Before you take another step toward realizing your dream of crowded dining rooms, ringing cash registers, and beach vacations, read the following definition of competition over and over and think about what it means in the restaurant business.
- A test of skill or ability; a contest
- The act of competing, as for profit or a prize; rivalry
- The rivalry between two or more businesses striving for the same customer or market
So you’re making a decision to enter a competition: the restaurant business. And this is not some friendly game of Old Maid. You have a lot at stake: your business, your financial future, and your family’s sense of security.
That’s why you have to analyze the competitive environment to make sure that you have a shot at success.
I’m going to show you how to investigate your competition. We give you tips on evaluating their strengths and weaknesses. If you’re developing your concept, we help you use this information to shape your decisions about how to develop your concept and how to position it in your market.
After you’re up and running, you can use many of these same tools to continuously analyze the market and stay ahead of your competition.
Getting Your Mind Right: Profits Matter
To the casual outsider, the restaurant business is attractive for reasons that are byproducts of success (the fun, the glamour, the status). But success and all its trappings aren’t guaranteed — a fact lost on many would-be restaurateurs.
At its core, success requires you to look at the restaurant business as a business, a manufacturing enterprise whose products are only as good as they are salable. The only way to measure success in any business is through profits.
You can have the coolest space, the hippest crowd, and the trendiest cutting-edge food, but without net profitability, you might as well close the doors and save yourself a slow death. You’re a manufacturer, so accept that fact. We know that the title of a manufacturer isn’t as sexy as chef de cuisine or restaurateur, but it’s the most accurate label.
If you still insist on a cool-sounding French term, you can use fabricant, the word for manufacturer. Creativity, vision, and equipment allow you to produce a product. That product is not just the type, quality, and presentation of your food or beverages.
Product refers to the whole of your concept (restaurant), including the quality of the food, design of the space, appearance of the wait staff, and convenience of the location. All these factors affect the likelihood that a consumer will purchase your product over the competition’s product.
Embrace the idea that your success is based on producing a salable product and turning a profit, just as it is with any business. If you create a product with no sale, you’re only creating inventory, and in most cases, inventory in the restaurant business spoils, turning into a loss.
Profits come only when you make the sale, and every restaurant in your market is competing for that sale. Your job is to continually win that sale over your competition.
Exploring the Consumer’s Buying Decision: The Big Why
- Why does one car sell and another doesn’t?
- Why do you buy one brand of beer and not another?
- Why do you go to the restaurants you go to?
If you think about your actions, you can begin to understand the criteria that others use in making buying decisions. How your product positively influences the buying decisions of customers determines your market share, your operational cash flow, and ultimately, your success.
Think about buying decisions with products you’re already familiar with.
- Pick five grocery stores and five automobiles.
- Compare and contrast your feelings on each one. Evaluate the stores and vehicles using criteria of your choosing. But definitely include price, value, design, practicality, and service. You can’t have a good competitive analysis without them.
- Apply the same criteria to your restaurant concept in your market.
As you go through this exercise, you gain an appreciation of all the factors that influence a buying decision. But you’re only one person, so take the analysis a step further.
You need to understand the potential consumers and what influences their buying decisions as they relate to your market.
Identifying and Analyzing Potential Customers
Start by figuring out who you want your customers to be, and make sure they’re likely to frequent your concept. Figure out which demographic group(s) you’re likely to attract. The term demographics describe characteristics or traits shared by a group.
A demographic group includes people who are within a specific age range or income level or who share other distinguishing traits, such as gender or marital status. You’re not excluding anyone from dining with you; you’re simply trying to identify the clientele who’s likely to visit your restaurant. These people are the same as the target audience you use in your positioning statement.
You must make sure that your menu offerings, music (and its volume), entertainment choices, décor, and so on appeal to your proposed clientele.
Over time, build a profile of your desired diners and tweak your concept, as appropriate, to appeal to this group.
- Find out where they live.
- Figure out where they eat.
- Discover what motivates their buying decisions.
- Find out what else they do besides dine out.
As soon as you have an understanding of your customers and their lives, you can begin to target your concept and your messaging directly to them. This process is often called target marketing or niche marketing.
Figuring out who your customers are: Target segmentation
A niche is a subset that’s distinguishable from the larger group due to shared interests, lifestyles, and values.
If you can discern and understand the various niches of the local population that frequent your restaurant, you can better target your menu, service, design, and marketing to address the needs of these specific groups instead of wasting time and money trying to meet the needs of everyone.
Target segmentation is fancy marketing-speak for developing an understanding of who makes up your core group of diners so you can better meet their needs as a business. To identify your potential customers, ask yourself the following:
- Are you looking for a male clientele, a female clientele, or both?
