Increasing competition, rising costs, wage inflation etc. have led to disappointing same store sales and declining traffic counts for the restaurant industry in the last few years and this trend is going to continue for the next few years. Read report. Its important to understand what the key drivers of business are and focus your energy and resources on things that matter.
Growth in sales of a restaurant chain can be achieved by a combination of Market expansion and Same store sale growth. For any restaurant, the most important metric for success is the same store sale growth. What is Same Store Sale growth you ask? Its increasing sales of existing restaurants over time. While expanding the market and increasing customer reach is necessary and strategically important, same store growth is a strong indicator of health of the business and is the only sustainable solution in the long term.
The 3 main factors that affect same store sales are:
- Number of guests visiting the restaurant
- Number of times each guest is visiting the restaurant
- Amount each guest is spending per visit
Number of guests visiting the restaurant
Growth can be achieved by adding new guests, however the challenge, specially in matured markets for restaurant chains is that the scope to keep adding new guests goes down with time. This is amplified when there is intense competition, large number of restaurants and a small area under each restaurant. Marketing Metrics notes that acquiring a new customer is six to seven times more expensive than keeping an existing customer. Thus, while bringing in new guests is strategically important, it is not easy and the success of a restaurant is really determined by its ability to make the most of its repeat customers.
Amount spent per visit
In F&B unlike other industries there is a limited capacity to consume in a visit/order. After all, the “basket” can only be so big! While this does not mean that there is no upsell/cross-sell potential, there is potential to fill the basket when the guests are not purchasing enough items. For example, adding sides and beverages and replacing low value items with high value items etc. The scope is definitely limited.
Visit frequency of guest
Visit frequency of a guest is the number of times a guest visits a restaurant in the period, as basket value has limitations in terms of the scope for growth visit frequency becomes the most important driver of sales. More about increasing the frequency of guests at your restaurant in my other blog.
If you are interested in increasing your same store growth, you should check out what Manthan is doing in this area. They have some really cool success stories in this case study and offer further tips for your restaurant in this data sheet.
Feel free to reach out to me directly if you have any thoughts or questions about this article.