A Salt Merchant drove his Donkey to the seashore to buy salt.
Heavily laden with salt, the Donkey started the long trek back.
The Donkey, growing weary watching his future load being prepared. [Source: Firstcry.com]
The road back lay across a stream into which his Donkey tripped and fell by accident. When the Donkey got out of the water, a saltload lighter, he breathed a sigh of relief, thankful that the trek back was easier.
With other plans, the Merchant went back to the market by the seashore and refilled his bags with a larger quantity of salt than before.
When he came again to the stream, the Donkey fell down on purpose in the same spot, and, regaining his feet with the weight of his load much diminished, brayed triumphantly.
The Merchant saw through this trick and drove the Donkey for the third time to the coast, where he bought a cargo of sponges instead of salt.
The Donkey, again playing the fool, fell down on purpose when he reached the stream, but the sponges became swollen with water, greatly increasing his load.
Thus his trick recoiled on him, for he now carried on his back a double burden.
Moral: Don’t try a trick too often or it will turn against you.
From Aesop’s Fables “The Salt Merchant and the Donkey”
Passage #2
Over the years, private equity (PE) firms have mastered the art of creating value for their portfolio companies through cost reduction, talent upgrades, and financial engineering.
Over the years, private equity (PE) firms have mastered the art of siphoning money from their portfolio companies by removing the expensive things that worked, removing people who disagree, and leaving before the market finds out.
Instead of only offering live-action plays or musicals, Studio Movie Grill (SMG) was able to offer the premium experience of combined food and entertainment without only attracting the audience already into those things.
It was actually good food with an actually good movie experience.
I really liked this place growing up—it was a special occasion to go.
To make the operation work was no small feat, however. A team of polite1 waitstaff had to manage normal waitstaff roles AND not trip with your food in the darkness.
On the operations side, it was running two businesses under one roof—a costly and complicated venture.
Despite the challenges, it worked well.
People were willing to pay a premium amount for a premium experience.
For years, the company was able to grow quickly and consistently. From 1993 to 2019, SMG was able to reliably grow its balance sheet and its brand equity by offering the same high-quality experience each time.
Growth Über Alles
As discussed in the last article (below), finding a balance between aggressive growth and maintaining brand equity2 is hard.
It’s a tough line to walk, and I find it hard to criticize any business founder who struggles to keep that balance.
An entire segment of the advertising industry exists to manage brand perception and equity while freeing up the business units to operate more efficiently.
It’s hard to please customers and run a business at the same time!
Enter Private Equity
But there’s one notable area where durable success is often less important than short-term growth rates—Private Equity (PE).
Instead of the multi-decade-long perspective that founders often bring to their companies, PE firms only hold onto companies for 3-5 years before selling them back to another holding company.
Companies built over the course of decades are difficult to make more successful3 overnight, and a near-overnight transformation is what’s required to show potential buyers a trend of growth.
SMG managed to keep some of their revenue flowing by opening up their kitchens for food delivery, but they had to file for Chapter 11 bankruptcy in 2021. As part of the deal, it seems the founder was ousted and the PE firm gained more control over the operations of the company.
My Recent SMG Experience
I went with my brother a few weeks ago to watch Oppenheimer, the movie about the creation of the atomic bomb, and immediately started seeing the effects of PE ‘rightsizing’.
Like internal bleeding, the signs of a degraded customer experience don’t readily appear on a balance sheet until it’s hard to fix.
The customer experience for SMG can be broken into 3 parts:
Getting to the movie
Eating a meal
Enjoying a movie
Getting to the Movie
The first emotion my brother and I experienced with SMG was confusion.
Having purchased tickets in advance, we walking up to the first employee we saw—the one scanning tickets as people went to their theaters.
Phone in hand with email confirmation barcode, I confidently strode up to the ticketing attendant.
I held my phone out, excited to find our seats and get ready for the movie.
Only to be met with a raised eyebrow
“What are you doing with that?” she asked
“…Um, holding my ticket for you to scan the barcode” I said
“Oh, no this scanner only does paper tickets. You have to go back to the front and wait to use one of the kiosks to print your tickets” she said
Sure enough, she was right.
Even though we had bought our tickets in advance digitally, we still had to print the physical ticket before it was scanned and torn up.4
A swing and a miss for tech implementation.
From a CX perspective, tech should always be used to make things faster, cheaper, or easier—never just for the sake of itself.
Only mildly discomforted, we continued onto the theater to find our seats and order
Eating a Meal
Ordering
The first part of eating a meal is ordering.
I was impressed by the menu’s resistance to inflation.
The waitstaff used handheld ordering devices to quickly take our order—a good use of technology here—to, I assume, immediately be arranged into timed courses (e.g. dessert comes later than popcorn) and sent to the kitchen.
Food Arrives
Once the food arrived, I understood how the prices had stayed the same.