- If you’re looking for both men and women, are you focusing on singles or couples?
- Is your concept geared toward families, or is it not kid-friendly?
- Are you targeting a particular ethnic or religious segment of your community?
- Do you want to attract people in suits, in hard hats, or in everything in between?
- Do you want to appeal to locals, or are you trying to draw out-of-towners, including business travelers and tourists?
Target segmentation really works a lot like high school (unless the high school has changed a lot — it’s been a while for us). In high school, you have a broad swath of kids from all the socioeconomic and cultural parts of the spectrum.
However, kids with like interests and shared values generally find their way into smaller groups or cliques. Think about the cliques in your high school — bring back any memories? Well, a clique is just another niche.
Restaurants that try to be all things to all people eventually fail because they have no unique selling proposition (USP). They can’t compete with the niche players who are experts at what they do and draw a loyal following of fans who appreciate the craft of doing a few things extremely well rather than offering a wide variety of mediocre dishes.
Creating a profile of your Superfan, or brand hero
After you observe your restaurant’s clientele and segment that clientele into groups, you have an opportunity to further discover that very special group of frequent users and lovers of your restaurant, your Superfans.
In many cases, restaurateurs are aware of their regulars, people who come in multiple times a month. These patrons develop a relationship with the staff, often order favorite dishes or drinks, and consistently make special requests for dishes, tables, or service staff to suit their desires.
What restaurateurs often do not do is attempt to better understand the motivations behind their regulars’ decisions to frequent their restaurant.
- Who are these regulars?
- Where do they live?
- What brings them here?
- What do they do when they aren’t sitting at the table?
If you can consolidate that information about your regulars and describe the personality of your Superfans, you can better meet their needs and the needs of others like them.
Focusing your research
Deciding what information you need is half the battle (the other half is actually doing the research and analyzing the information, but hey, you can’t expect us to do everything for you).
Here are our tips for focusing your research on what your diners want from you:
Location: Determine how much importance your potential customers place on the convenience of the location and identify locations that fit. Maybe you’re close to your customers’ homes or workplaces, or maybe they drive past your place on their commute.
Hours of operation: What hours are convenient to your potential customers?
Menu: A big menu is a draw for some consumers; others prefer a short, simple format. Figure out what fits your desired clientele.
Food quality: Given your concept, what do people expect?
Price/value: The price is the amount of money that someone pays for a menu item. The value is how they perceive what they get (usually in terms of quality and quantity) compared to what they pay. Both need to be in line with the needs and wants of your consumer.
Service: Determine the type, style, and efficiency of service that best fit your targeted customers’ needs.
Applicable trends: Determine how conscious your potential customers are of dining and lifestyle trends and how these trends are likely to impact their buying decisions. Do they largely ignore trends in favor of consistency, or are they largely trend-followers?
Keep in mind that a trend doesn’t have to be glitzy and hip to qualify. Past trends such as wraps, frozen yogurt, or low-carb dieting aren’t real glitzy.
Gathering this intelligence is a key component to getting your restaurant up and running, but you must continue to do so on an ongoing basis. Truly successful businesses foresee, adopt, and maximize opportunities as consumer behavior changes. These businesses listen and then give customers what they want.
Keeping an Eye on the Enemy
Some restaurateurs think that they can peacefully coexist with the competition because plenty of market is available.
This point of view is wrong on two fronts:
- It doesn’t account for new competition. The next guy may just be better, faster, cheaper, and sexier than you are. The new kid on the block steals market share, at least temporarily. And if he lives up to the hype, you’re really in trouble.
- Peaceful coexistence doesn’t actually exist. Think about Ford and Mercedes. On the surface, these brands cater to two different markets. But Mercedes didn’t build a $30,000 car by accident. It’s looking to leverage a market it didn’t have before. Mercedes made a cheaper car that’s still sexy. It’s targeted customers who, above all things, want a Mercedes because they get prestige they couldn’t afford before.
We help you identify your competitors, examine how they approach customers, and scope out their restaurants.
Identifying your competitors
Your competitors are doing their own intelligence and implementing their own marketing strategies, just like you are. They’re reaching out to the same group of potential customers.
With your target customer in mind, you then have to figure out who your competitors are — both your direct and indirect competition.
Here’s how these competitors differ:
- Direct competitors: Direct competitors share similar prices, a similar ambiance, a similar style of service, and similar food. If your customers see your restaurant as similar to another restaurant, that restaurant is probably your direct competitor. If you have a burger restaurant, every other burger joint is your direct competition.
