Waiter, Bring Me a Fresh Idea
10 strategies that are working in the tough restaurant economy
By Jason Daley | Entrepreneur Magazine – March 2010

URL: http://www.entrepreneur.com/magazine/entrepreneur/2010/march/204986.html

It was about 20 years ago that the casual dining boom got started in the United States. It was a golden, batter-dipped age: We were lured in by the novelty of mozzarella sticks and artichoke dip, marveled at the cluttered walls and uniform flair and gulped down two-liter mango margaritas like every night was Friday.

But the bloom is off the bloomin’ onion when it comes to casual dining. The recession has customers trading down to fast food and the growing “fast-casual” segment of takeout specialists (think Chipotle (CMG), Noodles or Panera (PNRA)). Over the last couple decades, while drive-thru burger joints have kept their prices flat, the typical bill at casual dining chains has multiplied three or four times. And the quality of the food has remained pretty much the same while fast food has become better and more diverse. Add to that grumbles about predictable, high-fat menus and stale décor and it’s understandable why in 2009 the category was down 5 percent to 8 percent with a 3 percent to 5 percent drop forecast for 2010.

But some chains are figuring out ways to keep customers coming through their doors. Red Lobster (RT), for one, has designed a quick-turnaround lunch service designed to draw the time-strapped crowd, and its new wood-fired entrees are appealing to the health-conscious. Ruby Tuesday (DRI) redesigned its menu, retrained staff, modernized its décor–and brought in almost 2 percent more customers in late 2009 than in late 2008.

There are plenty of steps to take in a down market, and it’s important to remember that even individual franchisees are not powerless. We spoke with some of the leading thinkers in the casual dining field to find out what you can do to put a little flair back into your business.

1. Think locally
Casual dining chains are some of the most aggressive national advertisers out there. (Remember the “I want my baby back” jingle?) The problem is, plenty of franchisees think that’s enough, especially after a splashy grand opening with big media buys. “Local franchisees are advised to put 1 to 5 percent of their money into local advertising by their franchisors, but they think the national TV commercials are enough to drive customers,” says James Sinclair of OnSite Consulting, a Los Angeles firm that helps rescue flailing restaurants. “We often suggest local marketing like sponsoring soccer teams, participating in fundraisers, things like that. There’s no better advertising than getting buzz in the community.” Casual dining mom-and-pops haven’t been hurt as much by the recession, mainly because people feel a strong connection to the businesses. Becoming a local leader and integral part of the community, versus a faceless chain, can go a long way to developing customer loyalty.

2. Speed up lunch
Lunch is when the fast-food joints and casual restaurants go head to head–and where casual dining loses out. “Business users want to get in and out quickly, and most don’t have a full hour for lunch,” says Darren Tristano, executive vice president of Technomic, a Chicago-based food-industry consulting and research firm. Shaving 10 to 15 minutes off a visit can mean the difference between drawing a lunch crowd or sitting idle for the afternoon. Cracker Barrel (CBRL) and Chili’s have invested in system-wide redesigns of their kitchens and service procedures to help cut big chunks off their service time, but franchisees can help keep things moving by investing in more lunchtime staff, making sure servers are trained and efficient and streamlining the lunch menu to keep the kitchen on track. Tristano also suggests keeping prices competitive. Having lunch entrees in the $5-to-$8 range makes it less likely that budget customers will shift to the burger shack if times get tougher.

3. Push the bottle
Booze is always a high-margin item for casual restaurants, but more importantly it’s a gateway to gaining customers for dinner. According to Technomic’s research, only 14 percent of customers find occasion to drink in the afternoon, which is why national chains have started placing a new emphasis on earlier happy hours. Ruby Tuesday recently revamped its bar lineup, retrained its bartenders and introduced $5 signature premium drinks. T.G.I. Friday’s offered free appetizers at the bar last year in an attempt to draw people in during the dead afternoon hours. Starting drink specials at 2 or 3 p.m. is a great way to attract shift workers, business people scheduling casual meetings or retirees looking for afternoon deals. “You have to remember,” says Jeff Davis, president of Sandelman & Associates, a food-service research firm in Irving, Texas, “when times are tough alcohol is the one thing people don’t cut back on.”

