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Social Network Rockets Houlihan Restaurants' Profits

Casual-dining stalwart Houlihan's reboots its chain with the help of its own social network.

Social Network Rockets Houlihan Restaurants' Profits
HOULIFANS: From left, Curt Cuscino, Lara Espinoza, Charity Kerr, and Adrian O'Hara enjoy Houlihan's small-plates menu. | Photograph by Austin Walsh
HOULIFANS: From left, Curt Cuscino, Lara Espinoza, Charity Kerr, and Adrian O'Hara enjoy Houlihan's small-plates menu. | Photograph by Austin Walsh

When Houlihan's launched its "small plates" menu in September 2009, what was supposed to be a hip selling point — tapas-style American classics at recession-friendly prices — turned out relatively tasteless. Customers complained that the white-bean hummus and pita was "thick and spongy," the flatbread pizza unpalatably "chewy." Some were even left hungry because seemingly "inattentive" and "distracted" servers thought all of the appetizers were supposed to be delivered together in one batch like a traditional three-course meal, instead of trickling out of the kitchen as they were ordered.

But these reviews weren't your typical Internet-fueled vitriol. Houlihan's had courted it. Last summer, it created its own social-networking site, HQ, an invite-only "brand community" of 10,500 "Houlifans" to serve as a virtual comment card. Customers appended that a-little-too-cute prefix to all things Houli-, and they've helped the formerly stodgy Irish pub rebrand itself as a contemporary suburban lounge-style hangout.

The community's feedback has allowed the company to revamp on the fly, and the small-plates menu now accounts for 26% of item sales in the 10 markets where it has debuted. Those dishes carry a higher-than-average profit margin on smaller-than-average portions. In the Kansas City area, site of the first test, overall profits are up 12% at a time when sales in the $83.5 billion casual-dining industry have dropped 1%, according to research by NPD Group. The new menu will roll out to more than 50 of the chain's 97 locations this year.

Why did Houlihan's build its own social network rather than piggyback on a public site? "Exclusivity," says VP of marketing Jen Gulvik. Tired of being outspent and outshouted by Applebee's and Chili's in mass media, she decided to approach millennials on their own turf to harness their gift for gossip. She'd trade insider information about recipes and redesigns in response for honest input not intended for broadcast. "I joined to provide unrestricted feedback that's valued," says Jocelyn Jourdan, 30, a business analyst in Minneapolis.

Houlifans are recruited from a database of 600,000-plus customers who either visited the corporate Web site or signed up in-store for email coupons. Each must fill out a questionnaire that tests both their "brand love" and how socially active they are beyond the keyboard. HQ averages between 200 and 400 fans per restaurant, most of whom bring in friends once a week. "You can't buy that," Gulvik says.

The concern about this strategy is that "what customers really want is good stuff for free," warns restaurant consultant Clark Wolf. Gulvik knows the feeling. After a recent HQ protest, she brought back chicken fajitas, even though they're a lower-margin item. "It was what our customers wanted," she says. But when the system works, the placated Houlifan brings even more friends into the restaurant to show off her success. The early chicken-fajita returns look promising: Charity Kerr, 26, a programmer in Kansas City, recently tweeted photos of her favorite dishes to friends. When some of them agreed to come hang out there, she introduced herself as the Woman Who Saved the Chicken Fajitas.

A version of this article appeared in the March 2010 issue of Fast Company magazine.