Restaurant Winners & Losers

Business lessons from the recession-weary restaurant industry
SCOTTSDALE, Ariz. -- Picture a busy intersection capped with four different, well-known restaurant chains: Ground Round, Houlihan's, Damon's and Bennigan's. You ask any consumer which one they want to go to, and the answer will probably be, "Whichever has the shortest line."

Business owners should cringe at this statement, as it means they have failed to differentiate their brands. But it's the actual answer restaurant research firm Technomic Inc. heard from consumers about these and other struggling restaurant chains. And it's one of five lessons learned from the recession [image-nocss] and its victims in the restaurant industry. Technomic president Ron Paul and senior manager Kevin Higar explored these five lessons, as well as five tips gleaned from the recession winners, at the 2010 Restaurant Leadership Conference, presented by CSP.

One of the greatest lessons learned from the restaurant industry, Paul told a crowd from the more than 1,000 restaurant executives and leaders gathered this week in Scottsdale, Ariz., is to maintain lifestyle relevance. The segment that was hurt the most by its lack of relevance was the "family style" or "midscale" restaurant, which saw its total number of concepts in the Technomic Top 100 decrease by 36% in 2009.

"There really wasn't anyone who came on to the scene that made consumers say, 'Oh, I really need that in my life'," said Paul.

Time has revealed another mistake made by recession-weary restaurateurs: inadequate brand reinvestment. Bottom-line pressures can lead management to make decisions that affect the customer experience. If tough times come, business owners must be prepared to continue to invest in the brand and experienceperhaps even more so than in more comfortable times.

Restaurant victims have also allowed for "unprotected white space." In 2009, full-service, mid-casual Mexican chains faltered, while fast-casual Mexican found success. Why? Those full-service chains failed to keep up with consumer desires, while allowing fast-casual Mexican chains to swoop in and fill those needs.

Finally, many struggling restaurants failed by abandoning their core strengths. Paul and Higar pointed to TCBY, which eroded its core strength of yogurt, lost vision of what people expected of them when they tried to venture into ice creams, and "became subject to corruption by other brands," said Paul.

Of course, there were also great success stories in the restaurant industry in 2009. Many winning restaurateurs can attribute their success to the following:
Lifestyle Relevant. The best case for "lifestyle relevance" is Panera, which has succeeded at offering high-quality food with relevant services such as free Wi-Fi, online meeting planning and now takeout windows. Pricing Value. Technomic turned to the Cheesecake Factory, which instead of simply lowering prices to draw traffic, created a multi-tiered menuing system with various price points, from "small plates and snacks" to "specialties." This created new revenue streams, "but they made sure they didn't compromise what people think their value is," said Higar. Separate from the Competitive Pack. Technomic identified approximately 100 customer touchpoints, from how the customer is greeted to how the bill is presented. Each offers an opportunity to differentiate a brand in the eyes of the consumer. Be Known for Something Craveable. Have an item that consumers have to visit your operation to get. And it doesn't have to be about constant innovation; some of the most craveable foods are comfort foodsfrom sweet tea in the South to Midwest cheese curds. Show Your True Colors. Customers want the businesses they frequent to reflect their views. Chipotle is the obvious example, with its focus on sourcing sustainable foods. But Chipotle also reflects and caters to its customers' fast-paced lifestyles. Both Paul and Higar urged attendees to focus on the familiar, strive for disciplined adaptation and understand an adapting consumer. And while we hear the success stores of burger chains like Five Guys and bakery-cafe concepts like Panera, Paul emphasized that "there are successes and failures in every segment." It's not about chasing an on-trend segment or menu item. It's about doing whatever you do exceptionally well.


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