A Sustainable Competitive Advantage

In sports and in business, the only surefire way to always beat the competition is to develop a sustainable competitive advantage … and keep raising the bar to widen that advantage. That way, even if your closest competitor improves, you will still be steps ahead.

In the restaurant business, there are basically two winning strategies: offer the lowest menu prices (at the expense of food quality) or offer the highest food quality (at a higher price).

Businesses that try to compete somewhere in between (not the best, not the cheapest) have a tough time because they lack a sustainable competitive advantage … which makes them vulnerable to competitors on both ends of the price-quality spectrum.

Now, chains typically compete on price, given their size-driven “buying power” advantages over smaller competitors. In the process, their food ingredient quality often takes a back seat to their goal of reducing food costs.

On the other hand, most Independent restaurants recognize that they cannot afford to compete against the chains on price (chains have purchasing power), so they instead focus on competing where they have a clear advantage: providing consistently superior food and service.

It is one thing to offer food that is better than the chains. But there is reason to believe that an increasing number of quality-oriented consumers are no longer content with “better than chain” food quality. Instead, they are seeking restaurant meals which are exceptionally memorable (“best of the best”) across all price ranges.

I recently read an article in Bloomberg Businessweek magazine, which confirmed these observations.

Bloomberg says that for the first time in years, the Independent restaurant segment is growing faster than national restaurant chains. Why is this happening? A growing number of consumers, especially millennials, are seeking more flavorful, premium quality foods when eating out. The article also says that restaurant-comparison websites like Yelp are fueling this trend.

It does not surprise me that Yelp has helped raise consumers’ quality expectations. After all, when my millennial-aged sons, Kyle and Joey, and their friends are deciding where to eat out, if they have a local favorite, that is where they go. However, if they are in the mood to try something new, they pull out their smartphones and begin comparing which nearby places have earned the highest customer ratings!

In my opinion, restaurant-comparison websites seem to have greatly accelerated how quickly restaurant customers can spread “word of mouth” about their favorite restaurants. In turn, this has made it faster and easier for quality-oriented patrons to find and try restaurants with “above average” customer feedback.

Think about it. Back before the internet, a newly opened restaurant making consistently superior food from the best quality ingredients might have to wait several months or maybe even years to accumulate enough positive word of mouth to finally achieve financial success.

But thanks to websites like Yelp, restaurant customers can now instantly share word of mouth recommendations with hundreds of their peers.

Because consumers like my sons and their friends tend to choose places to try where customer feedback is highest, they have grown accustomed to enjoying great food most of the time. As their palates have grown more sophisticated, so have their expectations for high quality restaurant food.

What does all this mean for restaurateurs?

1) Superior food quality is more important than ever to a growing number of consumers. Thanks to Yelp and other websites, the quality expectations of many restaurant patrons continue to climb.

2) Independent restaurants are upping their game. In recent years, I have noticed a heightened focus on exceptional food quality among more and more restaurants (established and newcomers) around the country.

3) Restaurants not interested in getting better risk falling behind. Like I mentioned at the beginning, the only way to reliably remain in front of improving competitors is to stay one step ahead.

Most restaurateurs I know have mixed emotions about websites like Yelp – some appreciate them, while others despise them. Whether you like them or hate them, it is hard to deny that they have made it faster and easier for quality-oriented patrons to share their opinions about restaurants and to efficiently seek out quality dining options.

The end result is that a growing number of patrons now have higher quality expectations … and restaurants that keep getting better are enjoying the benefits!