Transcript of Food & Restaurant Podcast – Steal Your Share

Transcript of Food & Restaurant Marketing Podcast – Episode: Steal Your Share

[00:00:05] Adam Pierno: All right. Welcome back to another episode of Food and Restaurant Marketing. We appreciate everybody tuning in once again. I’m here with Dan Santy joining me once again and I’m Adam Pierno.

[00:00:17] Daniel Santy: Good Afternoon.

[00:00:19] Adam: We are talking about a very fun subject for us because we read the most ridiculous articles in our quest for news and information. If you stack them all into one pile, I think this topic is probably twice as tall as the next closest pile. You want to tell them what we’re talking about today?

[00:00:41] Dan: The prediction of the demise of casual dining as we know it today. There have been so many articles on this topic and especially at the end of ’16 and the beginning of ’17.

[00:00:54] Adam: It’s just big building up steam like the old cartoon snow ball coming down the mountain. Right now, it’s got Bugs Bunny and Tom and Jerry fully enveloped in that snowball as it continues to roll down the hill just building energy in the media really.

[00:01:05] Dan: Yes. It’s quite fascinating to watch all the predictions about casual dining, to watch all the prediction about the success of fast casual, QSR. In some respects, I think every restaurant chain is facing enormous head winds going in to ’17 whether it be traffic, same stores sales growth and new competition.

[00:01:42] Adam: That’s the thing that always gets left out. I mean in the Miller Pulse study we go quarter by quarter, month after month if you’re looking. Traffic is down or flat. Sales are down or flat. For everybody, it’s up point one percent for a fast casual, which is the fastest grower.

[00:02:01] Dan: Right. You’re predicting 1% decline for casual dining but fast casual is getting 0.1% increase. It’s funny how the reporters spin the data to get their message out, that they want to get out there. They don’t want it to be negative about casual dining.

[00:02:22] Adam: They want to steer away the story, the narrative for some reason. That’s part of what we’re going to talk about today and then, as as always, we try to come with some solutions on how to stem the tide if you’re really facing this. But, my question Dan initiated this topic and it’s of interest to Dan in particular. So I want to hear his thoughts overall. I don’t think although casual dining has taken a pounding for a dozen years and I’m not saying it’s free and clear, people still do go.

[00:02:53] Dan: Oh my gosh. Absolutely. If your traffic’s down 1%, that means there’s still a lot of people walking through your doors and dining and spending their discretionary dollars. My attitude about it is if I owned a casual dining chain, I’d be fighting like hell right now to steal share. Not only from my direct competitors, maybe other casual dining chains theoretically. You would have to argue that that’s where you should start. But I’d be fighting like hell to get people to come in over fast casual and say, “Hey, up your game. Come get better food. Come get a better experience than beans and rice thrown in a foil bowl.”

[00:03:41] Adam: Don’t you dare. don’t you dare. don’t you dare besmirch my fast casual.

[00:03:45] Dan: [laughs] I’m [unintelligible 00:03:44].

[00:03:47] Adam: Well, that’s definitely part of the problem is — There’s an article that we’re writing right now for foodandrestaurantmarketing.com that talks about identifying your competitor to help you identify who you are and what your actual strengths are as a brand. I think what happens to casual dining is they were involved in an absolute slaughter just on the competitive casual dining front. Before, 15 years ago, before fast casual even came into the picture, and then all of a sudden the was just this new wave of competitors who was eating the bottom out of their business.

[00:04:21] Dan: Well, everybody — I shouldn’t say everybody, but I think people fail to remember though is that one of the reasons fast casual became so successful over the last, let’s call it a decade, was the recession. The great recession drove people’s behavior to the fast casual because it was less expensive. You didn’t have to leave the tip and so forth. You still could dine out. I wouldn’t call that dining but you could still go out or bring home a good meal.
Let’s face it, a lot of fast casuals are putting out really quality product right now. So there wasn’t a big sacrifice. Now, it’s time though. I mean the economy is back, in my opinion and it’s time for casual dining to retake the consumers’ mind. Retake the consumers’ desire to have a dining experience. I think everyone’s lost on that. People still love to eat out and be with their family, be with their friends, be with their co-workers what ever it may be. Casual dining has to quit lamenting the problems and seek to find where the successes are.

