Looking at ways to limit traffic declinesLooking at ways to limit traffic declines

Mark Brandau

When the worst of the recession hit the restaurant industry in 2009, consumers became more discriminatory in their dining-out choices. The largest brands were forced to differentiate and, in some cases, discount aggressively in order to retain as many customers as possible.


Over the past two years, restaurants generally have improved the rate by which they hang on to those consumers, according to the 2011 Leaky Bucket study.


Customers who report that they’re unlikely to return to a restaurant they’ve visited recently can be counted as a “leak” from that brand’s metaphorical bucket, said Arjun Sen, president of Centennial, Colo.-based ZenMango, whose Restaurant Marketing Group division conducts the Leaky Bucket survey annually. 


Chains are getting better at limiting their losses, he said, as the entire industry’s “leak size” — or percentage of lost customers — narrowed to 30 percent in 2011, compared with 32 percent in 2010. The industry’s overall leak size of 36 percent in 2009 was the worst score in the five-year history of the study, and followed its record-low leak size of 29 percent in 2008.


Even though the industry’s leak size is nearly back to 2008 levels, customers continue to look for the best deals and experiences possible at restaurants, Sen said.


“We can’t ever ignore the recent experience the consumers have gone through,” he said. “They’re now more educated than ever, feel more empowered than ever and have choices. The opportunity to seize market share is there, because every customer is looking around and is even looking outside the category.”


The recession “stirred up the big players” and provoked a wave of aggressive discounting, he added, which made consumers attuned to how they can get the best deal and amount of customization possible.


“If I give customers a way to access my brand their way — and that’s what the bigger brands are trying — that’s the key to success for everyone, even the smaller guys,” he said. “Restaurants need to be more one-on-one with them, and with social media you don’t need huge marketing buys, you just need more content.”


Some ads miss mark


Few players felt the pressure of the recession more acutely than the big-three pizza chains and bar-and-grill brands, Sen said. Their discounting and media spending over the past few years were notable, but may not have significantly affected leak scores.


“The big brands are rolling up their sleeves and saying, ‘We don’t want these little guys defining the category,’” Sen said. “They had been repackaging old ideas, and now they’re trying to do new things.”


In the bar-and-grill category, Chili’s, Applebee’s and T.G.I. Friday’s had been locked in a promotion battle, shouting for their $20 dinner combos and discounted “bottomless” lunches to be heard above the others.


Sen pointed out, however, that Friday’s showed the most consistent improvements in its leak score — narrowing it to 23 percent in 2011 from 27 percent a year earlier and 33 percent the year prior — even though it started shifting promotional focus from price points back to food earlier than its competitors did. While Chili’s and Applebee’s received much of casual dining’s attention the past few years for the “$20 Dinner for Two” and “2 for $20” deals, respectively, the former’s leak score went from 31 percent in 2009 to 29 percent in 2010 and 26 percent in 2011, and the latter’s score started at 29 percent in 2009, rose to 32 percent in 2010 and fell back to 29 percent this year. 


All three brands had smaller leaks in 2011 than the bar-and-grill category average of 31 percent, Sen added, but Friday’s has momentum to follow up on trial with a food message.


The pizza sector was just as price competitive, with $10 large pies becoming the de facto offer in the same way that $5 foot-longs defined sandwich chains and a $20 bundled dinner dominated casual-dining advertising, Sen said. Also, Domino’s Pizza famously rode its “Pizza Turnaround” documentary and commercials to positive same-store sales in every quarter of 2010.


But for all its buzz and increased traffic, Domino’s did not significantly reduce the percentage of customers who say they’re unlikely to return. Its 2011 leak size was 32 percent, the same as 2010’s score and higher than 2009’s score of 31 percent.


“Of course, Domino’s had a great campaign, and it’s a big deal,” Sen said. “Pizza is a category where once you build awareness, you get trial. For repeat business, though, it’s all about the customer experience, and if the leak size has gone up with increased trial, I’d be worried. Any time you set an expectation, especially in these high-volume categories, consumers need to feel the difference.”


Pizza Hut, which neutralized discount marketing somewhat with a simplified price structure last year, had a 22-percent leak. Papa John’s, which rarely strays from its “better ingredients, better pizza” messaging in commercials, scored a 27-percent leak.


Sen said he was not trying to disparage Domino’s gains in traffic and sales — he was reiterating that Domino’s work has only just begun, as now the chain has to follow up on all that trial. Viewing the Leaky Bucket study as a measurement of the gap between expectations and fulfillment, Sen noted that scores would never reach zero for any brand.


“We’ll always see [that] 15 percent to 20 percent of customers will be unhappy for some reason, but the rest is based on trends and the category,” he said.


Inside the four walls


Fulfilling expectations happens with customer service, Sen said. The steak, Mexican and seafood categories had the biggest improvements in leak size compared with last year — 6 percent, 5 percent and 5 percent, respectively — and brands leading those categories like Outback Steakhouse, Chipotle and Red Lobster have publicized plans for internal improvements, namely remodels or new prototypes.


“I think these big guys are realizing that we have gone through a survival phase, and now it’s the consolidation phase,” he said. “There are two ways to do that. One is to go outside the restaurant and promise better quality or value, which is what Domino’s is doing. The second is to go inside and make the experience more robust.”


The larger trend of brands remodeling their existing restaurant bases speaks to the latter approach, he added. Quick-service bellwethers like McDonald’s and Wendy’s and casual-dining stalwarts like Outback Steakhouse, Olive Garden and Red Lobster all have been public about plans to upgrade and refresh their restaurant properties rather than grow unit counts at the prerecession breakneck pace seen throughout the industry.


For instance, Olive Garden, which improved its leak score from 27 percent in 2009 to 26 percent last year and 24 percent this year, recently announced it would refurbish as many as 400 locations over the coming years.


“There was nothing wrong with Olive Garden, for instance,” Sen said. “But after the last ones were built 10 to 15 years ago, the world has changed with the onset of these fast casuals. The concept of the modern, up-to-date restaurant is evolving. Now they’re focusing on the internal experience, consolidating and getting the leak size down. Trial is always important; if you lose 22 percent of the people every year, you’ll need trial to make up for it.”


Contact Mark Brandau at [email protected].