- Indirect competitors: When people go out, they don’t just go out for burgers. They also go out for Mexican food, pizza, and sautéed foie gras. These other kinds of restaurants are your indirect competition. Indirect competitors don’t share the same food, but they share similar prices, similar geographic areas, similar styles of service, and/or a similar ambiance.
Make a list of your potential competitors. Your research will confirm (or deny) that everyone on your preliminary list is indeed your competitor — the next few sections show you how to execute this research.
And remember that to be successful, you must continue to do this type of research even after you open your doors. Old competitors die out and new ones are born on a regular basis. Some concepts that don’t seem like competitors today may be tomorrow, depending on how you and they make changes to your businesses in the future.
Don’t limit your attention to only direct competitors. Try to capture market share from indirect competitors as well. Chick-fil-A, a quick-service chicken concept, launched a campaign that featured cows holding up hand-painted (well, hoof-painted) signs that read “Eat Mor Chikin.” Taco Bell uses the tag line “Think Outside the Bun,” aimed directly at fast-food burger places. These companies have some of the most creative and calculating minds in the industry developing their marketing strategies for them, so learn from them
Figuring out who they think their customers are
Study where your competitors place their messages, and you can find out a lot about your competition and their perceptions of the consumer. Every time people watch TV or read an airline magazine, a local community publication, or a grocery store periodical, these people are being influenced by your competition in varying degrees.
You can then use that information on your competitors’ perceptions to either make similar assumptions or try a different tack — whatever will break through the noise. It’s no secret that companies selling beer, pizza, cars, snack food, and burgers advertise during football games.
Big companies spend millions of dollars to have someone tell them what may look obvious now: There’s a gathering of their consumers at a certain time on a certain TV channel, so that’s a good place to place propaganda — we mean ads.
These same viewers are likely customers at your pizza restaurant. Maybe you can’t afford Super Bowl advertising, but you can afford to advertise on the front page of the sports section of your local paper. Have your coupons delivered that Wednesday before the big game. People will see the ads, be hungry, and have the coupons. Who knows what could happen?
Mystery shopping till you drop If you really want to know your competitors, spy on them. Be their customer, literally. Dine at their restaurants and experience their products. Take notes and share them with the other managers in your restaurant. Use them as a starting point for brainstorming sessions for new services and products. In the restaurant and retail industries, these activities are called mystery shopping, or more accurately, mystery snooping.
Initially, you can shop your competition on your own. But hopefully, you’ll reach a point where you won’t be able to. You’ll be so prominent in your restaurant community that the competition will pick you out like a rookie restaurant critic. You may need to hire a professional mystery shopping service.
Mystery shopping services aren’t always the way to go. We’ve had mixed luck with their results and accuracy. You can also get friends and employees to go in and spy for you. But give them the specific criteria you’re looking for and remember that people you know may have a hard time telling you what you don’t want (or what they think you don’t want) to hear.
Examine your competitors who do things right, but remember that looking at the failures is just as important. Spend some time thinking about why they failed. With few exceptions, they probably failed because they stopped being vigilant. They stopped being innovative. They ignored trends and failed to adapt to the ever-increasing savvy of the consumer.
Developing and Implementing Your Battle Plan
How are you going to take your product, your information about your customers, and the scoop on what’s going on with your competition and create a plan that brings people in your door, not to your competitor’s?
Your plan should take the following into account:
- Your strengths and weaknesses
- Your competitor’s strengths and weaknesses
- Your local marketplace
Doing a competitive analysis
Start to brainstorm what you sell and what you’re good at. Say that you sell innovative fresh Mexican food. Make a list of your strengths. Then figure out which strengths are yours alone. Decide whether your competition is better than you, equal to you, or deficient compared to you in this category. Unless you’re the only person in town who does fresh Mexican cuisine, you don’t own it. But if you’re the only one who delivers, you own the delivery market for your type of cuisine. When you go through this exercise for your concept, you’re trying to find the things that your competition doesn’t have an answer for. Your point of difference is what you see as your strength.
From your customer’s point of view, that point of difference could be a strength or a weakness. Suppose Señor Mike’s Fresh Mex is a fictional yet already operational restaurant that’s trying to stay competitive in a crowded marketplace. The business is having some success but needs to improve in some areas. Your points of difference can become your greatest strengths. In Table 3-1, we focus on gathering the facts. In Table 3-2, you take the next step, evaluating the data and making judgments about the info. In the first column, we list everything that we want our restaurant to be known for. We want Señor Mike’s Fresh Mex to be the market leader in each category. In this context, the market leader is the restaurant that’s best known (usually measured in terms of sales dollars and reputation) in the category. In some cases, Señor Mike is the leader; in other cases, he needs to improve to be the leader (–); and in yet other cases, he may actually be better (+) but not yet known for being better.