Downward pressure on traffic and check average numbers over the past year in the commercial restaurant sector have engendered a barrage of value meal promotions as a coping strategy. Has it worked?
We asked analysts from NPD Group that question, and for the implications that trend has for operators in onsite segments.
“In the past year, food away from home is up about four percent in terms of a market basket CPI,” says Bonnie Riggs, an NPD restaurant industry analyst. “The interesting thing is that restaurant check averages were up only about two percent in the same period. That tells us customers are finding ways to manage the costs of dining — taking advantage of price promotions, buying value meals and ordering fewer or lower-priced items.
“Chains that run successful promotions are finding they can drive enough incremental traffic to make up for the lost margin,” adds Riggs. “Lunch traffic has been fairly flat for a couple of years among commercial operators, but with all the value promotions in 2008, we saw lunch traffic increase for the first time in a while” (Fig. 1). During that time, non-deal traffic fell, but increased deal traffic — about a quarter of the total — more than made up the difference.”
Kyle Olund, the senior product manager for NPD's CREST OnSite data service, suggests such promotions tend to increase meal price sensitivity in onsite venues. “At what price point does an onsite sandwich become one that is seen as uncompetitive when Subway is running a $5 footlong every day,” she asks. “Onsite operators may find they can benefit by more frequently adopting some of the strategies of the commercial side.”
Olund also observes that onsite operators tend to have a different approach to promotions than their commercial cousins (Fig. 2). “Discounts for employees and others are more common in onsite, especially in healthcare and B&I,” she says.
“If you pull out retail-type deals — combos, daily specials, value meals, etc. — and compare them, you find them associated with 17 percent of commercial traffic but only with nine percent of onsite traffic overall (Fig 2).
Her upshot? “In onsite, many more of the deals are perceived as traditional workplace benefit arrangements or entitlements, and thus may not have the same impact in terms of driving traffic in a difficult market environment.
“Onsite operators should perhaps look across their portfolio of promotions and see if there is potential to leverage more retail type deals. They may have to look at ways to limit employee discounts — perhaps to only certain stations — in order to do so.”
“They also need to remember that it is not just about the deal,” Olund emphasizes. “You also have to deliver against the experience, quality and products that support your main positioning.”
“We do not offer employee discounts as a policy, but do offer a five percent discount to those who use our cashless payment system,” says Betty Perez, Director of Food and Nutrition Services at University of Medicine and Detristry of New Jersey-University Hospital (UMDNJ).
“When the economy softened, we got more aggressive in marketing our ‘gold card.’ which has the added benefit of helping speed up our cashier lines,” she adds.
UMDNJ is also is a proponent of daily value combos. “They are always offered from a sandwich station and always as an upscale bundle on an item not on the standard menu,” says Assistant Manager-Retail Services Heather Walker-Pardo. “The use of upscale ingredients gives it an additional value twist and helps us offer more variety to the customer we mostly see every day.”
For the Sept-Oct-Nov period, “our retail sales were 3-7 perecent higher than a year ago and our guest check avereages are up an average of 12 percent,” Perez says. “The population here has been stable, so this is a direct penetration of potential business. Still, we have observed an impact from the economy — there has been a modest drop off in the number of transactions we do each day.”
FSD Rich Turnbull at at Oregon State University in Corvallis implemented a similar policy for its residential dining halls, giving students on the school's declining balance meal plans a 10 percent discount compared to cash customers. “The policy was in response to residential students who wanted to know why they were paying the same rate as cash customers, but saw themselves as shouldering most of the facility overhead,” Turnbull says.
“It is like a club benefit for residential students and is a powerful thing in their minds. They see that students who live off campus pay a higher price to eat here.”
Turnbull runs $1.99 lunch entree specials in each of the campus' three main dining halls that he says bring in cash customers like faculty more often. “We have to assume they don't always buy the day's special, but they know it's there and it attracts them.” About 300 are sold each day and an analysis of October POS data showed cash sales were up about one percent over last year, he adds. “We believe the specials are a main driver of that — in our case it represents about $9,000 a month in incremental cash sales.”
At the University of Texas at Austin, Associate Director ScottMyer offers combo meal daily specials at each primary venue on campus. “The specials almost always have some value angle to them,” he says. We've also found it helpful to change the special menu between lunch and dinner each day.”
Although running coupons in the school newspaper haven't proved particularly successful, Myer says “we've been doing cell phone text couponing that mainly targets commuter students because they are harder to reach. That has worked well to introduce new cash customers to our residential dining facilities.”
Myer reports one text promotion offered a free cup of ice cream at the school's Littlefield Patio Café during a two hour window “and we gave out over 600. These were commuter students who might never have visited that venue otherwise.”