How local brick and mortar restaurants are staying competitive

Treating diners differently means better experiences and maximized profits

Treating diners differently means better experiences and maximized profits.

In this COVID-19 climate and beyond, all brick and mortar restaurants are focused on developing strategies that improve the customer experience and maximize long-term profitability. Restaurants need new customers, more visits, and larger checks, and they need it all to come with a positive ROI. This is difficult to accomplish even under “normal” circumstances, let alone in the “new normal” we now live in with social distancing measures. 

It’s becoming increasingly clear that personalization is the key ingredient restaurants need in order to survive—and then thrive—in a post-COVID world. The numbers speak for themselves. Forbes explains that personalization influences consumer behavior, improves the consumer experience, and optimizes marketing ROI and profit. Adweek found that personalization reduces customer acquisition costs by up to 50%, and increases marketing spend efficiency by up to 30%. And without personalization, brick-and-mortar restaurants run the risk of unnecessarily discounting items in a way that eats at their own profit, and they miss the opportunity to give their customers even better dining experiences.  

So if we agree that personalization is important, that each customer is unique, and that each person needs something different to choose your restaurant, then why do brick-and-mortar restaurants continue to treat every diner in the same way? 

What’s happening today

Let’s try a thought experiment. Imagine you have three different kinds of customers: (1) the “loyal customer,” (2) the “never customer,” and (3) the “occasional customer.” Before COVID-19, these customers were dining at your location, and now they are ordering takeout or delivery. 

The “loyal customer” almost always chooses your restaurant when they order in or dine out (outside of COVID-19). To keep the loyal customer happy, you offer great service and even provide access to a general loyalty program—the same things you do for every other customer, loyal or not. Unfortunately, since this customer would come to your restaurant no matter what, you’re giving away your own profit by offering them special promotions.  

The “never customer,” for whatever reason, does not and will not buy from your restaurant. Whether it is because of your location, their schedule, or something unrelated, the “never customer” chooses neighboring restaurants over yours. Since you are not able to reach out and incentivize future orders or visits, you don’t do anything for this customer.  

The “occasional customer” is the trickiest of the three. They eat from your restaurant now and then, but they could be buying from you more. We know this because they order in or eat out often, but at different restaurants on your block. You don't know why the “occasional customer” buys from you on some days and not others, so you continue to provide them with friendly service and give them access to your general loyalty program with the hope of encouraging these customers to choose you more often. In other words, you treat the “occasional customer” the same way you treat the “loyal” and the “never customers,” which is the best you can do with the tools you have today. 

The Problem with this Approach 

This is a thought experiment, but we can agree that this scenario closely mirrors what we see at most brick and mortar restaurants today. And it’s not an effective way to do business. These restaurants give unnecessary discounts to “loyal customers,” fail to reach the “never customers,” and do not understand what would actually motivate the “occasional customer” to order more, visit more, or increase their check sizes. 

In a perfect world, each of these three customers would walk by your restaurant holding a sign that identified themselves as “loyal,” “never,” and “occasional,” so you could treat them accordingly. It would be even better if these customers held up signs that said how much each was spending, how often, and what would motivate them to spend more. 

If each of these customers were holding those signs, how would you treat them?  

For customers holding the “loyal” sign, you would stop unnecessarily discounting menu items, since those customers would buy them from you anyway. Instead, you would thank them for their continued business and do something for them that is above-and-beyond the norm at your restaurant. You would also encourage the customer to buy more or different menu items than they usually would to profitability increase their check size and give them move value for their given dollar.

For customers holding the “never” sign, you would want to understand why the customer does not visit or order from your restaurant, and investigate whether there was something you could do to persuade the customer to change their behavior in a way that would also be gross margin positive. 

For customers holding the “occasional” sign, you would want to understand (1) what the customer is ordering from your restaurant today, and (2) why the customer doesn’t visit your restaurant more often. Answering the first would allow you to improve the customer's experience when they do visit or order from your restaurant, and answering the second would help you profitably persuade the customer to order more, more often.

The Way Forward 

Adding a digital layer to brick-and-mortar commerce takes the place of this helpful, but unrealistic, sign-holding. We described—in a simplified way—how machine learning distinguishes between millions of users at the same time without having them hold up signs. 

Each consumer is unique, and each consumer is motivated by different things. Understanding each consumer’s motivations, and having the ability to act on this understanding, gives restaurants a way to treat each customer how they would like to be treated and improve their business’s profitability. Restaurants should be able to interact with each diner one-on-one in an efficient, enjoyable way for both the business and the customer. 

Unfortunately, in an effort to attract new diners, restaurants who are not personalizing interactions with their customers often cannibalize their own profit. Restaurants need to move away from the discount products and apps that use this model. It’s not sustainable to group customers based on three tiers of total spend and offer blanket discounts, like we did in this thought experiment. Instead, restaurants need to use platforms that ensure each transaction is measurably beneficial to both the customer and the merchant in real time.

Truly effective platforms are able to personalize wherever possible to the benefit of all involved. It is possible to analyze the data restaurants already have to better understand what each individual diner needs and how to meet those needs in a profitable way. It gives diners the metaphorical “sign” every restaurant owner wishes customers carried, informing what to personalize, who to personalize with, and how to increase profits. 

That is why it pays to treat each diner differently.

This article was also published in Modern Restaurant Management.

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