evidence on the employment effects of the minimum wage. Chicago Federal Reserve. Retrieved 28th of February from http://www.chicagofed.org/digital_assets/publications/working_papers/2003/wp2003-17.pdf. Carpenter, E.(2014). The effects of raising the minimum wage on the hospitality industry. Undergraduate Research Journal for the Human Sciences. Retrieved 24th of February from https://www.kon.org/urc/v13/carpenter.html. DeSilver, D. (2014). Who makes minimum wage? Pew Research Center. Retrieved the 29th of January 2016 from http://www.pewresearch.org/facttank/2014/09/08/who-makes-minimum-wage/. Halvorsen, C. (2014). The pros and cons of raising the minimum wage. When I Work. Retrieved the 24th of February from http://wheniwork.com/blog/thepros-and-cons-of-raising-the-minimum-wage/. Wang, D. (2014). Researchers probe pros and cons of Seattle’s $15 minimum wage. KUPW: Puget Sound Public Radio. Retrieved 1st of February 2016 from http:// kuow.org/post/researchers-probe-pros-and-cons-seattle-s-15-minimum-wage. Williams, S. (2015). 3 pros and cons of raising the federal minimum wage: Where do you stand? The Motley Fool. Retrieved February 25th from http://www. fool.com/investing/general/2015/03/01/3-pros-and-cons-of-raising-thefederal-minimum-wag.aspx.
Action Plan Coutu, D.L. How resilience works. Harvard Business Review, 80(5), 46-51. Garbes, A. (2015). Service charge for what? The Stranger. Retrieved 10th of February from http://www.thestranger.com/food-and-drink/feature/2015/05/20/22248062/service-charge-for-what. Ivar’s Inc. (2015). Ivar’s new $15 wage menu pricing frequently asked questions. Press Release. Retrieved 8th of February 2016 from http://www.ivars. com/press-room/item/403-minimum-wage. Johnson, M.W., Christensen, C.M., & Kagermann, H. (1996). Reinventing your business model. Harvard Business Review. Retrieved5th of February 2106 from http://syv.pt/login/upload/userfiles/file/Reinventing%20Your%20business%20model%20HBR.pdf#page=57. Lundberg, C.C. & Young, C.A. (2009). The Hospitality Case Manual: Developing Competencies in Critical Thinking. Upper Saddle, NJ: Prentice Hall. O’Toole, J. & Bennis, W. (2009). A culture of candor. Harvard Business Review. Retrieved 1st of February at https://hbr.org/2009/06/a-culture-of-candor. Wang, D, (2015). How Seattle restaurants plan to survive the $15 minimum wage, or not. KUPW: Puget Sound Public Radio. Retrieved 1st of February from http://kuow.org/post/how-seattle-restaurants-plan-survive-15-minimum-wage-or-not.
Volume 6, Number 1
Suggested Readings Collins, G.R. (2015). The rise of robotics in hospitality. HITEC 2105 Special Report. Retrieved 7th of March from http://www.hftp.org/explore-hitec/i/ downloads/H15SRw.pdfLynn, M. (2001). Restaurant tipping and service quality: A tenuous relationship, Cornell Hotel and Restaurant Administration Quarterly, 42:14-20. Lynn, M (2003). Tip levels and service: An update, extension and reconciliation. Cornell Hotel and Restaurant Administration Quarterly, 42:138:148. Maze, J. (2015). Could the tip culture change? Nation’s Restaurant News. Retrieved 4th of March from http://nrn.com/hr-training/could-tip-culture-change. Maze, J. (2015) New tech efforts revolutionizing restaurant labor. Nation’s Restaurant News. Retrieved 7th of March from http://nrn.com/consumertrends/new-tech-efforts-revolutionizing-restaurant-labor. Martinez, J. (2014). Ten tips to survive minimum wage increases. QSR. Retrieved 14th of March from https://www.qsrmagazine.com/outside-insights/tentips-survive-minimum-wage-increases. Ozdemir, B. and Caliskan, O. (2014). A review of literature on menus: Specifying the managerial the managerial issues, International Journal of Gastronomy and Food Science, 2(1):3-13. Pavesic, D. (2004). Boost labor productivity to control labor costs. Restaurant Startup and Growth. Retrieved 11th of March from http://www.rrgconsulting.com/restaurant_labor_cost_controls.htm. Peterson, K. (2014). More restaurants adopting no-tipping policy. CBS News. Retrieved 2nd of March from http://www.cbsnews.com/news/more-restaurants-adopting-no-tipping-policy/. Raab, C. Mayer, K., Kim, Y., &Shoemaker, S. (2009). Price-sensitivity measurement: A tool for restaurant menu pricing. Journal of Hospitality and Tourism, 33(1):93-105. Ramlall, S. (2004). A review of employee motivation theories and their implications for employee retention within organizations, Journal of American Academy of Business, 5, (1/2):52:63. Reese, F. (2014). The minimum wage employees of the future, today. MintPress News. Retrieved 7th of March from http://www.mintpressnews. com/minimum-wage-employees-future-today/190452/. Ruggless, R. (2015). Customers narrowly back higher restaurant wages AlixPartners survey finds. Nation’s Restaurant News. Retrieved 2nd of March from http://nrn.com/hr-training/customers-narrowly-back-higher-restaurant-wages-alixpartners-survey-finds. Sill, B.T. (1991). Capacity management: Making your service delivery system more productive, Cornell Hotel and Restaurant Administration Quarterly, 31(4): 76-87. Taylor, J.J. and brown, D.M. (2007). Menu analysis: A review of techniques and approaches, Hospitality Review, 25(2):74:82. Weaver, T. (1988). Theory M: Motivating with money, The Cornel Hotel and Restaurant Administration Quarterly, 229(3): 40-45.
Journal of Hospitality & Tourism Cases
61
teaching note Surviving Minumum-Wage Hikes at a Seattle Restaurant
Summary and Importance of Topic The pressure is on restaurants to get creative as cities, counties,
Step 1: Class lecture that introduces the case study topic. •
money.howstuffworks.com/personal-finance/budgeting/
and states increase the minimum wage. Understandably, the owner of Amy’s Café, feels threatened by the significant minimum-wage hikes imposed by the city of Seattle. How, then, do restaurant employers
minimum-wage-quiz.htm. •
s5=&s1=&s2=&S6=&Sect4=AND&l=0&Sect2=THESON&Sect3=
of restaurant expenses, future managers must be familiar with the
PLURON&Sect5=CBORY&Sect6=HITOFF&d=ORDF&p=1&u=%2
range of potential actions for keeping labor costs in line with sales to the viability of potential actions to make good decisions and minimize
F~public%2Fcbor1.htm&r=1&f=G. •
Have students read the article (Seattle workers win fight over $15 minimum wage) and view the accompanying video (Where
unintended consequences.
Starbucks CEO would set the minimum wage) at: http://money.
Target Audience This case would be appropriate for an undergraduate or gradu-
Have students read the Seattle Minimum Wage Ordinance at http://clerk.seattle.gov/~scripts/nph-brs.exe?s3=&s4=124490&
face this challenge and survive? Because labor is a significant portion
attain desired profitability levels. They must also learn how to evaluate
Have students take the online minimum wage quiz at http://
cnn.com/2015/03/18/news/economy/seattle-minimum-wage/ •
Explain to students how to calculate a labor cost percentage
ate cost control, human resource management, accounting, strategic
(labor cost divided by sales) and to interpret its meaning. Labor is
management, or capstone course.
typically among the highest costs restaurant owners incur. According to a 2010 study by the National Restaurant association,
Teaching Objectives 1.
the typical full-service restaurant spends about 33 percent of
Discuss the various viewpoints on the minimum-wage move-
its sales revenue on labor, including front- and back-of house-
ment in the United States. 2.
positions. The typical restaurant operates on a slim profit margin
Understand the financial impact of minimum-wage increases
(2 to 6 percent), so an increase in the payroll expense can have
on restaurant environments. 3.
a significant impact on profitability. A very important part of a
Learn about and evaluate potential measures for strategically
restaurant accounting system is determining the labor cost per-
addressing minimum-wage increases in restaurant environ-
centage. The labor cost percentage alerts managers to possible
ments. 4.
problems when there is a deviation from past ratios (historically
Apply ideas, models, and/or theories for understanding the
higher), targeted ratios (higher than budgeted cost percent-
possible consequences or implications of action alternatives for mitigating minimum-wage increases. 5.
Identify the factors involved in restructuring a pay scale to accommodate minimum-wage increases.
Teaching Approach In this case study, students are asked to identify or invent appropriate actions or interventions for simultaneously rectifying the minimum-wage difficulties, preventing profit erosion, and enhancing the future situation guided by the discussion questions at the end of the case. Ideally, this case study should be a homework assignment followed by an in-class discussion. How this case study is used will depend on the course goals and format and the class size. If it is a large lecture course, you might consider breaking the class into groups, each with a
ages), and industry averages (higher than competitive set). •
Introduce students to different ideas, models, and theories to help students evaluate possible actions and the associated consequences. In the answers to questions below, some relevant ideas, models, and theories are elucidated. Step 2: Homework assignments. Students read the case study
carefully, noting important case details. Students should read the case study three times to gain a solid understanding of the case fundamentals. The more thoroughly the students know the detailed facts about the situation, the more there is to consider regarding what might be done solving the problem. Then have students read the reference and suggested readings. Step 3: In a 60-minute class or as a homework assignment, stu-
spokesperson, to make the in-class discussion more manageable. If the
dents perform a case analysis, individually or in a group. Students
class is a smaller, discussion-format course, you will be able to explore
should begin by selecting ideas (e.g., labor-saving equipment: Point-
the perspectives introduced in the case in greater depth, and perhaps
of-Sale system), models (e.g., improving menu performance: Horton
integrate other instructional strategies, such as debate.
menu analysis model) and theories (e.g., increasing employee motiva-
62
Volume 6, Number 1
tion and productivity: Theory M and Adam’s Equity Theory) that will
social programs and the reallocation of those funds to
aid in their understanding of the situation (conceptual framework).
support other needs.
This will also help them identify actions for effectively dealing with the
•
situation’s underlying difficulties.
Stimulates economy: Low-wage workers would have more money to spend. When low-income households earn more money, they are more likely to spend it. This
Step 4. In a 60-minute class or as a homework assignment, have the students recommend actions for restructuring the pay scale and
may stimulate the economy and the hiring of more people
mitigating the minimum wage increases using the following guideline:
to keep up with increased sales from minimum-wage
1.
workers who are buying more.
Determine the criteria (see Table 2 in case study) for evaluating possible actions.
•
Decreases turnover: Higher wages may boost worker pro-
2.
Brainstorm possible viable actions.
ductivity and lower turnover rates, which results in fewer
3.
Identify the probable positive and negative consequences of
expenses to hire and train new employees. Unifi Network
each possible action.
(www.unifi.com), a division of PricewaterhouseCoopers
Use the criteria to choose the most appropriate and viable ac-
(www.pwcglobal.com), and Roper Starch Worldwide Inc.,
tions or interventions. Actions should be carefully justified.
conducted a joint study in 2000 examining the impact of
4.
Step 5: In a 60-minute class, the instructor starts and facilitates a class discussion on the case study by asking someone (or a group) for an answer to a particular discussion question and then works backwards to derive the analysis. Step 6: An optional step is for students to identify how to apply or adapt those actions/solutions identified in step four to other hospitality businesses (e.g., hotel, club, ski resort, theme park, convention centers, etc.). Instructors may choose to use one or more related examples or cases so that students can identify both the similarities and differences in possible actions in minimizing the impact of a minimum wage increase.
Answers to Discussion Questions 1.
employee turnover on customer satisfaction within six different industries. A total of 3,005 consumer interviews were conducted online. The survey results revealed that consumers considered high employee turnover as a major cause of poor-quality service. When Maslow’s hierarchy of needs is applied to work situations, it implies that managers have the responsibility to ensure that deficiency needs are met (Maslow, 1954). Maslow scales human needs; the most prepotent (sense of urgency) are the lowest on the scale. The physiological needs (fair compensation) are at the bottom of the hierarchy followed by safety, social, esteem, and self-actualization needs. When management
In your opinion, what are the general pros and cons of raising
fails to address wages that are perceived as too low or
the minimum wage? The minimum wage debate garnered
noncompetitive, employee performance and job satisfac-
much national attention after the city of Seattle enacted a $15
tion theoretically suffers and leads to lower retention
per hour minimum wage rate in 2014, making it highest in the
rates (Ramlall, 2004). Other theories that help explain the
nation. Many articles have been published on the advantages
relationship of compensation to employee retention rates
and disadvantages of raising the minimum-wage rate. Stake-
are (Pinder, 1987; Adams, 1969; Ramlall, 2004):
holder opinions vary on this topic. Some feel that raising the
- Equity Theory: This theory asserts that
minimum-wage rate is necessary to help restaurant workers
employees seek to maintain equity between the
make a living wage, the minimum income necessary for them
inputs that they bring to a job and the outcomes
to meet their basic needs (e.g., house, food, and clothing).
that they receive from it against the perceived
However, others are concerned that minimum-wage increases
inputs and outcomes of others. Equity is perceptual
will be costly to restaurant businesses. The following are some
and relative. An employee feels justly or unjustly
general points you can use for discussing the advantages and
treated only in relation to how he or she perceives
disadvantages of minimum-wage hikes to help students frame
others are being treated in the same situation.
