Discounts and price promotions can help operators grow sales.
If I’ve learned one thing through my years in the foodservice and retail businesses, it’s that consumers love a good deal. Offering discounts and price promotions can be a sure-fire way for marketers to build customer traffic and grow sales, especially during quiet times. But, excessive dealing can signal trouble on the horizon. This is why I fully expected to see a spike in dealing rates as the COVID-19 crisis began in March, with the industry facing significant troubles and a challenging future. My prediction was partly correct.
CREST data reported the deal rate in Canada’s foodservice market rose about two points during the year ending December 2019, continuing a trend that had persisted for five years. Almost one-quarter of all traffic occasions included a deal of some sort at that time. If not for the growth in these deal occasions, the market may have declined in visits last year. Since the start of the COVID-19 crisis, dealing rates have been on the rise. First it was at a rate consistent with historical trends, but in recent months, as the restaurant industry was re-starting, dealing rates began to rise even faster. All of this was happening during the summer season, the point in the year when dealing is usually at its lowest point.
The most-common type of deal is a combined-item special, or combo. Since “dealing” in CREST is consumer-perceived, the definition of a combo is anything the customer reports it to be. This could include the traditional sandwich/side/beverage grouping prevalent in the quick-service restaurant (QSR) segment of the market.
It could also include something more complex, such as a fixed-price four-course menu at a full-service restaurant (FSR) or a simple coffee/doughnut combo from a coffee shop. Regardless, this deal type is all about getting customers to order more items during
Next up in popularity are coupons, followed closely by daily specials and price discounts. Buy/get deals round out the top five. Collectively, these five deal types account for four out of every five deals. Combos have decreased a bit in share over the years (a trend that has continued since March), while coupons, discounts and buy/get deals have added a few points of share.
One key driver of this lift in dealing is the spike in digital-ordering (orders placed on mobile devices or otherwise through the Internet). With digital ordering jumping from just five per cent of total visits in 2019 to 12 per cent in July 2020, this alone has helped to fuel the overall dealing trend. Digital-order dealing rates are around 40 per cent – much higher than the overall average. Top operators and delivery-service providers have been using deals to lure customers to their apps and this has only accelerated in recent months as the battle continues for share of customer visits and customer clicks. This digital technique embodies both a penetration strategy (attracting new users/customers) and a frequency strategy (encouraging more usage from current customers). The trick with dealing is to implement one of these strategies in return for your deals. Otherwise, you’re just discounting your existing customer visits, which is not sustainable. This is often the case with the excessive dealing mentioned earlier.
Dealing isn’t always about low price. The segment with the fastest-growing dealing rate is fast casual, while the premium-casual segment generates the highest dealing rate. These two segments generate much higher eater checks than their respective QSR and FSR competitors. They offer an example for others to follow: dealing is as much about value as it is about price. Also validating this notion is that items per eater and average eater check are higher with a deal than without.
This again affirms that the best dealing strategy is to sell more, rather than sell for less.
I encourage consideration of deals and other initiatives that focus on these food-forward drivers rather than price. In other words, the best way to your customers’ stomachs is to build a dealing strategy that appeals to their hearts and minds — not their wallets.
How can you encourage customers to spend more, while still delivering on incremental value? Here are some ideas:
- Bounce-back offers provide customers an excuse to return for another visit they may not have planned already. An example is encouraging a delivery customer to visit the restaurant in person
- Combo offers provide discounts when more items are added to the order, such as a half-price beverage to accompany a full-price dessert
- Family deals are sharable menu items/bundles for families that are sheltering at home and eating more meals together
Add-on deals encourage customers to order extra for the next day
- Any deal to fill the voids — dealing rates have been on the rise for on-premise visits, food-court visits and meals consumed at work, as operators struggle to restore revenue streams lost during the depths of the shutdown
By Vince Sgabellone
He is a foodservice industry analyst with The NPD Group.
He can be reached at email@example.com