VALUE must transition in 2011

Value is much bigger than a $1 Hamburger, a $0.59 Taco, or a $5 Footlong. During the financial crises, we've seen many restaurants clamor to offer the next great discount. Not without some turmoil though. As companies come up with bottom basement pricing to compete, franchisees have to squeeze their margins. Burger King fought off their franchisees who claimed they were losing money on the double cheese burger. Finally they compromised and eliminated a slice of cheese to satisfy the franchisees. Do you think they lost customers when they changed it to one slice of cheese? Would they have lost customers to McD if they would have raised the price $0.10 or $0.20?  I doubt it, but no one knows, thus fear dictates the rules. What about cutting the cost of the product?  This is a dangerous game too.  Customers are savvy to this tactic and suspicious sometimes when its not even true. Taco Bell recently was sued with allegations of using large amounts of filler in their beef to keep the prices low. The company defended itself by posting ads that share they use 88% USDA-inspected beef in all their meat. The remaining 12% is seasoning. They most likely didn't change anything, but once they offered a $0.59 taco, people got suspicious. Steak n Shake is also battling with Franchisees about pricing. In the pricing wars, there can only be so many winners. Many franchisees live off small margins so unless their traffic gain is significant, squeezing their margins means certain death. A little communication could go along ways. What if each company had a strong panel of franchisees that they actually listened to to help them with Value decisions?  What if they worked together to widen the definition of Value beyond pricing?

Subway made a huge splash by re-inventing Value with its $5 Footlong. They successfully refocused a new value equation away from the dollar menu. This was a big achievement and began a revolution across America with casual brands following suit and beginning their own $5 offers. This was surely welcomed by the franchisees, right? Not by everyone. Any decision made by a company and forced on its franchisees, will come with unrest. Many Subway franchisees felt they ran the promotions too long and kept too many at $5 after the promotions ended. What if the burger giants or Subway would have offered a .25 break in royalties during these promotions. That way, neither win unless a significant increase in traffic is realized, putting everyone on the same page. Company's must learn to work side by side with their franchisees. Maybe it's not done with royalties, but it must be done with better communication.

Lets look at the movie, "You've got mail". Meg Ryan's charm wasn't enough to battle the pricing discounts of Fox Books. Perhaps her prices were set a touch too high for her customers to recognize the Value she was offering. Perhaps if she set up meetings with her book whole sellers, she could have convinced them to lower her costs, helping her remain in business and likewise protecting their sales stream to her. After all, when she closed, they lost a customer too. Of course, none of those story lines would fit in the movie.

How does the local baker use these thoughts to stay in business when the grocery giants have their own bakeries that are often more convenient. Rather than allow themselves to be squeezed out of business, many sell their bread line directly to the Grocery under their own label, introducing their brand to more people than ever before. They sell it for a whole sale price and let the volume gain justify the profitability. The second piece to this scenario is the experience the baker offers. The large grocery competes through convenience and price, but rarely can achieve the same level of charm as the local baker. Customer interaction and focused service are the ingredients the savvy small business owner has available in their back pocket. While some independents only see the stress, many successful small business owners love what they do and demonstrate that love every day to their loyal customers. Combine this, with the value of adding their brand to the grocery line up, and they win by having more people tasting their great bread than ever before. 

During the last few years, as the economy has been felt directly or indirectly by all of us, the Value of a buck has become more and more relevant. Two things have happened. Either people are cutting back on frequency of visits or dollars spent per visit. What can we learn from the baker? While many consumers still define Value by price and make decisions accordingly, many others define it by the overall EXPERIENCE!  If a consumer is going out to eat less, they are also choosing more wisely. Mediocre food & tolerable service will not get their repeat business regardless of price. Restaurants that offer reasonably priced high quality food with exceptional service will be chosen over and over. Value must transform once again to the Experience!!

Thousands of new restaurants were built in the US in 2010. Despite this fact, we still lost 5,551 total restaurants from 2009, with independents taking the biggest hit.  In fact, Fast Casual was the only segment to show gains with an increase in restaurants of 2%.  Its a balancing act to keep your customers engaged. We will all have to work hard to reverse the trend for 2011. I'm up for the challenge, how about you?