[00:05:40] Adam: Right. I think they have to really look at their own individual experience instead of the obsessing over the category failure. You know, if you’re solution is well, it’s how can we get more general than this. But fast casuals, millennials love it. So what else do millennials like? They like technology so we’re going to put a Ziosk on the table. Well, no don’t do that.

[00:06:05] Dan: Please don’t.

[00:06:05] Adam: Red Robin, I’m looking at you. Don’t do that and then that diminishes what happens at casual dining that’s actually a positive thing. Having four, five, six people at a table communicating to each other. Now, you’ve put something on the table to stop that? What are you doing?

[00:06:25] Dan: It’s that follow the trend mentality or any shining thing. I’m sorry.

[00:06:34] Adam: Quick solution.

[00:06:35] Dan: Yes. Quick solution, use technology some how or another. What I am preaching on a regular basis is look inside first. Look inside your four walls.

[00:06:48] Adam: What can we fix?

[00:06:49] Dan: What are you doing right too? What needs to be fixed? Do a true self-examination of what’s not working, what is working. Shed what’s not and focus on what is.

[00:07:02] Adam: Totally. Sometimes, the biggest innovations are not something like Ziosk. Sometimes the biggest innovation is somebody really paying attention to their menu and their mix and saying, “You know people really like this appetizer, our mac and cheese appetizer. I wonder if we could turn it in to a burger entree or I wonder how we can get that as a platform and sell more of it and make the people who like it really happy.”

[00:07:28] Dan: Yes. Or hoist it up. You could even be simpler with this.

[00:07:30] Adam: Put an LTO around that exact thing.

[00:07:33] Dan: Right, exactly.

[00:07:33] Adam: Sell it — bundle it with something else and just make it attractive and remind me that I like it.

[00:07:37] Dan: Right. It does two things. Number one, what you just said and it reminds your core customer that you like it. It reminds your lapsed customer who maybe hasn’t been in a little while, “Oh, I used to love that item,” and then finally it’s something that a customer that you’ve never had before goes, “Hmm, doesn’t that look delicious?”

[00:07:57] Adam: Right, right. But you know it’s going to get paid for by the people who already like it.

[00:08:01] Dan: Exactly.

[00:08:01] Adam: So that leads me to the fourth thing that it does well and that environment is it doesn’t cost you anything. If it’s an item you’re already selling, you don’t have to go and calculate the cost you just have to say I think we’re going to sell 10% more if we put this much promotion behind it or if we resell it or we train our servers to sell it in this way.

[00:08:20] Dan: Exactly.

[00:08:22] Adam: There’s your percentage off that you are on sales. Right?

[00:08:28] Dan: Exactly, exactly.

[00:08:30] Adam: I mean we can really go on and on about that, just optimizing and looking at your internal processes. But I think today, what we want to talk about is everybody is saying the demise of casual dining is coming. We don’t agree. I think there’s going to be some brands that shake out in 2017 and then we’ll have an article coming about which brands we’re predicting or will be gone.
But I think what we want to talk about today is really about, listen, is if you’re in the casual and dining environment, how can you steal share? It’s time to retrench yourself. Dig in. Let’s talk about some five steps to stealing share. Then if your outside the casual dining sphere, I think this is going to be interesting to hear. Some strategies you’ll be facing from the casual dining environment which I believe is actually going to turn around.
We’re not going to say 10% gains but I believe as we lose some poor performers, the category is going to look a lot different in comp sales and in category sales. When you get some of those B players and C players out of there. It’s going to change things a lot.

[00:09:38] Dan: I agree a hundred percent. The other thing that’s happened over the last two, three, five years I would guess, don’t have any hard stats on these but there’s a number of stores that have been closed which helps dramatically to we were overpopulated with locations. Now, seeing a number of different brands close 20, 30.

