Hard Rock Café Uses IT to Develop Customer Loyalty

READER ROI

* Discover how IT can help drive a nontechnical business

* See how the Hard Rock CafŽ converts Web surfers to restaurant patrons

* Find out how this restaurant chain uses the Web to capture demographic data about diners

There isn’t much of a wait at the Orlando Hard Rock CafŽ, even though it’s right outside of the ever-crowded Universal Studios theme park. The music is loud as you await your vegetable fajitas or burger. Chuck Berry memorabilia shares a wall with Johnny Rotten and the Backstreet Boys. In the early ’80s, customers used to party at the Hard Rock CafŽ with the likes of John Belushi and the Ramones. It was the hippest place on the planet. But tonight it’s celebrity-free.

Similarly, no celebrities are in evidence down the road at the Hard Rock’s Orlando headquarters. Just bell-bottoms worn by Elvis, John Lennon’s jacket and a Lenny Kravitz guitar. Certainly enough to interest most music fans, but the company needs to do more than warehouse

celebrity castoffs to regain its luster in today’s market. Over the past two decades, an army of theme restaurant imitators like Planet Hollywood has sprung up, ready to copy the Hard Rock’s every move. The Hard Rock--the original theme restaurant, which first opened in London 30 years ago--will consider its new branding program a success if it’s known as an exciting music place. Right now, even that may be a stretch, judging by the sedate dinner scene in Orlando, but it’s the expressed goal of CIO Ron Ward and CFO Scott Little. And the pair believes that information technology will help the chain recover its edge.

For Those About To Rock

At the end of 1998, when both Ward and Little came to the Hard Rock from Disney, some IT systems--like the financial system--didn’t work well, and others--like a planned data warehouse--never worked at all. With such systems in place, naturally the IT staff had a bad reputation. IS spent much of its time trying to fix old problems and didn’t have the time to address other workers’ needs--or treat them nicely. In fact, the IT department "was the most hated organization in the company," Ward confesses. Ward and Little’s turnaround strategy for the Hard Rock CafŽ is straightforward: First, fix the infrastructure and the existing corporate systems, and then invest in customer-facing programs and technologies that will drive traffic to Hard Rock’s website (www.hardrock.com) and from there to the restaurants.

Will this strategy work for Hard Rock? Alan Hickok, a senior researcher who covers restaurants for Minneapolis-based investment company U.S. Bancorp Piper Jaffray, says that the Internet and food haven’t made beautiful music together in the past. He points to the several hundred million dollars of venture money lost in online food-service applications. But the Hard Rock is hoping that the extent of its commitment to this strategy will make it succeed. That commitment entails over 500 exclusive-rights concerts a year that will be shown in the CafŽs and via webcasts, a Hard Rock memorabilia section on online auction site eBay and perhaps most pivotally, an ambitious CRM system that aims to strengthen the relationship between restaurant and customer by building an online community. The Hard Rock is using the Internet as a tool both for capturing information about its restaurant patrons and pushing customized information (such as upcoming concert information) to those patrons in an effort to bring them back for repeat dining business. "We’re using music as a platform," says Little. "And we’re using technology to reach the customer. We’re looking for technology to get the company to the next level."

Living On A Prayer

Hitting hard rock bottom was unimaginable in 1971 when the original Hard Rock CafŽ opened in London. Known as a rock star hangout, it started its world-famous memorabilia collection after receiving gift guitars from Eric Clapton and The Who’s Pete Townsend. As the collection grew, so did the CafŽ’s fame, and in 1982 the Hard Rock expanded to a handful of cities, including New York City, Los Angeles, Paris and Berlin. It had immediate cachet. "They tapped into a previously undiscovered niche," recalls Ron Paul, president of Chicago-based restaurant consultancy Technomic. "There were lines out the door to get in, there were lines out the shop to get the clothing items. It was an absolute money machine."

Soon thereafter, original owners Peter Morton and Isaac Tiggret cashed out, and by the ’90s, the Hard Rock tally stood at 104 CafŽs in 36 countries--half with franchise owners. Soon, competitors, buoyed by the Hard Rock’s prominence, pounced on the theme restaurant idea. By the mid-’90s, Planet Hollywood, the Rainforest CafŽ, the Fashion CafŽ and a host of other chains had chart-topping success, affirming the new conventional wisdom that theme restaurants printed money. But a few years later, customers were tired of waiting for Elton John to drop by the Hard Rock in Gatlinburg, Tenn., Bruce Willis to stroll into the Planet Hollywood in Tulsa, Okla., or Christie Brinkley to order a Pink Lady in the Birmingham, Ala., Fashion CafŽ. Planet Hollywood and the Fashion CafŽ filed for bankruptcy protection, and other theme restaurants, including David Copperfield’s and the All-Star CafŽ, went out of business altogether.

As for the Hard Rock, sales stagnated after 1996, and in 1999, sales declined from the previous year’s $396 million to $388 million. Profitability also declined by almost 15 percent from the previous year. During the downtime The Rank Group, a London-based entertainment conglomerate whose business includes casinos, video and DVD manufacturing, and a stake in Universal Studios, aggressively bought back the brand from the franchisees and, by 1998, had once again unified most of the Hard Rock CafŽs--including all 50 in the United States--under singular ownership. But, says Ward, unifying the brand name didn’t mean that the restaurants were unified technologically. In fact, over the years, the different owners and franchisees had implemented their own restaurant management systems. "We had all these little fiefdoms with no standards," says Ward. "A french fry in one CafŽ was described as something completely different in another. A cheeseburger could have been a chicken sandwich, it could have been a steak." The lack of standards made it impossible for the corporate office to analyze sales. Processes were broken and communication was even worse.