4. Push the plate
Besides offering an extended happy hour on booze, create a happy hour on menu items, suggests Tristano, who points out that Steak ‘n Shake’s afternoon half-price milkshake promotion can easily lead to an order of burger and fries, and Braxton Seafood Grill’s happy hour, when it sells lobsters at cost, often gets orders for a few beers and all the fixings. One innovative strategy to woo the late-afternoon crowd is offering items at ascending prices–$3 appetizers at 3 p.m., $4 at 4 p.m. and so on. “The only way to maximize opportunities is to trade up,” Davis says. “The main goal when you get someone through the door is to trade up.”

5. Focus on the quality
“If you’re at a Mexican restaurant, people are going to notice if you’re scraping broken tortilla chips from the bottom of the barrel and not filling their glasses to the top,” Tristano says. Many chains also make the mistake of charging for soft drink refills or reducing the number of servers to save money. This sends a clear message to the customer that you’re struggling. If it is necessary to reduce costs, he suggests making cuts across the board instead of pulling savings in the areas of servers and food costs. Instead of switching from a good cheddar to a block of “cheese product,” try to renegotiate prices with vendors. “Be careful to negotiate pricing and to take cost savings out of other areas,” he says, “not from areas where customers will feel it most.”

6. Don’t chase Subway
One of the big temptations in casual dining is to simply slash prices until hordes of $5 deal-seekers start filling the tables. But Sinclair says that’s exactly the wrong tactic. “All that does is draw in deal hunters, and when the promotion is over, they won’t return,” he says. “You can’t focus on the short term. You have to be focused on what is going to make the customer return. If you’re going to discount, rebuild the menu so the price of the dish doesn’t lose you money.” The same thing goes for cutting portions. For the most part, consumers see smaller portions as a loss of value–and the savings to the restaurant are small. In the end, Sinclair says, “you’re not saving money per dish, you’re losing customer satisfaction.” Some portion-cutting campaigns have been successful: T.G.I. Friday’s Right Portion, Right Price campaign hit a sweet spot and The Cheesecake Factory scored when it brought its lunch portions down to human scale. But the strategy was about “right-sizing” ridiculous portions. “Some places serve way too much,” Davis says. “Why pay $15 for a salad that I can only eat a third of?”

7. Give them something special
It might seem obvious: People go to a specific restaurant to get food they can’t get anywhere else. But that idea has become murky in casual dining, where fried appetizers and flatiron steaks have all melded into culinary clichés. Tristano says there are two ways to give your menu an edge: Offer items that are a healthful alternative for those looking to adopt a “better-for-you lifestyle” or dishes that most diners can’t cook at home. “Quality Mexican entrees are difficult for people to make at home, or Asian appetizers like pot stickers. For crème brûlée you need to have that little flamethrower,” he says. “People are drawn to items that require culinary expertise or ingredients that are difficult to purchase.”

8. Reward loyalty
The best way to earn loyalty–and repeat visits–is to provide quality food and service. But Americans are suckers for deals, and loyalty programs are one of the things that keep diners coming back to their favorite booth. Sinclair suggests implementing programs that don’t necessarily hand out freebies but still provide something meaningful to diners. Rewards can include priority seating, discounts or rebates on gift cards or–one of Sinclair’s favorites–the chance to sign up and win prize money. “The idea,” he says, “is to get customers involved in the brand and get them to feel a natural partnership with you.”

9. Get it out the door
Fast-casual establishments are striking a chord with Americans–the food is better than a drive-thru burger joint, but it doesn’t require an hour of time and a 20-percent tip. Full-service casual restaurants, however, can easily mimic fast casual. System-wide, Denny’s and IHOP are experimenting with fast-casual annexes attached to their restaurants, and Buffalo Wild Wings, which has dedicated takeout ordering stations, is successfully bridging the fast- and full-service divide. Tristano says providing alternatives to sit-down dining­–whether call-ahead, drive-thrus or catering­–is a great way to create new revenue streams. “The more you drive off-premises growth, the greater opportunity you’ll have to weather the economic storm,” he says. “You have to understand what the customer wants and adapt to this environment and this economy.”

10. Take time to train
In the constant rush of the restaurant business, sometimes it’s hard to stop and take a good hard look at the big picture. “We don’t always have time to train employees or go through a full menu evaluation,” Davis says. “Maybe, with the recession, we have that time now.” Don’t be scared off by the extra investment involved in training–when restaurants are fighting tooth and nail to earn repeat customers, exceptional service is a huge factor in their deciding where to go, and good training often leads to less staff turnover. “It will cost money,” he says, “but in the longer term, people who continue to invest in their businesses will succeed. Excellence always wins, top to bottom.”