[00:10:01] Adam: 90.

[00:10:01] Dan: 90 stores which is good. Now, we keep seeing stores opening as well obviously, whether it’s new brands or fast casuals expanding or whatever. Regardless, when you have fewer locations, you’re going to be able to increase your margins at your best performing restaurants.

[00:10:22] Adam: Yes, the competition gets a little less fierce. You could argue that they were more — we were over saturated in casual dining locations before fast casual even started to blow up. I mean it was ridiculous for every good location there were probably three subpar, not brands but locations that just under delivered. Of course, that sets the sage for another category to come in and take business.

[00:10:49] Dan: Yes. It’s what I call the Cold Stone [Creamery] problems that many of them expanded too fast. Not being really disciplined about A locations, starting to accept for just to get stores open B and sometimes C locations. If you look across those brands that have shuttered stores, I would eventually guess you could argue that many of them were B and C locations and that’s why they were struggling or suffering in the first place.

[00:11:17] Adam: Yes. Well, what’s unfortunate is if you’re in the environment where you’re looking at closed doors, a lot of times you don’t get a choice about the A and B and C locations you would like to but a lot of times you just say, “Okay, well what leases are expiring,” and now you’re losing an A location in a prime spot that drives a lot of traffic because the brand is taking a beating. It’s hard to reconcile if a landlord who now says, “Well, I don’t know if I want your outdated brand in there when I could put a Yard House in here.” It’s an up and coming concept that will fill this 7,500 feet and have customers.

[00:11:54] Dan: The real estate game is so important that it’s probably something we should talk about on one of these broadcasts because I think it’s long been misunderstood on how important location is for a restaurant brand.

[00:12:10] Adam: Yes. Each brand has their own footprint or thumbprint that they need to make it work. That’s a great idea, let’s put them in the pipeline. I have a guest we can bring on for that. We’ll keep you posted. Let’s talk today though about stealing share. If we are in a casual dining brand, let’s talk about the five steps that we think we need to take to steal that share. We already kind of started talking about one. You want to dig in a little deeper?

[00:12:40] Dan: It’s what I call the cravable core. Again, this is examining a couple of things. One is your menu, you know through your sales data, what you’re selling. You know not only what only what you’re selling, you know where margin is. You have to find the cravable core and hoist them up like we mentioned earlier and really push them. Don’t think of it as, “Oh, all people are tired of this,” they’re not. It gives them a reason to come in. It reminds them why they come in the past.

[00:13:16] Adam: Yes. If you think of most brands, you can probably identify the cravable core without knowing the sales. Without seeing the numbers, it’s usually pretty clear and then when you sit down as a consumer you say, “Well, what are these? The last five pages of this menu don’t make any sense. Or, I’m looking at the board and the first three screens feel related and then there’s that fourth screen where it’s, what?”

[00:13:40] Dan: What is all this stuff?

[00:13:40] Adam: Why is there a Mexican item up there, like Green Burrito at a Carl’s Jr. Why is that happening?

[00:13:45] Dan: Yes. That falls in line with the same, not only the cravable core but the idea of simplification too. Remind people why they’ve loved coming into your restaurant for so many years. You started adding things, the thing got bigger a lot of times, we were adding things to think we were being competitive with someone opening up down the road or a new flavor profile or God forbid, we had to chase millennials with something specific. You’ve got to really look at the menu and simplify it so people understand what they’re coming in for and remind them why they like it so much.

[00:14:28] Adam: Yes. I blame that stretch of the menu on the success of Cheesecake Factory that looks and sounds a casual dining brand but it’s its own animal, it’s its own beast. It does things a lot differently than everybody else and the menu is a novel. It’s Dostoyevsky of a dining place with ads in it. I mean it has its own gravitational pull and I think it had a lot of casual dining brands. Well, we could expand. All of a sudden, we could do pasta. That’s an easy thing to do. Stop it right there, don’t you dare.