the issue from a macro perspective before delving into the subsequent discussion questions and the specifics of this case study (Halvorsen, 2014; Williams, 2015). Possible advantages of the minimum-wage rate hike are: •
- Expectancy Theory: This theory has three key elements: expectancy, instrumentality, and valence. An employee is motivated to the degree that he or she believes that effort will lead to
Improves living standards: Low-wage workers would
acceptable performance (expectancy),
be better able to pay for their basic living expenses and
performance will be rewarded (instrumentality or
to support themselves. This may lead to less reliance on
performance-to-reward expectancy), and the value
Journal of Hospitality & Tourism Cases
63
of the rewards is highly positive (reward valences).
workers, reducing opportunities for them to gain resume-
In other words, the employee will choose the
building experiences and knowledge.
behavior that has the highest anticipated payoff or
2.
whether to follow the city of Seattle’s minimum-wage ordinance
Possible disadvantages of the minimum-wage rate hike are: •
•
Higher prices. Employers may need to raise prices to
schedule or immediately jump to $15 per hour required by 2019.
cover the inflated labor cost. In addition to low-wage
This may depend on what competitors do? In 2016, the owner
employees, employees who have worked their way up
of Tom Douglas restaurants, Seattle’s largest upscale restaurant
through pay raises will also likely have their pay increased
group, stated the following in a letter to staff: “We are com-
to match their title and tenure (Equity Theory). Higher
mitted to everyone on our team making $15 or more” (http://
prices may dampen sales and perhaps force even larger
tomdouglas.com/pdf/Website_TomsLetter-ServiceChargeModel.
price increases to cover costs. How much prices can
pdf). If the majority of Seattle restaurants go straight to $15.00
theoretically increase depends on the price elasticity of
per hour, Amy’s Café may be forced to do the same to attract
demand, a measure used in economics to show the re-
and retain quality employees. The next decision for Amy is to
sponsiveness, or elasticity, of the quantity demanded of a
determine how much of an increase to give to employees. Let’s
good or service to a change in its price. Demand is called
say that Amy decides to follow the schedule and must comply
elastic if, say, a 10 percent rise in price reduces quantity
with the April 2015 minimum-wage rate of $11.00. For example,
demanded by more than 10 percent. Demand is called
a line cook making $9.47 per hour would then receive a $1.53
inelastic if such a rise in price reduces quantity demanded
per hour increase. But what about other employees who are
by less than 10 percent. Discriminatory pricing, charging
making more than $9.47 per hour? How will their wage rates
lower prices to price-elastic or price-sensitive customers
move forward? If these are not adjusted equitably, employees
and full prices to price-inelastic customers, has become a
could become demotivated if they feel as though their inputs
standard operating procedure for many hospitality firms
(e.g., hard work, skill level, tenure, etc.) are greater than their
(Raab et al., 2009). For example, a business might lose mar-
outputs (e.g., compensation) (Ramlall, 2004). Erickson (2014)
ket share (price-elastic market segment) to neighboring
maintains that the challenge for the restaurant operator is to
competitors providing similar products and experiences
minimize those increases without losing experienced and loyal
at lower prices. While it may be possible for this business
staff. He recommends a declining scale for wage-rate increases
to either beat or match lower-priced competitors without
with a maximum breakpoint (wage rate with no increase). For
crippling its profits, significant operational changes may
example, assume a new minimum-wage rate of $11.00 per hour
be required. This business may also need to rethink how it
and a maximum-wage rate breakpoint of $15.00 per hour. An
communicates with its customers (James, 2007).
employee with an old rate of $9.47 would get a $1.53 per hour
Fewer full-time job opportunities. Rather than raising
increase, the maximum increase, and an employee with a wage
prices to offset higher wages, businesses might elect to
rate of $15.00 would remain unchanged. Other employees with
cut employees, their hours, or both. Worker benefits could
old wages rates between these two thresholds would get incrementally lower wage-rate increases (see Table 3).
also be reduced. According to a 2013 Congressional Budget Office report, 500,000 jobs would be lost if the federal
•
How should Amy’s Café restructure the pay scale to accommodate the minimum-wage rate hikes? A key question for Amy is
directly leads to things he or she wants.
3.
What actions (e.g., profit formula, resources, and processes)
minimum wage were raised to just $10.10 per hour (https://
would you recommend to mitigate the minimum-wage in-
www.cbo.gov/publication/44995). Furthermore, a 2006
crease to ensure the long-term viability of Amy’s Café? Raising
Federal Reserve Bank of Chicago study predicts that a 10
the minimum-wage rate from $9.47 to $15.00 represents a
percent increase in the minimum wage will lower low-skill
58.38 percent increase. The present labor cost percentage at
employment by 2 to 4 percent and total restaurant employ-
Amy’s Café could easily increase from 36 percent to 44 percent
ment by 1 to 3 percent (Aarronson and French, 2006).
or more if no changes are made. Anthony Anton, president
Less demand for unskilled or semi-skilled workers. Over-
and CEO of the Washington Restaurant Association, estimates
ly qualified individuals might be vying for minimum-wage
that a typical Seattle restaurant has a 36 percent labor cost
positions, hindering opportunities for low-wage workers
percentage, 30 percent food cost percentage, and four percent
to improve their socioeconomic outlook. Businesses may
profit margin (Jones, 2015). For Amy’s Café to remain profit-
also not be able to afford hiring younger, inexperienced
able, the business model will need changing in terms of the profit formula, resources utilized, and processes deployed. The
64
Volume 6, Number 1
supporters were against paying more for menu items to
Table 3
achieve higher wages. The price-sensitivity of customers
Declining Pay Scale Structure
at Amy’s Café will determine to what degree the owner will
Old rate
Wage Rate Increase
New Rate
ing sales, especially if the prices are raised significantly (e.g.,
$9.47
$1.53
$11.00
21%). In terms of implementation timing, the owner might
$9.97
$1.33
$11.30
gradually increase menu prices to offset rising labor costs
$10.47
$1.03
$11.50
to make this action more palatable to customers over time.
$10.97
$.93
$11.90
Price increases are much less likely to be noticed when they
$11.47
$.70
$12.17
are done more often in smaller increments. Amy should be
$11.97
.$70
$12.67
$12.47
$.60
$13.07
$12.97
$.50
$13.47
$13.47
$.40
$13.87
$13.97
$.30
$14.27
$14.47
$.25
$14.72
$15.00
0
$15.00
be able to raise menu prices. This action has risk of reduc-
selective in raising menu-item prices, however. Performing a menu engineering analysis, a process for categorizing menu items based on their contribution margin (menu price – food cost) and popularity, is helpful in pricing menu items. For example, Amy could consider raising the price on a popular item with a low contribution margin (plow horse – Kasavana and Smith menu analysis model) to test for price elasticity. The objective is pricing menu items in a manner that will result in customers ordering profitable items and
case facts illuminate and inform some potential actions (e.g.,
eliminating those items that are eroding profitability (Taylor
eliminate tips and raise menu prices). The readings illuminate
and brown, 2007).
other potential actions (e.g., labor-saving equipment). Let’s assume that the minimum-wage rate at Amy’s Café is now $15.00 per hour and the labor cost is now 44 percent of sales revenue. To again achieve the targeted labor cost percentage of 36% at Amy’s Cafe, the owner might raise prices (e.g., 21 percent increase), cut costs (e.g., 8% decrease), or both. These general goals need to be translated into clear and specific actions. Some potential actions are straightforward, while others are a bit more complex and will require students to think carefully through theirs the pros and cons aided by the evaluation criteria listed in Table 2. Below are some key actions that could help mitigate the impact of the minimum-wage increase on Amy’s Café. Potential Actions: •
No-tipping and raise menu prices or add service charge. Many Seattle restaurants have opted to either eliminate tipping and raise prices or eliminate tipping and not raise menu prices but add a service charge. Will a no-tipping policy be accepted by both customers and employees at Amy’s Cafe? It will probably depend on who initially adopts it (reputable and highly visible Seattle restaurants), how widespread it becomes in Seattle, the magnitude of menu price increases or service charges, and how price increases and service charges benefit employees (e.g., commissions, wages, benefits, etc.). Will customers pay more for menu items? A 2015 study by AlixPartners found that while 51 percent of customers sup-
Will customers pay a service charge? The 2015 AlixPartners study found that overall 65 percent of customers want to control how much they tip and do not want a set service charge (Ruggless, 2015). What are the public relations implications for restaurants who forgo following the minimum-wage rate schedule and immediately pay employees $15 per hour? When well-known Seattle-based restaurant employers, like Tom Douglass’ restaurants, immediately boost their minimum wagerates to $15 per hour very publicly, it creates pressure on other restaurant employers to follow suit. Combine that with growing social pressure, it would not be surprising to see Amy’s Café and other restaurants quickly bow to the competitive wage dynamics. Molly Harnischfeger, an AlixPartners director and member of the consulting firm’s restaurant and foodservice practice, was surprised by the number of people who supported the movement for higher restaurant wages in the 2015 AlixPartners restaurant survey. The most support of the movement for higher worker wages was among the younger demographics, whereas the 65-plus age group was the most willing to pay more (Ruggless, 2015). How will revenue from increased menu prices or service
ported higher pay for restaurant employees, a third of those
Journal of Hospitality & Tourism Cases
65
charges be distributed to employees? In Seattle, this is be-
regardless of their output, once highly productive servers
ing handled in various ways. A restaurant, for example,
may respond to this inequity by reducing their work effort
could raise prices to offset wage increases and do noth-
or quitting according to the equity theory.
ing more. On the other hand, it could raise menu prices and allocate a portion of the revenue (e.g., 8 percent) for
Can a tip culture change? This question is gaining more
tipping servers or all employees based on hours worked.
and more attention because of the raise-the-minimum-
Service charges are not tips but part of the employer’s
wage movement around the country. Eliminating tipping
gross receipts (http://www.dol.gov/whd/regs/compliance/
and increasing menu prices or adding a service charge may
whdfs15.htm). If a service charge is added, all of it could
be easier to implement in high-end restaurants because
be used to offset wage increases or portioned out as ad-
their customers are typically less price sensitive. Conse-
ditional compensation to designated employees (e.g.,
quently, menu-price increases and service charges will
servers). Both state law and Seattle’s minimum-wage ordi-
likely need to be tempered in casual dining restaurants, like
nance require restaurants to disclose on menus or receipts
Amy’s Café. According to Paul Mangiamele, CEO of 75-unit
what percentage of a service charge goes to employees,
Bennigan’s Franchising Co., based in Dallas: “Ultimately, the
even though it is not technically required for them to re-
consumer will look at the value of the experience. If they
ceive anything. According to one Seattle attorney, this law
don’t feel they’re getting value for their money with the
is frequently violated throughout the state of Washington.
increased pricing, they’re not coming back” (Maze, 2015).
Amy’s Café customers may find that a service charge is an easier and more transparent method of compensating
•
Purchase labor-saving equipment and technology. The
servers but how it should be implemented and distributed
owner of Amy’s Café must now face the reality that it may
to them requires careful thought. How the city of Seattle
be difficult to compete without utilizing newer equipment
will monitor the process needs clarification (Garbes, 2015).
and technology to boost labor productivity. For example, it takes less labor time to enter orders using a wireless
How will servers respond to no longer receiving tips? Gabriel
handheld rather than walking back and forth taking and
Frem, owner of Brand 158 in Glendale, California, main-
entering orders into a POS terminal. It takes less time to
tains that tips disrupt the working environment and leave
cook products using a conveyor oven rather than tending
workers unsure of their weekly take-home pay. Eliminating
to it on a grill. There is also the opportunity to shift some
tips and paying employees more will stabilize their lives
of the work from employees to customers through use of
(Peterson, 2014). Servers are the face of the restaurant.
self-service devices (e.g., table kiosks).
They play a critical role in making customers feel well taken care of. A number of studies have that found tip-
How will customers and employee respond to the introduc-
ping barely improves service, however. For example, the
tion of new technologies for streamlining service? What
average correlation between tip percentages and service
front-of-the-house technologies will be a good strategic
ratings was only .11 (very weak) in a quantitative review of
fit for Amy’s Café? Much depends on how it is perceived
14 studies involving 2,645 bills at 21 different restaurants
by both customers and employees. Allow employees and
(Lynn, 2001). On the other hand, a few studies have found
customers to view and/or interact with technologies un-
that server turnover rates increase as their average tip
der consideration and then ask for their perceptions about
percentages decline (negative correlation) (Lynn, 2003).
the appropriateness for Amy’s Café.
Amy’s Café servers are presently making $16.00 to $18.00
66
per hour. In a non-tipped environment, they would earn
While technology may streamline processes, some may
less but gain more predictability in their incomes. Bonuses
feel that it depersonalizes service. Wireless handheld ter-
or commissions may be necessary to retain servers, espe-
minals, for example, were first used in restaurants in 1977.
cially those with strong merchandizing skills. Theory M
Handheld terminals were not popular during the 70s and
maintains that hourly employees work most productively
80s. The public did not accept them. At some restaurants,
when their wages are closely tied to their level of output
servers were instructed to step away because of customer
(e.g., sales volume, average guest check, etc.) (Weaver,
complaints (Collins, 1991). Today, the reaction would
1998). If compensation remains the same for all servers
probably be much different at most restaurants. But what
Volume 6, Number 1
about using tabletop tablet technology that allows cus-
•
Better Scheduling. The labor cost percentage is not an
tomers to place and pay orders? Server roles will change
accurate measure of employee productivity and schedul-
and tipping may no longer be necessary because most of
ing efficiency (Pavesic, 2004). However, it does indicate
the work will be done by customers, expediting the order-
if there is a cost structure problem or if the labor cost
ing process and increasing table turnover. Reese (2014)
percentage exceeds the targeted labor cost percentage.
maintains that self-order kiosks are not a replacement for
Furthermore, judging labor performance based on the
cheap labor. He argues that Panera Bread’s self-order kiosk
labor cost percentage reported in the monthly income
installation, costing $42 million, will not result in a signifi-
statement is too late for corrective action. Labor hours
cant savings for the restaurant chain.
need to be monitored on a day-to-day basis.
