Category Archives: food

September 14, 2018 · 11:39 am

Everyone’s Got A Deal

A very wet Foodie Friday here but that won’t deter me from posting a few thoughts about what I think is a post-value world. What I mean by that is that value seems to be more of a given today that it did a few years ago. I also hope by now you’ve learned the difference between value and cost because your customers certainly have.

In the food business, you see this playing out in spades. Everyone has a deal, whether it’s $1 menu items or $5 foot long subs or free cheeseburgers from using an app to order. I suspect that many of these items are loss leaders. They certainly can’t be maintaining the margins which are already slim in the restaurant business. They’re designed to build traffic and that traffic will buy other, more profitable items.

The problem with this is the restaurant business is one where the supply has outstripped the demand. Chain restaurants are growing faster than the overall population and there aren’t enough hungry folks out there to support them all. Because deals are so prevalent, it actually frees the consumer to decide if they place more value on the price of the meal or if they value higher quality ingredients or better service or just the overall dining experience an establishment offers. More often than not these days, the price is less of a concern. Why? Because everyone’s got a deal!

What does this mean for your business? It means you’ve got to continue to get beyond thinking about cost in terms of how your customer values your product or service. The health of the business depends on more than a lot of customers. Fewer, more profitable customers seem better to me than a lot of slim-margin ones. Ask K-mart, whose profitability peaked in 1992,  if the low-margin, high volume strategy can work over the long term. Someone can always compete on price (Walmart).

The “deal” I try to offer to my potential clients is the highest level of value. That value is defined in THEIR terms, not mine. If all they’re after is a low price, I’m probably not going to be working with them. If what they want is a profitable result that advances them to their goals, well, that’s my deal. What’s yours?

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September 7, 2018 · 12:55 pm

The Great Customer Gulf

Foodie Friday is here at last and with it comes some great information from Earnest Research. My data tells me that screeds about research don’t score particularly well with many of you but I think what the study I’m highlighting today is an excellent reminder of a basic business fact that pertains to the balance between keeping customers happy and attracting new customers. Read on!

What the study examined was the top 10% of various restaurants’ customers by the frequency of visit and how that compares with the average frequency. As reported by The Franchise Times, the gap can be enormous:

At McDonald’s, that top 10 percent customer went 86.5 times each year on average. That’s 309 percent more than the average customer, who went 21.1 times through the year.  Even the most frequent Starbucks customers don’t reach that. The top 10 percent of customers by frequency went 80.7 times—though they visited 374.5 percent more than the average customer who stopped in 17 times.

Earnest researchers checked in on a handful of brands for this data (see chart, right). In green are national QSR chains, orange is national fast-casual restaurants and blue represents chains that are regional but have a traditionally strong customer base. While the numbers jump around a lot, the highest frequency customers come between three and five times more than an average customer.

Your reaction to that may be a large “duh” since the Pareto Principle is probably burned into your head by now. What impressed me, however, was the size of the gap. If you factor in “average order value”, the amount of money spent by the top 10% is huge even though as it turns out they tend to spend a bit less per trip. In real terms, for example, the difference between a top customer at McDonald’s and an average one means a $708 annual value compared to the average customer’s $187.

Money spent to keep a customer happy is money well-spent. Money spent to get a customer to become a more frequent customer is even better. While there’s no question that we all have to keep adding new customers to our base, once they’re there, we need to shower them with love, great service, and incentives to grow their engagement with you. The data shows it’s true in the franchised restaurant business and I’m pretty sure it’s true of yours too.

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August 31, 2018 · 11:35 am

Red Delicious

This Foodie Friday, let’s consider the Red Delicious apple. Until very recently, it has been the dominant apple in orchards all around this great nation of ours. According to the US Apple Association (as quoted in the NY Times), it has recently lost its dominant position to the Gala, and Granny Smiths are closing fast. You can probably hear Honeycrisps off in the distance too.

I know what you’re wondering: is this some sort of tangent brought on the by the start of football season (Go Blue!) and, therefore, the fall apple season? Not really, because there is a business lesson in the fall of the Red Delicious that can be used by any of us.

Have you ever eaten a Red Delicious apple? If you’re not sure, buy one the next time you’re at the market. They will be easy to spot. They’re very pretty – your prototypical apple. It’s a lovely deep red and their skins are generally unmarked. If you were trying to find an apple to use in an art class, the Red Delicious would top your list. So what’s the problem?

Bite into one. What do you get? Not much. They are bland and almost flavorless. That skin is so beautiful because it’s too thick to bruise. Oh sure – you get a blast of sweetness but there really isn’t much of a flavor there, especially when you compare it to pretty much any other apple. While people do eat with their eyes, at some point what they’re eating gets to their mouth and the food needs to deliver on the promise made by how it looks. That’s true of any product or service. Nice packaging, wonderful design, or a fancy sales brochure may attract a large consumer base but if what’s delivered doesn’t fulfill the promise made, it will be one and done. Either you’re solving the customer’s problem and providing superior value or you’re not, and it doesn’t matter how pretty you are.

Don’t be the Red Delicious of your business sector. It may be nice to be number one (and it’s probably pretty profitable for a while), but over time, it’s unsustainable if all you are is pretty. Substance matters, don’t you think?

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