[00:15:02] Dan: Right. Please don’t. Please don’t.

[00:15:04] Adam: It’s time to retrench and focus on.

[00:15:06] Dan: Mexican restaurant adding hamburgers.

[00:15:09] Adam: Right, let’s not do that. That’s not why they’re coming. What about item number two here?

[00:15:15] Dan: Well I’ll go broader than just the LTO which is what I want to talk about in item number two. Before that, is to talk about spending measured media. You have got to spend to drive traffic. Awareness equals traffic, it’s just that simple. Retreating and not spending is not the way to go, especially if you want to steal share. We always believe in again, in the simple approach of saying LTO. So this limited time offer on a cravable core item is a really easy way to get traffic in the door. Your staff already understands that product. You don’t have to do anything from an operational stand point. Put the core price that you’ve always had or if you want to discount it go ahead.

[00:16:16] Adam: That depends on your business.

[00:16:17] Dan: That’s up to you. A lot of times, we’ll put LTOs together for clients and just say put the regular price on there. We just want to get people a reason to come in because do not forget, people are making that dining decision late. You have an opportunity every day to capture share by being out there and giving them a reason, reminding them that you’re here and get your share of their stomach.

[00:16:45] Adam: Yes, that’s an interesting point people are making that decision late. We know that they make it within under an hour in the most cases or some people don’t actually even consciously think about where they’re going. Our research showed us that 17% just end up at a restaurant not sure how they got there. It speaks to, you said measured media and that the climate, the environment that we’re in is for conversion and tracking and metrics and measurements which we wholeheartedly believe in.
But, the idea that every impression can be tracked to a purchase or it failed is ridiculous. We know that I have to be aware of the thing to consider it as a consumer and so if you don’t show me something that I can just background process, yes. Is it nice to have a coupon I click to or is it nice to have something that takes me to an experience that drives me to the store? As much as we can, yes, you want to do that.

[00:17:40] Dan: Yes. I’m glad you’re bringing that up about digital tracking and attribution. Listen, in that model and it’s great that we can track. It’s great that we can attribute sales in some cases to some of that activity. The truth be told is you still have to have frequency. You got to have an integrated plan. Now, that’s why I still as you know follow my sword for television when you can afford it. Now, we’re big proponents of streaming TV.

[00:18:15] Adam: We’re going to do a debate on television. Me versus you, I think it’s time. I think it’s time.

[00:18:21] Dan: Ding, ding, ding. Round one. I love it.

[00:18:22] Adam: That’s going to another episode or maybe that would be a good place to bring in another expert, another guest, because I agree with you.

[00:18:29] Dan: I think it would have to be a moderator to prevent us from duking it out.

[00:18:33] Adam: We’re doing an octagon, right. I do think I love the awareness play and I love that when the math works, when the economics works that I have the budget to do it in a market. I’m penetrated in a particular market. I love it and I love awareness. I want to — I think we really need to dig in on it. I think people would be interested to hear the —

[00:18:54] Dan: I think that’s fair. Clearly the landscape it should be but another time.

[00:19:00] Adam: Another time, yes. Put a pen in that. Put a pen in that. Your point is that LTOs can be used to drive traffic. It doesn’t have to actually be on sale or discount but it can be. I think the most important thing that we’ve seen is the LTO as your brand message, gives them both a reminder of your brand. That if you choose the right item from the cravable core, it’s telling them something, signaling them something about the brand and the experience based on what that food is. If it is a mac and cheese ante as we said earlier, I kind of get what I’m walking into. Then third, it’s a reason that’s what they need. They go, “Oh, yes, right, I want to go in and get that thing.”

[00:19:41] Dan: If priced right, under that 9.99, magical. What we like to think is that magical 9.99 if you’re bundling something up. Obviously, the mac and cheese isn’t 9.99. Regardless, make that very attractive and you’re going to — same thing, you get a credit with the consumer that, “Oh, it’s not as expensive as I remember.”

