Discounts: Race to the Bottom?

The discount craze has been raging in the past few months in restaurant land. With each new offer or promotion (this year, they’re disguised as boxes) the competition gets hairier and the pressure for discounts is amplified. QSR and Casual Dining are bundling and cutting prices more than ever, it seems.

And as these offers come to an end, it seems that traffic does too. In data released by MillerPulse, when QSR slowed discounts at the end of Q2, average receipt increased (yay) but traffic counts dropped. Quite a bit.
Prior to that, when traffic was up, average check was down .6%. Presumably this is because people were coming in for the discount and not indulging in up-sell items.

The challenge for over discounted brands is to wean customers off of those. Often, this means weaning management off of discounts as well.

So, now we’re watching the industry chase it’s tail. Brands offer discounts to fight lagging traffic numbers. In doing so, they’ve trained a segment of their customers to expect a lower check. When they try to take price or to simply end the discounting, those guests stop visiting. Traffic counts suffer in the absence of those price breaks.

At the same time, competition has never been tougher. Grocery, mail-order and a ton of delivery services are cutting in to visits. Each brand looks at their competitive set and tries to figure out what others are doing to gain share. Discounts.

Discounts can be a powerful tool if used with discipline. The QSR discount model is a very compelling offer, surrounded by compelling upsell items at point of sale to take that original check up in value. The guest still feels they got a deal, and the brand earned their share. When done well, a great offer drives traffic along with increased sales from effective point of sale and employee sales technique.

And like anything that feels good, it can be easy to get hooked. One discount follows another. That’s when traffic starts to wane. We have studied brands that have big success driving traffic with a vehicle like FSI, and quickly turn that into a “strategy.” In one case, a casual dining brand got up to 19 FSI in a year, getting almost no return along with diminished traffic the rest of the year.

The challenge for over discounted brands (much of the current industry) is to wean customers off of those. Often, this means weaning management off of discounts as well. Here are 3 keys:

1. Create something of value elsewhere in the menu beyond discounts.

This might be what we see McDonald’s doing with their McPick menu today. Replace the discounts with items that feel discounted, which might just be a new combination or bundle, or presenting items in a new size or format along with a new price. Train guests not to wait for the new discount and get them used to ‘everyday value.’

2. Distract regulars from discounts with new items.

They know the cost of their favorite dish. They know when it’s discounted. Based on items that have been heavily discounted with a high take-rate, look for inspiration for new items that the same audience will like, and will distract from cost. Added as a series of LTOs, brands can reset expectations on menu and pricing to create a new relationship with guests.

3. Be willing to lose some discount hunters.

Traffic is not traffic. As we see in the MillerPulse data, even when traffic was up recently, sales were down by half a percent. It takes discipline to not just chase down anyone who will place an order and trade up for guests who know you brand is worth the full check. Over time, brands can move up to guests who don’t come just for discounts.

Discounting can be a powerful tool, and an addictive drug to brands and consumers alike. What we’re seeing now is the hangover for both. Believe it or not, consumers have discount fatigue. With so many options, dining brands will have to come up with new ways to bring guests in the doors.

Category conventions in restaurant design or Why do all BBQ joints look the same?

Ever noticed that 90% of the BBQ restaurants you’ve ever been in look like they used the same interior designer? Maybe the first ones to set the tone didn’t even use a designer, but now the trend is set and being strictly adhered to by each new entry in the category. These category conventions can become a trap.

Here’s a quote from restaurateur Tyson Ho on opening a BBQ restaurant in Brooklyn: “The most annoying part of designing a barbecue restaurant is how everyone tries to pigeonhole you into looking like a Cracker Barrel or Paula Deen’s hillbilly playland. “Let’s put sawdust on the ground!” says one person. “I got these great old license plates we can hang on the wall,” says another. Every day I get offers for old wagons, rusty farm equipment, and fake vintage gas station signs.”

On one hand, category conventions are healthy. They provide cues to guests about the experience they’re about to have. People are creatures of habit and are not always willing to dive in without some understanding of what they’re about to eat. So offering some familiarity is a positive.

