Industry closes the gap

Over the past year, restaurants have been plugging the holes in their operations to hang on to recession-weary customers, and according to the 2010 Leaky Bucket Study, they have begun to turn the tide.

The overall industry “leak size,” which measures the percentage of customers who say they’re unlikely to return to a particular restaurant, fell from 36 percent in 2009 to 32 percent in 2010, erasing much of the jump from a 29-percent rate in 2008.

But foodservice brands’ work is far from over. While the improvement in customer retention is significant, 48 percent of respondents still reported eating out less often, said Arjun Sen, president of ZenMango, the restaurant marketing firm that conducts the annual study.

While that number doesn’t jibe exactly with restaurant industry traffic patterns, it means that even consumers who still eat out are more aware of their discretionary income, so restaurants must deliver on expectations of service every time, Sen said.

“Any time there are recessionary forces, consumers cut back on the big things but still spend on smaller things to compensate,” he said. “They can’t buy a car, but they can take the family out to a midscale restaurant. In nearly every occasion the restaurant has to be a compellingly better option.”

The Leaky Bucket study was conducted in March among 2,483 consumers who were surveyed about 146 restaurant brands. While many restaurants’ leak scores fell as fewer consumers report a reason not to return, those same customers are aware they can take their dollars elsewhere. According to the survey, 35 percent of respondents began purchasing more food from grocery stores last year, while 25 percent reported opting for a replacement restaurant outside a segment.

“Consumers are choosing from staying in, to [prepared food from] grocery stores, to dining at competing restaurants outside a category,” Sen said. “When they’re coming to a restaurant, they’ve got different expectations than before, and they’ve done their homework.”

Some of the industry’s largest categories improved their leak sizes from a year earlier, due in large part to a reduction in service or price as a reason for leaving a brand, Sen noted. Bakery’s leak size fell from 39 percent to 33 percent, led by a 14-percent decrease from Corner Bakery.

Meanwhile, the burger category fell from 33 percent to 27 percent, stemming from a 4-percent improvement in service leak for the category.

Coffee’s leak size also dropped from 33 percent to 27 percent, powered by Seattle’s Best’s 16-percent overall improvement.

The bar and grill category’s 3-percent drop in overall leak size comprised improvements of 4 percent for service and 3 percent for price, even though food was cited more as a reason for leaks in 2010 than in 2009—30 percent to 25 percent.

To Sen, that denotes a need to focus on customer service when menus and similar promotions, like recent ones built around the $20 price point at Chili’s and Applebee’s, leave a category undifferentiated for consumers.

“If you get somebody in a deal, you could lose that person to a better deal,” Sen said. “Having a two-for-$20 alone isn’t good enough, because I could do two-for-$19, and then somebody would do two-for-$18. You can’t own a price point alone. You need a better experience as well.”

Aggressive pricing also makes customers wary of getting less for their money, he added.

“Consumers are realizing that these deals aren’t coming for free,” Sen said. “They’re apprehensive, thinking that you must be doing something and cutting corners everywhere.”

He suggested enhancing experience perceptions with touches that may cost more from the labor side, like sampling. But short-term pain in labor costs might be necessary for long-term profitability, he said.

“Fight to hold on to this customer,” Sen said. “If they come back, somebody else lost their business.… If I can make the customer win, then the customer will make me win long term.”—[email protected]

2010 excerpt of The Leaky Bucket Study