[00:20:01] Adam: That’s right. That’s right.

[00:20:02] Dan: Or as I think it is.

[00:20:04] Adam: Now, the awareness is buffered a little bit. You’re hedging on that just awareness play of let’s say your TV or digital display because you actually have an offer that you’re putting forward. It’s not just a brand advertisement that’s saying, “We make the best X. It’s proof point. We’re going to put our money where our mouth is. Come in and try this for this. It’s a bet.”

[00:20:26] Dan: Right.

[00:20:26] Adam: You’re going to like this.

[00:20:26] Dan: The LTO could be attacked, right?

[00:20:28] Adam: Yes.

[00:20:29] Dan: Depending on the unit type. Just sell the brand. Remind them why they like the brand.

[00:20:36] Adam: Then pay them off.

[00:20:36] Dan: Here’s the reason to come on in. The next thing I wanted to talk about, Adam, is because I didn’t — this falls under the category of why are we still doing this if it’s not working.

[00:20:48] Adam: Yes. This goes to the debate we were just starting to have.

[00:20:50] Dan: Right. Right. I think you have to really examine where you are spending your money. Is it really effective or are we just doing what is it we’ve always done? Is the agency just recommending what it knows? You’ve really, I think today because the landscape is shifting so dramatically so often, have to continually be auditing where you’re measured media dollars are going and use the data you have available to you.

[00:21:20] Adam: What is that? The medium is the message, is the cliche?

[00:21:24] Dan: Right.

[00:21:24] Adam: But if you’re investing hugely in spaces like couponing or FSI’s are just a killer.

[00:21:32] Dan: Right.

[00:21:32] Adam: If you’re not executing those flawlessly, they’re just eroding you’re same store sales. Because depending on how you’re doing, we’ve seen brands that are over doing those and training consumers or living the definition of insanity where they’re expecting consumers to start coming in and paying full price when twice a month they’re sending them coupons.

[00:21:52] Dan: Right.

[00:21:52] Adam: They’re never coming in for full price if that’s what your medium X is made up of.

[00:21:56] Dan: How many brands have we consulted with over the last three years, that when we inherited those great clients, they were on that coupon heroine, which is what we used to call it. Getting them to transition off it is tough. It’s difficult.

[00:22:14] Adam: It’s probably a year and a half process if you’re really, really — if the things are working as they’re suppose to work, you’re looking at an 18-month or two-year deal to comp over the really best periods.

[00:22:26] Dan: Right. But you can do it.

[00:22:27] Adam: Yes.

[00:22:27] Dan: We’ve seen it done now-

[00:22:28] Adam: We’ve seen it done.

[00:22:29] Dan: – a number of different times and a number of different ways.

[00:22:32] Adam: It’s a commitment.

[00:22:33] Dan: Yes. It is.

[00:22:34] Adam: It’s a commitment from everybody all the way up. If you don’t have the commitment of the people at the top you can’t, you will not pull it off. You will be replaced sometime in the first six months when they start looking at the end of the year.

[00:22:45] Dan: But the message has to be, if you’re going to go down that path is that, this is going to change the makeup of the our consumers’ mindset. This is going to allow us to actually drive sales without giving things away, which means we can start getting our margin back.

[00:23:01] Adam: That’s the name of the game.

[00:23:03] Dan: You’ve got — traffic’s one thing. Same store sales is another and then the Holy Grail. Are you getting margin on that?

[00:23:09] Adam: Right.

[00:23:10] Dan: Or are you giving up margin just to get somebody to walk through the door and they won’t walk through again unless you give up more margin again.

[00:23:17] Adam: That’s the problem. Yes. But also, I picked on FSI’s and couponing. But, I mean awareness equals trial, as we said earlier. So is your — we’re talking about looking at media plans as they exist. Are you even hitting the right people and getting them aware or are you spending in a way that’s missing the target? Sometimes we see that brands are doing something because they always did it but meanwhile the markets moved and they just didn’t even notice that their audience is not the same audience or somebody’s already come and eaten that audience up.
You can’t have many more because five guys has that audience now. Now, we have to find a new audience and here’s the media we can use to get that.

