| We find ourselves in an economic
environment where belts continue to tighten and consumer spending is still being reduced.
Companies believe they have to take drastic measures to create cash flow and keep their
customers walking through their doors and such campaigns can be a make or break for the
company. The error they make is confusing the need to be competitive and offering a
product which they sell below a sensible price.
The race to market of quick-serve concepts (Subway) in the
delivery of a $5 meal is being replicated by the casual dining market with dire effects.
These casual dining restaurants are forgetting that each food and restaurant business has
their own brand, its own demographics and its own model which makes that brand unique.
With reference to those restaurants offering 'unbeatable
offers', we at Onsite Consulting have been expressing concerns that dropping prices or
offering 'unbeatable deals' is not the quick fix that venues need. Here's why...
5 Reasons Why Your Casual Dining Restaurant Should NOT Do
$5 Quick-Serve Promotions...
1. These offers rarely bring in the level of new business
expected 2. The restaurant often carries the loss associated with such loss leading
discounts for a long period of time 3. Returning to a price point which does make sense
for the business can be deeply unpopular because customers get used to these 'new prices.
4. If a restaurant charges $5 for a meal for six months, that venue has now set the new
benchmark for its customer. Your customer now expects to get a deal not far off that price
when that deal is no longer available. 5. The customer is not necessarily a loyal one
because it was likely the price and not the offering that brought that customer through
the door.
In short, the object of this quick-serve option when
replicated by the casual dining market, in whatever permeation, is often defeated as you
will soon find out when you read the case studies below.
How TGI Friday's Quick-Serve Option and Cash Flow Benefit
Equals Longer-Term Disaster
TGI Friday's released a statement recently expressing the
promotion was an opportunity to give customers exposure to their new salads as opposed to
a move to compete with quick-serve but few industry observers believed the statement.
Their $5 entrée offering was an attempt to compete with Subway but it is not generating
the results anticipated by management or the market. Instead, the offer has lowered the
spend-per-check average dramatically.
Plus, they did irretrievable brand damage. As a restaurant
consultant who has been featured on CNN, ABC and in newspapers and publications like Los
Angeles Times and QSR Magazine, I argue that they diluted the 'sit down family restaurant'
concept they created. Their attempt to enter the $5 quick-serve markets has the same
characteristics of a Company that has a serious urgency to create cash flow with no regard
to the long-term effect on the business. As Shoney's CEO David Davoudpour put it: "$5
meals won't work in casual dining, (he says...) When you sell for $5 what you should sell
for $10, something's wrong"
How Marie Callender's is Destroying Their Brand and
Becoming Synonymous with Discounted Fares
Marie Callender's recently announced a "kids eat
free" promotion twice a week allowing a free children's meal per adult entrée
ordered. A family of four can now eat for $16 if the adults order the $7.99 combo meal.
This is in addition to many other discounts this casual dining chain is offering including
the $18 two course meal. The trouble with this promotion is, again, the steep discount
will eventually catch up to the chain that is now becoming synonymous with only offering
discounted fares.
Certainly the restaurant industry is putting significant
pressure on itself by everyone offering the 'next unbeatable deal' in an effort to grab
the customer. We recognize the need for fast action but the reaction we are witnessing
appears to be 'shoot from the hip and see what happens' as opposed to measured responses
where financial sense prevails over marketing departments.
Unlike Subway, both TGI Friday's and Marie Callender's have
larger footprints and greater operational overhead. Therefore they need a higher
spend-per-check average. More importantly, TGI Friday's is a casual dining restaurant not
a full quick-serve. I don't remember take out and customer turnover being TGI Friday's
selling points and for good reason. It is a family restaurant with a menu where the
customer expects to spend more than Subway. It is a place where the customer is not
expecting take out and where the customer expects to sit down and eat. These are not the
characteristics of the other quick-serve options which focus on aggressively lowering the
customer/transaction time.
It is this questionable reaction to the economic climate
which is causing a previously robust industry to implode and the casualties are numerous
and high profile. I am sure these promotions will not last long and am confident that the
surge in customer traffic that these promotions generated constitutes deal hunters in the
main. Therefore, most of the new customers are one-time only customers.
So, What Should a Casual Dining Restaurant Do to
Stay Afloat in Today's Competitive Market
Casual dining restaurant owners and general managers should
now consider going back to basics. They should realize that even with a month-on-month
decline in same store sales, the value of any offer should be based on two key areas.
While a marketing campaign is critical, the financial element is more important.
Restaurant operators need to be looking inside their operations to find savings and create
offers which do not lose money.
Remember: Sales is vanity, profit is sanity. Casual Dining
Restaurants need to focus fast on offers which make money and enhance the brand instead of
wild marketing campaigns which not only negatively affect their business but that of their
competitors as well. |