In most industries, robots are being recruited for applica-
There is a tendency to schedule more workers than are
tions that have generally been performed by humans
needed because of a fear of being shorthanded or not under-
because of their increased functionality and the declining
standing how to properly align labor with customer demand.
cost of making and supporting them. A 2015 study by the
Amy’s Café has been using a manual scheduling system and
Boston Consulting Group predicts that over the next de-
could probably benefit by using an automated scheduling
cade robots will become more prominent in the US labor
and labor control system interfaced with a POS system (e.g.,
market as they improve productivity and cut costs. The
HotSchedules). The purpose of a labor control system is to
Asian hospitality industry is already taking advantage of
eliminate unused employee capacity. The first step is the
this trend. Thousands of noodle-making robots have been
formulation of efficient staffing guides (e.g., covers per labor
purchased by restaurants in China. A number of restaurants
hour by position) or the number of labor hours that must be
in Singapore use drones, pilotless flying robots, to ferry food
worked by persons in variable staff positions as the volume
from the kitchen to serving stations. Robot servers, costing
of expected business changes. To develop a staffing guide,
under $10,000, can be found waiting tables at restaurants
two basic steps must be followed: identification of tasks
in China, Japan, South Korea, and Thailand. The restaurant
associated with a particular position and determination of
industry may eventually find the deployment of robots a
time requirements to complete these tasks (Scientific Man-
competitive necessity. Thoughtfully designed robot sys-
agement and Time and Motion). One this information has
tems, however, will be required for service environments
been gathered, it should be determined if any of the tasks
where customers may not even know what robots are and
should be combined, eliminated, simplified, or rearranged.
what they are trying to do, says Chris Jones, Director of Stra-
During this process, barriers to and measures for improving
tegic Development at iRobot (Collins, 2015).
labor productivity can be identified. Reducing service steps, for example, can speed up service and increase the table
Can Amy’s Café afford to purchase new equipment and
turnover rate, increasing sales capacity (Sill, 1991). However,
technology? While POS systems are becoming more
to keep employees busy is not an easy task in an industry
affordable, they still represent a substantial financial in-
where the flow of business has definite peaks and valleys for
vestment. The average cost of a POS system, including
most positions. The challenge can be eased by writing job
installation, is about $15,000 and must be replaced or
descriptions that allow workers to be cross-utilized and eas-
upgraded every three to five years. Some restaurant op-
ily shifted from one job to the next when needed. Another
erators spend $50,000 or more for their POS systems. POS
measure is maintaining a good balance of part-time versus
systems, drink machines, food processors, higher-capacity
full-time employees, giving managers more flexibility in
cooking equipment, and equipment placement (kitchen
matching workloads with customer demand. Scheduling
design) all can have a significant impact on labor produc-
software monitors worker hours and ensures that part-time
tivity. Each purchase must be cost justified, however. A
employees do not exceed 30 hours per week, the threshold
dollar value must be assigned to the projected benefits
for becoming benefit eligible.
and compared to the costs incurred to determine its pragmatic feasibility. This approach will result in smarter
How will employees react to new staffing guides and auto-
choices that will provide a faster return on investment.
mated scheduling? The development of staffing guides frequently results in revision of job content and may
Journal of Hospitality & Tourism Cases
67
require employees to be retrained. To gain employee co-
How feasible is it to determine the labor-intensity of menu
operation, management must communicate effectively
items? Every preparation task must be timed and costed
the benefits of the program. Successful programs solicit
out based on the hourly labor cost of the employee
employee participation in the development of new labor
performing the task. This requires a time study where a
standards to garner their support and interest in improv-
timekeeping device is used to record the time taken to
ing operational performance. Automated scheduling may
accomplish every task required to produce and deliver
help with retention. Scheduling software can automati-
a menu item. Amy’s Café would probably need the help
cally determine the number of hours required and how
of a consultant to perform a menu analysis that incorpo-
the hours should be distributed, saving supervisory time.
rates labor cost into the profit formula (menu price – food
Short-term variables such as vacation, sick leave, flex-
cost – labor cost = contribution margin) for each menu
time, and personal days off are all considered when using
item. According to Taylor and Brown (2007), it is extremely
scheduling software. The opportunity for employee input
difficult to precisely calculate and assign the labor cost
and lack of bias in schedules addresses two important fac-
required for producing a particular item. For example, how
tors – worker empathy and management efficiency.
can you differentiate the labor requirements for menu items when they are simultaneously prepared by the same
A key to controlling labor is the development of a good
employee? Furthermore, the Horton menu analysis model
forecasting system. Without it, controlling labor costs and
(contribution margin inclusive of labor) when compared
maintaining service requirements is impossible. A labor
to the Kasavana and Smith model (contribution margin
control system is a pre-control system because it predicts
exclusive of labor) rendered different results for only 11.5
the number employees needed. Scheduling requirements
percent of the menu items evaluated for an independent
are predicated on the forecasted work volumes and labor
restaurant (Taylor and Brown, 2007).
standards stipulated in the staffing guides. The heart of a good control system is the measurement of actual performance compared to performance standards. This information should be circulated in a daily or weekly labor productivity report highlighting areas needing attention. An effective labor control system will enable managers to sense changes in daily workloads (forecasting) and take the required corrective action (managing) •
Re-engineer menu. Recipes are the backbone of an operation. Every operating expense, every salary and wage, and every penny of profit must come from the difference between the selling price and the cost of recipes. It may possible for Amy’s Café to reduce the number of labor hours by reducing the complexity of the menu (number and diversity of items and sub recipes). Using value-added products (e.g., pre-marinated and cooked chicken and Sous-vide) and trimming menu items and labor-intensive recipes are possible options. Streamlining a menu typically increases kitchen capacity as economies of scales are realized and changeover costs of multi-batch products are minimized (Sill, 1991). However, the menu changes will need to be consistent with the concept and theme of the restaurant and the needs and expectations of customers (Ozdemir and Caliskan, 2014).
References Aaronson, D, & French, E. (2006). Product market evidence on the employment effects of the minimum Wage. Chicago Federal Reserve. Retrieved 28th of February from http://www.chicagofed.org/digital assets/publications/working_papers/2003/wp2003-17.pdf. Collins, G.R. (1991). Selecting POS systems for table service restaurants, FIU Hospitality Review, 9 (2), 36-51. Collins, G.R. (2015). The rise of robotics in hospitality. HITEC 2105 Special Report. Retrieved 7th of March from http://www.hftp.org/explore-hitec/i/ downloads/H15SRw.pdf Erickson, J. (2014, August). Caution: Pay bumps. Restaurant Startup and Growth, 33:37. Garbes, A. (2015). Service charge for what? The Stranger. Retrieved 10th of February from http://www.thestranger.com/food-and-drink/feature/2015/05/20/22248062/service-charge-for-what Halvorsen, C. (2014). The pros and cons of raising the minimum wage. When I Work. Retrieved the 24th of February from http://wheniwork.com/blog/thepros-and-cons-of-raising-the-minimum-wage/. James, G. (2007). How to beat a lower priced competitor. CBS Money Watch. Retrieved the 27th of February from http://www.cbsnews.com/news/howto-beat-a-lower-priced-competitor. Lynn, M. (2001). Restaurant tipping and service quality: A tenuous relationship, Cornell Hotel and Restaurant Administration Quarterly, 42:14-20. Lynn, M (2003). Tip levels and service: An update, extension and reconciliation. Cornell Hotel and Restaurant Administration Quarterly, 42:138:148. Maslow, A.H. (1954). Motivation and Personality. New York: Harper and Brothers. Jones, S. (2015). Is the Seattle minimum wage law really “off to a bad start” for restaurants? Seattle Eater. Retrieved 14th of November 2015 from http:// seattle.eater.com/2015/8/13/9143329/is-the-seattle-minimum-wage-law-asbad-for-restaurants-as-the. Maze, J. (2015a). Could the tip culture change? Nations Restaurant News. Retrieved
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Volume 6, Number 1
4th of March from http://nrn.com/hr-training/could-tip-culture-change. Ozdemir, B. and Caliskan, O. (2014). A review of literature on menus: Specifying the managerial the managerial issues, International Journal of Gastronomy and Food Science, 2(1):3-13. Pavesic, D. (2004). Boost labor productivity to control labor costs. Restaurant Startup and Growth. Retrieved 11th of March from http://www.rrgconsulting.com/restaurant_labor_cost_controls.htm. Peterson, K. (2014). More restaurants adopting no-tipping policy. CBS News. Retrieved 2nd of March from http://www.cbsnews.com/news/more-restaurants-adopting-no-tipping-policy/. Pinder, C. C. (1987). Valence-instrumentality-expectancy theory. In R. M. Steers & L. W. Porter (Eds.), Motivation and work behavior (4th ed.) (pp. 69-89). New York, NY: McGraw-Hill. Raab, C. Mayer, K., Kim, Y., &Shoemaker, S. (2009). Price-sensitivity measurement: A tool for restaurant menu pricing, Journal of Hospitality and Tourism, 33(1):93-105. Reese, F. (2014). The minimum wage employees of the future, today. MintPress News. Retrieved 7th of March from http://www.mintpressnews.com/minimum-wage-employees-future-today/190452/. Ramlall, S. (2004). A review of employee motivation theories and their implications for employee retention within organizations, Journal of American Academy of Business, 5, (1/2):52:63. Ruggless, R. (2015). Customers narrowly back higher restaurant wages AlixPartners survey finds. Nations Restaurant News. Retrieved 2nd of March from http://nrn.com/hr-training/customers-narrowly-back-higher-restaurant-wages-alixpartners-survey-finds. Sill, B.T. (1991). Capacity management: Making your service delivery system more productive. Cornell Hotel and Restaurant Administration Quarterly, 31(4): 76-87. Taylor, J.J. and Brown, D.M. (2007). Menu analysis: A review of techniques and approaches. Hospitality Review, 25(2):74:82. Williams, S. (2015). 3 pros and cons of raising the federal minimum wage: Where do you stand? The Motley Fool. Retrieved 25th of February from http://www. fool.com/investing/general/2015/03/01/3-pros-and-cons-of-raising-thefederal-minimum-wag.aspx.
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69
case study
The Innovative Competitive Advantage: A Case Study of Two Pioneering Companies
By Elizabeth Whalen and JiYoon (Jennifer) Han Introduction Great organizations consistently look for a competitive advantage that will give them an edge over the competition. Finding competitive advantages that are not easily mimicked is essential in maintaining momentum for an organization, and one of the best ways to stay ahead of the competitive market is to maintain an environment of innovation. The definition of innovation is simple: the introduction of something new or a new idea, method, or device (“innovation”, 2011), successfully implementing the concept of innovation is significantly more challenging. Innovation requires the ability to understand and to read the market and the consumers. As stated by DeMaria (2013), “successful innovation [must] begin with the identification of an unmet need… [and once this] unmet need is recognized and a plausible
Evelyn looks at the menu and starts to worry, “The food on this menu all looks so good, but it also looks fancy. I am not sure I can afford the prices.” However, when Evelyn searches for the price of the different entrees, she does not find any! Evelyn asks Matt and Cassandra if their menus have any labeled prices, and they agree that they cannot find any. The three quickly call their server Edwin over to ask him to help. Edwin smiles at the new customers, and quickly explains the situation. “I’m sorry I forgot to tell you when I first introduced myself. This month, there are no prices for the food. The owner told us that he wants customers to ‘pay what you think the food is worth’. It is completely up for you to decide.” He again smiles at the puzzled and awed faces of the three coworkers. Matt enjoys trying new foods, but is often worried about being
solution is identified, a successful innovator has to be a risk taker and
disappointed. He is excited for the promotion because this means he
be willing to fail” (p. 253).
can try different things and not worry about the price of each item.
The challenge of innovation is recognizing opportunities for the implementation of novel ideas combined with the willingness to accept that those innovations may result in failure (DeMaria, 2013). Despite the risks and challenges, the hospitality industry calls for service and practice innovations that will help guide strategic and operational decisions in meaningful and valuable ways (Johnson, 2011). The following case study examines two organizations that took the risk of innovation: one through pricing strategy and one through technology. These two organizations reasonably represent the spectrum of opportunities for innovation from service operations through marketing strategies.
Innovative Pricing Strategy Coworkers at Lunch Coworkers Evelyn, Matt, and Cassandra finished a long, tedious
He decides to order an appetizer, an entrée, and a dessert. Evelyn, however, feels uncomfortable. She is not sure what the value of the food items should be, and she does not want to look foolish in front of her coworkers. She decides to order the simplest entrée which she is most familiar. Cassandra is not worried about the promotion, she decides that she wants to follow her friends’ recommendations and order things they suggested to her. All three greatly enjoyed their food, the service, and the atmosphere. As promised, a bill never came. Instead, Edwin placed an empty check presenter on the table and reminded them that they were free to pay what they wanted.
Little Bay Restaurant Although this scenario seems outlandish, this is exactly what the owner of the Little Bay restaurant in the Farringdon District of London did during the recession in 2009. Peter Ilic, a Yugoslavian immigrant,
morning meeting and decided that they want to eat out for lunch.
decided to follow a month long pricing strategy that allowed the cus-
Cassandra recommends a very nice local restaurant her friends have
tomers to decide the value of his product. In an interview with Voice
been raving about, “don’t miss the foie gras!” They quickly collect their
of America (VOA) News in February 2009, Ilic cited many reasons for
things and make their way to the gastronomic district for lunch. The
his promotion choice. He believed that people should have the op-
atmosphere is warm and welcoming, and the restaurant is packed with
portunity to eat even if they lost their jobs, something that happened
other business diners. Their server, Edwin, was courteous and prompt.
increasingly during the recession. He also explained that during the
He welcomed them as first time visitors and offered a number of rec-
economic downturn, customers were seeking value (Drew, 2009).
ommendations for the most popular dishes. Elizabeth Whalen and JiYoon (Jennifer) Han are both affiliated with University of Houston.