[00:23:56] Dan: Yes. Please, please do not say we need to reach millennials.

[00:24:02] Adam: There’s only 80 million of them. I hope you have a lot of money if your goal is to reach them. You really can’t do it with TV for half of them.

[00:24:10] Dan: I think marketers have been mislead dramatically about trying to put all these millennials in a bucket and characterize them all to have the same seven traits. I think the work we do around personas and defining the range of different types of people coming into our clients’ establishments is much better because then we go find look like customers. That takes more work. The millennial push is simple, say, “I’m going to target millennials.” Are you really? Is that a demographic? Is it a mindset?

[00:24:46] Adam: Right.

[00:24:47] Dan: What does that even mean?
[00:24:48] Adam: Yes. I think you want to be as specific as you can with your target. A lot of times, that makes people uncomfortable to get more specific because if I’m shooting at 80 million people it seems like a bigger and a bigger number I can go get. But honestly, you want to get it as well defined as you can and then as Dan is saying, test different look alikes that differ on smaller variables and the media will participate.
I mean, there are ways to target geographically. If we know — if we look at each location and we target. We just start with the one or two locations and you figure out this is the zip code that drives the most traffic to this stores. Then you find the zip codes that are just like those.

[00:25:31] Dan: Exactly.

[00:25:31] Adam: Or where are they coming from? Well, a lot of our traffic comes from this mall.

[00:25:35] Dan: Right.

[00:25:36] Adam: Okay. Now, we know that we can use that as a target. What can we do to drive more traffic from that space?

[00:25:40] Dan: The other thing to avoid, especially now that we have more data available to us, is it’s not a concentric circle.

[00:25:50] Adam: Right.

[00:25:51] Dan: The whole idea of a one-mile radius, a three-mile radius, a five-mile radius. That’s not how it works because traffic patterns don’t work that way. Everything is not — you’re not the hub of the city. [laughs] I think the geo targeting work we’ve done using some of our proprietary tools have really helped cut clients see that some people are actually driving a relatively significant distance to get to the restaurant.

[00:26:20] Adam: Right.

[00:26:21] Dan: Which means let’s make sure we target the other people in that zip code.

[00:26:25] Adam: Man, and I understand why they’re willing — why are those people willing to drive.

[00:26:28] Dan: Exactly.

[00:26:29] Adam: Which goes to your next point here in the outline, interest.

[00:26:33] Dan: Right.

[00:26:34] Adam: Right. What about — why are they treating it differently? You have those people in almost every brand we’ve ever consulted with that are willing to go an extra half travel distance to get to the place. Why? What do they see about it differently than the locals that are right inside your standard trade area?

[00:26:55] Dan: It’s your product.

[00:26:56] Adam: Right.

[00:26:57] Dan: It’s your experience that you’re putting out. Nobody is going to travel an extra mile or two or whatever the number is because they had a bad experience.

[00:27:09] Adam: Right, because it’s average.

[00:27:09] Dan: Right. They go, “Let’s go to the average restaurant.”

[00:27:12] Adam: That’s right.

[00:27:13] Dan: No. “You know what, I love this menu item. Let’s go there.” That’s that craving thing.

[00:27:19] Adam: Yes.

[00:27:21] Dan: It breaks the barrier, quite frankly.

[00:27:24] Adam: Really, unlocking what it is about the experience or what they’re interested in particular. Let’s just build a bigger audience to go test against.

[00:27:32] Dan: Yes, testing is obviously another thing that we preach extensively especially as it relates to digital media today. I think a lot of brands are a little bit nervous about digital media and I don’t blame them. It’s an emerging landscape or evolving rather landscape. There’s been all kinds of talk about its efficacy but the bottom line is test, test, test, test, geofencing. Test, interest based ads and see what works because not every message it — just putting one message out there anymore, you’re not going to attract –

[00:28:15] Adam: No.

