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    1 Reply Latest reply on Jan 12, 2010 12:06 PM by LUCKIEST

    Killing Casual Dining Restaurant's Long-Term Profits

    jsinclair Newbie

      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 QuickServe 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 QuickServe 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 Quickserve 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 Quickserve 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 Quickserve 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 Quickserve 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 Quickserve. 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 Quickserve 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.


      James Sinclair, a thought leader and expert in hospitality management is the founder of OnSite Consulting, a nationwide restaurant consulting firm with a specific focus on distressed locations, insolvency and concept repositioning. His track record of success in bringing restaurants back to profitability-even in a slow economy is unrivalled. Discover how you can benefit from restaurant consulting at: