Chain Restaurants: Heed This Warning

Strapped customers are avoiding large chain restaurants, preferring smaller regional eateries that provide an experience as well as tasty food. Source: Bloomberg Professional.

Last week during an industry webinar, former RTS Partner Mike Lukianoff (now Chief Analytics Officer at Fishbowl) offered insight we think is worth sharing. The topic of the webinar — which also featured Fishbowl’s Pete Bell and Cohn Reznick’s Gary Levy — was the recent severe downturn in same-store sales and guest counts, particularly at national casual-dining chains. It was billed “Turbulence Ahead for Restaurants — Strategies for Navigating the Storm & Beyond” and was the brainchild of Bloomberg Professional. (You can listen to a replay of the webinar here.)

Moderator Michael Halen, a Bloomberg consumer analyst, kicked things off by asking Mike how chain restaurants survived during past downturns and what, if anything, was different about their approach to today’s struggles. “In the past,” he explained, “the chains would go on national media with big discounts to prop up weaker markets and do lots of marketing. Meanwhile, local and regionals made more of a defensive play by cutting costs, for example, because they didn’t have big marketing budgets.”

Mike recalled that big national brands then ruled the foodservice landscape. Today, it’s different. Local chains and regional players have now achieved prominence and, as a result, can now compete at the local level with larger rivals. Social media has helped in that effort.

“It will be interesting to see if large chains can use the same playbook to prop themselves back up or lose share to regionals and locals,” Mike added, cautioning against the use of discounting. He estimated that 10% of restaurant customers actively responded to discounts; for the remainder, he said, it wasn’t a “primary motivating factor.”

What did stimulate visits these days for many guests? In a word, experience. “When chains, especially the local ones, emphasize the experience and adapt menus local tastes, they don’t have to do discounting,” he explained.

For large chains to do otherwise, he warned, would leave their restaurants open to commoditizing the experience. Worse yet, nimbler rivals more adept at pleasing customers — and who can count on social media to help them spread the word — could therefore easily steal share.

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