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Monical's secret to success

Harry Bond has been in the pizza business for 30 years. He’s weathered his share of ups and downs—the gas crisis of the 1970s, a recession in the early ’80s, the Atkins craze. But nothing compares to the perfect storm he’s facing today: way too much competition, cheese prices at record highs and other food costs skyrocketing due to the ethanol effect. What’s more, Bradley, Illinois-based Monical’s Pizza, where Bond is president, faces some sticky regional issues, like a dollar-an-hour hike in the minimum wage and rising electricity rates.

“I’ve seen one or two of these issues at a time but never all of them at once,” he says. “This is the worst I’ve ever seen.” So it’s no small achievement that Monical’s, a 59-unit chain with locations in Illinois, Indiana and Wisconsin, posted its best numbers ever last year, with system-wide revenues reaching $49 million. Bond says that’s owed to a long-term adherence to the chain’s mission. In short, the 48-year-old Monical’s trusts in the business-building effects of treating employees well while continuously analyzing its operations: renegotiating rates with vendors, monitoring customer satisfaction and looking—even in the best of times—for efficiencies wherever it can find them. It’s the basics, stuff everybody knows they should be doing. He’s just doing them, and doing them right.

If you’re familiar with the Monical’s brand, it’s likely because of the wave of publicity the chain received back in 2003, when for a 17-month period it experienced zero turnover among management—a statistic that’s virtually unheard of in this business. That wasn’t a one-time blip either; including front-line employees, Monical’s turnover rate is about 80 percent these days, compared to 94 percent for the industry, according to the National Restaurant Association.

The company studied its labor costs a few years ago, learning that by reducing turnover from 150 percent to about 80 percent, it had saved 20,000 employee hours. “That’s about 750 additional employees we would have been putting through the system—interviewing them, hiring them, training them and then having them leave,” Bond says. “By not having to hire those employees in the first place, we freed up a lot of management hours that would have been wasted.”

What did their managers do with that free time? They managed, in accordance with a theory developed by several Harvard Business School professors that has become a way of life for Monical’s. In a nutshell, the service-profit chain theory holds that if you treat employees well, they’ll treat your customers well, meaning your customers will not only return frequently but they’ll spend more money and spread positive word of mouth about your establishment.

Bond notes that treating employees well doesn’t necessarily mean paying them exorbitant salaries. All Monical’s employees make more than minimum wage, but only 15 to 20 cents an hour more: $7.70 for non-tipped employees and $4.65 for tipped workers. “Pay might be important when they’re first hired, but after that they want to work for people they like working for,” Bond says. Other Monical’s perks include profit sharing, health benefits, a 401k plan and flexible hours Creating and nurturing that kind of employee-centric culture is “brilliant,” says Ed Zimmerman, president of Successfoods Marketing, a Novato, California, consulting firm. “It’s the way you have to run a retail location today,” he says. “So often restaurant operators view labor as another cost to manage, rather than an investment in both customer service and marketing.”

Like many independents, Monical’s roots are in a one-unit family restaurant. The Monical family began making pizza in Tolono, Illinois, in 1959; Monical’s quickly became known for its thin-crust pizza and its family-friendly atmosphere. Bond, who was trained as a certified public accountant, first worked for the Monical family in 1974 as a consultant. Four years later, he was hired as the company’s controller. In 1980, the Monical family decided they wanted to retire and sell the business and two years after that Bond and several partners formed the Monical Pizza Corporation and bought the family out. At the time, Bond owned 3 percent of the company; today, as just the fourth president in the company’s history, he and his wife own 30 percent of Monical’s. There are 30 company-owned stores; the rest are franchised.

