Bad Business Decision of the Day: Carl's Jr. CSU-Long Beach Student Union

Bad Business Decision of the day: Carl’s Jr. CSU-LB Student Union

After work and before class the other day I went to Carl’s Jr. At school to grab a bite to eat. I ordered my food and asked for a small coke. The guy informs me that they are out of small cups, and they can only sell me a medium. Well, if they are out of small cups, through no fault of my own, should they not offer me a free upgrade? This seems logical, as it is clearly the responsibility of the establishment to provide what the customer wants, right? Apparently, this is incorrect. I was informed that the cashier cannot do that, as then they would be “losing money” on the deal, because clearly, the $.30 difference between the cost of a medium and the cost of a small eats too much into their profit margin. This makes sense… until you take into account that the profit margin on soft drinks is already ridiculously high, and one of the largest money makers for the fast food industry, and restaurants in general. There is typically a 5-600% markup on even a small coke.  This is the reason many fast food joints put in self service soft drink fountains – it streamlines the business process enough that they are still turning hire profits by allowing their staff to concentrate on speed of service and food processing (which has a dismal margin of around 6-8%) keeping in mind the free refills that this offers, it still does not erode profits enough for it to be regulated or controlled at the local level.

The free refills are of note, as I would have received roughly the same amount of coke no matter what size I purchased or was issued. The question then becomes, am I willing to pay the marginal cost between the small and the medium, for a product that is already marked up and I am loathed to pay restaurant pricing for in the first place? The answer is no, no I am not. I take a water and leave. The cashier, and likely the manager as well, who instructed him to try and sell people medium drinks instead of the smalls they requested are being penny wise and pound foolish – they missed out on a sale of $1.69 in order to push a sale of $1.99. They are left with only the sale of the very low margin food, without the extremely high margin soft drink to augment it. Moreover, with the marginal rate difference between what I wanted and what they tried to sell me, and the loss of the sale, it will take six more sales of an inflated medium soft drink (meaning people who wanted a small, but are willing to pay extra for the medium… not people who are buying a medium anyway) in order to make up for my one lost sale. They completely missed the big picture on this, and in the extremely low margin world of fast food, losing sales can quickly be compounded.

Customer loyalty is one of the most important features in the restaurant industry – it is far cheaper to keep a customer than to create a new one. I am not saying that I will never eat at a Carl’s Jr. again, but I was a bit disappointed in the lack of customer care. I will admit that the amount of ownership, however misguided, exhibited by the employee was impressive, but when you set up shop on the campus of a highly rated business school, be prepared for critiques of your business.