Between a Rock and a Hard Rock

In the mid-1990s, the theme-dining business seemed like a path lined with gold. Celebrity stargazers, enthusiastic press from around the globe, and hungry customers regularly gathered at the openings of theme restaurants like Planet Hollywood and Motown Cafe. Unfortunately, the situation changed in the late 1990s and early 2000s. Planet Hollywood filed for bankruptcy protection while Motown Cafe closed units across the country. Consumer boredom, a slowing economy, and a saturated market were blamed.

The changing "entertainment" market raised eyebrows at the granddaddy of theme restaurants, the Hard Rock Café. The firm believed it had a tremendous undervalued asset—a premium global brand it could protect and expand. Its managers knew, however, that its market position was shaky due to increased competition and shifting consumer attitudes. Without revenue, brand loyalty doesn't matter very much. The company also felt growing financial pressures and speculated it might need a change in financial management.

Hard Rock had operated with a traditional, competent accounting department that made sure the company paid its bills, had money left at the end of the day, and could state how much it was earning. The problem was, the firm could not fully analyze its financial information and use it to improve operations. For one thing, it had sold $180 million a year in merchandise (primarily its famous T-shirts) in addition to food, yet it could not explain exactly how these individual items contributed to profit. Thus Hard Rock recruited a new chief financial officer (CFO), and dedicated itself to changing its financial reporting and information structure.

To start things off, the company piloted a food and beverage management system to track usage and item profitability. This system included information such as daily and seasonal buying patterns, profitability of one menu versus another, average weekly guest counts per restaurant, and specific cost of sales and profit margins per item. The company then shifted the responsibility of its accountants. Instead of handling profit-and-loss statements for a certain number of restaurants, company accountants now were responsible for one major financial category only, such as cost of goods sold, for all the company's operations. The objective was to compile companywide information for sound financial decision-making.

Hard Rock Café also broke down barriers between the finance and accounting departments and the operations, merchandising, and marketing areas. Today, financial information is shared directly with managers who can refine operations at the restaurant level.

Recently purchased by the Seminole Tribe of Florida, Hard Rock Café still faces an ongoing challenge. Company CFO Tom Gispanski, a CPA with vast experience in the restaurant industry, is ready, and last year millions of people visited the company's 143 locations in 36 countries. Even so, competitors such as Rainforest Cafe, Cheesecake Factory, and House of Blues promise to keep the fight for "entertainment" customers interesting.

1			Why should a diversified company like Hard Rock Café keep running accounts of the different products it produces?
2			Do you think it was a good decision for the company to share financial information with managers at all operating levels? Does improved financial reporting help the company's planning ability?
3			How does this case illustrate the need for good accounting?