70
Ilic’s strategy was a success. He claimed that customers on average paid more than what he would have charged, paying around 17.25 pounds per person ($26.25 USD), 30% greater than the average
Volume 6, Number 1
of his own priced checks (Hodge, 2009). The volume of customers
immediately helped Matt feel comfortable. Next it was Evelyn’s turn,
also remained high. Ilic served just under 10,000 customers in the
and she ordered the stuffing bowl.
month of February (Hodge, 2009), and often had to turn people away
When Matt’s burrito bowl was ready, a number appeared beside
due to the filled capacity (Drew, 2009). The promotion was not only
his name on the screen which corresponded with one of the small
successful in the local community, but also received expansive media
boxes Evelyn and Matt had noticed when they first walked in. “This
attention (Britton, 2009). Twenty-one British news outlets, eleven
is called a cubby,” a nearby customer told them. “I can see that this is
international news outlets and thirteen blog media sites covered Ilic’s
your first time here, you are going to love it. Go to the cubby that is
price promotion in 2009 (Little Bay Farringdon, 2009), which is esti-
black and alarming and tap it with your finger.” Amused, Matt went to
mated at 148,000 pounds of free publicity (Kent, 2009).
his transparent LCD cubby and did as the woman instructed. His cubby
Innovative Operational Strategy
opened, and his burrito bowl was waiting for him. He took the bowl
Coworkers at a Business Trip Three weeks later, Evelyn and Matt were scheduled to go on a
outside, sat at one of the benches in front of the restaurant and enjoyed his meal. Evelyn was also satisfied with her very filling and quick meal. It took them less than 10 minutes to order and receive their
business trip to San Francisco to attend an important meeting to ob-
food, which allowed them to arrive at the meeting venue feeling warm
tain funding for their company project. They had a very rigorous travel
and comfortable and prepared to make their important presentation.
schedule with an early morning departure from London arriving in San
Eatsa
Francisco at 1:05 PM and had to make their way to the office for a 5:30 PM meeting, leaving very little time for relaxation. They were very hungry when they arrived in San Francisco, but after clearing customs and immigration they realized they had limited time before the meeting would start to both eat and drive into town. Evelyn was hoping to find a quick, light, and healthy meal; her stomach was too sensitive to take in heavy and greasy food especially after a long day of travel. The hungry colleagues went to the closest airport food court. Within a few minutes of arriving at the packed food court, Matt and Evelyn stood blankly staring at the extremely long queue and the dining place packed with noisy travelers. Thirty minutes later, Evelyn and Matt were still hungry. They had grabbed their bags and were hailing a cab. Matt grabbed his phone to search for any dining opportunities on the way to their meeting. Surprisingly, one perfect match popped up on his smartphone, a quick-service restaurant serving healthy fast food called “Eatsa.” Matt and Evelyn directed the cab driver to the financial district where the Eatsa was located. By the time they arrived at the restaurant, it was already 4:10 PM, and they decided they only had 30 minutes to eat and head on their way. When they entered the restaurant, there were amazed by two exceptional things: there were neither counters to order from nor any employees to serve or take their order. Instead, on one of walls there were small boxes similar to a post office, and a small queue of people standing to the opposite side, which Evelyn and Matt joined. Feeling unfamiliar with the setting, they glanced at the menu on a flat-screen monitor which included options for eight quinoa bowls, including the burrito bowl, the bento bowl, and the balsamic beet, for $6.95 each. The line moved more quickly than they expected and it was Matt’s turn to order. He approached the virtual iPad screen, tapped in his order for a burrito bowl, and paid. His name appeared on a big screen as the food was ordered, an extra touch that
Journal of Hospitality & Tourism Cases
The restaurant industry is constantly challenged with increased levels of competition. Eatsa is one of the restaurants that decided to accept change and innovative strategies for operational efficiency and cost effectiveness. It is a fully automated restaurant located in San Francisco at 121 Spear St, which was newly introduced in 2015. The restaurant’s founder, David Friedberg, insists that this adoption of technology is more than a food delivery system. It is a different concept from the normal restaurant model (Miller, 2015). One of his major motivations to start this new concept was because of workers’ increasing salaries in San Francisco. On November 4, 2014, Proposition J was passed by San Francisco voters raising the city’s minimum wage to $15 by 2018 (Office of Labor Standards Enforcement, 2015). In the restaurant industry, employee salaries account for approximately 30% of the total cost of conducting business (Dopson & Hayes, 2011). Minimizing labor costs results in much higher profit margins. Eatsa has fully integrated this concept into its innovative service model. There are no servers taking orders. The service model depends on technology via the virtual kiosk and a section of “cubbies” for food delivery. This system decreases the number of front of the house employees. Eatsa currently employs a front of the house concierge to assist with guest questions and a full back of the house staff to prepare the food. As restaurants are sensitive to labor costs, the development of technology will be one of the solutions to ensure the chance of survival in the future (Doran, 2010). In addition, although the front of house procedure is fully automated, the restaurant aims for customers’ health. The eight menu items are high in protein, loaded with flavor and prepared with environmental values in mind, providing customers with a good combination of convenience and health-conscious food (Miller, 2015). The Eatsa business team also declared that they are targeting the busy
71
workers in the financial district who currently do not pay much atten-
Ultimately, any strategy, innovative or standard, must provide
tion to healthy eating (Farr, 2015). Eatsa is planning to open two more
value to both the organization and the consumer. Value is the tradeoff
locations including Los Angeles in the upcoming months.
between the quality and utilization of the product and the costs associ-
Service Innovation
ated with its acquisition (Oh, 2000). During an economic downturn, the
The modern hospitality industry climate imposes certain strategic operational imperatives. These include creative and quality services for competitive advantage and innovation to effectively manage resource constraints. Service innovation is a powerful tool for service operations ranging from multi-national corporations to small, private restaurants. The implementation of emerging technology garnered attention worldwide and created a demand from customers to have more efficient, productive, and cost effective restaurant delivery systems (Gallouj & Weinstein, 1997). The major motivation for Eatsa to adapt new technology was cost reduction. The service industry is different than other goods based industries due to the intangibility of the service product in addition to the simultaneous production and consumption of service. Typically, service innovation focuses on the delivery process since it is paramount in creating value for customers. Selecting the right innovative strategy depends on the goals of the organization and the characteristics of the service operation. Radical, combinative, incremental, and improvement innovations could be considered, based on the concept of the service product (Fitzsimmons & Fitzsimmons, 2006). Eatsa clearly shows that technological adaptation had brought a critical change to traditional service delivery systems. Using iPads for the Point-of-Sale (POS) system, automatic mail boxes for delivering food, and screen menus for informing customers of the menu options prove that hospitality operations have the capacity for innovation which shows the strength of the demands from customers for improvement within service operations.
Value Creation While most innovative strategies focus on product innovation, pricing is an area that has received far less attention. Pricing can be equally powerful (Hinterhuber & Liozu, 2014). Through Little Bay’s participative pricing strategy, the company was able to reach pricesensitive customers who might not have otherwise purchased the product during difficult economic times, but who may become loyal customers when their personal spending increases after economic
risks associated with spending money can be much higher than during economically good times. By decreasing the risks associated with the cost of dining out, coupled with the emotional appeal of building relationships through offering this promotion, the Little Bay Restaurant successfully built value for both the customers and the organization. On the other side of organizations, Eatsa decided to adopt technological innovation to maximize operational productivity and efficiency, setting all of its menu prices to $6.95. Although slightly different from the pricing perspective, they share the same goal of providing value to customers. Innovation is expected to save costs and increase productivity. This will directly affect customers by allowing them to spend their money and time on other important issues (Miller, 2015). Innovation cannot be viewed in isolation from technology, radical or incremental, especially during economic downturn (Gallouj & Weinstein, 1997). Comforting elastic customers with reasonable prices for their meals is essential, and the adoption of technology is regarded as one of the best solutions for adding value for both the consumer and the organization. As a result, delving into the ‘black box’ of technology and innovation could greatly benefit both foodservice operations and customers in the long-term.
Conclusion Porter’s well known strategies for competitive advantage include both differentiation and low-cost leadership, represented in this case study by Little Bay’s innovative differentiation strategy through price and Eatsa’s innovative low-cost leadership strategy through technological advancements in service operations. These two organizations use innovation to create competitive positions within the highly saturated food and beverage market, not only through ingenuity but by creating value for both the organization and the customer.
Discussion Questions Little Bay Restaurant 1.
found out about the promotion?
improvement. Past research on pay what you want models (PWYW) focuses on consumers’ feelings of altruism, fairness towards the organization, self-signaling, social welfare and preferences, and reciprocity (Mak, Zwick, Rao, & Pattaratanakun, 2015). Mak et al. (2015) additionally attribute payment behaviors to social norms. By creating a culture of normative behavior and reciprocity between organization and customer, restaurants like Little Bay can successfully run innovative pricing promotions like this one.
72
Why did the reactions of the three diners differ when they a. How could you manage the different reactions?
2.
What are the advantages and disadvantages to an innovative pricing strategy such as the pay what you want (PWYW) model?
3.
This pricing strategy was a month long promotion. Would it be a successful long-term strategy?
4.
How would this price promotion affect the employees, especially the wait staff? a. Tipping policies in London are different than other places
Volume 6, Number 1
globally. In London, it is customary to tip 10-15% for full service restaurants only (London & Partners). Would the employees feel differently about the policy based on local customary tipping norms? 5.
What are some other ways of creating innovative pricing strategies?
Eatsa 6.
7.
Will this kind of service operation work in other locations? Does
Fitzsimmons, J. A., & Fitzsimmons, M. J. (2006). Service management: operations, strategy, and information technology. Irwin/McGraw-Hill. Gallouj, F., & Weinstein, O. (1997). Innovation in services. Research policy,26(4), 537-556. Hinterhuber, A., & Liozu, S.M. (2014). Is Innovation in Pricing Your Next Source of Competitive Advantage? Business Horizons, 57, 413-423.
ist everywhere?
Hodge, N. (2009, May). A La Carte Blanche. Financial Management, 18-21.
Will this kind of service operation work with other models and
Innovation. (2011). In Merriam-Webster.com. Retrieved October 28, 2015, from http://www.merriam-webster.com/dictionary/innovation.
a. Could it be adapted for fast food, casual dining, fine dining, etc.? b. What kinds of food service options could best adapt to this model? c. Where would this technology be appropriate? d. When would this innovation not work? Why not? What are the advantages and disadvantages of eliminating the human component of the service environment and replacing them with technological alternatives? 9.
Farr, C. (2015, August 18). San Francisco’s Newest Fast Food: Healthy, Cheap and Served by Robots. KQED Science. Retrieved from http://ww2.kqed.org/ science/.
it require a degree of technology comfort which might not ex-
market segments?
8.
Drew, C. (2009, February 25). London Restaurant Allows Diners to Decide the Price. VOA News. Retrieved from http://www.voanews.com.
What other cost-effective technological advancements could you apply to restaurants in order to increase efficiency?
Questions for both Little Bay and Eatsa Compare and Contrast your answers
10. What impact would a no price promotion or technological front of house have on brand reputation? 11. How would these innovations make different consumers feel about the experience both internally and socially? a. How would these strategies impact loyalty? 12. Would the price promotion or service innovation work on a
Johnson, W.H.A. (2011). Service Innovation under Resource ConstraintsCreating Strategic Value from Operational Processes. Operations Management Research, 4, 86. Kent, J.L. (2009, February 9). No Such Thing as a (Nearly) Free Lunch? Think Again. ABC News. Retrieved from http://abcnews.go.com. Little Bay Farringdon. (2009, February). ‘Pay What You Think It’s Worth’. [Website post]. Retrieved from http://www.littlebayfarringdon.co.uk/pay-what-youthink-its-worth-february-2009/. London & Partners. (2016, February 11). Tipping in London. [Website post]. Retrieved from www.visitlondon.com. Mak, V., Zwick, R., Rao, A.R., & Pattaratanakun, J.A. (2015). “Pay What You Want” as Threshold Public Good Provision. Organizational Behavior and Human Decision Processes, 127, 30-43. Miller, C. (2015, September 9). Restaurant of the Future? Service with an Impersonal Touch. The New York Times. Retrieved from http://www.nytimes.com. Oh, Haemoon. (2000). The Effect of Brand Class, Brand Awareness, and Price on Customer Value and Behavioral Intentions. Journal of Hospitality & Tourism Research, 24(2), 136-162. Office of Labor Standards Enforcement. (2015, October). Minimum Wage Ordinance. [Website post]. Retrieved from http://sfgsa.org/index. aspx?page=411.
larger scale for a bigger brand across the organization? 13. Would these innovations be successful in every market? Why
Summary
or why not? 14. How do these innovations create value? 15. Imagine you are opening a restaurant. What kinds of strategies could you generate and adopt for a competitive advantage in the future?
