Crisis as a Source of Innovation: 3 Businesses that Made it Through Challenging Times

As we stay cooped up in our houses watching news that seems to grow more depressing by the day and seeing demand for our goods and services dwindle, it is easy to lose hope and worry about how we will survive. While this is the natural human tendency in tough times, I want us for a moment to immerse ourselves into the story of three businesses across different time periods in history who emerged victorious amidst very challenging seasons.

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Mackay and Lawson in 1978 founded a vegetarian natural food store in Texas called SaferWay. In 1980, they merged with Clarkesville Natural Grocery to form Whole Foods Market, with their initial outlet in Austin, Texas. The outlet had 19 employees and stood at an impressive 10,500 square feet. Whole Foods continued to grow gradually, opening more stores within Texas and eventually outside Texas. By 2007, Whole Foods had presence in multiple states, Canada and UK and was valued at over $6 billion.

In 2008, the stock market crashed, and an economic recession began. As a high-quality, high-price retailer, consumers who now had reduced purchasing power found them too expensive and they left in droves. Despite this, there were still loyal customers who came to them and affirmed that they like what they stand for and the experience. These affirmations made them realize that rather than chasing every customer out there, they needed to know who these loyal customers were. They then started conducting customer discussion groups and realized that while trying to pursue aggressive growth plans, they had lost sight of their mission which was about changing the world by bringing healthier food to the world.

In early 2009, Whole Foods began its recession strategy based on what they were hearing from consumers. They reduced prices through selective price cutting on popular items and private-label products. They focused their messaging on healthy eating, going back to their original messaging as a champion of healthy living. They further reduced the size of their stores as a cost-cutting measure. In less than a year, the fruits of this strategy started becoming visible: there was more traffic in their stores and sales went up by 2%. By 2011, global sales increased by 8% and they continued to open  a new store in Scotland and more stores in Canada. In 2017, Whole Foods was acquired by Amazon for $13.4 billion dollars, making its principal founder John Mackay a multi-millionaire.

Key Lessons from Whole Foods: Take this time when business is slow to listen to your customers so they can help you shape your recession strategy. No matter the temptation, don’t veer off from your company mission. Lower your service/product price strategically in a way that makes financial sense for your business.

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With a loan from his father, Steve Ells set out to open a small burrito shop, which proved uncharacteristically profitable, selling over 1,000 burritos a day within a few months. As demand continued to grow, he opened two more restaurants by 1996. In 1998 McDonald’s invested a total of $360 million over the next seven years into Chipotle which financed its expansion, though it later divested in 2006 to focus on its own chains. The company later went public and its shares and branches continued to expand up until 2008, when the recession slowed consumer spending at restaurants. In response to this, the company restructured its executive team and introduced a co-CEO to combine Ells entrepreneurial strengths with Moran’s operational experience. Sales increased briefly but more had to be done. In 2012, Chipotle diversified and opened ShopHouse, a chain focusing on Asian foods. This helped sales and boosted their share price significantly. However, things were about to start falling apart for Chipotle.In 2015, the Boston Public Health Commission linked 65 cases of Norovirus to eating at a Boston Chipotle restaurant. Additional outbreaks of Salmonella and E.coli spanning 11 states in America was linked to eating at multiple Chipotle locations. Chipotle had to then temporarily shut down 43 restaurants in response. The outbreak led to reputational damage, rapidly decreased sales and share price. By mid-June 2016 their share price plunged to $395.27, almost 50% of the share price of $758.61 in August 2015. Their profits in 2016 declined by 95%, representing a drastically challenging time for Chipotle.In  response to this, Chipotle made a number of changes over the following years. They put in place new and stringent food safety protocols including bar codes on every item to trace ingredients to the source, increased in-house and third party audits and started a loyalty program (Chiptopia). They also launched two new menu items, introduced digital sales and delivery options, modified their employee sick leave policy and management changes including a new CEO, Brian Niccol. Two years after what was dubbed “The great Chipotle E.coli disaster of 2015”, the company has made a comeback. Its digital sales, comprised mostly of new customers, made up 18% of total sales in quarter two of 2019. In 2018 its stock price went up by 49.39%, making it one of the year’s top performing stocks. Its market share in Latin America in the same year grew to 22.4% To date, Chipotle has over 70,000 employees, makes sales of $4.9 billion and is valued at $19.4 billionKey Lessons from Chipotle Mexican Grill: Sometimes you need to get new people on board to inject new ideas into your business. You are never too big to fail. When hardships come, don’t bury your head in the sand, keep trying new things till you are back on track. Have a digital strategy that can help you widen your customer base.

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Martin & Co was established by Christian Martin, a German whose family trade was in cabinet making. Martin saw that his opportunities in guitar making in Germany were limited and set out for America where he hoped to be successful. He started his business in 1833 and it gradually took root and became successful; by the time of his death in 1873 he had 12 employees and a factory plant, and his son took over the business. By the 1920’s, the company was enjoying year on year growth and by 1928 were producing over 5,000 guitars annually…and then the Great Depression of 1929 happened.With millions of people out of work and thousands of businesses on the brink of bankruptcy, selling non-essential items like guitars proved difficult. Sales were halved and the focus became survival. Martin took measures to help the business survive: They reduced their wage-rate, operated three times a week and diversified their product offering to include violin parts. They also stopped giving discounts to high-volume retailers and maintained their relationship with smaller dealers, which improved their reputation with distributors. They also maintained their commitment to uncompromising quality.But what the company focused most on during this time was product development. They added new designs, explored numerous features and struck gold with two innovations that helped them regain business: the 14-fret neck guitar that allowed access to higher notes and the “dreadnought” body style which allowed for more volume and bass resonance, a product that is still famous today. These innovations helped them grow their revenue in harsh times and with consistent hard work, uncompromising quality and continuous improvement, Martin & Co. as of today has more than 600 employees, has made over 1 million guitars and makes over $100 million in annual revenue.Key Lessons from Martin & Co: Never compromise on quality no matter how challenging things are. Cut your costs as much as possible.  Use economic downtime productively to innovate and test out new ideas.

Written by Silvya Kananu East Africa Training Manager, Sinapis