“You are what you charge for”*
According to a recent NPD restaurant industry survey, traffic declined for the 7th straight quarter but the declines are not as steep as they were in 2009. So, it has come to this: the good news is that things are not as bad as they were. Well, the NPD survey indicated that 1/4 of all restaurant traffic is represented by”deals” such as discounted pricing, daily specials and coupons and that the declines over the past two years in restaurant traffic would have been much worse if not for discounting.
But with restaurants from Morton’s to McDonalds serving up Value Menus where is the value? In other words, for customers the pervasive discounts, specials, buy one/get one price has just become the actual everyday price. And for restaurants, same thing. For instance competing in the fast casual/QSR segment are 2 entrees and 1 appetizer at Chili’s is $20 and 2 entrees, 1 appetizer at Applebee’s is $20. TGIFridays? A slight variation: Buy 1 entree and an appetizer and get 1 entree free. With similar “discounts” being offered by all, there really is no perceived extra value by the customer. It’s commodity pricing. And the result? NPD reported that visits to US restaurants declined by 3% (versus 9% in 2009) for the year ending May 2010 but that dollars spent declined by 1% the first decline in spending since 1976. One can only guess at the profit numbers.
Another pervasive commodity promotion is “Kids Eat Free”. Judging by the search results from those three words, this promotion is as popular an online topic as it is at IHOPS, Denny’s and thousands of independent and chain local restaurants across the country fueled not only by slow nights of the week but also the slow economy. And “Kids Eat Free” seems to have a nice appealing sound to it….”FREE” and the no cooking and dishes for mom. And even though, the kids meals at most of these restaurants are heavily discounted already it can still save a family some money. BUT, if there are so many kids eat free offers virtually 7 days of the week, the market price for kids to eat is free, isn’t it? So, where is the benefit for your restaurant to join in with a” kids eat free offer”?
Pine & Gilmore* in their 1999 book, The Experience Economy wrote that “you are what you charge for and if you are competing solely on the basis of price then you have been commoditized.” They go on to ask, “What would you customers really value?” And their answer, experience, is still correct. However, differentiating by experience in 2010 is different than partying like it is 1999. In 1999 themed restaurants such as Rainforest Cafe and Hardrock Cafe had long lines of customers willing to pay high prices for a “movie set” dining experience, but the novelty wore off quickly leaving only high prices for mediocre food. Today’s cash-strapped customer is much more demanding with the definition of value and experience.
If discounts are a necessary part of the restaurant business right now, how do you make the discount part of your value proposition so that it makes sense for your customer and for you? How do you create an offer that not only gets them in the door but makes them want to come back again (value to you) and breaks through the clutter of all of the other competing discounts and offers? How do you make the discount yours and yours alone … i.e., make it reinforce your unique reason for being.
3 Ideas to Add Value to Discounts
1. The Blue Plate Special: The idea is economies of scale. Offering a limited menu “bundle” of appetizer, salad, desert and a drink for a modest set price, and only one or two “bundles” during slower days of the week or slower times of day so that you gain efficiencies in food ordering, preparation, and service (the server doesn’t have to make as many trips to the table explaining desserts or lots of specials) and the customer knows exactly how much everything costs and gets to sample your great desserts and appetizers that they might ordinarily skip.
A restaurant here in St. Louis, Farmhaus offers a Blue Plate lunch special, Monday – Friday from 11AM-2PM for $10.00 and they announce the menu everyday on Twitter. The Blue Plate is the only choice for lunch that day. Their unique value proposition is stated as “We focus on using fresh, seasonal ingredients to create a memorable and intriguing dining experience. The menu of small plates and tasting menus changes daily reflecting chef Kevin’s inspirations.” So I have no idea if Farmhaus looks at their lunches as discounted, but as a customer it sure sounds like a great deal and a great way to try their awesome food. When I was in New York City recently, a sign at EJ’s Luncheonette caught my eye: Recession Blue Plate specials on Monday and Tuesday nights. Limited menu, set price. EJ’s has an extensive menu with lots of choices to build a dinner in what is mostly a breakfast and lunch place. This bundles the choices and makes dinner a time to sample their food.
2. Moms Eat Free: Everyone is offering kids eat free. Why not take the opportunity and twist the offer a bit. Instead of focusing on the kids, make it special for Mom. Kids eat free, no dishes, no cooking, ho hum. If the focus is on Mom you might not only break through the clutter of the kids’ offers but also build a closer relationship with mom. Maybe if you have space and a willing server you could have a kids’ table so that mom and dad could eat alone and the kids could sit at a table with other kids and order from the kids menu. Depending on what kind of “kids zone” you have the space to create maybe you don’t even have to offer mom a free meal. Maybe just being able to eat out with the kids but without the kids would be enough. If families are an important part of your customer base, try thinking beyond “kids eat free” to other ways to promote your kid friendliness.
- Expensive restaurants: Of bits and bites (economist.com)
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“Today’s cash-strapped customer is much more demanding with the definition of value and experience.” Best statement in the blog, restaurants need to continue to develop those things that get their guests talking positively about them. Discounting is not the answer, it is a slippery slope and diminishes the brand. Chasing customer counts is dead wrong, creating “simply delighted customers” is the right answer.
“Differentiate yourself by adding value, something unique to you. This is what customers will post on their Facebook wall…”
Forget about yelp, they are not a friend to restaurants!