Fishing For Dollars: How to Reel In Today’s Cautious Customer

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It could have been a banner year for the foodservice industry. At the beginning of the year unemployment rates were steadily dropping, as the economy showed clear signs of improvement. According to Statistics Canada, between August 2010 and August 2011, overall employment grew by 1.3 per cent (with 223,000 more jobs). Full-time employment increased 2.2 per cent and part-time work declined by 2.3 per cent, which meant numerous part-time jobs were being converted to full-time. “So that’s all positive for people having extra money to spend, and the first place they spend it is usually restaurants,” says Linda Strachan, director, Foodservice at the NPD Group, Inc. in Toronto.

But, unfortunately, that hasn’t necessarily been the case in 2011. “The cost of living is outpacing disposable income,” explains Garth Whyte, president and CEO of the Toronto-based Canadian Restaurant and Foodservices Association (CRFA). Increasingly higher gas prices and grocery costs have translated into less disposable income. Add to that a high rate of inflation and concerns about the HST in a number of provinces, plus a major economic downturn in the U.S. over the summer, and we end up seeing those positive economic trends being offset by continued overall shaky consumer confidence this year. “If consumer confidence is low, it hurts us in the foodservice industry,” says Whyte. “We’re the canaries in the mineshaft.”

Foodservice sales at commercial restaurants totalled $46.3 billion for the year ending May 2011, a two-per-cent increase over last year without factoring in inflation. But when you take into account menu inflation (running at 2.5 per cent), real sales growth has been relatively flat. Meanwhile, overall restaurant traffic declined by one per cent compared to last year. With traffic down, the only sales dollar gains are coming from a two-per-cent increase in average check, which is primarily due to menu inflation rather than consumers buying more at meals, says Strachan. “We’re dealing with a consumer who is still quite cautious about spending,” she explains.

“If consumer confidence is low, it hurts us in the foodservice industry.”

On the bright side — sales may have been flat, but they didn’t decline. Countless operators across the country have been finding innovative ways to keep cautious consumers returning. “Certainly operators who have been able to put together offers that are value oriented and accessibly priced, but still deliver on taste, have been more successful in driving traffic,” says Strachan. “The lower-priced chains, let’s face it, they often welcome a recession, because they can really benefit from it.”

According to Strachan, QSR is still faring well, with a three-percent increase in sales at year-end May 2011 versus year-end May 2010. “QSR certainly fares better than full-serve; we’ve seen that over the past few years,” she says. “And there’s certainly some ‘dining down’ from full-serve to quick-serve as people meet their dining-out needs in a less expensive way.”

McDonald’s Canada is a case in point: according to Louis Payette, national media relations manager for the chain, sales and traffic have increased this year. McDonald’s is attempting to appeal to that “dining-down” phenomenon by making their restaurants more attractive places to spend time. Ongoing renovations have transformed many of the chain’s locations into more comfortable, modern-looking spots in which to hang out and have a meal. McDonald’s also continues to add premium products, such as the Angus burger, which appeals to consumers who will pay more for quality without paying what they would at a full-service restaurant. “Whether they’re enjoying the free unlimited Wi-Fi service while sipping our premium roast coffee, or satisfying their hunger with new products such as the Angus Third Pounder or the fruit and maple oatmeal, [our customers have] clearly embraced the changes we’ve made,” says Payette.

The premium burger trend prevalent at a number of QSRs — including Burger King, Harvey’s and Wendy’s — has proven fruitful. “It used to be you had to go to a casual restaurant and spend $15 to get a premium burger,” Strachan says. “Now you’ve got something very good for $10 or so [at a QSR] — spending more than you normally would at a QSR burger outlet, but you’re getting something that’s really, really good.”

“Full-serve restaurants would do well to make sure there’s a treat aspect to the full customer experience”

On the other hand, many consumers view dining out at a fullservice chain as a treat. The NPD report, “Full-Service Dining: How to Win Customers Back,” offers insight on how to boost business while consumer confidence is down. “It’s interesting — the top reasons consumers give for why they choose a full-serve restaurant are because it was a special occasion, or ‘I’m treating myself and my family,’” recounts Strachan of the report findings. “So value is always relevant, but full-serve restaurants would do well to make sure there’s a treat aspect to the full customer experience; the food, the ambiance, the service — something that’s going to make the customer feel special enough to get them out of the house.”

With regard to fine dining, it’s important to avoid skimping on the “frills” that make the restaurant experience special; there are better ways to offer value than by cutting on quality. For instance, Strachan points to renowned chef J.P. Challet’s popular Toronto restaurant, Ici Bistro, and the fact that its menu offers everything — from glasses of wine to main courses — in two sizes. “My husband orders the full size, and I order the smaller size,” says Strachan. “Whether it’s diet-related or price-related, people can have more options that way.”

Toronto’s Sauvignon Bistro is an independent restaurant featuring an upscale atmosphere with mid-level prices (by Toronto standards — main courses are priced from $18 to $32, for example). Owner Gregoire Godin considers his establishment a “neighbourhood bistro,” as it’s in the city’s east-end Beaches neighbourhood, not downtown. He says his establishment has had quite a good year. “We’ve seen an increase [in traffic] every month; we’ve been busy,” says Godin. “People may not be spending as much, but they’re coming out just as often.” He thinks positioning the restaurant as a neighbourhood bistro has certainly helped, as he has regular visits from area residents. “Being in a neighbourhood, even through tough times — even during the SARS crisis, for example — it seems people tend to continue going to their neighbourhood places in situations like that. They tend to avoid the big downtown restaurants a bit more,” he says. “I think people are inclined to support their neighbourhood in tough times. And the other benefit is people can go out, have a nice dinner, share a bottle of wine and then walk home.”