Jason Daley is a freelance writer based in Madison, Wis.

www.jasondaley.com

The Up Side of Down Sizing

Restaurants can take a tip from retail brands that offer smaller portions and charge a premium. By Dale Buss

Like the slew of retail companies that offer 100-calorie, portion-controlled products to consumers, a handful of quick-serve operators are also jumping on the trend. Boloco, a regional burrito chain based in Boston, drove check averages up about 5 percent in the two outlets where it is testing a mini-size dinner-menu option.

But so far most chains have restrained from such a “better for you” marketing gambit and, in fact, show little inclination to back away from a recession-proof emphasis on volume as value.

“I see no evidence of chains using portion control for positioning, and I’ve traveled all over the country looking at quick serves,” says Elizabeth Howlett, a University of Arkansas marketing professor. Howlett recently co-authored a study in which the main conclusion was that many consumers have a poor understanding of the calorie, fat, and sodium content of quick-serve meals.

Even some chains who could tout new options as health-oriented are refraining from doing so. Burger King is mainly marketing its new Burger Shots, for example, as great for sharing with fellow diners. The Miami-based chain isn’t even mentioning the dietary benefits of consuming fewer calories than in its traditional meals.

Portion-control positioning is rare so far for a few reasons. First, the primary middle- and low-income market for most chains still largely equates ample food with value

“In the quick-serve environment, where quality is not as much of an issue, it costs next to nothing for [chains] to satisfy that criterion,” says James Sinclair, president of OnSite Consulting, a Los Angeles–based firm that serves the hospitality and foodservice industries.

Second, any pioneering chain that promotes a different value equation may have to “do a lot of consumer education,” according to Howlett, to get consumers to think otherwise.

New York City diners may appreciate the mandatory nutrition information on menuboards, but it only provides extra information to influence their decisions—the presence of the data itself doesn’t restrict their options.

Third, the potential margin and cost implications of portion-control initiatives are murkier than it might seem. Brands could arguably boost margins by offering smaller portions and pricing them at a per-ounce premium to regular and large sizes.

“You’re giving customers more choices,” says Darren Tristano, executive vice president of Technomic, the Chicago-based foodservice consulting firm.

“But the payoff might not be there because, after all, most consumers say they want salads but they still eat fries. And meanwhile, it’s more difficult for the operator because they have to prepare and deal with more items and more sizes and promote them all.”

But Boloco, with 16 outlets, has been offering mini breakfast burritos for a year and a half with great success. As a result, CEO and co-founder John Pepper is trying mini burritos in other dayparts as well.

“All these minis are higher-margin items,” he says. “People are paying a premium for them, but it’s allowing people not to have to think so hard about whether they really want to go get a Boloco.”

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THE $5 QUICKSERVE PROMOTION IS KILLING THE CASUAL DINING RESTAURANT INDUSTRY – WITH ITSELF TO BLAME

The race to market of QuickServe concepts in the delivery of a $5 meal is being replicated by the casual dining market with dire effects

As restaurant consultants, Onsite recognize that each restaurant venue or chain is bespoke. Each site and each brand has its own demographic and its own model which makes that brand unique. We also recognize that price wars are common in any industry and that in difficult times, venues carry fixed costs (such as rent, staff, amortization of capital expenditure) and therefore ensuring customers continue to come through the door is critical. That being the case, however different the concept, many of these brands do share common underlying problems and challenges.

With reference to those restaurants offering ‘unbeatable offers’, we have for some time been expressing concerns that dropping prices or offering ‘unbeatable deals’ is not the quick fix that venues need. These offers rarely bring in the level of new business expected, the restaurant often carries the loss associated with such loss leading discounts for a long period of time and returning to a price point which does make sense for the business can be deeply unpopular because customers get used to these ‘new prices’.

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 and when that deal is no longer available, 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.

TGI Friday’s is an example of short term cash flow benefit equals longer term disaster. Their new $5 entrée offering is an attempt to compete with Subway but has not generated the results anticipated by management or the market. Instead, the offer has lowered the spend per check average dramatically. TGI 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.

Over the next few months, TGI will likely generate millions of dollars in cash flow from this campaign but the cost of their campaign will likely catch up with them. One might ask how creating the extra cash flow constitutes an unsuccessful campaign and the answer is a simple one. TGI have done their brand irretrievable damage. Onsite argues that the key error they have made is taking an existing item on the menu – that item being the regular full sized sandwich menu including fries and a side salad – and simply slashed the price. The offering takes a full priced group of menu items and offers it for much less than they traditionally sell it and diluted the ‘sit down family restaurant’ concept they created.

