Wednesday, July 15th, 2009...12:06 pm
Deep Discounts Deep Six Dozens
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An article in today’s Wall Street Journal titled, Restaurants Burned by Deep Discounts, said in part, “as several chains prepare to report second quarter earnings in coming weeks, Wall Street is bracing for news that price cuts not only ate into profits but failed to bring in as many customers as hoped. There was an 8% decline at Pizza Hut, which has been offering discounts for online pizza orders and other deals. ”We’ve been hearing from a lot of restaurant management teams that discounting wasn’t driving the traffic they hoped for,” said Jeffrey Bernstein, an analyst at Barclays Capital.
When Darden Restaurants Inc. reported earnings last month, the owner of Red Lobster, Olive Garden and The Capital Grille said it avoided the kinds of discounts and giveaways that many of its peers were engaging in. ”We don’t know that a lot of folks who did discounting got much for it from a traffic perspective,” Darden Chief Executive Clarence Otis then said.
Some chains have tried to turn up the heat in the price wars but have failed to win over franchisees, who see the discounts hurting their profit margins. Burger King Holdings Inc. wanted to sell its double cheeseburger nationally for $1 for a four-month period, but franchisees last Wednesday voted down the proposal. Prices vary by city, but at a Chicago Burger King, the double cheeseburger sells for $2.69. The chain instead proposed offering the $1 offer for just six weeks, but franchisees on Friday rejected that idea, too.”
I’ve been talking to a lot of groups recently struggling to be profitable. Most often, they have devalued their own products so much that they have no one else to blame. I applaud Burger King franchisees who voted down the proposed to charge about 1/3 of what the product should cost.
Look, instead of trying to find how low you can go and hoping for customers to beat a path to your door, try to find how high is up. Yes, it’s contrary to everything your competitors are doing and one that is bound to stir some reaction with your employees. But let’s face it, people are still shopping. People are still picking up items and considering them. And yes, people are still buying.
Most of the big chains featured in the article have no creativity or eye on the financials or they wouldn’t be struggling to be profitable. You want to put more money in your pocket? Stop finding ways to market like Santa Claus and giving away your profit through discounts.
4 Comments
July 15th, 2009 at 4:31 pm
If theses restaurants have followed the fortunes of all the retailers who’ve ventured out onto the slippery slope of deep discounting, they’re smart to turn away from that approach. Better to earn business the old fashioned way, by offering outstanding value and a memorable experience, than start down the path of never-ending margin erosion.
July 16th, 2009 at 9:34 pm
The funny thing about this article is the egos of the people running these chains. No one is staying away from Pizza Hut or Burger King because their prices are too high.
They’re staying away because of problems in either A) quality of food or B) quality of experience.
Besides, discounting never wins you fans. Bargain hunters have no loyalty to any store – only to the best price.
The people behind these campaigns should be fired immediately since they obviously have o clue what drives their business, or what drives business in general.
The only pricing issue that matters is whether or not the Actual Price of your product matches the Perceived Worth a customer has of it.
July 18th, 2009 at 10:03 am
It may be a question of value. What you pay. What you get. If someone is deep discounting, there’s a good chance that either someone else has a great value, or that the value equation for the product/offering wasn’t strong in the first place.
July 18th, 2009 at 8:42 pm
This is true in any industry!!
I am a pet groomer and have a small dog boutique, my prices are what I want to charge.
Another groomer opened up and was $10 cheaper then me, she lasted till the next ‘cheapest groomer on the block’ opened up, then someone else opened and undercut her prices…the cycle continues.
Now I am four times the cost of my competitor. I gave her a ring because we are overflowing with clientelle and cannot handle them in a timely manner and wanted to know if I could offer her name. She said she has NO bookings all week and business is dead, even with her low prices (we are booked for 4 weeks in advance and 80% till mid Sept.). She wanted to know WHY we are doing so well. #1 We are good, I know we are good, our goal is to be pickier then my pickiest client. #2 We love Bob Phibbs and read his blog and listen to his advice and offer AWESOME customer service #3 When people call to price check we tell them the same line; ‘We charge what we are worth!’ No one questions this, about 90% of people do book. We also sell our services and advise they prebook all future appointments to avoid having to wait for an appointment. Nearly all do.
A wise person told me, ‘You can be the BEST or the CHEAPEST’…I chose BEST:)
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