The American hospitality industry is making a comeback, according to statistics compiled by accounting and consulting firm J.H. Cohn in New York. Total food and beverage sales have increased in 18 of the past 22 months, hitting a record high in October. Still, many small restaurateurs and other retailers are still struggling, says Ray Coen, an independent Los Angeles business consultant who has advised purveyors and restaurant owners for 30 years.
In general, Coen says, positioning and pricing work much better than the discounting through deal websites that became so popular in recent years. He spoke recently with Smart Answers columnist Karen E. Klein; edited excerpts of their conversation follow.
Karen E. Klein: You’re not a fan of the coupon-and-discount trend. Why did it catch on?
Ray Coen: A lot of restaurant owners and small retailers were hurt hard by the recession. Lacking the skills to come up with imaginative ideas or attractive products to increase revenue, they relied on the coupons and discounts to build traffic.
The problem is that discounting of any type brings in three kinds of customers. One is there strictly for the discount and will not develop any loyalty to your business because they only go to places where there is a discount offered. The next group, probably the largest, is your current customers. They may increase business because they’re accelerating their visits when you’re offering a discount, but after a few visits they’ll wonder why they ever pay full price—and they’ll only come in when you have a discount.
What’s the third group?
They consist of new visitors who are introduced to your business by the discount offer, but unfortunately they’re usually too few in number to make up for the harm done.
If they don’t use coupons, how do your clients make a go of their businesses?
They have to offer such good food, such novel concepts, or such great service that people come in because they want a great experience. It’s hard because many people don’t have the flair or the imagination to do that. I recommend that smaller operators look at their more successful peers and get some ideas from them.
What are some of the ideas your clients have tried this year that worked?
One of my clients has a solid, very affordable menu but didn’t have much new going on. He was worried about introducing a lot of higher-priced items because he didn’t want to reposition his entire establishment during a recession and lose business.
Our solution was to create a new line of somewhat upscale products, presented as a menu-within-the-menu. They are higher-priced but we deliver a strong rationale for the quality. We also branded the new items, in a sense isolating them from the rest of the menu. It turned out to be a big success and the rest of the menu continued to do O.K. because new customers discovered the restaurant for the first time.
The bargain of 2011 was the work one team did just redesigning a client’s menu; it gave a lift to the entire operation. In another case, we made the point-of-purchase materials more attractive and that generated added sales.
What advice have you found yourself handing out this year?
One thing that I’ve seen that is fatal is restaurant owners who let deferred maintenance build up in the front of the house. They don’t see the cracks in the windows or the tears in the vinyl seats because they’re there every day. So I take them on a visit to their competitors. When they walk back into their own stores, oh my. They notice the shabbiness right away.
The public goes out to eat to escape hard times. They instinctively feel bad when there is greasy dirt on the window sills or the staff uniforms are worn. The staff feels it, too, and inadvertently communicates it to the clientele.
What can business owners do if they are on a tight budget and can’t afford an upgrade?
You have to do something. It may be a simple paint job. For one of my clients, we just replaced the worn historical pictures on the walls with Hawaiian framed fabrics and it brightened up the place.
What about advertising, which is so important to small restaurants and retailers?
One of the side benefits of the recession is that many good advertising and marketing people have become early retirees and they’re looking for consulting work. You can find good graphic artists and good ad copywriters and research talent for much less and you don’t have to compromise on quality.
I’ve been doing really inexpensive television commercials for some of my clients by going to people who, in their agency days, would have been very expensive. I hired a new ad agency to produce a commercial that cost $7,500 and won an industry award. If I’d gone to one of their established competitors, that ad could have cost up to $200,000.
The other thing is to build a media plan on a mix of Internet and traditional media. A lot of my younger clients insist that Facebook is the only way to go—and sometimes it is. But don’t walk away totally from other good media buy, unless you look carefully at your customers and find that social media is the only way to reach them. For most companies, there’s a mix of old and new that works pretty well.