References Britton, N. (2009, June 19). Keeping it Simple: Peter Ilic. Growth Business. Retrieved from http://www.growthbusiness.co.uk/the-entrepreneur/lessonsfrom-an-entrepreneur/1053557/keeping-it-simple-peter-ilic.thtml. DeMaria, A.N. (2013). Innovation. Journal of the American College of Cardiology, 62(3), 253-254. Dopson, L. R., & Hayes, D. K. (2010). Food and beverage cost control. John Wiley & Sons. Doran, D. (2010). Restaurants and technology-past, present and future: a practitioner’s viewpoint. Worldwide Hospitality and Tourism Themes, 2(1), 94-99.
Journal of Hospitality & Tourism Cases
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teaching note The Innovative Competitive Advantage: A case study of two pioneering companies
This case study examines the use of innovative strategies to create a competitive advantage by exploring two different restaurants. The restaurants differ in their methodology, one focusing on marketing promotions and the other focusing on operations management. However, the two concepts represent the range of potential innova-
•
Propose alternate innovative strategies for hospitality organizations to create a competitive advantage.
Target Audience The case study aims to expand the knowledge and comprehen-
tive strategies. The Little Bay Restaurant in London ran a month long
sive skills of both undergraduate and graduate students. It can be
promotion during the height of the economic recession of 2009 in
used in a variety of hospitality and business subjects including strate-
which customers set their own prices for the meals they bought. This
gic management, service operations, and marketing. This case study
promotional strategy allowed customers to decide the value of their
provides students with detailed information about existing restaurants
meal, while the business was able to attract new customers even dur-
which allows for a better understanding of the general concepts of
ing hard economic times. The Eatsa restaurant in San Francisco took
competitive advantage and innovation. It is useful for training future
a different approach. It focused on an innovative operational process
hospitality leaders who will manage in diverse business climates and
via advanced technology. With the increased costs of labor due to a
will need to make strategic decisions. This case will benefit students
raise in the local minimum wage, the owner of the new Eatsa concept
and potential industry managers in recognizing the significance of
decided to co-create value with the customer by eliminating front of
service and marketing innovation.
the house employees using do-it-yourself procedures.
Teaching and Learning Objectives The objective of this case study is to provide examples of innovation within hospitality organizations and to have a discussion on the
Recommended discussion questions by class •
Strategic management- 2, 3, 5, 7, 8, 12, 15
•
Service operations- 4, 6, 8, 9, 12, 14
•
Marketing- 1, 2, 5, 6, 7, 10, 11, 13
impact of these strategies on both organizations and customers. The
Discussion Questions Analysis
choices companies make strategically affect not only the business,
Little Bay Restaurant
but also the consumers. The narratives within the case study provide opportunities for students to consider how innovations impact customers and to analyze the potential benefits and ramifications for the organization. The narratives also show that there are differences among customer preferences and reactions. This gives students an opportunity to compare and contrast various market segments. Through this case study, students have the opportunity to understand the integration of innovation, competitive advantage, value, and strategy and to measure and determine the value of different strategic approaches. By the end of this session, students should be able to: •
Understand different uses of innovation to create competitive advantages.
•
Identify different areas within hospitality organizations for using innovative strategies.
•
Recognize differences in customer perceptions and reactions to strategic implementations.
•
Analyze how innovative strategies help create value for the consumer and for the organization.
•
Evaluate the potential of using innovative strategies using Porter’s 3 Generic Strategies theory.
•
The discussion questions for the Little Bay Restaurant focus on the core basics of promotional strategies, segmentation, targeting, and positioning within the market, customer reactions, and pricing strategies. The three customers in the narrative represent various market segments and their potential reactions to the different strategic choices made by the organization. Even though innovative strategies have many possible benefits, the organization must be prepared for the consumers who are reluctant to accept new and different approaches to service products. An organization should consider promotional exit strategies in the case of an unsuccessful endeavor, which can only be done if the organization understands the potential pitfalls and advantages of the innovative strategies. It is important for organizational decision makers to consider not only the customers and the organization as a whole, but also the employees who will be impacted by these strategic decisions. Students should recognize that some choices may have unintended consequences, especially to those on the line level. There is a wide variety of research that shows how employees are crucial elements in the long term success of an organization, and the impact of the leadership’s decisions should be considered.
Assess how innovation brings value to the consumer and to the organization.
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Volume 6, Number 1
Eatsa The discussion questions for Eatsa aim to help students evalu-
with the other group. As an entire class, the instructor should then ask comprehensive and thought provoking questions such as those found
ate the impact of the structural change in the fundamental service
in the case study discussion questions section. In order to promote
delivery design on customers’ perceptions, customer evaluations,
insightful discussions in the classroom, the questions should be open
co-production, and consumption. With such an integrated shift from
ended with many different potential answers and solutions. Examples
typical food operations, this kind of business may excite and attract
of thought provoking questions include, “Which example provided in
certain segments of the market, but it has the potential to alienate
the case study do you believe has a greater chance to promote long
other segments less familiar or comfortable with high tech solutions.
term success of the organization?”, “How can value be interpreted from
Students should compare and contrast high touch and high tech
the point of view of both the organization and the customers?”, and
operations considering what kinds of service models depend on high
“Why do you believe the customers had different reactions to the in-
touch and may not be able to structurally change to a more high tech
novative strategies and how can you manage those reactions as an
model. As this innovation is not only a marketing technique, but also
organization?” The questions should incorporate the theories discussed
a strategy for low-cost leadership, the students should examine the
in the case study- value creation and Porter’s Generic Strategies. Addi-
impacts of the shift in operations not only on customers, but also on
tionally, by including theories discussed in the case study in conjunction
the organization and its employees.
with the focus on the course, students will have the opportunity to not
Questions for both Little Bay and Eatsa For the overall group discussion that collaborates both the price promotion differentiation strategy and the innovative technological service model low-cost leadership strategy, students should compare and contrast the different strategic techniques of the two restaurants. The students should illustrate the similarities and differences on brand equity, consumer perceptions, customer loyalty, organizational structure and size, and value creation between the two concepts. Additionally, students should be able to produce their own examples that integrate these important concepts into strategic decision making, service operations design, and marketing strategies.
Recommended Teaching Approach & Strategy Prior to discussing the case study, students should understand
only incorporate the theories introduced within this case, but they will also have the opportunity to integrate other theories taught through the progression of the semester. Once the class has completed a thorough discussion of the two innovative strategies in conjunction with the theoretical foundations for the strategic decision making, the instructor can conclude the class by asking individuals or small groups to create their own innovative strategy for a hospitality organization. By brainstorming and creating their own innovative ideas, the students will progress into the higher levels of learning within Bloom’s Taxonomy, including evaluation and synthesis. Additionally, to further higher levels of learning for graduate level classes, the discussion should include more research based aspects. For example, during the discussion about the Little Bay Restaurant, graduate students should consider how ownership can track profit
and review competitive advantages overall and Porter’s (1998) three
overall and by specific market segment. In the case of an unprofitable
strategies for competitive advantage specifically. For more informa-
segment of the market, how could management create profitability
tion about Porter’s (1998) three generic strategies, please see the
or divorce the customers in order to continue the promotion? In the
additional reading material. Once this foundation is created, begin the
case of Eatsa, graduate students could investigate how the integra-
discussion with a brainstorm of innovations the students have seen
tion of technology into operations might alienate certain segments
through their different experiences. The instructor may ask a ques-
of the market such as older generations. Could Eatsa consider those
tion similar to the following, “Think back to your own experiences as
who are not comfortable with technology as a possible target market?
a customer or employee within a hospitality setting. Can you think of
How could they manage customer inabilities with the fundamen-
organizations that had innovative strategies for competitive advan-
tal structural change of the operations? Graduate students should
tages? What were those innovations, and how productive were those
also evaluate and analyze the theories on a deeper level such as the
strategies?” Through brainstorming, the students will have the oppor-
difference between “low-cost” and “low-price” leadership, and also
tunity to be more invested in hearing about organizations that have
incorporate other theories that are not expressly mentioned in the
had successful innovative strategies.
text. One example could include an investigation into the types of
Next, the students should be split into two groups. The first group should read the narrative and description of the Little Bay Restaurant, and the second group should read the narrative and description of Easta. After reading their part, the groups should be tasked with sharing the story they read and their thoughts about the innovative strategy Journal of Hospitality & Tourism Cases
relationship bonds- financial, social, structural- into innovation, value, and competitive advantages by comparing and contrasting the bonds in the narratives provided as well as external examples provided by the graduate students. For more information on relationship bonding theory, see Shammout et al (2007).
75
Conclusion In conclusion, students can enhance their thinking skills and attain a holistic perspective of service operations by using the suggested teaching strategies. Moreover, students will be able to examine different examples related to innovative strategies in the hospitality setting, considering external and internal variables that could impact the service operations and marketing strategies of an organization. The application of this case study to a variety of different hospitality and business related classes would enhance the student’s knowledge, critical thinking, and understanding about service operations, marketing, and innovative competitive advantages.
Additional Reading Material Anderson, L. W., Krathwohl, D. R., & Bloom, B. S. (2001). A taxonomy for learning, teaching, and assessing: A revision of Bloom’s taxonomy of educational objectives. Allyn & Bacon. Berry, L.L., & Parasuraman, A. (1991). Marketing Services: Competing Through Quality. New York: The Free Press. Fitzsimmons, J. A., & Fitzsimmons, M. J. (2006). Service management: operations, strategy, and information technology. Irwin/McGraw-Hill. Hinterhuber, A., & Liozu, S.M. (2014). Is Innovation in Pricing Your Next Source of Competitive Advantage? Business Horizons, 57, 413-423. Oh, Haemoon. (2000). The Effect of Brand Class, Brand Awareness, and Price on Customer Value and Behavioral Intentions. Journal of Hospitality & Tourism Research, 24(2), 136-162. Porter, M.E. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press. Shammout, A. B., Polonsky, M., & Edwardson, M. (2007, January). Relational bonds and loyalty: the bonds that tie. In ANZMAC 2007: 3Rs, reputation responsibility relevance (pp. 3359-3365). University of Otago, School of Business, Dept. of Marketing.
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Volume 6, Number 1
case study
Darden Restaurants, Inc. Is the Turnaround Happening? 1
By Murat Kizildag, Fevzi Okumus and Kevin Murphy Introduction
operational and financial strategies to turnaround Darden. Therefore, the primary objectives of this case stud are to: (a)
Due to increased competition, changing consumer preferences, tougher market conditions, more knowledgeable shareholders, and
examine the revival strategies implemented by Darden to boost the
rising raw product costs, US restaurant companies are experienc-
stagnant earnings, profit margins, and market value, (b) analyze the
ing more economic distress and higher risk of bankruptcy. In the
critical operational and financial measures executed by Darden to re-
aftermath of the great recession in 2008, bankruptcies across US
verse its losses, and (c) scrutinize the future prospects of Darden after
corporations climbed to the record number of bankruptcy filings. Busi-
the implementation of the turnaround plan. Additionally, this case
ness bankruptcy filings at different levels (bankruptcy chapters 7, 11,
study seeks answers to several critical questions below:
12, and 13) totaled 58,721 and 58,322 in 2009 and 2010 respectively
•
around attempt?
(United States Court Reports, 2012). Although bankruptcy filings have fallen to 26,130 in 2015 (United States Court Reports, 2015), high
• • •
trusts (REITs), streamlining or closing divisions, and/or laying people off to cut costs and generate earnings (i.e., Quiznos LLC.). In the past 10 years, some of America’s biggest restaurant chains have lost more than 50.0% of their sales as they closed hundreds of locations nationwide (Hess and Sauter, 2012). The preponderance of bankruptcies, store closures, and negative macro and micro-economic facts have caused companies to take a multitude of strategic actions in order to avoid business failure, to cope with severe financial distress, and to maintain their financial solvency. The turnaround of Darden Restaurant, Inc. is considered to be one of the most remarkable turnarounds of an underperforming restaurant company in recent years for the industry. In October 2015, activist hedge fund Starboard Value LP won a protracted proxy battle to take over Darden’s executive board by winning the vast majority of the shareholder votes by publishing a rescue plan manifesto to reverse the fortunes of the struggling restaurant group. Starboard’s suggested revival plan was to create positive operational and financial momentum and restore the economic value of Darden’s two flagship brands – Olive Garden Restaurants and Red Lobster Restaurants, from which most of Darden’s revenue was generated. Since then, Starboard has introduced specific Murat Kizildag, Fevzi Okumus and Kevin Murphy are all affiliated with University of Central Florida.
Journal of Hospitality & Tourism Cases
What are the fundamental operational and financial outcomes that signify turnaround?
These companies are far more inclined to engage in strategic corporate turnarounds by selling assets, creating real estate investment
What are Darden’s key strategic turnaround actions to prevent further losses?
corporations use long-term debt to expand and generate cash flows. However, this creates greater financial risk for them (Kizildag, 2015).
What were the roles of Starboard Value LP in Darden’s revival plan?
probability of bankruptcy is still seen in most of the capital-intensive industries, such as the restaurant industry since most of the restaurant
What caused Darden to require a major corporate turn-
•
How does transformed Darden’s performance look for the near future?
Corporate Turnarounds The decline of a firm from a superior performance position to a poor position on any appropriate performance criterion normally points to fundamental operational problems with its management and financial strategies. Corporate business failure, after the onset of performance decline, is highly correlated to leadership inaction and poor timing of strategic actions. In such circumstances, firms need to reverse the overall performance decline and bring performance back to the operational norms by implementing a wide range of turnaround strategies and restructuring (Filatotchev and Toms, 2006; Pearce II and Robbins, 2008; Sudarsanam and Lai, 2001). Corporate turnaround is defined as: “the implementation of a set of actions required to save an organization from business failure and return it to operational normality and financial solvency. Turnaround management usually requires strong leadership and can include corporate restructuring and redundancies, an investigation of the root causes of failure, and long term programs to revitalize the organization” (CIMA, 2009). Diversification, business mergers and acquisitions, management 1 This case study was written for the purposes of classroom discussions. It was not intended to show effective or ineffective handling of executive decisions or a managerial situation. Published materials and academic sources were used in preparing this case study.
