DEATH OF A PLANET

You may have read or heard of the problems that the Planet Hollywood restaurant chain is having. They have filed for bankruptcy protection while they attempt to restructure their operations. The chain of 80 restaurants is carrying a debt load of $250 million U.S. and has recently secured a $30 million U.S. cash infusion to keep the company operating.

How could a restaurant chain backed by such stars as Sylvester Stallone, Bruce Willis and Arnold Schwarzenegger with the worlds seemingly endless appetite for Hollywood get into such deep trouble? Easily, it seems. Here is some insight into why R.O.I. feels that Planet Hollywood is in such trouble and what it must do to turn things around.

1) Over Expansion: Planet Hollywood is a destination restaurant in the same class as Disneyland and Universal Studio's. When one is in Los Angeles, one goes to Disneyland, Rodeo Drive and Planet Hollywood for lunch - maybe, just maybe, you'll actually see a STAR while you are at the restaurant. You are not going for the food or even the atmosphere, you are going for the experience and the bragging rights. Hey, you may ever fork out $235 U.S. for a black leather James Dean Planet Hollywood jacket that says "LOS ANGELES" on it. In fact, merchandise accounts for 40% of revenue but are down this year 39%! Why would you expect anything different? If you can buy a jacket in your home town why would you buy one at all? By over expansion, the mystique and uniqueness of Planet Hollywood has been decimated and now has no intrinsic value.

2) What is with the food? Now, do most people go out to eat so they can eat substandard, overpriced food. Of course not. Every successful restaurant today must have a minimum standard of food quality, variety and value. Planet Hollywood falls down on all three accounts, the food lacks imagination, flavour and variety. If they had good food that was overpriced, customers would come back for the experience but if the food is bad, forget it! I have eaten at P.H. just once and that culinary experience was enough to ensure that I never go back. Please, at least make the food appetizing! Have a look at a success story in eatertainment, Rainforest Cafes. They have good food! When someone says to me "the brushetta is to die for" I know they will make it! In fact, they do make a profit!

3) What is with the Service? Waitstaff get tired of serving underage kids (a major P.H. segment) and of all the noise and hoop la! I may have only eaten there once but our service was a zero out of ten. Even if the food had been edible I would not have gone back because of the service.

4) Money! Do the math, how much do they spend per store to open. When you are a darling of Wall Street and the stock runs up to $32.13 in 1996 (now delisted) raising capital is easy so you can spend like a mad man. That is great except you must make profits to cover the cost of the capital. It doesn't matter how the capital was raised, every dollar has an expectation of being recouped with a tidy return attached to it. The more money you spend, the more profit you have to make to cover the cost of the money! So if you expand, do it wisely or else the same problem will raise it's ugly head in the future!

If you have a look at the Planet Hollywood in downtown Vancouver, it is a seemly booming success, or is it? Look at the math. If the restaurant took $7,000,000 to build, all that money expects a rate of return (at least as good as you would get in a bank). So, if all the money was borrowed from the bank over a five year term the principle repayment alone would be $116,666 per month plus interest. At prime plus 1%, the interest in the initial year would be about $46,000 per month for monthly payments of $162,666 per month! If your capital costs are 5% of your gross sales, Planet Hollywood must create $3,200,000 a month ($38,000,000 per annum) in sales to cover it's debt load. GOOD LUCK! The best P.H. did $50,000,000 a year being the highest grossing restaurant in the world but they didn't all do those sales as they over expanded and watered down sales.

How can P.H. survive? First they must deal with financial restructuring but to be successful you must make "PROFITS" and that means increasing customer counts and check averages. The formula is probably pretty simple - increase the quality of the food drastically, reduce the number of restaurants so you do not cannibalize customers, concentrate on service and watch every penny!

Eatertainment restaurants do have the potential to may make it, although the path is littered with failures, but it is a hard struggle just as every other restaurant is!

(with articles from the Vancouver Sun, National Post and Globe and Mail newspapers)