[00:28:15] Dan: – every audience that’s available.

[00:28:16] Adam: Yes. Especially when we go back to measurement, we’re talking about testing and measuring and optimizing so you’re being efficient with any investment that you’re making. But if it’s the online media to an offline experience tracking that through. I mean there are definitely ways to do it and tracking threshold crossings and tracking parking lot arrivals and tracking coupons and all that stuff. I think that’s where it gets uncomfortable for people as they’re trying to navigate the spaces, “Well, I can track it and therefore I will be measured by the success of testing this.” Well, maybe.
[00:28:51] Dan: I think the —

[00:28:52] Adam: But testing it at standing still is not a good strategy.

[00:28:55] Dan: Right.

[00:28:55] Adam: I’m just not doing that.

[00:28:56] Dan: Right. I think that brands have to be willing to change things up and not change things up in a reactive way like, “Oh, sh*t.” Sorry. “Oh, shoot.”

[00:29:10] Adam: I can cut that out.
[laughter]

[00:29:13] Dan: Traffics down and you do that knee jerk reaction. You can’t do that because then you end up putting programs together that are not strategically thought through.

[00:29:24] Adam: Right. We have to be on Snapchat.

[00:29:25] Dan: Right.

[00:29:26] Adam: No, you don’t.

[00:29:27] Dan: Please.

[00:29:27] Adam: Some brands do but you probably don’t, whoever you are listening.

[00:29:31] Dan: Right. [laughter]

[00:29:34] Adam: All right. Well, I think we’ve run the gamut on this topic. You may see a repeat of this as we dig back in. I have a feeling the articles will not stop on casual dining’s demise.

[00:29:45] Dan: No. No.

[00:29:46] Adam: As we predict, you’re going to see some brands falling off. So each new tombstone is going to bring another ream of articles about the demise of the entire category.

[00:29:57] Dan: We welcome you to have a counterpoint. Maybe you believe that casual dining is absolutely in a death spiral. If you do, please let us know. We love to go back and forth-

[00:30:10] Adam: Absolutely.

[00:30:11] Dan: – with people and debate things. Thanks again for listening.

[00:30:15] Adam: Absolutely. Thanks for listening.

Transcriptions by Go Transcript.

targeting, share, experience, brand, LTO, daypart

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Economists Believe a Recession Is Likely, but not in ’17?

Economists tell us the U.S. must face one of two scenarios: Either the next President will face a recession in office, or the U.S. will have the longest economic expansion in its history. Two widely divergent paths. Odds are that the recession is more likely.

Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%. Word of the next economic slowdown has been growing louder for the past few months. Our analysts have done the research to understand the environment. Here are five reasons it’s unlikely in ’17.

1). Fed is neutralizing policy not trying to slow down economic growth. In other words their monetary policy is still accommodative, keeping the U.S. yield curve positively sloped. Even if (when) rates rise, capital will still be available and at reasonable rates, fueling everything. Available capital means restaurant brands, suppliers can continue to invest.

2). Employment trends continue to be robust. We continue to see demand for labor, indicating growth. Wage growth was at a cyclical high at this most recent jobs report from November 4th, growing at 2.8%. Unemployment trending down below 5.0% headed toward mid 4% area. While this may make recruiting talent a challenge, low unemployment is great for business.

3). The new administration’s stated policy is to increase economic growth through Fiscal Policy. There are fiscal initiatives that should be simulative to growth. Income tax rate reductions, Corporate tax rate reductions, Repatriation incentives through the Homeland Investment Act will likely bring significant capital flows back into the United States for reinvestment domestically.

4). Commodity markets are rebalancing. In other words, the disinflationary forces that transpired from last year’s commodity markets decline created excessively tight financial conditions. Credit spreads widened, the dollar strengthened, asset prices declined, etc. The conditions we are heading into now are the opposite from those (with the exception of recent dollar strength) we faced in the back half of 2015 and first quarter of 2016. Currently, we are seeing Dollar strength for positive reasons such as higher expected U.S. economic growth assumptions.

