The Mystery of The Blood Red Ledger

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LeFranc provided all his managers with personal computers and DSL lines in the restaurants so they could feed data quickly to Ortiz. The managers began tallying revenues, expenses, and guest counts daily, entering the figures into spreadsheets. Each Monday morning they E-mailed the spreadsheets to Ortiz, who then imported the data into his master Excel files and created a report that ran to 40 pages. He broke out year-to-date figures for the entire company as well as for each restaurant, did comparisons between year-ago results and the company's plan, and charted the effect of marketing promotions. On Monday afternoon Ortiz would ship the report to all the managers. (LeFranc plans to have Ortiz post the reports to a shared server soon so that managers can access the reports without E-mailing them back and forth.)

The system of data sharing had some unintended but beneficial consequences. The managers at two of the biggest restaurants began competing hard against each other to post the highest results. And LeFranc started holding monthly meetings for all managers at which they explained their results to one another. All were accountable, most notably to their peers.

The welcome mat
The burning question for the newly self-directed team, however, was whether it could ramp up sales in a company that had been tainted by bankruptcy. The task was particularly hard because of what LeFranc admits was a bad decision he had made early on -- keeping the company name. "I didn't go there because it was such a radical change," he says ruefully. So the team went forward with larger signs and a sporty logo featuring the tarnished moniker.

After the bankruptcy filing, the company's sales had dropped 8% to 10%. Then, in the fall of 1998, when LeFranc reduced the menu from 60 to 30 items to lower food costs, sales dropped another 7% within four months. (Since he had turned cash-flow positive during that time, he was sacrificing sales for profits.)

To get his customers back, LeFranc had to find out who they were. So he turned to Gazelle Systems, a Newton, Mass., company he had come across at an industry convention in 1997. It had just four employees at the time, but LeFranc was blown away by its technology. Gazelle could develop a demographic profile of the restaurants' customers -- where they lived, where they shopped, and how much they earned and spent. The software company could determine whether the customers were married or single, male or female, parents, or sports fans. It also could find out how frequently they visited Louise's and how much they spent. Although large retailers and catalog companies relied on such information, no one, to LeFranc's knowledge, had ever applied such data-mining technology to a restaurant.

Gazelle downloaded customer-purchase information from the restaurants' point-of-sale (POS) system and then matched it with in-depth demographic records in data banks that marketing companies offered for sale.

Gazelle's data helped LeFranc overhaul his marketing approach. With maps pinpointing where his customers lived, for example, he could target specific streets with promotional material. "Instead of doing a direct mail of 495,000 pieces, we door-dropped 20,000 pieces," LeFranc says. "For a third of the cost of the mailing I got double the response." The number of "trials," as new customers are called in the industry, rose.

The CEO had learned that 54% of his customers were women, which prompted him to put lighter fare on the menu -- salads, pastas with light sauces, and vegetarian dishes. He began to offer seafood dishes designed by a well-known Maui chef -- sea bass with white-bean tomato salad, and salmon on a bed of garlic mashed potatoes with pineapple-cilantro salsa. LeFranc calls such food "California Italian."

It also turned out that 60% of the restaurants' customers had children aged 8 to 16, and 30% of those parents were single -- and time strapped, LeFranc assumed. That meant a huge potential for the company's takeout business. To grow the chain's already substantial takeout trade, LeFranc had one of his managers set up a toll-free phone number that would detect where a customer was calling from. The system would route the call to the nearest Louise's location.

During the bankruptcy, "we never had time to focus on just sales building, as we can now," says the CEO. "We were always juggling priorities." With the team's full attention, sales grew 4.8% in the fourth quarter of 2000 and peaked with an 11.5% gain in December. In early 2001, sales rose another 6.7%.

When a guest sits down for a lunch of grilled swordfish over fettuccine with a piquant tomato sauce at a Louise's in West Los Angeles, all the elements that LeFranc has put together are in evidence. The food arrives quickly; the steaming fish is juicy. And the sauce -- whose tomato base is outsourced to a supplier -- tastes homemade. The CEO has reason to complain only when a waiter clears an appetizer plate and leaves a guest without a fork for the main course. It's a small point, but LeFranc notices it -- just as he notices everything else.

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