Marie Callender’s have 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 not to mention that the chain is now synonymous with only offering discounted fare. The “Kids eat free” option is normally offered on a single day of the week (more often than not a slow day such as a Monday or Tuesday) but this introduction is going to force rival competitors to offer two or potentially three days a week offers to compete.

In response to Wall Street comments about their operations, the chain released the following statement: “In this economy, it is tough for families to dine out. Marie Callender’s would like to make it easier for families to enjoy a meal out together as a family. Marie Callender’s chose Tuesdays and Saturdays to provide a few days every week for families to spend time together enjoying great food. Times are tough but Marie Callender’s would like to help by offering an affordable and fun dining experience for families.”

Global data does indeed show that the market that has seen the most drastic decline within the casual dining market are those which target families with children. Marie Callender’s is evidently responding to this decline but whether offering so many discounts is the solution remains to be seen: It is too early to tell. 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’s and Marie Callender’s have larger footprints, greater operational overhead and therefore need a higher spend per check average. More importantly, TGI’s is a casual dining restaurant not a full Quickserve. I don’t remember take out and customer turnover being the TGI selling points and for good reason. TGIs 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.

For those chains who have a risk of bankruptcy or serious cash flow issue on the horizon, we understand the urgency in creating cash flow. 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. TGI Friday’s attempt to enter the $5 Quickserve markets has the very characteristics of a Company that has a serious urgency to create cash flow with no regard to the long term effect on the business.

I am sure this promotion will not last long and am confident that the surge in customer traffic they have experienced constitutes deal hunters in the main. These are therefore one time only customers; although we do recognize that if these are people who have not been to TGI Friday’s before, to that extent this promotion has potentially encouraged new customers. If the offer has attracted people who typically spend less on food and previously could not afford TGI Fridays, perhaps better economic times will encourage these customers to return in due course.

Early market reports, however, reflect that these promotions are having poor results, 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”

A onetime customer, while critical to a business, essentially bring reduced margins in a neighborhood restaurant. Only if that customer visits three times a year is that customer now a profitable one for that venue. The advertising and other operational costs required to get that person through the door can now be spread across those three visits for that one person. The profit on Quickserve & Casual Dining is in recurring customers and whilst the aim is to maximize profit generation from every customer who walks through the door, the reality is you spend an awful lot of money for them to come in so you should do everything possible to make them come back (but not give away the house!!)

A more competitive and profits driven company such as Quizno’s, who needed to compete with the Subway offering because they are a direct competitor, chose a more financially sound Quickserve option. Quizno’s built a product they intended to sell for $4 and therefore were able to create a profit from such their Quickserve offering – instead of it being a loss leader.

With this out of control success (the old adage of imitation is the best form of flattery clearly still stands) and the industry’s need to compete with Subway, commentators and specialists have had a real eye opener about the state of the market and the various engines behind these billion dollar food concepts. Every Quickserve seems to have rolled out something to compete with the Subway $5 offering indeed recently, KFC advertised that their offering was superior to Subway because it included fries and a drink whereas the Subway offering is just the sub. The craze of $5 marketing demonstrates the real brand and marketing value of Subway who in the past few years have returned amazing same store sales with the Jared campaign and now this “$5 sub”.  It is clearly positive for Subway but unfortunate for the rest of the industry that they have reclassified the meaning of the word ‘deal’.

We find ourselves in an economic environment where belts are being tightened and consumer spending has 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.

With this in mind, the operator should now consider going back to basics, realizing that even with a month on month decline in same store sales, the value of any offer should be based on two key areas. Whilst a marketing campaign is critical , the financial element is more important. Operators need to be looking inside their operations and find savings and create offers which do not lose money. 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 is the founder of OnSite Consulting, a nationwide restaurant consulting firm with a specific focus on insolvent or distressed locations, insolvency or concept repositioning.  OnSite’s work is across multiple fields including hotels, casinos, franchises, quick serve’s, casual dining and single unit operators. OnSite clients range from from celebrity chefs to up and comers all seeking to redefine their business model for profitability. Quarter 4 will mark the release of his debut book “How To Save A Restaurant In 10 Days”. For more information please visit www.onsiteconsult.com