Commentary

Combat declining traffic by understanding the ailment before determining the remedy

Once you gain an understanding of what causes traffic issues at a specific location, you will be better prepared to create solutions that address the true, underlying problem.

October 19, 2017

By Bob Donofrio, SVP of consulting services, Revenue Management Solutions

Customer traffic is one of the key metrics restaurant operators use to measure success. When traffic is down, many chains turn to new promotions or even consider lowing prices, but will these actions reverse the trend?

Before you take action, first take time to understand the change in traffic and the underlying causes.

Two key steps in deciding how to address traffic issues are to determine if it is a sustained problem or a short-term trend and to determine whether the decrease is caused by internal or external factors.

Step 1: Understand if this is a temporary or a consistent decline.
To determine if your restaurant is experiencing a truly significant traffic problem, monitor your customer traffic regularly to see year-over-year and month-to-month trends. Analyze your restaurant's transaction-level data, and if your restaurant has a loyalty program, take advantage of the data being collected to determine how often various customer segments visit. If you notice consistent declines over consecutive months, that is a red flag and should be addressed.

Are specific customer segments visiting less often than in the past? Are specific dayparts seeing more significant declines? By understanding true frequency, by segment and daypart, restaurant operators will be better prepared to develop a plan to reverse the trend.

Step 2: Determine what is causing the decline.
The next step is to analyze whether the decrease is caused by internal or external factors. Although external factors are not within the control of an operator, it is important to understand the drivers of traffic change in order to develop a strategy to combat the issue.

Here are some examples of external factors and how they can affect traffic:

Changes in customer tastes and dietary demands: With the increasing popularity of diet preferences such as gluten-free or vegan, customers are looking for restaurants that cater to their needs. Consider developing or re-engineering menu items to provide options for these dietary trends.
Competition: Increased competition from non-traditional players such as grab-and-go stores, convenience stores and the emerging grocerant segment is putting pressure on traditional restaurant traffic. These new players offer a mix of variety and convenience. Consider opening new revenue centers like delivery, mobile ordering and curbside service to increase demand.
Health of the economy: Macroeconomic factors such as consumer confidence, disposable income, gas prices and unemployment impact customer frequency and willingness to spend. It is critical to understand how changes in these economic indicators impact your brand. The impact of changes in these key indicators is not uniform, they will impact different restaurant and customer segments in different ways. A deep understanding of the influence of these economic indicators overlaid with forecasted changes, will allow operators to develop a proactive strategy to address potential problems before they impact the brand.
Restricted ease of entry/exit: Store-specific traffic problems can be caused by something as simple as road construction that negatively impacts the ease of entry and exit into the building. Be sure to control for these types of inconveniences when evaluating a traffic problem.
Market cannibalization: The entrance of a new competitor nearby can dramatically affect customer demand and create a fight for market share. Monitor the local trade area for competitor activity and consider adopting a short-term strategy to maintain customers through the trial period.

Alternatively, internal factors within a restaurant operator's control present excellent opportunities to directly address the situation. Some examples of such internal factors include:

Variances in store-specific operational abilities: Evaluate traffic changes at the most granular level. Determine whether traffic declines are similar across all locations, or are specific locations skewing the trend? The best way to look at this is to dissect data by location. If specific locations appear to be outliers, the problems could be related to execution. Issues such as changes in management, missing point-of-purchase material or faulty equipment can lead to lost customers but are also relatively easy to correct. Consider comparing operational evaluations like mystery shops to traffic changes. If correlations are found, additional training in operational excellence and proper merchandising can be used to address the issue.
Menu price changes: Consumer resistance to price change is not homogenous; different locations will respond to price differently based on factors such as demographics and competitive environment. To properly address traffic issues, restaurant operators must understand the impact of price change, as it relates to traffic, at a unit level.

It is also crucial to understand how customers resist price changes. Generally, consumers will manage their total check before changing their frequency. Unprofitable shifts in menu mix and changes in basket size and composition can be lead indicators for future traffic issues. Look for changes in add-on sales like appetizers and desserts as this might indicate that price has reached a "tipping point" in the mind of the consumer. A thorough analysis of transaction level data can provide the necessary information to avert a traffic problem before it materializes.
Changes in how the brand is perceived: Discounts or limited-time offers can erode the quality perception of the brand. Remember that continued discounting does not play well with perceptions. The best approach is a balancing act between communicating the value drivers of your concept and focused marketing initiatives and menu innovation that differentiate your brand and have a proven ability to drive traffic.

Guest count problems can be addressed in many ways. Once you gain an understanding of what causes traffic issues at a specific location, you will be better prepared to create solutions that address the true, underlying problem.

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