Opportunity Can Arrive as an Unsolveable Problem!

Fortunately, back in 2003, the Hard Times Dino described in this column were relatively brief. But his observations about how to successfully navigate them are equally true today!

Main Street continues to face competitive business pressures. So what’s going on? I feel somewhat competent to respond.

A. Good Times – In every boom cycle in every industry, Good Times lead to capacity over-expansion because of the participants’ over-optimism. The restaurant industry is no different. Usually, this over-expansion is accelerated by those with access to capital (big public companies) and those whose “strategic” view consists of projecting the present into the future.

B. Reality Times – But, other than Jack’s beanstalk, nothing grows to the sky. So when reality intrudes and sales go down, the whole industry bears the consequences of those who over-expanded. In foodservice, that’s sometimes called “too many seats for too few fannies!”

C. Hard Times – Invariably when dollar revenues go down, over-expanders react to Hard Times in two predictable ways: a. They try to increase their share of a shrinking market via “special deal” pricing, or…b. They start “cutting costs” (cutting product quality/ customer service) to bolster shrinking bottom line profit.

Over the past 12 months, the restaurant industry has been in the Hard Times part of the cycle, which many restaurateurs look upon as an unsolvable problem. While Good Times are more fun than Hard Times, I suggest that it is within Hard Times that opportunity can be found! Here’s why:

In Good Times, because everything is growing (counts/sales/profits), restaurateurs can afford to ignore the fundamental “value proposition” they offer. That is, what are the reasons customers choose a particular restaurant over its competitors? However, in Hard Times, customers are much more discriminating and quickly migrate away from restaurants failing to meet their perception of “value.” So for Independent operators, the question is: “What value do I provide customers better than my competitors?”

You may be surprised that comparative price is just one element of most customers’ perception of value. In Hard Times, some restaurateurs mistakenly conclude they must compete with the lowest price rather than with demonstrably superior food and better service. But in fact, the disguised opportunity Hard Times brings is found by looking through the customers’ eyes. Here is what current research shows they want.

1. Demonstrably better food quality. Demonstrable means what I can see, smell, and taste.2. Personalized, prompt service. Personalized means I am not taken for granted.3. Consistency of food quality and personalized service. Consistency means I can rely on a positive experience every time.4. A price reflecting good value. Good value is not the cheapest price; it is getting more value than the price I pay.

About now, if you are ready to argue that some customers do not value the first three above and just want the cheapest price, I agree with you! But, they are in the minority, and you are better off letting those customers go to your cheap-price competitors and make them broke!

Why? Because any restaurant trying to compete with the cheapest price is forced to cut costs (by cutting food/service quality), and that is not what most customers want! There is an old saying that “You can’t make a silk purse from a sow’s ear,” and it is just as true today! So why try to attract the relatively small customer segment focused solely on “sow’s ear” prices, and thereby alienate the larger segment looking for “silk purse” quality and service?!

Summary: In the pizza/Italian food category, the disguised opportunity for Independents (and hands-on Regionals) is that most National Chains (and some Regionals) are fighting Hard Times with sow’s ear pricing, which is a losing strategy! In many cases, they choose to compete with cheap prices because they cannot consistently provide superior food quality/personalized service!

However, if you invest the significant work and commitment to provide demonstrably superior food and service, you have the value proposition most customers want, without needing the cheapest price! In sticking to that proven proposition, you ensure your business will be there to enjoy Good Times when they return!