77
reorganization, financial reorganization, or a combination of these, are
from a current 81% to about 90%). Additionally, the new plan aims to re-
the financial and managerial strategies for the executives who confront
organize its menu (i.e., garlic sauce) to bring customer retentions rates
turnaround situations (Pretorius, 2008; Sudarsanam and Lai, 2001).
back to the previous corporate norms (Wohl, 2015).
Whatever the reasons for the business failure are, adopted turnaround strategies must reverse the causes of poor performance, resolve the operational problems, achieve a rapid and steady improvement in financial performance (profitability, solvency, and liquidity), regain stakeholder support, and overcome internal problems. Operational turnaround and restructuring strategy (i.e., output maximization and input minimization) is composed of cost reduction, revenue generation, asset reduction, and integration of business units’ strategies to improve efficiency and margin by reducing direct costs and slimming overhead expenses in line with sales volume (Haron et al., 2013; Slatter et al., 2011). Managerial restructuring and re-organization strategy (i.e., removal of Chairman or Chief Executive Officer) entails changes to the leadership and executive structure to yield improved leadership, management, organizational structure, organizational alignment and culture (Chen and Hambrick, 2011; Koh et al., 2015). Financial turnaround and restructuring strategy is simply the reworking of a firm’s capital structure to relieve the strain of interest and debt repayments and to strengthen the balance sheet and/or provide funding. Specifically, cash generation strategies (i.e., dividend cut, etc.) and additional stock issuances are commonly-used strategies to pay down debt, reduce interest cost and improve cash flows (Schoenberg et al., 2013; Slatter et al., 2011). In recent years, corporate turnarounds have included some of the “giants” in the U.S. economy due to varying reasons. For instance, Best Buy (NYSE:BBY) has turned around its U.S. operations by shedding its assets and trimming expenses to help lift profitability with the new board elected in 2012. Yahoo’s (NASDAQ:YHOO) turnaround activities has recently switched to the advertising business as a means of bolstering revenue in 2015. J.C. Penney (NYSE:JCP) has just entered next phase of turnaround by reworking its store services and partnerships to bring the customer visits back towards their goal of increasing $1.2 billion in earnings before interest, taxes, depreciation, and interest (EBITDA) by 2017 (Kell, 2015; Ashworth, 2014). As a most salient recent example from the restaurant industry, the fast food giant McDonald’s (NYSE:MCD) comparable same-storesales have fallen globally in four consecutive quarters and are down six straight quarters in the U.S., with no sign of quick rebounds. Hence, the company’s new CEO, Steve Easterbrook, unveiled its massive turnaround plan to revive its organization in May, 2015. The plan’s major focus is to reorganize its business structure, to sell company-owned stores to franchisees, to increase consumer traffic, and to provide higher returns to its shareholders. McDonald’s short-term revival target is to sell some 3,500 company-owned restaurants to franchises by the end of 2018, up from a prior target of refranchising at least 1,500 restaurants by 2016 (up
78
Case Synopses: Efforts to Turnaround Darden Over the past few years, Darden Restaurants, Inc. has underperformed its peer group (i.e., Brinker International, Inc., DineEquity, Inc., OSI Restaurant Partners, LLC, Ruth’s Hospitality Group, BJ’s Restaurants, Inc.) and the corporation has disappointed its shareholders with its sluggish sales volume, revenue, margins, per share earnings, and stock returns. The declining sales, earnings, and brand reputation have been clear signs for the shareholders to have a logical move to reverse years of declines and to consider perpetual solutions for turnaround, especially for Olive Garden and Red Lobster Restaurants. Concurrently, these two brands were among the worst performers, reporting same-store-sales growth of -2.3% for Olive Garden and -2.8% for Red Lobster (Barington Capital Group Presentation, 2013). This action was much needed and crucial to longer term operational survival, since those two flagship brands made up close to three-quarters of Darden’s total revenue. The story of Darden’s financial struggle started with Olive Garden’s and Red Lobster’s enormous increase in food cost and continuously declining same-store-sales, declining guest counts, and shrinking profit margins. Olive Garden’s food costs historically was about 26-27% of sales, but rose to an estimated 29% in 2014 contributing to Darden’s overall 30.1% food costs while industry median was around 27.20% (Transforming Darden Restaurants, Starboard Value LP. Investor Presentation, 2014). After activist hedge fund Starboard’s severe criticism about Darden’s underperforming brands and contentious proxy battle in 2014, Darden’s board was replaced with Starboard’s entire slate of board members. Starboard’s 294 page revival plan has shifted Darden’s managerial and financial strategies to longer-term perspectives to turnaround these aforementioned unsuccessful Darden brands. The main objective of the new owners’ revival plan has been clustered around a value enhancing strategies for Darden’s real estates, restaurant concepts, and franchising systems under a company-wide, comprehensive operational improvement plan. Starboard’s specific initiatives are to: (i) build up Darden’s creditworthiness, re-structure its debt, and foster sustainable long-term shareholder value, (ii) improve the sales volume, increase earnings, and boost stock returns, (iii) convert properties into real estate trust funds (REITs) and optimize capital expenditures for future investments. Table 1 outlines Starboard’s specific turnaround strategies and initiatives in detail. Darden’s current major shareholders are still in frustration since Starboard injects twelve executives to Darden’s current board with 8.8% stake in the company. Starboard is now the second-largest investor and it ousts Olive Garden owner’s full board (Transforming Darden Restau-
Volume 6, Number 1
Table 1
A Comprehensive Operational Improvement and Revival Plan Starboard Value LP Focus Areas
Board Restructuring
Strategic Actions Radical replacement in top executives with cohesive group of board members to convey a sense of calm and control to Darden’s shareholders. Incentives and corporate governance to represent the best interest of all shareholders (wiping off a long history of abysmal corporate governance). Revenue generation through reducing operating assets, minimizing direct costs, and slimming overheads in line with sales volume.
Operational Reforms
Improving margins (EBITDA, profit margins, etc.) and solidifying investment credit rating and dividend policy. Reinvigoration in international expansion and franchising programs. Reconfiguration of Darden’s real estate assets through REIT conversion and divestment of Red Lobster Restaurants and specialty restaurant groups.
Financial Initiatives
Financial reorganization for Darden’s optimal productivity through reduced capital expenditures, long-term liabilities, interest expenses, and improved cash flows and returns on capital. Enforcing non-conventional marketing efforts to increase marketing and advertising savings.
Competitive Re-positioning
Re-energizing Olive Garden’s product market focus via revitalized menu design and items (bringing back the Italian authenticity). Cuts in portion sizes on existing lines of Olive Garden’s menu to stimulate demand (traffic growth) and customer service.
Note: The components of Starboard’s comprehensive operational improvement and revival plan are taken from Starboard’s 294 page long investor presentations. Source: Transforming Darden Restaurants, Starboard Value LP. Investor Presentation [Power Point Slides]. (2014). Retrieved from http:// blogs.wsj.com/moneybeat/2014/09/12/starboards-olive-garden-slides-salting-the-water-custom-straws-and-more/
rants, Starboard Value LP. Investor Presentation, 2014). The downside of
as Olive Garden and Red Lobster. In this operational reform package,
Darden’s new corporate culture is that this board restructuring might
Starboard proposes to improve EBIT margins by $215 - $326 million
restrict the flexibility of Darden’s current major shareholders’ in critical
per year for the next five-year period while improving the overhead
decision making processes, such as establishing some of the essential
costs (i.e., food cost) and guest dining experience and customer traf-
corporate governance provisions. Also, existing shareholders will now
fic. Darden’s existing shareholders are still skeptical about immediate
have less voting power in the board. However, Starboard believes that
positive outcomes of these operational reforms on cost efficiency and
replacing the majority of incumbent board members is necessary to
margin improvement. Their conclusion remarks that these reforms will
bring fresh managerial and operational perspectives to the company
cause huge fluctuations in earnings and profits and the company will
from revamping the menu items and portions (i.e., salt level added to
lose its existing customer base. Nevertheless, Starboard thinks reforms
the pasta) to boosting re-arranging the corporation’s real estate struc-
will give roughly 20% boost to same-store-sales, especially for Olive
ture (i.e., converting Darden properties to REITs).
Garden (Nef, 2015). This plan is mostly implemented to turnaround
This multidimensional plan has also been initiated to implement critical reforms to the operations of underperforming brands, such
Journal of Hospitality & Tourism Cases
Olive Garden’s sluggish same-store-sales, lacking service standards, and increasing food waste. Starboard also adds that higher earnings
79
will positively affect their credit ratings, dividend policies, and international franchising programs in the long-run since Darden will retain higher levels of earnings. Additionally, Darden’s new corporate system is free of “corporatecentric-structure”, which entitles every decision to board members, and “asset-heavy-structure”, which focuses on high levels of property acquisition and investment. In this way, Starboard’s financial initiatives target less property buyouts and investments. Therefore, Darden can have reduced capital expenditures, decreased levels of external debts (i.e., long-term commercial loans), and lower interest payments. Also, Darden can succeed lowering lease expenses by converting restaurant properties into REITs and selling off underperformed brands, such as Red Lobster and/or specialty restaurant groups (i.e. Eddie V’s). By implementing those financial plans, Starboard suggests that Darden will improve its cash flows and stock returns so they can return more to its
ket share, and recovering the brand image.
Are Darden's Corporate Turnaround Strategies Effective? It has been a bumpy road for Darden trying to bounce back from financial distress since early 2012. The company has been under pressure by its shareholders. The profit picture has been ill-defined and the overhead costs (i.e., food cost) and fixed payments (i.e., lease expenses) have reached to undesirable levels. On top of that, customer traffic has weakened due to conservative consumer spending on “out of favor” menu items and there has been an ongoing financial decline in same-store-sales between the first quarter of 2012 and the last quarter of 2015 (Transforming Darden Restaurants, Starboard Value LP. Investor Presentation, 2014). Prompted by Starboard take-over actions, one of the first actions in Darden’s turnaround plans was selling off Red Lobster in an effort
shareholders by paying out higher amounts of dividends. Lastly, Starboard points that current advertising and marketing efforts are outdated and ineffective. Thus, Starboard’s comprehensive revival strategies aim to enhance Darden’s underperforming Olive Garden’s competitive positioning in the restaurant industry and its advertising spending. Starboard thinks that customer traffic and return will be positively affected with the reduced advertising and marketing spending for Olive Garden. This plan specifically targets to stimulate Olive Garden’s ineffective price point promotions and couponing, not enough advertising messaging efforts, and lacking social media awareness and digital marketing. However, the existing board still questions the effectiveness of Olive Garden’s repositioning attempts
to unlock shareholder value. Although Darden still continues to face pressure from its shareholders following the sale of Red Lobster, the company initiated a share repurchase plan totaling $500 million. Also the management put $1 billion to refine its debt after receiving $2.08 billion in cash and $29.3 million net of transaction-related costs from a $2.1 billion Red Lobster sale (Gallagher, 2014). The ultimate objective of this asset-reduction effort was to strengthen Darden’s credit worthiness by improving its net earnings, earnings per share (EPS), EBITDA, stock returns, and therefore, its shareholder’s wealth. Table 2 lays out Darden’s quarterly earnings structure with three important earning measures. Another critical action taken by Starboard was to drive signifi-
since it might be difficult for customers to get accustomed to these
cant improvements in Darden’s stock returns since its stock price
drastic changes (i.e., restaurant logo, menu items, menu design). Taken
has underperformed the entire market (NASDAQ Composite). In this
all together, Starboard’s comprehensive improvement plan and strate-
vein, Starboard’s priority was to increase stock returns by selling Red
gies for Darden are to preserve and create substantial shareholder
Lobster, nominating twelve directors for board elections, and bring-
value by higher levels of earnings, stock price appreciation, more mar-
ing rich strategies to capture more investors. Darden’s stock has
Table 2
Darden’s Quarterly EBITDA, Net Earnings (Loss), and EPS Structure (2014-2015) (Dollars in millions, except for per share data)
Quarters
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
EBITDA
$200.9
$161.2
$153.3
$98.5
$250.8
$246.4
$213.6
$164.7
Net Earnings (Loss)
$109.7
$86.5
$503.2
($32.8)
$133.8
$105.3
$86.4
$43.2
EPS (Basic)
$0.84
$0.66
$3.81
($0.26)
$1.07
$0.83
$0.68
$0.34
Source: Quarterly Income Statement Data is gathered from CRSP/COMPUSTAT merged files. Notes: EBITDA: Earnings before Interest, Taxes, Depreciation, and Amortization. Darden’s EBITDA calculation is as follows: [(Operating Income (Loss)) + (Depreciation and Amortization Expense) + (Impairments and Disposal of Assets, net)] EPS: Earnings per Share including extraordinary items. EPS is derived as follows: (Net Income / #of Shares Outstanding).
