Lane Cardwell

No Wind in the Sales

Sailboats need wind to fill their sails so that they can move across the water.  Restaurants need customers to fill their seats so that their sales can move them toward profitability. I believe, even on a calm day, the sailboats are doing a little better than the restaurants right now. We don't have enough growth in customer traffic to get any momentum going. 

It looked like we got a little sales bump in May as a result of the tax rebate checks.  No one knows the exact number, but it seems that a 1.5% improvement in the industry same store sales trend is most often quoted.  As gas prices increased in June, and consumer sentiment decreased, we gave most of that rebate-fueled sales lift back. We are still in a sales slump that is impacting most industry segments. Anecdotally, it seems that July is not any different than June for a wide number of companies. 

Looking across the industry at the concepts that report their comp store sales as part of being public, or as part of a public company, it is clear that not all industry segments are being hurt at comparable levels. Of the 11 QSR concepts, or companies, that report comp sales, 8 are positive. Yum reports a blended number, and it is positive. Of the 4 reporting pizza concepts, 3 are positive. The coffee and snack segment is seeing customer pullback with all 4 concepts negative. 

Another segment doing better than average is fast casual. With 7 concepts reporting, 5 are positive. In the 8 concepts reporting in the family dining segment, 4 are positive. 

The real carnage is seen in the casual, upscale casual and upscale segments.  Of 36 concepts, or companies, only 10 are showing positive sales comps on their most recent reporting period. Some of the steepest declines in the industry are seen within this segment. From grill and bar, to upscale steak, this is the segment where the customers have chosen to reduce their spending to get their household budgets back in balance. 

Within the casual dining segment there are numerous ways for a customer to cut their monthly spending:

• A reduction in visit frequency
• Not ordering an appetizer or dessert
• None, fewer, or less expensive alcoholic beverages
• A less expensive entree, or splitting a large entree
• Tap water, instead of tea or soft drinks
• A trade down from more expensive, to less expensive concepts

A restaurant has three ways to increase sales, with all three working at cross purposes to each other. The healthiest long term way to raise sales is through increasing customer traffic. This is very tough with these economic conditions. 

The second way to increase sales is through raising prices on existing items. Most of the price increases being taken now are for the purpose of protecting margins, not building sales.  This is a good thing since usually a price increase is accompanied by a traffic decrease, and trade a positive for a negative. Commodity, labor, and energy increases are resulting in some of the largest price hikes in two decades, averaging 3.5%-4% across the industry. 

The third way to increase sales requires the most creativity, and often yields the biggest results. Shifting the menu mix favorably results in a higher check average, without pricing. This can take many forms. New additions to the menu, or limited time offers, can sometimes increase the spending per person. Bundling meals (appetizers, entree, and dessert) can tempt a customer to spend more if there is a clear value being offered. The danger in using menu mix to raise sales is that it can also have a numbing effect on customer traffic. Add too many higher priced items, bundled meals, or LTOs, and the overall effect might be sticker shock. 

At the end of the day, what will work in building sales, or limiting sales declines, is a clear and compelling value proposition that resonates with the customer. Combine that with excellent execution, and you have a fighting chance to get some increased sales in the register. We can't change the wind, but we can adjust our sails.
 
 

Posted by Lane Cardwell on July 31, 2008 | Comments (7)