In conversation, Bond is easygoing, direct and unpretentious. And it’s clear that Monical’s dedication to its employees is more than an effective business strategy (although it certainly is that)—it’s important to Bond personally. Still, there are business realities to face. So in the five months Monical’s had to prepare for Illinois’ dollar-an-hour minimum wage increase, for example, the company undertook evaluations of all its hourly employees. In order to keep up with its standard of paying more than minimum wage, Monical’s had to boost the salary of some hourly workers, who were eligible for raises of 25 to 80 cents an hour—but only if their performance merited it. The company also began reviewing all its processes to find more efficient ways of preparing and serving meals in order to recoup the extra money it’s now spending on wages. Bond says that so far, it’s going well: individual restaurants are meeting the new labor standards, which really amount to a mental exercise for managers. They must more precisely project weekly business fluctuations and schedule more productive staffers for more hours. Managers, then, have to be tuned in to their business in an intimate way, which leads to greater productivity.

Such close attention to detail—and a reliance on hard data—are characteristic of Bond, perhaps as a result of his CPA training. The company conducts a semi-annual employee satisfaction survey that covers everything from whether workers have a best friend at work to whether they feel they are provided the tools they need to do their job. Monical’s also surveys 4,000 to 5,000 customers every quarter. The research shows a “hugely satisfied guest base that crosses all ages,” says Bond, adding that customers are brimming with stories about important family milestones, such as the first meal when a son or daughter comes home from college for the first time, that take place in Monical’s dining room. That loyalty has helped Monical’s sustain its business despite economic uncertainty and what Bond describes as “more competition than you could ever imagine.” “Our brand is pretty strong,” he adds. “If consumers are deciding not to eat someplace, we’re fortunate right now it’s not us.”

Indeed, Bond’s son, a student at Purdue University, recently discovered that a Facebook group called “I Heart Monical’s” had 500 members—and was adding 50 new members a week without any effort at all on the company’s part. That kind of customer loyalty not only drives sales; Bond says it also allows the company to minimize the portion of its gross revenues devoted to advertising. (The company does pursue targeted marketing opportunities, and is currently developing an online campaign inspired by the Facebook discovery.)

Customers’ strong connection to the brand also means that Bond and his staff faced a big challenge late last fall as they began a supply chain efficiency initiative. How could they cut costs without compromising quality? Some solutions turned out to be surprisingly straightforward—cutting produce deliveries back from five or six days a week to two or three—while others required a bit more calculation, such as the decision to switch distributors for some meat products. In the end, Monical’s was able to source higher quality meats from a vendor with whom the company already did business, simultaneously saving money and improving the product.

That kind of thinking is crucial today, says Zimmerman of Successfoods. “The big national or regional chains are increasing their quality in response to improvements from local operators,” he says. “So chains have to continue to look at limited-time offers that offer quality ingredients. And on the independent side, they have to stay a cut above in quality.”

The keys, says Bond, are being willing to spend money—wisely—in order to make money and having patience. Take the company’s effort to reduce lost-time injuries. In cooperation with its workers comp company, Monical’s a few years ago decided to challenge employees to work more safely. Each quarter, the company rewards employees at restaurants that have gone accident-free for the period. The rewards are simple—movie tickets and other inexpensive treats—but the response was immediate. “It made a huge impact in reducing the number of accidents in the restaurants,” Bond says. “It didn’t show up in terms of reduced premiums for two years, but the impact on the unit level was immediate.”

In fact, Bond cautions fellow operators to prepare to commit for the long haul if they’re attempting to increase revenues via Monical’s employee-centric methods. “This was not an overnight thing, where we turned a switch and started making more money; we’ve been at this for more than a decade and it’s part of the ongoing life of our organization,” he says. “So if you’re thinking you’re going to just turn on the light and money rolls into the door, it’s not going to happen.”

With diligence and persistence, however, the results are significant: While the perfect storm is swirling around Monical’s, Bond is, if not quite serene, unruffled by the competitive environment. And he’s clear about what helps him to sleep easier at night: “We know from 40 years of solid experience what happens when the world gets bad,” he says. “A lot of competitors don’t make it, and life is better on the other side once you get there.”

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