The quality decrease must have been used to offset any price increase.
It felt like a strange choice, unless you consider it from the point of view of a short-term interested party: I’m sure the price decrease from cutting corners MORE than paid for the higher customer churn through increased foot traffic.
The theme of significantly degraded food quality was consistent across all parts of the meal—even the ice cream in the final dessert was clearly a less expensive alternative to whatever they had stocked before.
Food Overall
A well-managed ordering system does not negate a poor food experience.
My experience as a customer had gone from ‘neutral-negative’ to ‘negative’ by this point.
Enjoying a Movie
Movie Itself
The movie itself was clear visually and auditorally.
If SMG internally identifies as a movie theater, they’re certainly hitting the mark on that front.
I was impressed by the dynamic range of the speakers through a movie that ranged wildly in volumes.
Physical Theater Space
Again falling into the theme of cutting corners, the theater felt to be overcrowded by rows of chairs to maximize per-showing yield.
In the same way Spirit airlines is able to offer cheaper seats by giving each passenger less leg room, SMG seemed to be working under the same assumption.
I’m not unusually tall, but I had to pull my legs in a lot whenever someone on the waitstaff walked by.
For a normal theater, other moviegoers may walk by once or twice.
For a movie with an entire restaurants waitstaff, that number is significantly higher
Movie Overall
A good use of theater technology is table stakes for a modern movie theater.
However, the tightly-packed seats further pulled by experience to ‘negative’
Experience Overall
I did not enjoy my time at the ‘new’ SMG.
I liked seeing the company try to implement technology in a few ways.
Companies that don’t innovate die.
SMG was certainly trying to keep abreast of the rapidly changing technology landscape.
But they missed the point of technology—it should be used to make life better, not just added to check a box.
The overall lack of consideration for the customer experience throughout the rest of the process was surprising.
I imagine many decisions were made to maintain the current price point in the face of rising inflation, but they were very noticeable.
What Could They Do?
SMG faces a fork in the road, somewhat caused by the chronic short-termism from heavy PE investment.
To go forward they could chose one of two paths:
Recognize that they were always offering a premium experience and can command a premium price, even at the risk of losing some of their audience
Choose to optimize for lower price point offerings, gaining potential market share while risking a race to the bottom with alternative activities
Option 1:
Work to ensure the experience (and brand) continue to be known as a premium experience.
How to get there:
Don’t change the technology that works
No tech initiatives on things that work!
Adjust the pricing strategy to willingness-to-pay
With auto-pricing based on time, weather, and trends, yields can be dynamically maintained to keep theaters full while allowing more flexibility with margins
At a higher price point, you’ll likely see a higher percent of reservations compared to walk-ins
Differentiate food and environment from alternatives
Eating Applebee’s food in a recliner while watching a movie is something I can do at home for $15. I won’t pay 3 times that for the same thing farther from home.
I’m also not going for a 5 star meal. The movie really is the focus. There’s a middle ground to find here
Do a customer experience audit
Have employees walk through the process with process-naïve customers to see how they think of things
Define the customer journey process and what tech interacts with each aspects
Improve things in a priority order for the end customer
Risks:
Smaller market means that trends matter more for business success
Brand equity will be slow to re-build up
Option 2:
Optimize for a lower-price point to expand potential audience.
How to get there:
Reduce menu size to minimize ingredients stocked
The kitchen can be optimized for higher throughput if there are fewer items to get up to speed on
Choose options with longer shelf life to reduce spoilage
e.g. pre-frozen ice cream sandwiches can last for longer than cake
Capture the walk-in crown with time, and geo-fenced advertising campaigns
Capture the ‘what do you want to do tonight” market
Risks:
Going to the movie does become less differentiated to staying at home
Higher dependence on walk-in crowd makes predicting yield harder
At lower price point, crowd may also order less food, further dropping margins
Larger, less loyal market will be affected more strongly be macroeconomic trends
Conclusion
Especially as digital experiences grow in popularity, companies must be especially careful to safeguard their customer experiences.
I recommend Option #1 for the future of SMG.
If a company has already differentiated itself in a positive way, leadership needs to resist the temptations to gut the business for an immediate payout rather than continuing to be customer-centric for long-term growth.
Building an enjoyable customer experience is hard—don’t let a good one go to waste.
What your customers think about your company. For example, I think Patagonia does a great job of treating its customers well by offering “no-questions-asked” replacements of jackets. I would give the company the benefit of the doubt if I heard a rumor of bad ethical practices.
On the flip side, I would absolutely assume that Comcast tried to backdoor sneak in legislation that benefitted them if I heard that rumor. (Because they did)
I’m not opposed to non-digital paths for a customer experience, especially for accessibility purposes. However, forcing people to print a ticket that was then thrown away 10 seconds later is ridiculous