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Volume 6, Number 1
Figure 1
Darden’s Monthly Stock Returns vs. NASDAQ Composite (2013-2015) 20.00% 15.00% 10.00% 5.00% 0.00% -5.00%
Feb. 13
May 13
Aug. Nov. 13 13
Feb. 14
May 14
Aug. Nov. 14 14
Feb. 15
May 15
Aug. Nov. 15 15
-10.00%
NASDAQ Composite (^IXIC) Adj. Return -
-15.00%
DRI Adj. Return -
-20.00% Source: Closing Closing stock stock price price data data for for adjusted adjusted stock stock returns returns is is gathered gathered from from CRSP/COMPUSTAT CRSP/COMPUSTAT merged Source: merged files. files. Notes: Closing prices are adjusted for dividends and stock splits. Notes: Closing prices are adjusted for dividends and stock splits. Adjusted returns returns are are derived derived as as follows: follows: [(Initial [(Initial Closing Closing Price Price –– Ending Ending Closing Closing Price) Price) // Initial Initial Closing Closing Price] Price] Adjusted Dashed line line shows shows the the month month of of Red Red Lobster Lobster sale sale (July, (July, 2014). 2014). Dashed White bars bars denote denote Darden’s Darden’s underperformance underperformance over over the the entire entire market, black bars bars indicated indicated the the otherwise. otherwise. White market, black
Darden’s turnaround is further being implemented by revamping Olive Garden’s menu items in an attempt to increase operating cost savings (i.e., a more value oriented menu with a smaller plate focus, restricted number of breadsticks served to the guests, etc.), to boost same-store-sales, and to bolster the restaurant earnings as well as marketing and promotions. Table 3 reports Olive Garden’s quarterly same-store-sales pattern. Table 3
Olive Garden’s Quarterly Table Same-Store-Sales Pattern (2012-2015) 3 Quarters by Quarters Fiscal Years by
Fiscal Years Q1-12
Q1-12 Q2-12 Q2-12 Q3-12 Q3-12 Q4-12 Q4-12 Q1-13 Q1-13 Q2-13 Q2-13 Q3-13 Q3-13 Q4-13 Q4-13
Olive Garden’s Quarterly Same-Store-Sales Pattern (2012-2015)
Same-Store-Sales Same-Store-Sales (in millions)
(in millions) $883.9
$883.9 $835.7 $835.7 $956.8 $956.8 $903.6 $903.6 $921.8 $921.8 $848.6 $848.6 $813.8 $813.8 $822.7 $822.7
Δ% in Same-
Quarters by
Same-Store-Sales
Δ% in Same-
$918.3
11.62
Δ%Store-Sales in Same- Quarters Δ% in Same- Store-Sales by Years Same-Store-Sales Fiscal (in millions) Fiscal Years (in millions) Store-Sales Store-Sales -2.90
-2.90 -5.45 -5.45 14.49 14.49 -5.56 -5.56 2.01 2.01 -7.94 -7.94 -4.10 -4.10 1.10 1.10
Q1-14
Q1-14 Q2-14 Q2-14 Q3-14 Q3-14 Q4-14 Q4-14 Q1-15 Q1-15 Q2-15 Q2-15 Q3-15 Q3-15 Q4-15 Q4-15
$918.3 $869.1 $929.5 $913.5 $881.7 $944.6 $957.1 $1,06b
$869.1 $929.5 $913.5 $881.7 $944.6 $957.1 $1,06b
11.62 -5.36 6.95 -1.72 -3.48 7.13 1.32 5.13
-5.36 6.95 -1.72 -3.48 7.13 1.32 5.13
Note: “Δ” symbolizes the change. “b” represents billions.billions. Note: “Δ” symbolizes the change. “b” represents Data isData takenisfrom Restaurant’s 10Qs. Available at: https://investor.darden.com/investors/financial-information/sec-filings/default.aspx takenDarden from Darden Restaurant’s 10Qs. Available at: https://investor.darden.com/investors/financial-information/secfilings/default.aspx
With the fresh perspective of Starboard’s new leadership, Darden has made news by converting its real estate assets to real estate trust funds (REITs), as a significant part of its cost-cutting and debt-restructuring program under Starboard’s strategic turnaround and restructuring plans. The company announced initial progress on its real estate conversion Journal of Hospitality & Tourismplan. CasesPrior to the sale of Four Corners Property Trust, the company executed leasing agreements
81
Table 4 Darden’s Four-Year Annual Cash Flows From Operations, Capital Expenditure, and Paid Dividends Summary (2012-2015) (Dollars in millions, except for per share data)
Fiscal Year Ended (Audited)
2015
2014
2013
2012
Cash Flows from Operations
$874.3
$555.4
$594.4
$513.5
Capital Expenditures
$296.5
$414.8
$510.1
$457.6
Dividends Paid
$278.9
$288.3
$258.2
$223.9
Dividends Paid per Share
$2.20
$2.20
$2.00
$1.72
Source: The data was taken from Darden’s annual reports. Available at: https://investor.darden.com/investors/financial-information/sec-filings/default.aspx Note: Fiscal Year Ended ends at May each year due to non-published and unaudited financial data for 2015.
cumulatively declined ~30% in the days following each of its earnings
reports Darden’s four-year cash flows from operations, capital expendi-
announcements (Barington Capital Group Presentation, 2013). The
ture, and paid dividends summary.
new shareholders believe that newly elected officers bring fresh management and investment perspectives. This helps signal positive major changes to the entire market and potential investors that causes to in-
What is the Next Step for Darden? Darden is currently evaluating its options regarding the best way
crease in stock prices, and thus, stock returns outperforming the peer
to monetize its real estate properties in addition to its recent creation
group and the entire market. Although the returns might be volatile in
of REITs. Starboard’s key piece of future turnaround plans includes the
short-term, Starboard’s plan would benefit to Darden in the long-run,
potential sale of Darden’s most promising specialty restaurant brands,
especially after the official board replacement. Figure 1 demonstrates
such as Eddie V’s. Pursuant to the financial success of the recent REIT
Darden’s stock returns against the entire financial market before and
conversions, selling off Darden’s specialty restaurant group could
after Red Lobster sale in July, 2014 (Q3-14).
increase Darden’s current market worth by around 10.0% and im-
Darden’s turnaround is further being implemented by revamping Olive Garden’s menu items in an attempt to increase operating cost savings (i.e., a more value oriented menu with a smaller plate focus, restricted number of breadsticks served to the guests, etc.), to boost same-store-sales, and to bolster the restaurant earnings as well as marketing and promotions. Table 3 reports Olive Garden’s quarterly same-store-sales pattern. With the fresh perspective of Starboard’s new leadership, Darden
prove the current capital structure. Alternatively, selling off the other struggling brands, such as Bahama Breeze can help Darden improve the turnaround efforts and strengthen the financial outcomes. Looking ahead, Starboard also has a solid plan to separate the restaurant concepts into the most logical grouping and re-design Darden’s both international and domestic franchising program. Such combinations would most likely unlock value by creating a stand-alone company with significant economical foundation and stable growth.
has made news by converting its real estate assets to real estate trust funds (REITs), as a significant part of its cost-cutting and debtrestructuring program under Starboard’s strategic turnaround and restructuring plans. The company announced initial progress on its real estate conversion plan. Prior to the sale of Four Corners Property Trust, the company executed leasing agreements with the trust for 64 of the properties, mainly Olive Garden stores. Then, an additional 424 properties were transferred to the publicly traded real estate trust fund totaling 488 properties and restaurant stores (Nef, 2015). From the cash acquired in this conversion process, Darden paid down $1 billion in debt that led the company to have no significant debt repayments until 2035. This conversion also helped Darden rein its capital expenditures in order to maintain its sizable payout to shareholders to unlock approximately $1-$2 billion in shareholder value. Table 4 82
Volume 6, Number 1
teaching note Darden Restaurants, Inc. Is the Turnaround Happening?
Case Summary
Outcomes Instructors will be able to engage their students in an active
Darden Restaurants, Inc. (NYSE:DRI) has been in financial and operational transition for the past couple of years. After a long period of
learning environment to discuss the strategic organizational process
undesired financial outcomes, poor management, slow growth, and a
and financial consequences of Darden’s recent turnaround plan imple-
failure of the company’s products to meet customer needs and tastes,
mentation. Instructors might also assign this case study to students so
Darden has recently embarked on turnaround efforts of its two flag-
that they can discuss the ramifications of these revival strategies from
ships brands led by activist hedge fund investor Starboard Value, LP.
the financial perspective. The discussion topics regarding the recent
The primary reasons Darden needed an extensive turnaround was;
revival plan and its effects on Darden’s financial and operational per-
declining earnings and poor performance in its two prominent brands.
formance will challenge students’ critical thinking and enhance their
The decline in financial performance stemmed from suboptimal menu
reasoning skills with the integration of various business disciplines,
offerings, shrinking same-store-sales causing negative earnings, low
such as financial management, strategic management, and organiza-
profit margins, and poor stock returns. This decreased company value
tional management.
in the markets, caused stock prices to fall, and increased the spending
Upon completion of this case study, students should be able to:
capital expenditures. Starboard’s recovery strategies are focused on four
•
areas. First, Darden has aimed to increase same-store-sales and EBITDA by improving the popularity of menu items and by lowering food costs
turnaround strategy. •
and waste. Second, the company has been re-designing the real estate ownership structure by separating the domestic real estates and selling
Identify the main reasons and issues for why Darden required a Discuss the various strategic measures taken by Starboard Value LP to turnaround a financially distressed Darden.
•
Analyze how the turnaround strategies can affect Darden’s
off the specialty restaurant group (SRG). Third, the management has
key financial metrics of business performance (i.e., same-store
enforced a strict policy on capital expenditures through a well-planned
sales, profitability, liquidity etc.).
spending program and international franchising strategy. Lastly,
•
Darden’s objective is to create substantial value for the shareholders by improving per share prices, and hence, stock returns. This case study
Assess Darden’s managerial change, board restructuring and new corporate culture as a part of its turnaround strategies.
•
Evaluate the pros and cons of the strategic actions under Star-
discusses the recent turnaround strategies of the largest casual U.S. res-
board’s comprehensive improvement plan and strategies from
taurant corporation, Darden Restaurants. The discussions generated in
four different focus areas.
this case study should provide an in-depth understanding of the financial and operational challenges that Darden has been experiencing.
Target Audience
Discussion Topics and Questions Earnings and Equity Returns: 1.
The content of this case study, including the additional readings, is intended for undergraduate students enrolled in managerial accounting, financial management, and strategic management courses. While the analysis of this case study and teaching note is more suited
cutting measures on plunging earnings and stock returns? Credit Profile and Debt-Restructuring: 1.
other words, how has Darden’s solvency and profitability condi-
could also implement the content of this case study in their classtheir own textbook chapter readings. The discussions presented here aim to enhance students’ critical reasoning, quantitative judgement, and analytical thinking skills.
How has the sale of Red Lobster affected Darden’s long-term debt, net earnings, per-share earnings, and stock returns? In
for the undergraduate level of study, instructors of graduate students rooms by replacing the additionally assigned materials with some of
What are the financial impacts of Starboard’s strategic cost-
tions changed after the sale of Red Lobster? Discuss. 2.
Explain what are the consequences and/or financial benefits of Darden’s debt-restructuring plan after Red Lobster sale?
Creation of REITs and Capital Allocation: 1.
Analysis of Teaching Objectices and Learning
How will a conversion of Darden’s real estate into REITs help the company in regard to its operating performance (i.e., cash flows from operations and capital expenditures)?
2.
How do increasing cash flows and declining capital expenditures maximize shareholders’ wealth?
Journal of Hospitality & Tourism Cases
83
Class Instruction and Teaching Methods The content of this case study can be taught in a variety of ways and it allows educators to implement several different teaching techniques. For instance, time permitting, two separate class periods could
about financial, operational, and strategic organizational outcomes of Darden’s recent turnaround plan. Also, stimulate brief student discussion on future financial and operational plans to maintain targeted profit margins, and hence, market value of Darden (i.e., earnings per
be utilized to address financial outlook and operational strategies be-
share – EPS) (10 minutes).
fore and after Darden’s turnaround plan. Alternatively, one class period
Phase II (Discussion on Darden’s Ongoing Managerial Strategies and
could address both and each topic could be divided among small
Initiatives for Its Rebound Plan – approximately 30-40 minutes):
groups. Regardless, each area of discussion requires about an hour
Divide students into small groups (maximum 4-5 students per
and fifteen minutes of instruction and teaching time to introduce, un-
group) and ask them to prepare answers for the following specific
derstand, explore, discuss, and check for understanding. Although this
topics outlined below. Give each discussion group about 15 minutes
class plan is designed based on the minimal time allowance of 75 min-
to write up the answers for the discussion topics and have a general
utes, instructors can expand and/or allocate more time according to
in-class discussion about 5 minutes so that they can analyze all the
time available for the instructional phases mentioned in detail below.
primary discussion topics (20 minutes).
Prior to Lesson: Students will be asked to read the case study along with the additional reading materials for financial and operational turnaround
•
that led Darden to need a drastic resurrection. •
standing of the content areas: •
The main ideas of the case study.
•
The general financial position and organizational condition of Darden.
•
Broad view of Darden’s turnaround situation. Furthermore, students should be able to discuss the following topics: •
Darden’s need for financial and strategic organizational revival plan.
•
Darden’s turnaround strategy policies and objectives.
•
The financial and operational implementation of the Darden’s recent turnaround plan.
•
Potential future business practices for Darden’s financial and operational stability.
Phase I (Introduction and Open Class Discussion of the Case Study – approximately 30 minutes): Start the class with the introduction and the purpose of the case study and then deliver the learning outcomes of the case study (5 minutes). Deliver a brief lecture on the following discipline-specific subjects: (15-30 minutes).
Starboard Value LP. •
The most significant changes in Darden’s financial position and in the entire operation during and after the implementation of the revival plan.
•
A comparison of Darden’s key financial metrics before and after the turnaround implementation period.