5). GDP is currently accelerating. Most recent drivers coming from consumer spending as evidenced by improving retail sales trends which are highly correlated to wage growth and the level of savings. S&P 500 earnings are highly correlated to GDP trends. We are about to see the first quarterly EPS growth from S&P 500 earnings in the fourth quarter of this year. The third quarter was trending better as well.

For these reasons, we’re bullish on 2017. Our recent podcast on the coming recession is still relevant, as we believe the downturn will come, eventually. Like most in the restaurant business, we don’t mind if that time takes longer to get here.

Restaurant defense against a bear market and competition

We’ve written and spoken a lot about the change in the market and the potential for a recession. In our recent podcast, we talked a bit about plans restaurants can make now to fend off the bear market. In fact, there are lots of ways brands should be protecting themselves now for tomorrow.

Four main facets will help build relevance, manage costs and separate brands from competitors.

1. Healthy Habits

Better-for-you is on trend. Local ingredients are on trend. Novel menu items and updated options? On trend. Brands that are built on true health of their menu will have an advantage. A brand like MAD Greens that offers robust salads with protein and tons of flavor can outlast the recession. If operators are able to keep prices reasonable. Flexibility to welcome multiple dietary needs or restrictions also helps stop vetoes.

There are lots of restaurants with similar nutritional profiles to MAD Greens. Top healthy brands should strive to get credit for all that is good about ingredients, suppliers and prep. Brands that best communicate or partner with those who can are rewarded with credibility. And store traffic.

Concepts that aren’t quite as healthy as Sweetgreen can still find ways to add items or options to reach health-conscious customers now. Small changes to recipes or suppliers can add up to noticeable changes in nutritional content, especially for those trying to cut out gluten, sugar or sodium.

2. Scale Your Suppliers

Scale usually means handling growth. But smaller brands don’t necessarily need the huge national footprint of larger suppliers. Especially when pulling back on inventory. Focus on partners that can get you what you need, can go small and can grow as needed, too.

In the past 12 months we have seen the let down when suppliers are pushed. Chipotle outgrew its favored sources and some believe that caused the meltdown they are facing now. Smart brands are finding ways to partner with suppliers to better shift when needed.

This might mean developing seasonal menus that adapt to changes in supply chain. Traditionally, brands like QSR have long leads on their menu that makes it hard for suppliers who might fall short or withhold inventory. Look at this fall’s avocado shortage for examples of brands shifting strategy at the last minute and finding ways to accommodate guests.

Changing items to maximize supply can also act as market news. New items or featured ingredients can drive traffic as menu innovations or LTOs.

3. It’s Not a Restaurant, It’s a Base of Operations

Sure the brand is a physical space. The digital space has been pretty good to restaurant brands too. Don’t neglect social media, and mobile technologies that allow you to reach out from the restaurant. Guests have an expectation for communication with the brands they love. Use these platforms to let them be heard.

When thinking about a bear market, it’s time to consider offers. Digital is also a great way to test offers, to follow which items drive the most clicks all the way through traffic and redemption. That is just the beginning. Using mobile to unlock new experiences for frequent guests and people near by can be powerful. Look at what Starbucks has done using their app.

Digital services can also power new revenue through delivery and catering. Use each restaurant as a base for outgoing meals or added dayparts, and promote along with the brand or even separately. Thinking about the brand beyond the place itself leads to big picture opportunities.

4. Value Proposition, Not Just Value

The trend during tough economic times is to slash costs and show consumers lower costs items. Guests understand that value goes beyond cost. By communicating the value proposition of your brand today, you can hedge against tougher times to come.

This value proposition will come from choices you make now to emphasize the items above. Can your brand stand for convenient delivery? Standard menu items that are just a bit better for you? Unique seasonal or local items?

If the bear market comes, it’s true that consumers will be paying attention to price. But they will rationalize that price if brands have done their job and explaining why they’re worth it. This is the time to create those explanations.