Be like Amazon to win the 'Great Restaurant Market Share War'
By Eli Portnoy, co-founder and CEO, Sense360
In 2017, the quick serve and fast casual restaurant spaces experienced significant friction and declining growth. There are several reasons for this harsh environment: oversaturation, the onslaught of new concepts, a weary consumer, the rise of home delivery kits, falling grocery prices and the proliferation of delivery options.
Even with all of these headwinds and essentially non-existent market growth, several major chains had phenomenal years. McDonald's, Chick-fil-A and Panera Bread each grew their market share by at least five basis points. What this clearly means is that we are in a new environment; a market share war where growth for a brand is still possible, but to do so means that every new visit must come at the expense of someone else. This is the state of the restaurant industry in 2017, where there are clear winners and losers.
This begs the questions:
- How should multi-unit restaurants operate in such a harsh environment?
- What should CEO's focus on?
- What should CMO's spend their money on?
- How does one succeed in a highly competitive industry where the margin for error is none?
- Where your competitor is trying to win by taking your customers and your only chance of survival and growth is to take theirs?
One unholy answer sure to end in ultimate value-destruction is a price war. Sure, consumers will react to price in the short-term, but according to Sense360 data, people who state they go to restaurants because of price or promotion provide a Net Promoter Score rating five points lower than those who come for any other reason.
The reality is that there is no quick answer. There is no single way to drive incremental and long-lasting growth in a market share war. There is a solution, but it requires hard work and persistence.
Be like Amazon; start optimizing now
The only way for restaurants to grow is to optimize every single aspect of their businesses. Optimization, by definition, is incremental and iterative. It means quickly diagnosing, testing and reacting. It means cutting what is not working and doubling down on what is.
This is the Amazon secret (full disclosure: they are my former employer). It constantly changes its website, it changes pricing on a minute-by-minute basis and rolls out new initiatives. But this only works because they measure everything they do and can quickly diagnose what is working and what is not. Its entire business is built on quick optimization, which works because the company measures everything it does both in terms of its effect on its own business and competitors.
Restaurants in 2017, need to fully learn the Amazon model. They need to start by measuring everything, diagnosing what's working versus what's not, and using that information to make faster and quicker decisions. They need to iterate, and ultimately optimize every aspect of their business, including their positioning, marketing, promotions, LTOs, menu, local markets and customer experience.
This sounds great in theory, and many smart restaurant executives have wanted to implement such an approach. But the reality is that restaurants have been at a massive disadvantage because it has been historically impossible to measure even basic aspects of the restaurant business with anything more than national level views on a monthly basis and with weeks, if not months of delay. While Amazon can easily scrape a competitor's website, the only real way a restaurant had to measure its consumers and position in the market was to rely on surveys. Surveys are great research and planning tools, but they are too slow and costly measure even broad aspects of the restaurant business with the quickness and granularity needed to use this data for optimization.
Fortunately for restaurant operators, technology is evolving and improving allowing restaurants access to useful data. It is now finally possible to capture data at a level of granularity and speed that allows restaurant operators to understand their market share on a daily basis, to understand the impact of a promotion, to measure which competitor is taking their share, to fully appreciate the impact of a competitors tactic, and to understand which local markets are trending down and why. The data is becoming a reality thanks to the emergence of behavioral data - data that comes from observing and tracking consumers rather than asking them to reply to surveys.
The data to fully diagnose, optimize and measure the restaurant business is finally here. This on its own is not a magic bullet, but if restaurants take advantage of this new capability to implement a culture of measurement and optimization, not only will they survive the tepid market and harsh war for visits, but they will iterate and optimize their way to growth and success.