Behind the daily headlines of high deficits, high unemployment, high gas prices and low consumer confidence, owners and managers are facing uncertainty at every turn. Competition, regulation, legislation and operating costs are on the rise. Guest counts and check averages too often are in decline.
In challenging climates, the first instinct for many bar, nightclub and restaurant operators is to start looking for places to cut. Beware this temptation! Never in my professional career have I seen a business that successfully has cut and carved its way to increased sales and profits. As a southern friend of mine is fond of saying, “You can’t starve a pig for profit.”
In fact, in difficult times, consumers’ dollars become more precious and expectations actually go up. With elevated guest expectations colliding with reduced drinking and dining occasions, tempting patrons to choose your establishment when they do decide to go out has become even more crucial. This is a dangerous environment in which to start slashing away at your business. The question is: How do you get customers choose your venue while still protecting your profits? First, understand what your clientele values.
In mid-2008, I became aware of a restaurateur who had decided to start putting a single slice of cheese on his famous double cheeseburgers. He did so in an effort to keep the burgers “value-priced” and still make his margin. As you can imagine — to real double-cheeseburger lovers — one slice of cheese does NOT a double cheeseburger make. The hardcore double-cheeseburger lovers (who purchased about 80% of his double-cheeseburgers) started buying their burgers elsewhere. Even though the economy is turning back around, his competitor now owns many of his most devoted customers. The moral of the story: Determine and deliver what your core customers truly value. Although some customers value low prices, in this example, the devoted double-cheeseburger lovers valued cheese (and were willing to pay for it). In a misguided effort to deliver what he believed his customers expected, the operator actually diminished the value of his product in the eyes of his most important guests!
To ensure you’re not losing customers in this fashion and position yourself to steal market share when your competitors make these types of mistakes, you must recognize that “value” has many meanings. To most patrons, value does not simply mean price. In fact, most people would rather buy “awesome” than settle for “cheap.”
Be aware that most consumers determine value (and, therefore, make choices) based on one or a combination of a few different value propositions:
• Cheaper prices. Many operators look first at price in an effort to attract or keep customers. This is a dangerous place to be. First, price is not defensible: Someone will always be willing to sell similar products for a couple of nickels less. That kind of competition is a race to bankruptcy and diminishes the value of your brand and experience. Second, it is impossible to win sales and profits with this line of thinking. As you cut prices, your food, beverage and labor costs are still on the rise. The only area that really gets cut is your profit margin. Third, lowering prices may force you to make cuts in critical, customer-facing areas to keep your business afloat. Cutting back on things like product quality, portions, marketing, training and staffing ultimately will put you at a severe competitive disadvantage with competitors who are investing in these crucial guest-experience elements and can cripple your business now and in the future. Finally, cutting prices attracts low-value customers and teaches good customers bad habits. If you only offer the lowest prices in town, you will attract “commodity consumers” who prioritize price over all else. These low-value customers spend little, tip less and abandon ship as soon as they find a lower price or you decide to raise yours.
• Better quality. Even during tight times, most consumers will tell you that they’d prefer to have the best of something. Rather than switching to cheaper types of food and beverage, many people would prefer to eat and drink well — but less often. These are great customers to have! Offer them high-quality products at fair prices. Stress the quality ingredients and exotic flavors in your signature beverages. Encourage them to connect your brand and experience with status and good taste. One of my clients is pouring premium spirits in her well in an effort to gain high-value, loyal customers. This is a much better idea than cutting prices on drinks; her pour costs may go up, but she avoids the double-whammy hit to her margin because her prices do not go down. Best of all, she is stocking her business with the right type of guest, one that is not constantly shopping for the next cheap drink.
• More volume. An excellent way to keep a hold on your current customers and get the attention of new ones is to do something your competitors don’t, can’t or won’t during tough times. Give people MORE! Create value for your customers by offering a value-added “extra” for the same price. That “something extra” could be bigger portions, stronger drinks, longer hours, better service or enhanced experience. While others are reducing portions, you should serve the biggest, baddest drinks in town. While others are cutting back on scheduling in an effort to reduce labor, make sure you have the quickest, friendliest, best-trained staff in town. Successful bars don’t sell cheap drinks — they sell “awesome”! Awesome drinks. Awesome service. Awesome experiences. Invest your money in this area.
Sit down with your teams (management and front line) and make a detailed, honest list of what your great customers truly value and what is important to them. Then, create a strategy around how you will communicate and deliver those elements. Lastly, determine where your competitors are making cuts and move in to fill those gaps.
For more great ideas, be sure to check out Tim Kirkland’s session, “How to Thrive and Not Just Survive,” on March 12 at 9:30 a.m. during the Nightclub & Bar Convention and Trade Show in Las Vegas. For more information, visit www.ncbshow.com.