Reduce Discounts, Increase Profits
by David Klemt
There’s reason to be optimistic about generating revenue this year but operators must also be savvy if they want to boost their bottom lines.
Put another way, the growth some industry organizations and experts are predicting isn’t just going to occur. We’re optimistic about 2023 as well, but it’s going to take hard work and shrewdness.
As we know now, the National Restaurant Association is forecasting massive sales this year. In fact, the NRA projects the foodservice industry will generate $997 billion in sales. That’s nearly a trillion dollars just from the foodservice space.
Clearly, that’s a big number. It’s also $60 billion more in sales than the industry generated in 2022. That’s impressive in and of itself, surpassing the 2022 sales forecast by almost $40 billion.
Okay, so those are a lot of big numbers. Should foodservice outperform the forecast again, the industry will pass the trillion-dollar mark. And I know every owner and operator, be they independent, chain or franchisee, wants a healthy share.
However, impressive as those numbers are, they’re just that: numbers. Operators will still have to do the work to increase traffic; convert first-timers to repeat guests; and increase revenue. Fail in those tasks and there’s no reason to expect profits to rise.
It’s math, after all, not magic.
One way operators can increase revenue and profits is to offer fewer discounts. Really, this isn’t an incredible concept: If more guests pay full price, operators see more profits.
Real-world Example
Costs are up nearly across the board, and it can be tempting to offer discounts in an attempt to increase traffic. However, one group has shown over the past couple of years that discounts don’t need to be an operator’s go-to traffic- and sales-boosting tactic.
Carrols Restaurant Group is a Burger King franchisee. According to Restaurant Business, the group operates more than 1,000 Burger King restaurants. So, they operate approximately one out of every seven Burger Kings in the US.
Last quarter, Carrols managed to generate more than $14 million in free-flow cash. That’s higher performance than the group has seen in the past couple of years.
A significant factor for Carrols and Burger King is backing off of discounting. Again, this isn’t groundbreaking but it’s still noteworthy. A brand that once was reliant on discounting is now backing off that model and seeing dividends.
Of course, guest perception, the guest experience, and marketing play a role. Guests must still feel they’re getting value for the dollars they spend. They must also feel that their experience, from QSR to full-service, shows that they’re valued by the restaurant. And the marketing messaging must truly speak to a brand’s guest base and bring them through the doors to spend their money.
Premiumization over Discounts
The bottom line for an operator’s bottom line is this: If prices are continually discounted, that lower price is now the actual price. At least, a discounted price is now the normal price in the eyes of guests.
In other words, an operator who discounts all the time is training their guests to only visit and buy items when prices are lower than usual.
The superior option? Offering premium LTOs that speak to a brand’s base and tempt them to spend more. LTOs don’t need to come with discounted prices. In fact, they should be treated as premium promotions and command premium prices.
Create seasonal LTOs (in one concept’s case, inventing a fifth season), as an example, to generate buzz and increase traffic. Offer premium items at premium—but fair—prices to leverage the traffic, increase sales, and boost profits.
Another strategy that’s more effective than discounts? Building a brand with which guests resonate. Guests who relate to a brand tend to visit more often and support it with their dollars.
It’s tempting to discount. Don’t give in to temptation.
Image: Karolina Grabowska on Pexels