Help! I Need Somebody

A few years ago, a sack containing $100,000 sat untouched for five days in the New York City Hard Rock CafŽ on West 57th Street. The employees didn’t realize it was there, and corporate sure didn’t register a problem. The financial system wasn’t updated frequently enough to catch the missing loot--not that it mattered, because no one trusted the system anyway. And the financial system wasn’t the only problem. The chain’s merchandise inventory "system" relied on restaurant managers without any merchandising experience telling corporate when they ran out of something. And the network connecting the CafŽs ran from a Linux box that Ward describes as "hackerware." In short, he says, "We were in triage."

Ward and Little were already thinking big about how they could use technology to promote the Hard Rock brand and drive business to the restaurants (more about that shortly), but it was clear that none of their dreams could come true with their house in disarray. And so the first wave of the Hard Rock revitalization was aimed at fixing the internal systems.

Shortly before Ward arrived, the IT department had tried but failed to install a data warehouse--the disparate data standards had proven too complicated to overcome. One of the reasons that Ward left Disney for Hard Rock at the end of 1998 was the leeway he was promised in overhauling the IT department. Using this mandate, Ward galvanized the IT troops and spent the last quarter of 1998 and the first half of 1999 putting in place a million-dollar data warehouse system from Vienna, Va.-based MicroStrategy. The data warehouse now stores all restaurant point-of-sales customer data, such as merchandise sales, as well as customer demographic and preference data now captured on the Web--linking the two together when possible. The completed data warehouse project laid the foundation for two other important fixes.

Because merchandise sales account for hundreds of millions of dollars every year--half of the Hard Rock’s revenues--the next step was to install a much-needed chainwide merchandise system. The lack of such a system lead to embarrassing gaffes like the summer the Cleveland Hard Rock opened and had no T-shirts to sell for the first three weeks. Ward’s group chose the Radius inventory management system from Transatlantic Software, with a price tag of $1.5 million, because it was built on the MicroStrategy platform.

Next up was the financial system. "There were three sets of books when I started," says Little. "You had the people in the field saying these are the numbers, you had finance saying these were the numbers, and you had the CEO saying these were the numbers." And most of the time their totals weren’t even close. As late as the end of 1998, the finance system required restaurant mangers to e-mail a copy of the financial statement in Lotus Notes, a dedicated staffer in corporate to reproduce the numbers in Microsoft Excel spreadsheets and another to key it in to a Lawson Software financial module.

According to Ward, the Lawson system had 50 different ledgers--one for each of the U.S. restaurants--and needed to be completely reengineered to produce a common ledger for all the CafŽs. One year and $5 million later, the system now automatically reconciles the numbers for every CafŽ and reports them on a daily basis. The workload has been so reduced that the finance staff has been trimmed from 90 to 30 people. "Now we have one set of books--ours," jokes Little.

While the restaurants were opposed to changes that required them to spend time learning new systems--it was a fairly painful process for them, Ward concedes--the benefits are now apparent. The new systems and data warehouses are now accessible through a companywide intranet. All the records are updated and reported daily, ensuring that disasters like the New York City misplaced money bag and the Cleveland T-shirt debacle won’t happen again. With just a click of the mouse, corporate executives can call up the Memphis CafŽ’s beer sales for the previous day--$4,641 worth--or see how many fries were served in Houston.

Calling Out Around The World

Obviously, hungry patrons aren’t going to flock to the Hard Rock just because the CafŽ has gotten its financial systems together. In fact, Technomic’s Paul suggests that the casual dining field has never been more crowded and competitive. Every night the Cheesecake Factory and the Olive Garden, among many others, compete for the same blue-jean-and-sweater-wearing diner as the Hard Rock. "All of these come back to ’how was dinner,’" says Paul. "And what you mean really is how was the whole experience, from the parking lot to the way out." The Hard Rock has the opportunity to distinguish itself with its strong connection to music. After all, says Paul, "it is a little more cool than just going to Chili’s."

This is exactly what the Hard Rock is trying to convince its customers in its second wave of IT-based initiatives. Thirty million people visit the Hard Rock every year; 75 percent of them are tourists, often drawn by the opportunity to purchase a Hard Rock Boston T-shirt as proof of their travels. If some of those tourists also became regular diners at their local Hard Rocks back at home, profits chainwide would greatly increase. Central to the mission to attract a more local crowd more consistently is the company’s newest outlet--Hard Rock Cyberspace, www.hardrock.com. "Our goal and our desire is that we can capture people coming out of the CafŽ," says Ward, "and they would go to our website. And the goal with our website is first and foremost to drive traffic back to the CafŽ." Closing the loop, so to speak.

The key to this two-pronged strategy is a CRM system that tracks users both on the Web and in the restaurants. Hard Rock is implementing Epiphany’s CRM product to track users both on the Web and in the restaurants. The system also allows Hard Rock to offer real-time promotional campaigns based on user behavior--for instance, predicting bands a visitor might like and alerting him when those bands play at the local Hard Rock.

To Bob Chatham, a principal analyst at Forrester Research in Cambridge, Mass., just having a CRM system is only half an answer. While CRM products like Epiphany’s allow companies to keep careful tabs on visitors’ online behavior and track how they respond to certain promotions, it doesn’t actually help develop successful promotions. "There’s also this little magic step that you have to take," says Chatham. "Identifying people who are your most likely customers is one step, but then there is this black art of what am I going to pitch them. It still hasn’t eliminated the need for a great creative effort."

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