Are you a Favorite or a Frequent?

By February 7, 2020 Articles


Casual dining establishments must choose an identity to keep traffic flowing

By David Bagley, Managing Director, Carl Marks Advisors

Pressures from minimum wages, ever-increasing price competition, traffic declines, new and evolving consumer behavior have created immense challenges for the restaurant industry, most pointedly in casual and dining quick service segments. What used to be prime location – near a mall or major shopping center — has become for some restaurants a death knell, and the popularity of delivery services has created competitors unimaginable just ten years ago.

As we settle into the winter lull, casual and quick dining establishments need to think carefully about their strategy for 2020 and beyond. Traditional discounting and promotions can help combat season-specific shortfalls, but in our experience at Carl Marks Advisors, it’s critical that these restaurants address the wider industry challenges by making a definitive choice about the specific tactics used to target the type of customer they wish to attract: favorite or frequent.

Favorite vs. Frequent
How a restaurant classifies its customers impacts promotions, marketing and advertising. As we differentiate messages, we see ways to reach customers with two distinct motivations for going out to eat: convenience (frequent) and experience (favorite).

A family chooses a restaurant to frequent for sustenance, selecting based on ease of location and wallet-friendly pricing amidst a busy schedule. Favorite places are, by comparison, destination establishments that are mindfully selected for a combination of quality of food and experience.

If you were to ask a typical family about their favorite place to eat, they will likely select an experience-focused establishment. But if that same family were to count the times they dine there, it would pale in comparison to convenience-focused establishments.

At the local Starbucks, remembering your order speeds up the visit and makes it more convenient to stop in frequently. At a favorite dinner spot, the customer experience is enhanced when they greet upon arrival and suggest new or guest-specific items to try. It’s the same knowledge of the customer leveraged for different effect.

While this knowledge can sometimes overlap, increasingly they are wholly separate decision-making exercises, so a restaurant must select a clear strategy when deciding how to increase traffic or grow ticket spending.

Frequent: The Ad Challenge
At first blush, it might seem that the high traffic a convenience strategy can bring make this the most profitable approach. However, it may be this very convenience that makes it a challenge.

Consider the needs of those on the way home from football practice or those in the middle of a busy day of errands. They want speed, comfortable familiarity, simplicity, convenience, an extension-of-the-kitchen feeling and a good price.

Now think about how you deliver that experience at a good price: low-margin, high-volume strategies. This is most often seen in nationwide chains, but smaller regional players or local mom-and-pops that have expanded geographically take many cues from the same playbook. The challenge with a chain strategy is that if an individual location is struggling, it’s difficult to market for that specific location. TV ads and radio spots focus on the brand, but nearly always fail short in attracting customers to a single location.

In other words, this “frequent” category requires an overwhelming focus on a single strategy: location, location, location.

With this in mind, it’s critical for frequent visit restaurants to watch traffic flow. If it’s showing a long-term decline, you likely need to assess your location more than the quality of food or in-house experience. If patrons aren’t coming in, but you’re seeing more cars with delivery beacons zipping by your door, it may be time to consider delivering that extension-of-the-kitchen feeling back to your guests’ own kitchen.

The good news is that the digitization of food delivery has brought a wider meaning to location. Since the focus is on convenience more so than quality, quick service restaurants are set to thrive. GrubHub, DoorDash, or UberEats have streamlined this process, making it easy for even smaller establishments to play in this arena.

Favorite: The Instagram Effect
This same delivery solution does not work as well for destination restaurants since the fundamental value proposition is different. All too often wesee experience-based restaurants try to solve their traffic issues with a delivery solution, which eats away at the value of their core offering. If traffic is suffering, leadership needs to dive into ways to enhance the food and experience in-store.

For the “favorite” restaurant customer, think about social media clout. Every aspect of the process – entering the restaurant, reading the menu, engaging with the server, and eating food – should be mindful and entertaining. It should be worth sharing. Diners who want their followers to know they had a great experience can help fuel business for the destination restaurant amidst a sea of convenience choices.

Favorite restaurants have other levers at their disposal that simply won’t work for frequent visit establishments. Without the national chain menu dictating the kitchen’s creativity, food can be locally-sourced, fresher, organic, and offer other distinctive features that make it stand out. And because they can command a higher per-person ticket price, the quality of experimentation at favorite restaurants is enhanced. Thanks to the dynamics of this strategy, targeted location advertising can be effective in marketing for special occasions, date nights, or birthdays.

Making a Decision
There are many tools restaurants can use to increase traffic, but it’s critical that the ones selected align with the type of customer you want to attract. Too frequently restaurants will try to use levers that aren’t the right fit, resulting in an experience that is incongruent with the customer’s needs and strongest motivators. In the end, the establishments that succeed will decide their strategy early, and execute it pro-actively, rather than defaulting to straddle the unmanageable line between the two.

David Bagley is a Managing Director at Carl Marks Advisors, with over 20 years of experience in corporate finance, operations management, and profit improvement consulting for a variety of companies, including hospitality and restaurant businesses. He can be reached via dbagley@carlmarks.com.