•
Specific examples/elements that positively affected Darden’s overall turnaround. Let each discussion group present their answers and perspectives
about the key discussion topics and encourage them to provide their recommendations to (10 minutes). Briefly lecture on the impact of declining restaurant sales to the earnings per share, and the market value of restaurant corporations (5 minutes). Recap the discussion and check student learning and understanding in regard to the in-class discussions (5 minutes). Phase III (Check for Understanding – approximately 10 minutes): Summarize and outline the key points and the main themes of the case study (5 minutes). Ask student groups whether their initial thoughts and perspectives about the main topics of the case study have changed after
•
Organizational turnaround strategies.
hearing the opinions from the other class members during the in-class
•
Financial performance analysis (i.e., ratio and/or benchmark
discussions (5 minutes).
analysis).
Phase IV (Written Assignment):
•
Turnaround management process.
•
Organizational restructuring and revitalization.
they complete all of the aforementioned instructional phases. In their
•
Managerial decision-making process.
report, students will examine and defend their ideas about the turn-
Ask students about their own perceptions and understanding of the case study and encourage them to share their personal opinions
84
Darden’s turnaround strategies, business practices, and the new policies after being taken over by the activist hedge fund
strategies and strategic turnaround management. After reading the documents provided, students will be asked to have a good under-
The financial and operational challenges and primary causes
Students will be required to write a case analysis report after
around situation and strategies of Darden, evaluate the financial and operational outcome after the implementation of Darden’s turnaround Volume 6, Number 1
plan, and analytically structure their perspectives of the current issues
ence, and thus, increase earnings and profit margins. With the help of
presented in the case study. Also, students should include four to six
revival plan, it appears that Darden’s new strategic direction is paying
related references other than those provided by the instructor. Lastly,
off. Looking ahead, based on the aforementioned cost-cutting efforts
if needed by students, additional information assessment might be
and historical same-store-sales pattern, it is highly expected that com-
given along with the related financial data (i.e., financial projections
bined same-store-sales to be up between 1.5% and 3.0% along with
and future strategic practices of Darden).
the addition of 30 to 50 net new company owned restaurants in the
Assessment on Student Learning Student’s learning assessment will be measured by an extended writing assignment in the form of a case analysis report. The assessment criteria for the students’ level of competency about Darden’s recent turnaround strategy include the following: •
Understanding: Reading and executing the ideas from multiple sources of information.
•
Analysis: Thinking through reasoning and reflecting the opinions in the report.
•
Effective Communication: Integrating information and clear coordination of the ideas with expressing insights of the case study.
•
Content Accuracy & Analysis: The development of a sustained and well-substantiated argument or point of view. Ability to facilitate the related information to cover the discussion topics.
•
Completeness: Critique all of the issues and topics mentioned in the case study.
•
Evaluation and Synthesis: Ability to evaluate the options and offer clear recommendations
Analysis of Teaching Objectives Darden is moving to the right direction. The company has posted encouraging results after the sale of Red Lobster in mid-2014. The company’s EBITDA has greatly accelerated in each quarter of 2015 when compared to quarterly results in 2014 (i.e., $164.7 in Q4-15, $98.5 in Q4-14) along with the improved overall net earnings results (i.e., $43.2 million in Q4-15, ($32.8 million) in Q4-14). Moreover, Darden’s stock returns have picked up and enhanced when compared to the entire market after the sale of Red Lobster. Investors are rewarded with higher stock returns and divided payouts when compared to the stock return performance and dividend payments before the Red Lobster sale. Olive Garden’s declining same-store-sales have responded well to the turnaround efforts. Trailing twelve quarters, there has been a sharp increase in Olive Garden’s same-store-sales by 13.84% (from Q1-12 to Q4-15) generating 56.7% ($3.8 billion in sales) of Darden’s entire sales ($6.8 billion) in 2015. This pattern has also been supported by serious cost-cutting strategies, especially in 2015. Total operating cost and expenses dropped from $1,579.9 million to $1,527.1 (Δ% is -3.34%) and food and beverage costs shrunk to $482.1 thousand from $530.7 (Δ% is 9.16%) through the end of 2015. This data provided a significant double-digit boost to the company. The company’s overall objective is to overhaul the brand’s image and customer dining experiJournal of Hospitality & Tourism Cases
fiscal years of 2015-17(Darden Restaurant’s 10Q reports). The REIT conversion has already benefited Darden with higher returns on invested capital. This strategy should provide shareholders with the most immediate and tax-efficient path to unlocking the value of the company’s substantial real estate assets. Further, in June 2015, Darden raised the dividend payout by 10.0% and announced an annual dividend paid per share of $2.20. The company continues the steady annual hikes to its dividends with an attractive yield as a result of drastic cut-off in capital expenditures (35.21% since 2012) and sharp increase in cash flows from operations (70.26% since 2012). That is, Darden is returning cash to its stockholders and presenting a stronger opportunity of higher prices of its stocks (Darden Restaurant’s 10Q reports). All told, Darden’s operational performance seems to be pulling off an impressive and so far sustained turnaround with major strategical guidance of Starboard. Looking forward, it looks like Darden will be having this positive trend throughout the fiscal years of 2016-18 (approximately around $7 billion in sales while having a share net of around $2.80 and paring roughly $45 million in interest expense and $90-$100 million in total cost and expenses) (Darden Restaurant’s 10Q reports).
References Ashworth, W. (2014, May 19). 7 reasons JCPenney is poised for a huge turnaround. Business Insider. Retrieved from: http://www.businessinsider.com/ jcpenney-is-poised-for-a-huge-turnaround-2014-5 Bankruptcy filings down in fiscal year 2012. (2012, November 7). United States Court Reports. Retrieved from: http://www.uscourts.gov/news/2012/11/07/ bankruptcy-filings-down-fiscal-year-2012 Barington Capital Darden Restaurant’s Proposal, Barington Group. Darden Recommendation [Report]. (2013). Retrieved from http://marketrealist. com/2013/12/cheat-sheet-barington-capitals-84-page-darden-reccommendation/ Chen, G., and Hambrick, C.D. (2011). CEO replacement in turnaround situations: Executive (Mis) fit and its performance implications. Organization Science, 23(1), 225-243. Chartered Institute of Management Accountants (CIMA), Topic Gateway Series No. 59 [Report]. (2009). Retrieved from http://www.cimaglobal.com/documents/importeddocuments/cid_tg_corporate__turnaround_sept09.pdf.pdf Darden Restaurants, Inc., 10Qs [Report]. (2013-2015). Retrieved from https:// investor.darden.com/investors/financial-information/sec-filings/default.aspx Filatotchev, I., and Toms, S. (2006). Corporate governance and financial constraints on strategic turnarounds. Journal of Management Studies, 43(3), 407-433. Gallagher, J.R. (2014, August 29). Darden Restaurants, Inc. 3rd quarter ValueLine Business Report. Retrieved from ValueLine Investment Research database. Haron, H.N., Rahman, A.K.I., and Smith, M. (2013). Management accounting
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practices and the turnaround strategies. Asian Review of Accounting, 21(2), 100-112. Hess, E.M.A., and Sauter, B.M. (2012, December 12). America’s disappearing restaurant chains. USA Today. Retrieved from: http://www.usatoday.com/ story/money/business/2012/12/12/restaurants-skrinking-business-bennigans/1764595/ Kell, J. (2015, March 4). Best Buy and four other blockbuster corporate turnarounds. Fortune. Retrieved from: http://fortune.com/2015/03/04/bestbuy-turnaround-stories/
Hofer, C.W. (1980). Turnaround strategies. Journal of Business Strategy, 1(1), 19-31. Transforming Darden Restaurants, Starboard Value LP. Investor Presentation [Power Point Slides]. (2014). Retrieved from http://blogs.wsj.com/ moneybeat/2014/09/12/starboards-olive-garden-slides-salting-the-watercustom-straws-and-more/ Yoon, E., and Jang, S. (2005). The effect of financial leverage on profitability and risk of restaurant firms. Journal of Hospitality Financial Management, 13(1), 35-47.
Kizildag, M. (2015). Financial leverage phenomenon in hospitality industry sub-sector portfolios. International Journal of Contemporary Hospitality Management, 27(8), 1949-1978. Koh, S., Durand, B.R., Dai, L., and Chang, M. (2015). Financial distress: Lifecycle and corporate restructuring. Journal of Corporate Finance, 33, 19-33. March 2015 bankruptcy filings down 12 percent. (2015, April 27). United States Court Reports. Retrieved from: http://www.uscourts.gov/news/2015/04/27/ march-2015-bankruptcy-filings-down-12-percent Nef, C.W. (2015, November 27). Darden Restaurants, Inc. 4th quarter ValueLine Business Report. Retrieved from ValueLine Investment Research database. Pearce II, A.J., and Robbins, K.D. (2008). Strategic transformation as the essential last step in the process of business turnaround. Business Horizons, 51(2), 121-130. Pretorius, M. (2008). When Porter’s generic strategies are not enough: Complementary strategies for turnaround situations. Journal of Business Strategy, 29(6), 19-28. Schoenberg, R., Collier, N., and Bowman, C. (2013). Strategies for business turnaround and recovery: A review and synthesis. European Business Review, 25(3), 243-262. Slatter, S., Lovett, D., and Barlow, L. (2011). Leading corporate turnaround: How leaders fix troubled companies. West Sussex, England: John Wiley & Sons. Sudarsanam, S., and Lai, J. (2001). Corporate financial distress and turnaround strategies: Am empirical analysis. British Journal of Management, 12(3), 183-199. Tice, C. (2014, June 31). Closing time: Can these shrinking restaurant brands grow again? Forbes / Entrepreneurs. Retrieved from: http://www.forbes.com/ sites/caroltice/2014/07/31/closing-time-can-these-shrinking-restaurantbrands-grow-again/ Transforming Darden Restaurants, Starboard Value LP. Investor Presentation [Power Point Slides]. (2014). Retrieved from http://blogs.wsj.com/ moneybeat/2014/09/12/starboards-olive-garden-slides-salting-the-watercustom-straws-and-more/ Wohl, J. (2015, May 4). McDonald’s turnaround plan “more of just catching up”. Chicago Tribune. Retrieved from: http://www.chicagotribune.com/business/ ct-mcdonalds-turnaround-plan-0505-biz-20150504-story.html
Additional Reading Materials Assignged Burgess, C.M. (2011). Essential financial techniques for hospitality managers (2nd ed.). Woodeaton, Oxford: Goodfellow Publishers Limited. Chathoth, K.P, Ching-Yick Tse, E., and Olsen, D.M. (2006). Turnaround Strategy: A study of restaurant firms. International Journal of Hospitality Management, 25(4), 602-622. Gu, Z. (2002). Analyzing bankruptcy in the restaurant industry: A multiple discriminant model. International Journal of Hospitality Management, 21(1), 25-42. Guilding, C. (2014). Accounting essentials for hospitality managers (3rd ed.). New York, NY: Routledge, Taylor & Francis Group. Hales, J., and Van Hoof, B.H. (2010). Accounting and financial analysis in the hospitality industry. Upper Saddle River, NJ: Pearson PLC.
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Volume 6, Number 1
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Journal and Case Study Competition Submission Information The ICHRIE Johnson & Wales Case Study Competition and Publication Series is an annual initiative of ICHRIE that aims to: • enhance the ICHRIE services and benefits to its membership • create a new publication outlet of ICHRIE provide a new way of ICHRIE and its members to participate in the advancement of hospitality & tourism education • foster and strengthen the communication between academia and industry within tourism and hospitality • establish ICHRIE as a valuable source for hospitality & tourism educational material • reinforce the role of ICHRIE as a communication hub and facilitator of knowledge exchanges between research, academia and industry in hospitality & tourism. Worthy case studies submitted to the competition are peer-reviewed and considered for publication in ICHRIE's newly established electronic journal titled, Journal of Hospitality & Tourism Cases. This e-journal is a peer-reviewed international academic journal that aims to fill in the publication gap for case studies in tourism and hospitality. Case studies provide innovative ideas, business (best) practices, professional dilemmas, and lessons learned from the tourism and hospitality reality. Hence, cases are an invaluable source of knowledge for educators, professionals and researchers alike. In this vein, the Journal of Hospitality & Tourism Cases is the first peer-reviewed publication in tourism that aims to act as: • a clearinghouse providing educators with valuable case studies to enrich their educational and instruction methods; • an internationally recognized publication outlet offering researchers the opportunity to publish their research work; • a new benefit for ICHRIE members; • an additional important contribution of ICHRIE to hospitality & tourism education and research. Topics & Subject Areas of the Case Studies Cases studies from the tourism and/or hospitality industry are invited that feature a business 88
situation and topic falling within any of the following (but not limited) subject areas: • • • • • • • • • • • • • • • • • • • • • • • • •
Finance & Accounting Strategic Management Sustainability Human Resource Management Marketing Information & Communication Technologies E-Business & E-Commerce Information Systems Knowledge Management Operations Services Management Law Geography of tourism/hospitality Sociology of tourism/hospitality History of tourism/hospitality Tourism Development Policy Making Destination Management Networking – Cooperation Service Quality Experience Management Revenue Management Events & Sports Management Gaming Leisure Management
The Journal of Hospitality & Tourism Cases is published annually since 2011. Each journal volume features up to 4 issues, including case studies and teaching notes, that represent a wide variety of business topics/problems, disciplinary areas and various types of organizations from the travel, tourism, and hospitality sectors. All case studies submitted to the ICHRIE Johnson & Wales Case Study Competition and JHTC are double-blind reviewed by three reviewers. For more information or questions about the journal and its submission guidelines, please visit the website of JHTC at http://www.chrie.org/ publications/jhtc/index.aspx or contact: Professor Marianna Sigala Editor, Journal of Hospitality and Tourism Cases
[email protected]
Volume 6, Number 1
