“The essence of strategy is choosing what not to do.” Michael Porter
When I was a kid in the 1970s there was only one place to go for good fast-food fish and chips. And you didn’t have to go far to find it. Arthur Treacher’s Fish & Chips had more than 820 restaurants across the country in the mid-70s. They were one of the great fast-food success stories and offered a tasty alternative to the burger chains.
I was thinking about them the other day. I realized I hadn’t seen one of their restaurants in years. I wondered what ever happened to them. Thanks to Google, I found an interesting article which described their fate.
The article explains a perfect storm of events that hit Arthur Treacher’s in the late 1970s: There was intense competition with other fast-food chains and the price of cod had skyrocketed due to a fishing dispute between Iceland and Great Britain.
The company was sold to Mrs. Paul’s Seafood in 1979 and that’s when the problems magnified. In order to stay competitive, executives at Mrs. Paul’s Seafood decided to replace cod with a less expensive fish, pollock. This one decision marked the beginning of the end of the company.
To be fair, many types of fish are used to make fish and chips, but the most popular fish used in traditional British fish and chips is cod. More than 60% of all fish and chip meals sold in the UK feature cod. Americans like their cod as well and they didn’t like the change at Arthur Treacher’s.
Throughout the 1980s, Arthur Treacher’s lost many loyal customers, went through several owners and quickly lost ground to competitors. Before long, hundreds of locations were shut down. Today, there are just seven stores, with only four operating exclusively as Arthur Treacher’s.
“However beautiful the strategy, you should occasionally look at the results” Winston Churchill
How do you take a successful restaurant chain from more than 820 locations to only 7 in less than a decade? You choose the wrong strategy.
When businesses are faced with challenges, like Arthur Treacher’s in the late 70s, they need to act quickly. Management often looks for a swift and simple solution. On paper, the idea of replacing cod with pollock seemed to make sense. The company would save money and no one would know the difference. The problem was that customers did know and they didn’t like the change.
What made Arthur Treacher’s special was the authentic taste of cod in their fish and chips. Removing that took away the company’s uniqueness. Implementing the cost-cutting strategy actually stripped away their competitive advantage.
In 1985, Harvard Business School professor Michael Porter wrote the popular business book, Competitive Advantage: Creating and Sustaining Superior Performance. There, Porter outlined the three primary ways companies can achieve a sustainable advantage. They are cost leadership, differentiation and focus. Cost leadership means you provide reasonable value at a lower price. Differentiation means you deliver better benefits than anyone else. Focus means you understand and service your target market better than anyone else.
Executives at Mrs. Paul’s Seafood chose cost leadership as a strategy when they should have considered differentiation or focus. They had a business model that was already different and special. They had a loyal customer base that liked their product. There was room in the market for an alternative to the burger chains. They chose the wrong strategy which led to the rapid decline of this once popular brand.
As a business leader, you will be faced with many similar challenges. When competitors are lowering prices, your first reaction may be to match their actions to try and take over the cost leadership position. But that isn’t the only answer.
Porter shows us there are other ways to compete and maintain a competitive advantage as well. Like Arthur Treacher’s, our businesses are unique and special. We can leverage that uniqueness to deliver better benefits than anyone else with a differentiation strategy or we can service our target customers better than anyone else with a focus strategy. In the end, it is important to look at all possible solutions to choose the right strategy. Choosing the wrong strategy can have deadly consequences.