Well, This Is What I Think

A little while back, a big brouhaha broke in the States over a chicken fast food chain called Chick-fil-A.

The business, hitherto best known for its amusing billboard advertising, became the centre of a storm when key personnel spoke out against gay marriage, prompting calls for a boycott of the business.

Their cause was taken up by right wing conservative commentator Mike Huckabee resulting in a highly successful protest in favour of the company’s position, when sales in one day went up 29%. However quite recently opinion polling revealed that some 13% of people were still considering or actively boycotting the business.

As recently as two days ago, the controversy continues to rumble. The long term effect on the brand is, as yet, unclear.

Now, a similar controversy has broken over another fast food company. And calls for a boycott are growing fast.

Pizza maker Papa John’s chief executive John Schnatter has criticized President Obama’s health-care law and said it will raise costs by 15 to 20 cents a pizza.

The blow-back has been fierce:

“Papa John’s pizza extortion,” ran the headline for a story Wednesday from Salon, an American news website.

“Vote for Romney or we’ll raise our prices” was how Daily Kos, a liberal news site, topped its story , which went on to illustrate Mr. Schnatter’s links to the GOP presidential candidate..

Some Twitter and Facebook users are now actively urging a boycott of the Kentucky-based pizza chain.

But the Christian Science Monitor, for one, argues that such reactions may be overdone. They ask: was Mr. Schnatter making a political threat – or simply explaining the economics of the pizza business? Well, you be the judge.

In the middle of an Aug. 1 conference call with reporters and analysts to discuss the chain’s second-quarter results, Schnatter was asked about the impact of the new health-care law on Papa John’s. Here’s what he said, according to a recording of that call on the company’s website:

“Our best estimate is that the Obamacare [law] will cost about 11 to 14 cents per pizza – or 15 or 20 cents per order from a corporate basis. To put that in perspective, our average delivery charge is $1.75 to $2.50 – or about 10-fold our estimated cost of the Obamacare [law] to Papa John’s.

We’re not supportive of Obamacare, like most businesses in our industry. But our business model and unit economics [are] about as ideal as you can get for a food company to absorb Obamacare. We have a high ticket average with extremely high frequency of order counts – millions of pizzas per year. To give you an example … let’s say fuel goes up, which it does from time to time, and we have to raise delivery charges. We don’t like raising delivery charges. But the price of fuel is out of our control, as is Obamacare.

So if Obamacare is, in fact, not repealed, we will find tactics to shallow out any Obamacare costs and core strategies to pass that cost onto the consumer in order to protect our shareholders’ best interest.”

CSM believe several points stand out: The 15 to 20 cents he’s talking about are costs, not prices. If he was making a political statement, would he really make the point that delivery charges, based at least in part on fuel costs, are 10 times the size of the hit from Obamacare? And he is promising to cut or “shallow out” the costs of healthcare before passing any price increase to the consumer.

Is that a threat? Really? I guess it depends on what “shallowing out” costs actually means.

Schnatter is certainly no fan of the president or the health-care law. Who knows? Perhaps he will cut health-care costs by laying off or shafting his employees. But, the CSM argues, he deserves to have his words quoted in context, before another battle of the culture war is fought over fast food.

Fair enough. What is certain is that the row over his words is likely to grow. Like a brushfire. And it highlights dramatically the care that business owners and managers must take when commenting, in whatever medium, on controversial political issues.

At Wellthisiswhatithink we believe that it would not be a good thing for business to be prevented from expressing its point of view through fear of igniting controversy – it is, when all’s said and done, a key segment of society and we need to know the perspectives it holds, and why it holds them, given that “business” is somewhat opaque to the non business community.

But look out: the swamp is full of alligators, and treading warily would seem to be in order.

What a smart thing it might be, for example, for Boards of Directors to deliberately seek out and include ex-officio Directors with different points of view to their own, who might be closer to the general public, and with a better than passing knowledge of the likely public effect of policy decisions. The same could be said of a Board’s approach to environmental issues, risk management issues, (hello, BP, we’re talking to you), personnel issues generally, and many more.

When companies are basically run by a group of accountants, lawyers and entrepreneurs, they can get a very narrow view of the society in which they do business. And when those same people leave work for the day, they often – not always, but often – circulate in a social milieu that usually does very little to broaden their horizons. It’s called “living in the bubble”. When a storm breaks, they are generally shocked and scramble to play catch up, often ineffectively.

As an adviser to business, I have sometimes found the upper echelons of management to be staggering insular, tone deaf to the likely public impact of their activities or statements, and completely lacking understanding of how social media has fundamentally altered the rules of the game, and as a result – essentially – they are riding for a fall.

It will be interesting to watch how Papa John’s deal with the crisis. The cost of getting it wrong will be a hell of a lot more than 14 cents a pizza, that’s for sure.

Some more examples that we have covered of how NOT to embrace social media can be found here, concerning recent industrial disputation and management actions at Australia’s national airline: http://wp.me/p1LY0z-cb and here: http://wp.me/p1LY0z-cu. A very funny and cautionary tale.

Anyhow, as we all sit mesmerised with horror at the new power of social media, my final word to managers and Directors is very simple.

For more than 2,000 years, Christian society has been based on what is known as the Golden Rule. To wit:  “Do unto others as you would have done unto yourself.”

Why not try applying that rule to your next major decision? Forget what you think is your responsibility to your shareholders, just momentarily, and imagine you are your customer. You will soon find, I assure you, that building shareholder value isn’t actually about pinching pennies here and there, it’s about providing world class products and services. World class.

Because in an internet world, world class is the new basic standard. Think about it.

More interesting coverage is here: http://www.mediaite.com/tv/papa-johns-pizza-ceo-john-schnatter-owes-president-obama-two-words-thank-you/  I note his share price is now down more than 4%. Bet his shareholders are delighted.