Who Helps the People During Disasters?

Who Serves During Disaster?

by Doug French

Recently by Doug French: Waffle House Economics

Mayor Mike Bloomberg’s plan for New York City with hurricane Irene bearing down on the Big Apple was to evacuate residents and force businesses to close in low-lying areas. Move in with friends and relatives living on higher ground, stay out of the way, so government’s first responders can handle real emergencies was the message.

The result, as one of my friends who lives in Manhattan wondered, "They closed down the city, and all we get is a rainstorm?"

Meanwhile, as Irene ravaged other parts of the eastern seaboard, causing millions to be without power, the eatery of last resort, Waffle House, kept its doors open in many locations, using generators and serving a limited menu designed specifically for emergency situations.

"Hurricane Irene knocked out power in Weldon, N.C., on Saturday evening," writes Valerie Bauerlein for the Wall Street Journal, "but as the sun rose on this tobacco-farming town at 6:30 the next morning, the local Waffle House, still without electricity, was cooking up scrambled eggs and sausage biscuits."

The venerable Waffle House has learned a thing or two about responding to crisis, given their locations up and down the eastern seaboard. Panos Kouvelis, PhD, the Emerson Distinguished Professor of Operations and Manufacturing Management and director of the Olin’s Boeing Center for Technology, Information, and Manufacturing explains, "The companies that are most frequently exposed to supply-chain disruption are the ones that have the best risk management plans."

Kouvelis instructs his students about the "Waffle House Index" first coined by Federal Emergency Management Agency Director W. Craig Fugate in the wake of the Joplin, Missouri, tornado in May this year.

If the index is green, Waffle House is open with a full menu. If Waffle House is only serving a limited menu, the index is yellow; and if Waffle House is closed, the index is red.

A red index is rare. Waffle House management will do anything not to close.

"They know immediately which stores are going to be affected and they call their employees to know who can show up and who cannot," Kouvelis says.

They have temporary warehouses where they can store food and most importantly, they know they can operate without a full menu. This is a great example of a company that has learned from the past and developed an excellent emergency plan.

The company even has a mobile command center that looks to be a rolling Waffle House restaurant. The RV is known as EM-50, named after Bill Murray’s urban-assault vehicle in the 1981 movie Stripes. When bad weather looms, EM-50 is mobilized. Sales volumes can double after a storm, when cooking a hot meal at home is often impossible. So company managers have every incentive to be staffed up, supplied up, and open for business. At the corporate level, items such as eggs and ice will be shipped to warehouse staging locations outside of harm’s way, ready when stores need them most.

Bauerlein explains that the Waffle House

hurricane playbook explains how to reopen a restaurant and what to serve if there is gas but no electricity, or a generator but no ice. An important element is limiting the menu so the company’s supply chain can focus on keeping certain items stocked and chilled or frozen.

Because of this planning, district manager Chris Barnes had the only restaurant along I-95 in North Carolina that was open after the storm.

What professor Kouvelis leaves out is the Hayekian insight that Waffle House gains its knowledge through market mechanisms for discovery, communication, and use of knowledge in the allocation of productive resources. Waffle House can only serve customers and make money if they are open. The company does little advertising and doesn’t hold press conferences. The secret to its success is serving good food and always being available. This may involve being open but only serving a few items. By narrowing their focus, the company can more effectively ensure that it can push a limited number of ingredients through a disrupted supply chain. The company would only breed dissatisfied customers if it remained open only to run out of eggs or hash browns.

According to Pat Warner, a member of the Waffle House crisis-management team, in the short-run, the profit motive is secondary to building customer good will.

If you factor in all the resources we deploy, the equipment we lease, the extra supplies trucked in, the extra manpower we bring in, a place for them to stay, you can see we aren’t doing it for the sales those restaurants generate.

Customers appreciate it and depend upon it.

"I hadn’t had a hot meal in two days, and I knew they’d be open," Nicole Gainey told the WSJ.

Meanwhile, Mayor Bloomberg has no market mechanism to punish him or his city government if he overreacts. While private citizens were inconvenienced and local businesses lost revenue, the mayor frequently mugged for cameras during the storm, issuing warnings in English and Spanish. City hall didn’t lose a thing and now pats itself on the back for being prepared.

Two kayakers who were rescued after their boats capsized off Staten Island during the storm were issued summonses by the city. The mayor told reporters that being in the water was "reckless" and their needed rescue had "diverted badly-needed N.Y.P.D. resources." City government was only interested in herding people and stopping commerce prior to and during the storm, not "protecting and serving."

And while Irene did much less damage than expected to Manhattan on Sunday, subway service did not resume until 5:40 a.m. the following Monday. Evidently, that’s close enough for government work.

"Today government worked," Governor Andrew M. Cuomo is quoted in a press release from the governor’s office.

Days of preparation and coordination prevented much injury and loss. The MTA will begin resumption of subway service Monday morning. I applaud the good work of the thousands of MTA professionals, National Guard and first responders for their advanced planning.

Ludwig von Mises held the view, as summarized by Murray Rothbard, that even if Mayor Bloomberg had the knowledge that Waffle House has gained over the years, "they still would not be able to calculate, for lack of a price system of the means of production. The problem is not knowledge, then, but calculability."

Either way, with no market to compete in, New York City government doesn’t worry about developing good will. Waffle House, on the other hand, "has built a marketing strategy around the goodwill gained from being open when customers are most desperate," writes Bauerlein.

Government monopolies have the incentive to provide the least amount of service for the highest cost. So, the government brass suspends services and tells their constituents to go away and come back when it’s more convenient. Meanwhile, Waffle House fires up the generators, eager to serve their faithful customers in the worst of conditions.

Reprinted from