Recently, a Burger King franchisee – Carrols Restaurant Group – made headlines when they announced that an accidental error in discounting Whopper sandwiches had lost them more than $8 million in profits. You can see the entire article here, and dig into the details.
But this got us thinking.
How can a simple discounting error result in $8 million in lost profits?
What lessons can we take away from this?
In this blog post, we’ll be looking at how this Whopper of a mistake happened to Carrols Restaurant Group – and we’ll also discuss a few insights, lessons and takeaways that we can learn from this unfortunate incident. Join us, won’t you?
What Happened? How Carrols Restaurant Group Lost $8 Million Selling Whoppers
Carrols Restaurant Group is one of the largest Burger King franchisees in the country. It operates more than 1,000 locations, out of Burger King’s total of about 7,500. And, over the summer, it combined discounts on Whopper sandwiches, accidentally eating into its profits in a major way.
Here’s how it went down:
- Burger King ran a promotion offering discounts on Whopper and Whopper Jr. sandwiches. In most locations, this offered 2 Whopper Jrs for $4, 2 Whoppers for $5, and 2 Double Whoppers for $6.
- When customers ordered one of these deals, the cashier would try to upsell them and see if they would like to add fries or a drink to their meal.
- If a customer purchased both fries and a drink, an additional “Whopper combo meal” discount – separate from the previous Whopper promotion – was added to the meal.
- This combination of discounts resulted in an extremely low price for the meal – which seriously damaged profitability for Carrols Restaurant Group.
Because two different promotional discounts were being combined – when they should not have been – Carrols Restaurant Group lost money. A lot of money. After adjusting for interest, taxes, depreciation, and amortization (EBITDA), the company’s profits were reduced by $7.3 million.
In the quarter that this incident occurred, Carrols Restaurant Group reported a net loss of $6.8 million – 15 cents per share – compared to a net profit of $3.6 million in the same quarter during the previous year.
The mistake was first discovered in late August. Carrols discovered that its store sales only grew by 4.5%, which was lower than Burger King’s overall comps growth of 5%. Carrols usually outpaces the growth of other Burger King franchisees – so they investigated.
The problem was discovered in late August, and the mistake began in early June when the Whopper discount promotion first began. It was quickly resolved – but the damage had already been done. In total, nearly $8 million in profits had been lost due to this “discount double-dip” of the Burger King Whopper sandwich.
What We Can Learn – 3 Lessons We Can Take Away
So, what can we learn from Burger King and Carrols Restaurant Group? Here are a few takeaways from this situation that we think are important.
- Human error happens, and you need to own up to it – The CEO of the company, Dan Accordino, did not make any excuses during Carrols Restaurant Group’s Q3 conference call. He did not blame it on accounting or IT – instead, he simply said “It was a mistake… we screwed up, and it cost us a fair amount of money.”
It would have been easy to blame anything other than human error – but the fact that Accordino did not, speaks volumes about the integrity of his company. It just goes to show you that sometimes, things get screwed up – and owning the mistake and making sure it does not happen again is usually the best path forward.
- Employees should always be encouraged to think critically – It’s a bit mind-boggling that the “discount double-dip” went unnoticed for as long as it did. It was happening at more than a thousand Burger King locations. Presumably, at least some managers and cashiers noticed that the total cost of the Whopper orders seemed lower than it should have been – but did not think that it was a big deal, or thought it wasn’t important enough to bring up to management.
But think about how different things could have been if that was not the case. If a Burger King employee had noticed the issue in early June – when the problem first started – and notified management immediately, they may have caught it early, and avoided the loss of millions of dollars.
This just goes to show the importance of critical thinking in employees – and the value of an “open door” management policy. If your employees are encouraged to think critically and bring up any potential issues to management as soon as they notice them, a situation like this can be dealt with early or avoided altogether.
- Audit early, audit often – Not only is it surprising that employees at the point of sale didn’t notice the error, but it’s also surprising that it went unnoticed by accounts, store managers, and other staff who – presumably – were periodically auditing and looking at sales information from each store. The problem went completely unnoticed until nearly the end of the third fiscal quarter. More frequent auditing and analysis of sales and profitability could have prevented this loss from happening.
Learn From The Mistakes Of Others – And Avoid Them In Your Own Company!
In the future, we’re certain that Carrols Restaurant Group will be making quite a few changes to make sure that a similar loss never happens again – and no matter what line of business you’re in, there are lessons you can take away from this situation.
First, that human error is often an inevitability. Second, that employees and managers should be encouraged to think critically and bring up concerns to the relevant authorities. Third, that frequent auditing and analysis of sales are key to identifying discrepancies in cash flow early.
So learn from the mistakes made by Carrols, and use them as an example in your own company – you may not sell Whoppers, but the lessons learned from this $8 million mistake apply to everyone.
Avoid eCommerce Errors With The Right eCommerce Platform – Like Magento
So, why are we discussing a retail restaurant on our eCommerce blog? Well, we think that this incident is interesting and can teach us some important lessons that are applicable regardless of industry.
But it also shows one of the best features of Magento. Magento has advanced coupon/discount code features that are designed to make it easy to create your own coupons – and avoid similar “discount stacking” issues. This issue wouldn’t (and couldn’t) happen on Magento!
By using the right eCommerce platform – such as Magento – you can avoid human error that could damage your profitability big-time. So if you’re thinking about switching your eCommerce platform, Magento is a great choice. For more details, reach out to the team at 121eCommerce now.