What companies do in a tough economy.
NEW YORK – A burrito company known for super-sized stuffed tortillas goes small. A chocolatier turns to cheaper pick-me-ups rather than expensive indulgences. A furniture retailer expands in the midst of the housing market bust.
Three businesses with three different stories, yet one unmistakable conclusion. For all the hand-wringing about the economy, plenty of companies are getting it right. They’re doing it the same way businesses have survived bad economies for decades: through innovation, cutting costs
and a little luck.
“When you see big national companies struggling, many times I wonder how we will make it,” says John Pepper, who founded the Boston-based burrito chain Boloco 13 years ago. “We are constantly blocking and tackling. We have to be.”
What follows are three good-news stories in a bad-news economy.
Trouble for Boloco’s burrito business showed up two years ago in the form of brown paper bags, the kind that workers in Boston’s financial district were using to tote their lunches in from home. As that was happening, two national burrito chains, Chipotle and Qdoba, expanded in New England, where Boloco has 16 stores.
It didn’t take long before the crowds thinned at Boloco. The worst part was that business dropped in the first and last 15 minutes of the two-hour lunchtime crush. The result: sales fell about 20 percent in its city locations and 10 percent across the company.
“The shoulders of the business fell off a lot,” Pepper says. “People were ordering the same, but there were less people.”
Pepper knew that offering cheaper and smaller items during a recession can be a bad idea in the food business. Slowing sales can get slower if too many people trade down. But he still thought there was an opportunity to grab people who didn’t want a huge burrito for lunch or might want to try some of his food without committing to a larger size.
The “mini” line includes burritos, shakes, smoothies and bowls, which has all the stuff that goes in a burrito except the tortilla. The 8-ounce mini burrito goes for $3.95, compared with the $6.25 for the 20-ounce original and $5.35 for a 14-ounce small. A mini shake sells for $2.95, while the original goes for $4.50.
Not only did people come back, now they visit more often. They don’t just buy a mini burrito, but pair minis together, or better yet, they buy an original burrito and then tag on a mini shake.
The value of the average transaction is up about 8 percent, and overall sales and profits are about 13 percent higher than a year ago.
“What we did was controversial because we are in the ‘super-size me’ business, but it worked,” Pepper says.
Lake Champlain Chocolates owner Jim Lampman was also watching his thriving business slow as the recession took hold two years ago.
The Vermont-based company’s annual sales fell by about 8 percent. Many of the 3,000 stores that carry its chocolates began ordering less and some stores couldn’t pay their bills.
Lampman, who founded the company in 1983, eliminated higher priced items and priced candy in ways that would attract buyers, like under $20, $15, $10 and $5.
A chocolate lollipop that once sold for as much as $6 was knocked down to $3.50 or so. Each one, from hearts to pumpkins, is hand-painted, so he scaled back on the design to save labor costs. He kept his seasonal packaging the same last year, saving $100,000. He depleted the inventories that he had.
Lampman also recognized the value of keeping his customers. He shipped products even when a store didn’t spend the required minimum of $250. He forgave some outstanding bills.
“A downturn like this forced us to be more focused on our operations and how we handle products,” Lampman says. “The result was we got all the business back we lost, and now are having one of our best years ever.”
At Unlimited Furniture Group Inc., owner Lenny Kharitonov thinks this is the right time to build his New York-based retail and distribution company into a national chain.
In the last two years, he expanded to seven stores from two and entered new markets in Chicago, Atlanta, Orlando, Boston and Washington. He took advantage of a glut of commercial real estate to negotiate flexible and affordable leases for new stores.
Kharitonov also uses the drop in newspaper advertising to his advantage by getting cheaper rates. Finding talented workers is easier and less expensive, too, because unemployment is so high.
It’s a risky strategy during the housing slump. The furniture business suffers when people don’t move, which means they don’t need new things for their homes. Plenty of his competitors have closed stores or gone out of business.
Kharitonov is making money, but not a lot.
“If we can be successful in a bad economy, then we will be in good shape in a stronger economy,” Kharitonov says.
He’s got a point. The economy will eventually lift from its funk. When it does, these companies should be well on their way.
Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org