Restaurant operators warned against discounting

By Stefan Chomka

- Last updated on GMT

Related tags: Value

Restaurant operators warned against discounting
Restaurant operators have warned against the dangers of using two-for-one deals to stimulate the market and predicted that overuse of the practice could be damaging for the industry as a whole

Speaking at Allegra Strategies’s​ Restaurant Leader Summit last month, Luke Johnson, chairman of private equity firm Risk Capital Partners​, said deep discounting and buy-one-get-one-free (BOGOF) deals, which have grown in popularity during the recession, would not necessarily lead to success.

“If you get trapped into a vicious cycle of offering more for less and cutting corners then you will be in trouble,” he said. “I suggest the industry does not get carried away with discounting as we will all be losers. We need to be intelligent about how we structure our offers and how we use them and not do two-for-one the whole time. This will devalue the experience of eating out and lead to companies going bust.”

Operators also warned that BOGOFs were not a silver bullet to raising sales. “If you have a competitive advantage then discounting makes sense. But it can often become a drug which is hard to get off,” said Mark Phillips, chief executive of Paramount Holdings​. “It’s easy to convince ourselves that every new person through the door is new money but what about the people who would have come anyway and you’ve now given 50 per cent off to?”

Tom Peck, head of consumer insight at McDonald’s UK​, added that BOGOFs did not work for the fast food chain. “Several years ago in the bad old days we did a lot of discounting and found it was terrible. People who would normally turn up anyway got a discount.”

McDonald’s now encouraged footfall by providing value for money, Peck said. “Telling people what they should expect to pay is three times more motivating than using the word ‘free’. It’s about not surprising the customer with price.”

Related topics: Trends & Reports

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