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Why Discounts Will Slowly Kill Your Restaurant

discounts leadership operations Nov 03, 2020

I like a good deal and I’m sure you do as well.

I have a friend who is like a bloodhound when it came to finding deals! I mean she is obsessed with getting one. I actually don’t think she has paid full retail once. LOL

Deals are everywhere and we think they drive sales and they do for a short amount of time. It’s a lot like the carrot and stick management style. Eventually, the carrot (rewards) needs to become bigger or the staff is not motivated. Conversely, if the stick (punishment) is too severe they abandon ship.

Many a restaurant owner has been left short-staffed from using the carrot and stick management theory. So, if it’s messed up and doesn’t work long term, then why do restaurants still use it? Because it’s what they have seen other restaurants do.

Human beings are great at mimicking. We have this cluster of nerves called “mirror neurons” that make us very good at watching and doing what we see others do. Monkey see monkey do is pretty much spot on.

Modeling behavior is how we formed as a society. If you adapted to the social rules and structure set forth by the collective, you were welcomed into the fold. Don’t follow the pack and you are soon an outcast.

What other outdated methodology exists in the restaurant industry that needs to be dropped beside the old carrot and stick mindset?

How about discounts?

A Good Idea Gone Bad

It started simple enough. A client wanted to give their team some freedom and allow some input to bring in business in the slower evenings.

Now there is nothing wrong with getting input and feedback from your team. Democracy is great for brainstorming and idea generation. It’s just not good when it comes to profitability. When the bottom line has to be justified, then you want to become a dictator and hold the line.

It’s not that your team doesn’t mean well. They just are not real owners of the business and they are looking to protect their tips. Not to be the bearer of bad news here, but, human nature at our core is about self-preservation.

You see a slow night and want to drive in guests. They see a slow night and worry about their tips. One is focused on the brand and the other more about themselves. If you have to reduce your profits so they can make the same tips, then sorry.

That’s if you allow this.

Once again, I believe in a contribution by any team members if the idea doesn’t negatively impact my profits. We work so hard in this industry for little profits. *The average restaurant in the United States makes just 5% profit per year. 

[SIDE NOTE] Members of my coaching and mastermind programs average 15%+ profits per year. 

Don’t give it away just for a few more covers on a slow night.

Training People Like Dogs

There is another downside to discounts that you might not have considered. You are training your guests to come for a discount.

Remember my friend at the beginning who was a discount bloodhound? Well, she is loyal to finding the discount and not the store or brand.

I have seen her switch toilet paper brands over saving a few pennies. Which yogurt brand does she buy? The one with a coupon or discount that week.

When we look at economics we hear a word thrown around called a commodity. These are goods traded for their value at the moment. The value can go up one day and come crashing down the next. Commodities are volatile and unstable. When you start discounting, that is what you become...a commodity.

What do McDonald’s, Burger King, Wendy’s, and Jack-in-the-Box have in common? They are all seen as commodities in their market.

What do Five Guys, Shake Shack, and Chick-fil-A do differently? They don’t play the commodity game like the others.

Now, if Chick-fil-A messes up your order they give you a gift card. They give it to you! They don’t try to lure you in with lower prices and deals. They have a premium product and they know it!

Look at Apple. Have you ever seen a two-for-one deal on a new iPhone?

Never!

Why? Because they have positioned their brand as a premium.

When you lead the market you set the price.

When you suck, the market tells you what they will pay.

That discount you are using might seem harmless. It’s not.

Let's look at a common discounting technique that a lot of restaurant use: The Half-Off Deal.

You are trying to drive sales so you offer "half-off" on appetizers or wine for a Happy Hour Promotion. Let's say you have awesome calamari on your menu for $12. You discount it to $6 for you Happy Hour Promo. Now, you have just started to train your guests that they can get your awesome calamari for $6 during happy hour, so why would they ever feel right paying $12 again? You might not think this is a big deal, but it is because you are training the guests and changing their value perception of your brand. 

So, what can you do instead? Create special items for you Happy Hour Promo! It's not difficult to make a menu that is comprised of totally unique items that are NOT available on our regular menu. Now, you are creating a desire to come in at a time that is beyond their normal time. That's how you drive business to slower times. 

The same can be done for wine features or drink features. Don't discount your regular menu, create signature items that create desire. These items are created with cost in mind so you still make the profits margin you want. All without devaluing your brand.

Discounts are like cocaine and if you offer them in your restaurant, you just became the dealer.

When people (like my friend) become loyal to the discount they go where the best discount is. You might have them coming in this week, but what happens next week when your competition gets wind of your discount and counters with one of their own?

You just lost a loyal guest.

Devaluing Your Brand

I mentioned this concept earlier.

Your brand is more than a logo or your menu. It’s the emotions and feeling you create in delivering your guest experience. Your guest experience is valuable. No one does you, like you!

By getting on the discount wagon you have taken a step towards losing your perceived value in the market. When that goes, it's like watching a retail store have a fire sale. Everything now becomes less attractive and your hard work is reduced to pennies on the dollar. Welcome to being an average restaurant.

Drastic times do not call for drastic measures. Be smart about your marketing. You don’t have to do a straight-up discount. Get creative with prixe fixe menus, chef’s tables, beer or wine tastings...hell, maybe even a port and chocolate dinner!

For all your hard work to just give away your profits is criminal and a sign of defeat. Don’t give up. There are hundreds of creative ways to drive sales and still keep your brand value intact.

Humans tend to go for the lower hanging fruit. That is easy and nothing great comes from taking the easy route!

You are more creative than you believe. If you have an idea to discount because other restaurants do it, then slap yourself on the hand and go take a time out until you come to your senses!

Nothing great ever came from discounting.

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