But how does any concept stand out from the pack when every one from Franklin Barbecue to Famous Dave’s to Dickie’s BBQ Pit are all using the same set of design standards. They’re the same in that they all sell a version BBQ, but those are three totally different experiences. Yet, Vintage styled cartoons of pigs and calls for people to “EAT” grace all three. Along with mismatched type, antique tools and neon, rusted tin signs.

“I got these great old license plates we can hang on the wall,” says another. Every day I get offers for old wagons, rusty farm equipment, and fake vintage gas station signs.”

Think about your last casual dining experiences and the design of the menu and table tents. They all follow a similar convention. Probably a condensed sans serif type punctuated with thick straight script font on top. Photos of dishes that look like there may only be one photographer in the country, each retouched to be appropriately distressed and embedded into the menu to appear ‘crafted.’

Don’t even get me started on pizza restaurants and their images of tomatoes on the vine, Sinatra and murals of Venice. The honest answer is that new concepts borrow from what has worked for successful brands before them. If the best noodle bar in town is a 900′ step in bar with an open kitchen, you can bet that the next five noodle bars to open will be 700′ – 1100′ step in bars with open kitchens. Imitation is the sincerest form of flattery, but more importantly using cues guests already recognize improve comfort and sales for new concepts. Unfortunately, using those same cues sets the expectations for guests that up and comers may not be able to meet.

But some have found ways to subvert category conventions and bend it to their advantage by playing with consumer expectations. The most successful concepts we’ve seen in the past few years in Fast Casual take the best ideas from QSR and Casual Dining to set expectations. In the case of a brand like Five Guys, they offer a convention similar to QSR Hamburger restaurants, but a simpler menu and more premium food product.

Unfortunately for concepts in the Fast Casual or QSR BBQ has to match the delicious food of Franklin BBQ or even Famous Dave’s; and not just their sense of design.

Growing an emerging brand: three key factors for success

watering can, new product, CPG

Growing an emerging brand in the CPG space takes a special focus and attention.

A growing consumer package goods company can efficiently and effectively create demand and generate trial with limited distribution and a limited budget. The way it’s done is by doing a few things well and with great precision.

It’s important to remember when setting a precise strategy, you must sacrifice some things you think you want to do. Staying focused on what’s working will prevent you from straying to random tactics and getting off message. There are three critical components to an effective marketing strategy for most emerging brands. They’re designed to focus your limited budget on the optimal tactics and messages through a test and optimize approach. More on that later. The three critical components are: geo-targeting, target audience, and optimal messaging.

1. Geo-targeting

Geo-target your promotional investment in your best markets. Examine your ACV in each market to ensure people will be able to find your product once you create an interest.

You need to understand who your best and most likely customer is.

Start by identifying your top five designated market areas (DMAs) based on where you have the best distribution. Your primary objective is to generate awareness so you can generate trial. Several great ways to generate that awareness include: paid search, paid social, and online video. All tactics can be implemented relatively inexpensively.

2. Target audience

Have a precise target audience for your product. Do not try to reach broad demographics like “Adults 25-54.” It’s not efficient. You want to understand who your best and most likely customer is. You’ll base this not only on gender and age, but also with a clear psychographic profile. Understanding who your raving fans are is important so you can use all the digital targeting tools available today to go find more people with the same profile. When setting your target there are several tools available, like social listening, Facebook Insights and Google Analytics.

3. Optimal messaging

Create optimal messaging that will resonate, engage and motivate your audience. Because you are implementing the test and optimize model, there is no need to limit your message options. Since you’re early in your marketing efforts you want to test a variety of approaches to determine which ones resonate with your audience and creates the best click through rates and conversions.

As you learn what advertising messages and types are generating click through and conversion, you optimize your advertising spend on the most effective ads.

Consumers are looking for new products all the time. They’re interested in new flavors, new options to replace old favorites or they’re just trying new products out of curiosity, and they use a variety of channels to seek them out. Whether it’s search, social channels or websites; emerging brands need to get their message out there so we can discover your great new product.