Every small town in America has a coffee shop. In larger cities and towns you can often find coffee shops on every other block.
So what can you find to eat in a coffee shop? Everything. Breakfast, lunch, dinner. Pancakes, muffins, hot dogs, hamburgers, sandwiches, pie, ice cream, and, of course, coffee.
What did Howard Schultz do? In an incredible burst of business creativity, he opened a coffee shop that specialized in, of all things, coffee. In other words, he narrowed the focus.
Today Schultz’s brainchild, Starbucks, is a rapidly growing chain that does hundreds of millions of dollars’ worth of business annually. His company, Starbucks Corp., is worth $8.7 billion on the stock market. And Howard Schultz owns a substantial share of that stock.
Every small town in America has a delicatessen. In larger cities and towns, you can often find delis in every neighborhood.
So what can you find to eat in a delicatessen? Everything. Soups, salads, hot and cold sandwiches, three types of roast beef, four types of ham, five types of cheese. Hard rolls, soft rolls, hero rolls, three types of pickles, four types of bread, five types of bagels. Potato chips, pretzels, corn chips. Muffins, doughnuts, cookies, cakes, candy bars, ice cream, frozen yogurt. Beer, soda, water, coffee, tea, soft drinks of all varieties. Newspapers, cigarettes, lottery tickets. Every decent delicatessen prides itself on carrying everything.
What did Fred DeLuca do? He narrowed the focus to one type of sandwich, the submarine sandwich.
Good things happen when you contract your brand rather than expand it. The first stroke of genius in DeLuca’s case was in coming up with the name.
Fred DeLuca called his chain Subway, a great name for a store that sold just submarine sandwiches. It was a name that no consumer could forget.
The second smart move concerned operations. When you make only submarine sandwiches, you get pretty good at making submarine sandwiches.
The average McDonald’s has sixty or seventy individual items on the menu. Half the employees are teenagers, not yet old or mature enough to handle the complexities of today’s operation. And people wonder why the food and service aren’t as good as when McDonald’s just served hamburgers, french fries, and soft drinks. (The original McDonald’s menu had just eleven items, including all sizes and flavors.)
Subway has become the eighth-largest fast-food chain in the United States. The company has more than 15,000 units in seventy-five countries. Since Subway is a private company, we don’t know exactly how profitable it is, but we do know how much money Fred DeLuca has been paying himself. (He was forced to disclose his salary in a court case.)
In 1990, Fred DeLuca paid himself $27 million. In 1991, $32 million. In 1992, $42 million. In 1993, $54 million. In 1994, $60 million. That’s a lot of dough for making submarine sandwiches.
Charles Lazarus owned one store, called Children’s Supermart, which sold two things: children’s furniture and toys. But he wanted to grow.
What is the conventional way to grow? Adding more things to sell. Sure, he could have added bicycles, baby food, diapers, and children’s clothing to the store. But he didn’t.
Instead, Charles Lazarus threw out the furniture and focused on toys.
Good things happen when you contract your brand rather than expand it. First he filled the empty half of the store with more toys, giving the buyer a greater selection and more reason to visit the store. Then, instead of calling it Children’s Supermart, Lazarus called his place Toys “R” Us.
Today Toys “R” Us sells 20 percent of all the toys sold in the United States. And the chain has become the model for the specialty stores or category killers on the retail scene. Home Depot in home supplies. The Gap in everyday casual clothing. The Limited in clothes for working women. Victoria’s Secret in ladies’ lingerie. PetsMart in pet supplies. Blockbuster Video in video rentals. CompUSA in computers. Foot Locker in athletic shoes.
Good things happen when you contract rather than expand your business. Most retail category killers follow the same five-step pattern.
When you dominate a category, you become extremely powerful. Microsoft has 95 percent of the worldwide market for desktop computer operating systems. Intel has 80 percent of the worldwide market for microprocessors. Coca-Cola has 70 percent of the worldwide market for cola. And in order to dominate a category, you must narrow your brand’s focus.
Why then do so few marketers want to contract their brands? Why do most marketers want to expand their brands? Because people look at successful companies and are led astray. They assume that companies are successful because they are expanding. (Starbucks, for example, currently is busy getting into everything from ice cream to bottled drinks to tea.)
But let’s focus on you for a moment. Let’s say that you want to be rich. Now ask yourself: Can I get rich by doing what rich people do?
Rich people buy expensive houses and eat in expensive restaurants. They drive Rolls-Royces and wear Rolex watches. They vacation on the Riviera.
Would buying an expensive house, a Rolls-Royce, and a Rolex make you rich? Just the opposite. It’s likely to make you poor, even bankrupt.
Most people search for success in all the wrong places. They try to find out what rich and successful companies are currently doing and then try to copy them.
What do rich companies do? They buy Gulfstream jets. They run programs like empowerment, leadership training, open-book management, and total-quality management. And they line-extend their brands.
Will buying a Gulfstream V jet for $42 million make your company successful? Unlikely. Will extending your brand? Just as unlikely.
If you want to be rich, you have to do what rich people did before they were rich—you have to find out what they did to become rich. If you want to have a successful company, you have to do what successful companies did before they were successful.
As it happens, they all did the same thing. They narrowed their focus.
When Domino’s Pizza first got started, it sold pizza and submarine sandwiches. When Little Caesars first got started, it sold pizza, fried shrimp, fish and chips, and roasted chicken. When Papa John’s first got started, it sold pizza, cheesesteak sandwiches, submarine sandwiches, fried mushrooms, fried zucchini, salads, and onion rings.
Now how do you suppose Tom Monaghan, Michael and Marian Ilitch, and John Schnatter built Domino’s Pizza, Little Caesars, and Papa John’s into big powerful brands? By expanding their menus or contracting them?