Value creation/low cost

By Merlin Hernandez

The restaurant industry is one with low barriers to entry but new ventures often have a short lifespan. The effects of the recession saw strong contraction in the business especially for mid-range independent operators. As the economy slowly improves, the performance of the restaurant industry is on the rise and it is expected to outpace the national economy in terms of growth. Research shows that the low-cost fast food sector is proving to be the most resilient to economic fluctuations and has risen in importance as both the model and menu of choice.

Healthier fast foods are emerging ahead of eat-in restaurants as a feature of value, price and convenience. Food trucks have added a new dimension to the fast food trend offering revised traditional fare, salads, and fresh fruit smoothies, as well as more natural ethnic food for a different healthy eating experience. These trends are likely to continue as long as prices remain at the lower end of the scale.

The luxury end of the trade has demonstrated some immunity to economic contraction but consumers in that sector are abandoning conspicuous consumption to place a stronger emphasis on more esoteric value. Value is described as relevancy and engagement in response to long term need. Current trends show that nutrition, healthy meals, local sourcing of fresh ingredients, and environmental sustainability have become top trends. This points to strong value added strategies and deeper customer relationships as critical in the current restaurant trade.

But the fastest track to revenue growth remains low-cost volume business. Rather than eliminating high-priced fare, some restaurant owners at the higher end are opening separate, lower-cost outlets inside their high-end eateries. This straddles different income ranges to widen the business platform and target fast turnover at lower prices. Survival is translated as maintaining optimum business volumes for greater profitability. It is a diversification strategy that allows the integration of two distinct business units operating out of the same premises at no additional fixed costs. The business benefits from economies of scale in expanded output that will bring higher margins.

In terms of marketing, the National Restaurant Association reports that social media savvy consumers patronize restaurants more frequently than the general restaurant consumer. Social media outlets like Facebook and Twitter are becoming major marketing channels for restaurants along with the increased use of brand memberships and discount coupons to build customer loyalty.