An article in today's Wall Street Journal titled, Restaurants Burned by Deep Discounts, said in part, "as several chains prepare to report second quarter earnings in coming weeks, Wall Street is bracing for news that price cuts not only ate into profits but failed to bring in as many customers as hoped. There was an 8% decline at Pizza Hut, which has been offering discounts for online pizza orders and other deals. "We've been hearing from a lot of restaurant management teams that discounting wasn't driving the traffic they hoped for," said Jeffrey Bernstein, an analyst at Barclays Capital.
When Darden Restaurants Inc. reported earnings last month, the owner of Red Lobster, Olive Garden and The Capital Grille said it avoided the kinds of discounts and giveaways that many of its peers were engaging in. "We don't know that a lot of folks who did discounting got much for it from a traffic perspective," Darden Chief Executive Clarence Otis then said.
Some chains have tried to turn up the heat in the price wars but have failed to win over franchisees, who see the discounts hurting their profit margins. Burger King Holdings Inc. wanted to sell its double cheeseburger nationally for $1 for a four-month period, but franchisees last Wednesday voted down the proposal. Prices vary by city, but at a Chicago Burger King, the double cheeseburger sells for $2.69. The chain instead proposed offering the $1 offer for just six weeks, but franchisees on Friday rejected that idea, too."
I've been talking to a lot of groups recently struggling to be profitable. Most often, they have devalued their own products so much that they have no one else to blame. I applaud Burger King franchisees who voted down the proposed to charge about 1/3 of what the product should cost.
Look, instead of trying to find how low you can go and hoping for customers to beat a path to your door, try to find how high is up. Yes, it's contrary to everything your competitors are doing and one that is bound to stir some reaction with your employees. But let's face it, people are still shopping. People are still picking up items and considering them. And yes, people are still buying.
Most of the big chains featured in the article have no creativity or eye on the financials or they wouldn't be struggling to be profitable. You want to put more money in your pocket? Stop finding ways to market like Santa Claus and giving away your profit through discounts.
By
Bob Phibbs