In the casual-dining arena, successful restaurants are launching innovative menu items and special promotions to generate more traffic. Richmond, B.C.-based Boston Pizza, for instance, introduced a “grill-therapy” promotion this summer, featuring “backyard barbecue” items such as ribs, specialty burgers and steak salads. “That worked really well,” says Ken Otto, the chain’s COO.

And, in an effort to appeal to one of its key demographics — families with young children — Boston Pizza launched its Kids Card promotion in September. “You can come into BP and buy a Kids Card for $5. That $5 is a donation to the Boston Pizza Foundation, but it also gets you five free kids’ meals,” explains Otto. As it turns out, Boston Pizza has had a good year. “We’ve had positive same-store sales for the last seven months,” says Otto, who notes that from January to June 2011, the chain saw 3.6-per-cent growth.

But, there’s more. A year and a half ago, Boston Pizza began heavily promoting its takeout and delivery service, launching a new online ordering system. The light-hearted ad campaign about “finger cooking” (or ordering online) paid off, with takeout and delivery comprising a large part of the chain’s overall sales growth during the past year. “This really speaks to trends in dining at home and connecting with family,” Otto says.

Undoubtedly, families with young children are choosing to eat dinner at home more often. There’s been a sharp reduction in restaurant visits for the under-13 age group (from 175 restaurant visits per capita in 2009 to 151 in 2011), which either means families with children simply aren’t going out to eat as often, or perhaps parents just aren’t bringing the kids with them when the y dine out. Either way, a casual-dining operation might be wise to focus its effort on making takeout and delivery an easy, attractive and affordable alternative to dining in the restaurant. This would appeal to families who don’t want to go out for dinner and don’t have time to cook. Plus, as Strachan points out, home-meal replacement (HMR) from grocery stores is up in sales, a trend with which restaurateurs must compete.

“As boomers move into their senior years, they’re going to take their restaurant habits with them”

Theoretically speaking, there are other interesting demographic trends to note: for instance, there’s been a sharp decrease in restaurant traffic among the 18-to-24 age group. This is disconcerting for operators, as restaurant-going has traditionally comprised a huge part of this age group’s social life. Between May 2009 and May 2011, however, per-capita annual foodservice visits from this group dropped from 257 to 232. This is significant, and Strachan attributes it to economic factors. “They’ve got some of the highest unemployment levels,” she says. “But if they continue those habits going forward, it’s certainly going to continue to affect restaurants.”

The one demographic group that’s actually been visiting restaurants more frequently these days is the baby-boomer set. Those aged 55 and older increased their per-capita visits, with the most significant increases coming from seniors older than 65. Between 2009 and 2011, per-capita visits for those older than 65 rose from 134 to 151.

“As boomers move into their senior years, they’re going to take their restaurant habits with them,” says Strachan. “And, they tend to have a little more disposable income than the previous senior generation.” Interestingly, this age group held steady on full-service visits, with gains being made in QSR. So while people don’t traditionally think of senior citizens — who have greater health concerns — as using QSRs, it’s important to remember the boomer generation grew up with fast food, so they’re not likely to stop eating it just because they’re older.

“Supper is an ongoing problem in the industry, not just at FSR but even at QSR. Consumers are choosing to stay at home for supper more often”

As for dayparts, dinner is in decline and not just for families with kids. Dinner dropped by three per cent this year in terms of percentage of traffic among all dayparts. “Supper is an ongoing problem in the industry, not just at FSR but even at QSR. Consumers are choosing to stay at home for supper more often,” says Strachan. Breakfast and afternoon snacking, on the other hand, are on the rise, with breakfast rising by four per cent and afternoon snacking by two per cent (in terms of percentage of traffic among all dayparts). Strachan attributes this to consumer behavior trends — the tendency to eat a bunch of smaller meals throughout the day, rather than “three squares,” for instance — combined with initiatives by operators who have recognized an opportunity and jumped on it. In the QSR arena especially, there’s been a lot of innovation in quick and portable breakfast foods. This relates directly to some of the fastest-growing menu items: breakfast sandwiches, bagels and coffee are all on NPD Group’s list of “top-growing food and beverage items” for 2011. McDonald’s Canada has found this to be the case. “With more and more locations open 24 hours, our overnight business has enjoyed tremendous growth, but in terms of overall increase in traffic and sales, breakfast continues to be our fastest-growing daypart,” says Payette.

So what can we expect for 2012? “Recovery will come from an improved job market, together with strengthening consumer confidence,” says Strachan. But, with the American economy taking a turn for the worse this summer and job growth in Canada slowing, it could be a while before Canadian consumer confidence returns to a high level again.

That said, the CRFA’s Whyte sees “guarded optimism” among his association’s membership. In a survey conducted during the second quarter of 2011, 82 per cent of CRFA member respondents said they expect their sales to continue growing at the same or greater pace over the next six months. And, in B.C. in particular, the August announcement that the province would be repealing the HST brought great relief to the province’s operators, as it should put more disposable income into the pockets of British Columbians.

But, while restaurateurs wait for consumer confidence to bounce back, it’s more important than ever to work hard and work smart, figuring out what it will take to get customers to spend their hard-earned money in your restaurant. As the saying goes, “When life hands you lemons, make lemonade.” And, it may just be that in 2012 lemonade will simply need to be jazzed up: it’ll be made from local organic lemons, low on sugar, priced affordably and presented as a “treat” in a fancy glass.

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