It didn’t take long for CUNA CEO Jim Nussle’s welcome address at the 2017 Governmental Affairs Conference to turn serious.
He criticized Dodd-Frank and other legislation enacted at the tail end of the Great Recession for taking a one-size-fits-all approach to financial services regulation, rather than focusing specifically on the “bad actors.”
As a consequence of this one-size-fits-all approach, the number of regulations with which credit unions must comply has increased thereby creating what Nussle called a “rigged system.”
“They’ve created a rigged system that favors the organizations they were trying to protect — the big banks,” he says. “They’re not feeling the pinch of regulations, but what is it doing to credit unions and small banks?”
However, in recent months the seemingly overwhelming regulatory tsunami has started to recede. For example, credit unions have seen reform among examinations, member business lending rules, field of membership requirements, among others.
This year, Nussle says, credit unions will be on the offensive. Because the new presidential administration has expressed a desire to roll back parts of Dodd-Frank and perhaps repeal the CFPB, 2017 represents an opportunity for significant regulatory reform.
But regulatory reform can’t happen, Nussle says, without the active engagement on the front lines: in this case, from both the credit union and its members.
“If we want to make a difference in Washington this year we have to find a way to engage our [108 million] members,” he says.
And credit unions are well positioned to do that. Credit unions are credible sources of information and occupy established and leadership roles within the communities they serve. It’s just a matter of whether or not they’re able to tell their story.
“I want credit unions to be relevant for years to come but I’m worried about that,” Nussle says. “This is a rigged system and if we don’t raise our voices I am concerned about our future.”
Lessons From Cinnabon
The day’s keynote speaker was Kat Cole, group president for FOCUS Brands, an affiliate of Roark Capital Group and owner of several large food brands such as Schlotzsky’s, Carvel, Moe’s Southwest Grill, Auntie Anne, and Cinnabon. Her topic: how credit unions can actually learn a thing or two from Cinnabon.
But taking a step back, legacy food companies like the ones owned by FOCUS Brands, are facing regulatory and technological challenges threatening to disintermediate traditional modes of business. Like credit unions, Cole echoed Nussle in affirming the importance of brand stories.
Cole took over Cinnabon more than six years ago, in 2010, catching the tail end of the recession. Cinnabon, known primarily for its mall and airport locations, felt the pinch of lower foot traffic and a continued consumer preference toward healthy trends — while 2010 represents the end of the “Atkins Crisis,” as Cole called it, new sugar regulations led to an increase in taxes. Overall, the company was posting negative sales growth in the double-digits.
The company faced a serious problem — it needed to find a way to attract consumers back to its locations. Cinnabon, the brand, was at a crossroads. It needed to innovate or die.
“There are two truths to brands that win today,” Cole says. “Relevance and differentiation.”
To be relevant, a brand must ask itself if its products or services matter to the customer/member it is trying to reach today — this very moment. If yes, why? If no, why not?
Differentiation requires a brand to ask if it’s doing something different than its competition. But for successful brands, the two truths work in concert for full effect.
“It’s not just okay to be different,” Cole says. “You have to be relevant to that person you are trying to attract.”
So what was wrong with Cinnabon? It wasn’t relevant. Studies showed potential customers didn’t want a high fat, high sugar, or high gluten desert. So before Cole joined the company, Cinnabon focused its efforts on what Cole calls “Project 599.”
The problem was that the traditional Cinnabon cinnamon roll had too many calories, right? 880 calories is, of course, nearly half of the USDAs recommended limit. But if the company could drop the calories in its traditional cinnamon roll down below 600 the problem might be solved.
“No,” Cole says.
This well-intentioned fix had unintended consequences: for one, to drop the calorie count that far required the use artificial ingredients like aspartame which would in effect turn off the entire sect of customers Cinnabon wanted to attract. So Cole shuttered the project.
“What we realized is if I come to you with this cinnamon roll with lower calories are you more likely to come to Cinnabon? No,” Cole says. “Sometimes we get wrapped up in an idea because it feels good or looks like the right thing. But it was not going to drive transactions.“
Instead, Cinnabon focused on price point and distribution channels.
For 25 years, Cinnabon had sold a smaller product at about half the price and with about half the calories. It just had not sold it nationally. So it convinced franchisees to offer the product and saw overall sales jump 6-7%, according to Cole.
In addition, Cinnabon partnered with Burger King and Keurig Green Mountain to help increase its distribution network — which consists of more than 6,000 locations in 68 countries.
“Legacy business will always be scared by what the innovation business does,” Cole says. But for Cinnabon these changes “drove relevance to the business so that when customers were in the mall they would think of us and not someone else.”