In a tough market, the middle ground will soon mean no ground at all

The casual drinking and dining sector has seen rapid expansion. CGA report 1,000 new openings a year, a total increase of 20% in restaurant stock over the past five years. Compare this with just a 4% increase in consumer spending on eating and drinking out of home in the same period (ONS).

Add to this macro economic factors — food price inflation, rising property costs, Brexit and its impact on consumer confidence — and fast changing consumer behaviour — healthier eating, the rise of the experience economy, new technology and personalisation for example — and it’s no surprise that we’re starting to see casualties in the sector. Eight casual dining chains announced changes to senior management teams in 2017. Byron, Carluccio’s and Jamie’s Italian are amongst those to have announced site closures so far in 2018.

Amongst these stark figures and challenging conditions though, some operators are performing well. What, if anything, do these operators have in common and what can other operators learn from them?

The CGA & Stone and River Brand Momentum Report measures the performance of operators across Food to Go, Drinks Led, Pub Restaurants, QSR and Restaurant sectors. Their findings make interesting reading (not least because our long standing client Revolution Bars Group are in the top 3 best performing brands in their sector).

What their report highlights is the importance of owning a position, not only in the marketplace but more importantly in the minds of customers and future customers. To win share wallet, you must first win share of mind.

Premium casual operators (such as Cote) and value operators such as Greggs score highest in the Brand Momentum Report. In fact, Greggs score of 89 out of 100 is the highest score across all operators in all sectors, thanks to their ability to meet changing consumer trends (healthier menu options, eat-in areas) whilst maintaining a value offer. It’s a drastic over simplification, but in our experience customers want either ‘faster and cheaper’ or to ‘pay more and get more’.

To thrive where others are struggling to survive, operators must take a strategic view of their position in the market, question deeply their understanding of their customers (existing and future) and commit to developing a simple proposition that is understood and clearly communicated in both the boardroom and the bar or dining room.

A strong brand is a vital, but often overlooked, business asset. Research by Kantar Millward Brown showed that strong brands capture 3 times the sales volume of weak brands. The same report showed that strong brands can charge an average of 13% more than weak brands, and 6% more than the average brand. In a time of squeezed margins and fierce competition, when ‘flat is the new growth’, they’re compelling figures.

Once defined, what’s the best way to deliver your brand and win share of mind? Whilst consumer behaviour is changing rapidly, and the impact will vary depending on who your customers are, we believe there are 4 key consumer trends that all operators must understand and deliver against.

Loyalty (or lack of it)

Gluttony of choice in the eating and drinking out of home sector is impacting brand usage, brand perception and brand advocacy — the three key measures of brand performance.

Only 1 in 5 people aware of a casual dining brand are users of that brand and a similar number say they no longer use a brand that they previously frequented.

Modest levels of perceived excellence are impacting brand advocacy. 28% of sector customers would recommend a brand to a friend; our own research for Revolution Bars Group shows that they’re outperforming the market for advocacy — 70% of those surveyed would recommend Revolution to a friend.

But whilst promiscuity is a sector challenge, it is also a brand opportunity.

There’s a huge opportunity for ambitious and innovative operators to build emotional engagement, not just a transactional relationship.

Experiences

What consumers are choosing to spend their money on is changing.

They’re choosing to do more and buy less.

Spending in pubs, restaurants and theatres are all increasing (although more slowly than in previous years). Gigs and festival attendance is at an all time high — 30 million people attended a live gig last year. Eating out is the highest area of spend in the experience economy, and a hunger for experiences is driving premiumisation — the key trend in drinking out of home.

By contrast, Barclaycard has shown that spend in department stores is falling. Research in the US found that young adults would rather spend on an Uber trip than a new outfit.

Increasing use of digital technology is driving consumers to crave experiences that take them away from their screens. It’s a virtuous circle — sharing these experiences is valuable social currency, receiving the recognition that modern consumers crave. Experiences that blend physical and digital are key.

In a competitive market, experience is a valuable differentiator and a competitive advantage.

Personalisation

The demand for differentiated experiences is also a key factor in the next macro trend. Personalisation is really the digital equivalent of great customer service, of making the customer feel special. As customers become more savvy about the data that you have on them, they’re becoming more demanding and expecting you to build a relationship with them based on that data.

They’re also becoming more discerning about the data they are willing to share, and what they expect in return. We’re moving beyond data for discounts and money off on my birthday to a willingness to share more personal data in return for a more personalised experience.

Technology

It’s hard to overstate the impact of technology.

Anyone under 25 doesn’t know the world without the internet. They barely remember the world without smartphones. Multi-screening, social sharing, whats-app’ing and selfie-ing have long been part of the daily (hourly) routine, all from perfectly manicured for Instagram hands.

And whilst it’s true to say that technology now permeates every aspect of life, it’s important to consider which are the right technologies to adopt. Considering technology the enabler to deliver against the previous trends is a good place to start.

In a fiercely competitive market, with changing consumer behaviour and macro economic challenges meaning where some thrive, others will do well to survive, the middle ground will soon mean no ground at all.

At Cube3 we work with ambitious business leaders to build brands that ignite growth, from 3 hour brand sprints to 3 month outside-in consultancy projects. We can prove the impact of our work with brands such as Revolution Bars Group, Gusto, Drake and Morgan.