What Restaurants Should Do During Slowdowns

Tuesday, August 1, 2017

Restaurant sales and traffic have declined year after year with same-store sales down by 1.1% and traffic by 2.4%. These are yet moderate figures compared to the actual experience of other restaurants. The Ignite Restaurant Group – operators of the Joe’s Crab Shack chain and the Brick House Tavern chain – has seen its same-store sales drop by 6.8% and revenues decline by 10%. They are now preparing to file for bankruptcy, sources told Bloomberg.

It’s a very challenging time for players in the restaurant business, and this can be ascribed to the new dynamics of the sector, centered around the ever-rising demand for better customer experience and more responsive digital services.


Multiple dynamics in the restaurant industry

It’s a challenging time to be in the restaurant industry due to multiple dynamics in play. One of which is the aggressive competition among restaurants. Standing out among a number other restaurants is a challenge, even if you have the best chef or a fresh concept. For a new restaurant player to gain an edge, the business needs to conduct a detailed analysis of the guests’ demographics in the area and the nature of the current competitors. For existing players, as new competitors enter the same market to steal their guests and put their sales down, the business needs to be more innovative with its strategies to further differentiate itself. However, competition does not end with nearby restaurant establishments. There are non-traditional players — such as groceries, supermarkets, and subscription meals (Blue Apron, HelloFresh, etc.) — in the field as well, and any restaurant business would have to compete with them.

Amazon’s recent acquisition of Whole Foods portends another competitive threat for restaurants, in the form of prepared meals delivered directly to consumers’ homes.

Restaurant businesses also face rising labor and food costs. Three out of four restaurant operators are concerned about labor costs, while one-third are very concerned. Over half (62%) of operators had already seen an “increase in labor costs in the past year and 64% said they expect an increase in 2017.” Meanwhile, rising grocery and food costs have been predicted to continue for some time. That said, it is all the more urgent that restaurant businesses meet the ever-changing demands of customers in order to drive sales growth and gain a competitive edge.


How top brands drive sales growth

To drive sales growth, top-performing restaurant brands need to make digital transformation a core component of their strategy. Attracting tech-savvy customers is now the new norm — and a restaurant business can achieve this by offering digital or omni-channel experiences via mobile, app, web, kiosk, chatbots, and point-of-sale.

Digital channels enable brands to deliver fun, seamless, and engaging services to their customers via digital loyalty, online ordering, and payments, among other strategies. They also enable restaurants to connect directly with their customers and manage their online presence — be it the searchability of branches or menu — thus helping restaurant brands sustain guest loyalty and encourage walk-in visits. Online channels where guests can directly provide feedback or pose inquiries contribute to the brand’s accessibility, making guests feel that their opinions are heard and that their demands will be addressed.

Digital channels also help drive same-store sales by focusing on personalized offers and allow brands to truly understand their guests and deliver personalized rewards, offers, and tailor overall customer experience.


Capturing digital consumers

Restaurants need to combat periods of the slowdown by capitalizing on the value of tech-savvy digital customers. They need to invest in loyalty programs and run engagement campaigns to beat market slowdowns and increase sales. Those players who embrace digital technology as a critical differentiator and driver of business success can continue to command the loyalty of their customers and drive sales.

Studies show that a loyal digital customer (participating loyalty program member engaging with a mobile app) is worth twice an average customer. This is most certainly true in the case of a burger chain’s digitally driven success story. The burger brand launched its rewards app in March 2016. Fully integrated with its point-of-sale system and online ordering platform, the rewards app allows the burger brand to measure the impact that app users have on their bottom line. Findings show that app users spend an average of 6.4% more than non-app users. The difference between their spending widened quarter over quarter. The results of the study further revealed that a regular guest has an average frequency of 4 visits per year with a $15.59 average spend per visit. An app user has an average frequency of 7.16 visits per year. Altogether, a regular guest is valued at $57.37, while an app user is valued at $113.56.

Additionally, the burger brand’s lift in sales from Q2 to Q4 equaled to a $75,439 system-wide increase. The brand’s offer accomplished the goal of driving a big user base immediately upon launch. App users have increased their spending and decreased their rewards redemptions quarter over quarter since the app’s launch.

Another relevant success story is that of a popular pizza chain with more than 450 storefronts. By targeting infrequent customers via tailored email and push notification campaigns, the pizza chain managed to double its sales.

In late 2015, the pizza chain launched a brand refresh and various technology initiatives to attract digital customers. But while its loyalty program continues to be one of the fastest growing programs (in terms of new member growth), the chain still struggled with customer engagement. One year after the launch, 91% of their customers had lapsed in their store visits for 90-day and their average annual frequency via loyalty was 3.7x — all of which were troubling signs.

To address these red flags, test recommendations on what campaigns to run and what messages to send were made. Marketing campaigns via email and push notifications were designed and tested on customers across a total of 38 locations for a period of three months. The goals were to increase frequency, offer redemption rates, and average spend. With the 6,900 customers targeted for the campaign (90% of which comprised the test group and 10% the control group), it was found that sales had doubled for the test group versus a 12% decline in the other group.


The Punchh Advantage

Punchh has been successfully partnering with restaurant brands to accelerate their digital transformation by delivering omni-channel digital experiences to customers, creating comprehensive customer intelligence, and driving top-line growth via personalized offers.

Brands using Punchh’s Restaurant Marketing Cloud are seeing a 25-48% increase in visit frequency, a 10-20% increase in average spend, and a 10-25% lift in offer redemption rates.
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