Restaurants need new deals to keep their slice of the cake
23 February 2010
As usual, the new year has brought a profusion of sales to the high street and restaurants have joined the shops and stores offering discounts. You can find deals such as two for one at Café Rouge; main courses for £7 and kids eat half price at Pizza Hut; half-price vouchers at PizzaExpress; and second main meal for just £1 at Zizzi. These deals have become an accepted and reliable way for mid-spend restaurants to build consumer traffic in quiet times. But they have now been around for more than 12 months and their currency is in danger of becoming debased. Restaurant chains have got themselves into a tight corner over discounting that is likely to be difficult and time-consuming to get out of. And with so much competition on the high street between broadly similar outlets, it would take a brave operator to put an end to price promoting when the competition continues to discount. Although money-off vouchers and promotions account for less than 10 per cent of a restaurant’s turnover, they have generated vital additional revenue during quiet trading periods.
The restaurant sector has suffered far less during this recession than many expected. This is partly because eating out is now so entrenched in the British way of life that consumers are reluctant to give it up, but money-off vouchers have also helped to keep them spending.
While consumers continue to eat out, they have changed the way they spend in restaurants. A survey conducted late last year by the consultancy Horizons revealed that 40 per cent of consumers ordered a starter less often when they ate out than they did a year earlier. The same percentage had cut out desserts and a third of diners shared dishes to save money. Also, ordering wine by the glass rather than the bottle had become commonplace. But price promotions carve margin from the bottom line and reduce profitability. Furthermore, when all the chains started discounting last year, the impact on trade was diminished.
During 2009 we have seen the style of promotion change from two-for-the-price-of-one to more targeted meal-deal offers. On-menu offers have complemented this, allowing operators to use meal deals as a tactical weapon to cope with local competition and demands. Some estimate that it will take at least 18 months for the sector to move away from discounting. I suspect that, as the economy improves, the consumer will no longer expect to find such deep discounting.
Operators have also learnt that promotions are of limited marketing value unless customer data is gained as a result. So I suspect that, rather than drop promotions altogether, restaurant chains will switch to a far more targeted form of customer incentive as they start to realise the benefit of enhancing brand loyalty and building a stronger customer relationship.
The recession has taught us all to be more demanding — food must be good quality, service must be efficient and friendly and value for money is paramount. Restaurateurs need to accept the new consumer, ensure their operations are consistently good and adapt their menus to reflect these changes. Targeted promotions can then be used to enhance customer loyalty rather than to get people through the door in the first place.
Source: The Times 22/02/10