Resolving the Restaurant Discount Dilemma

I attended the Restaurant Finance and Development conference in Vegas a week ago and it was interesting to listen to the “hot” concepts talk about the reasons for their success.

“Great food, great service, clean restaurant” is the standard line that you hear from those who are growing units and sales.  Who can argue with this recipe for success?  Easy to say, hard to execute, and it’s really just a way to respond politely without giving away any trade secrets.

Sounds like the baseball player interviewed after the game:  “We were confident that we could do what we had to do. We knew that if we kept our focus we could win the game.” Thanks, dude.  I hope the other teams didn’t hear you give away your secret on national TV.

But there was another interesting recurring comment from some of the hot companies:  “We don’t discount.  We know that coupons are the road to ruin and we’re fortunate that we haven’t had to cheapen our brand through promotional discounts.”

Wow, that’s a gutsy comment for a restaurant chain.  I guess every dog has his day, but what happens when the other restaurants are discounting and your brand doesn’t seem as “unique” as it did when it was new?

The bottom line is:  we’re in a recession, there’s a glut of restaurants, and consumers are stingy about parting with their precious cash on dining out.  It’s true that you can’t lose money on every meal and make it up on volume.  However, there’s growing evidence that the creative use of discounts through “daily online deals” can not only drive traffic, but create satisfied, frequent diners who are happy to pay full price once they become loyal to the brand.

Technomic, a research firm from Chicago, has reported that 67% of those who use couponing sites later return to the restaurant without a daily deal, and 83% recommended the restaurant to family and/or friends (http://www.prnewswire.com/news-releases/technomic-finds-online-daily-restaurant-deals-driving-positive-consumer-behavior-123548104.html).  In addition, 48% used the coupon at a restaurant they had not yet visited.  Bob Goldin, EVP at Technomic, says “The fact that 85% of consumers plan to continue to purchase online restaurant deals and 79% look forward to receiving them is a strong indication of the impact the online daily deal business is having and of its potential within the restaurant space.”

This is yet another example of the importance of thinking creatively about the management of chain stores and recognizing that it’s not always about the general economy or the real estate.  Are stores underperforming because they are in bad trade areas or for some operational reason that can be fixed without closing or relocating the store?  Is it really a marketing problem?  A management problem?  Maybe the menu needs to be refreshed or the store needs a facelift?

The answer is (of course) that it is probably a combination of factors.  A smart management team that collaborates instead of pointing fingers will be able to sort out the priorities for increasing sales and create a roadmap for each operating group to execute their part of the plan.  The real estate team alone can never be the sole source of success or failure in a chain, whether it’s a restaurant, retailer, or service firm.

One thought on “Resolving the Restaurant Discount Dilemma

  1. Interesting, I’ve been thinking about this lately and don’t believe those statistics. Having purchased a few get “$20 of food for $10 deals” from Groupon and Living Social, I used the coupon and haven’t gone back or recommended the restaurants. I was surprised that the deals didn’t have more restrictions to ensure my redemption during off-peak days of the week.

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