As Costs Rise, Value Key to Driving Traffic

Falling gas prices and recent news of the Canadian Dairy Commission’s move to reduce prices by 1.8% starting March 1 could be good news for restaurant operators struggling with rising commodity prices and a sluggish economy.

But with prices on staples like beef and coffee expected to continue to rise this year, Canadian restaurant operators should continue to focus on providing consumers with the value they’re searching for when dining away from home.

In the most recent Canadian update to Technomic’s Consumer Brand Metrics program, two-thirds of consumers said they noticed price increases at restaurants; these were generally attributed to rising costs of commodities.

Price increases can be tough on all foodservice operators, but particularly for concepts at the lower end of the full-service segment, whose consumers say they would visit these restaurants less often in the event of price increases. Limited-service restaurants are poised to benefit from consumers trading down from family-style and casual-dining restaurants that raise prices, the report found.

These restaurant operators that fall between fast food and fine dining can benefit from increasing consumers’ perception of value. Just as higher prices can deliver blows to all segments, value is a key driver for all restaurants regardless of the segment.

Deep discounts and promotions such as half-price offers and buy-one-get-one deals are big influencers to consumers’ decision to choose one restaurant over another, but a majority of consumers (53%) agree that loyalty and reward programs also play a role. Fortunately for operators, loyalty programs also provide insights into what frequent diners are ordering and what promotions they’re swayed by.

Consumers have been hesitant to participate in rewards programs through full-service restaurants (with participation hovering between 3% and 8%), while rates at fast-food restaurants (16%) and coffee cafés (23%) are much higher, especially among Millennials. Despite current participation, consumers of all ages are interested in these programs, especially at their favourite restaurants, and say they would be more likely to visit restaurants that offered these programs.

At full-service restaurants, consumers said they were most interested in programs that offered a discount at each visit, a reward on their birthday, a free item after a certain number of purchases and points earned based on dollars spent.

There are also aspects of these programs that would keep consumers from joining, especially if the program is more of a hassle to join than the perceived payoff. The biggest factors causing consumers to decline to participate are related to the cost to do so: Paying to join or prepaying to add value to a loyalty card were the top two reasons. Consumers also must be assured their contact information won’t be shared and they won’t be bombarded with irrelevant messages.

Loyalty programs can go a long way to build relationships with core consumers and are a way for casual-dining and family-style restaurants to continue to provide a value and drive traffic to their restaurants, even as their prices and cost of doing business increase.

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Darren Tristano

Darren Tristano is President of Technomic Inc. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations.

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