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.