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Casual dining restaurant chains refuse to give up deep discounting

By Joe Lutrario , 11-Jan-2012

A review of discounting activity in the casual-dining sector by Restaurant magazine has shown that many restaurant chains who pledged to shake off their old deep discounting habits for the New Year have already fallen off the wagon.

Despite efforts and plans to wean the eating-out public off discounting, 2012 has started with a flurry of meal deals in the casual-dining sector in order to get bums on seats in January.

With a few notable exceptions – including Côte, Jamie’s Italian and Nando’s – the major national restaurant chains are falling back on deal sites, coupons and voucher codes to drive business in a potentially damaging period of the year when consumers’ purse strings are tighter than ever.

“In early 2011, a lot of operators made a real effort to reduce discounting activity with fewer offers available in the first half of the year than the same period in 2010,” says Peter Backman, managing director at industry analyst Horizons.

“However, we can infer the strategy was not successful as the amount of discounts offered in the latter half of the year was greater than 2010 – November especially. This [January] is a bad time of the year to take discounts away from people.”

Hard habit to break

Spanish chain La Tasca announced it would cease to offer vouchers entirely last September, but appears to have fallen off the wagon with a two-for-one voucher at most of its 65 branches in early January alongside a range of other offers, including a £5.95 lunch menu. Pizza Express, which recently announced it was looking to cut discounting activity in 2012, has introduced the idea of a ‘2012 sale’.

The Gondola Holdings-owned chain has dramatically cut the cost of its high GP items, specifically coffee and desserts. Cappuccinos, lattes and teas were all available for 12p during the first week of January, while dough balls with Nutella and a chocolate fudge cupcake with a coffee on the side were slashed to 12p and 20p respectively. The deals represent a discount in the region of 90 per cent.

The sale, which takes its inspiration from the high-street retail sector, has a dual function: it brings people through the door with an impressive mark-down but also serves to introduce customers to new product lines, potentially increasing the likelihood of incremental full-price sales of those products in the future.

These sale items are offered at the same time as a ‘buy one pizza, get another for £2.12 offer’, but the two deals can not be used in tandem. The other major pizza players – Strada, Prezzo and the Gondola-owned ASK and Zizzi – are all currently offering deals that effectively halve the price of mains, as are Café Rouge, Carluccio’s, Las Iguanas and Giraffe.

Discounting dangers

The dangers of discounting for restaurants are clear – specifically addiction for both consumers and operators, loss of margin and the erosion of a consumers’ perception of value – but it looks like the majority of the big players have little choice. “Forced to evaluate our spending, we [consumers] are increasingly savvy, with half of us no longer wanting to pay full price for anything,” says Mintel analyst Alexandra Richmond.

A recent report based on a survey of 3,000 consumers from across the country by accountancy firm Deloitte revealed that 59 per cent of diners use discounts when eating out.

Those aged between 18 and 34 are the most engaged age group, with 67 per cent using vouchers regularly, compared to 58 per cent of 35 to 54-year-olds and 51 per cent of those aged over 55.

However, just a quarter of respondents say they go out more often than they otherwise would as a result of an outlet offering vouchers. And, while almost one in five respondents would stop visiting an outlet if vouchers were no longer provided, the data gives a strong indication the vast majority of the dining public would continue to eat out if vouchers were removed from the equation.

“Vouchers have proved an effective tactic by some operators in encouraging consumers to eat in their outlets, and have risen in popularity since the recession. However, the popularity of some schemes has raised concerns some operators are now reliant on them,” said Jon Lake, corporate finance director for Deloitte’s licensed division.

Horizons’ Backman believes operators aren’t working sufficiently hard to raise spend per head, via incremental sales, on those customers using discounts – drinks in particular. “Restaurants aren’t thinking about it enough. If people are eating discounted food it’s easier to upsell certain product lines, and in this difficult climate it must become standard practice,” he says.

This article first appeared in the January issue of Restaurant magazine, out today. Subscribe here.

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