Consumers Have More Power Now Than Ever

Applying Some of Porter's 5 Forces to the Restaurant Industry

There are roughly 20 million restaurant visits a month in the United States. With this many restaurant visits, why are chain restaurants struggling with getting traffic through the door? For 3 years, chain restaurants have struggled with generating traffic along with retaining customers. During November of 2018, chain restaurants experienced a 9.4% decrease in traffic and sales decreased by 5.0%. It's a recurring issue that chain restaurants are facing.

Why are consumers choosing to refrain from eating at chain restaurants? Does it have something to do with customer service and the waiting staff?

Quick service restaurants saw traffic decrease by decrease by 1.80% during November of 2018, and these numbers are much smaller in comparison to what chain restaurants experienced. Does having a wait staff make that much of an impact on a restaurant?

What we've learned from being in the restaurant industry for over 15 years is that customer service is the biggest brand differentiator. When people are considering where they want to go to eat, they're going to choose the restaurants that provide consistent 5-star customer service. With so many choices for consumers, they're the ones who have the power.

Shift Toward Consumer Power

Consumers have more power than ever when it comes to the restaurant industry. There are so many options for them to choose from, so they can easily switch from one restaurant to another. Restaurants tend to offer similar food options at similar prices, so there are low switching costs associated with trying out a new option.

Customer service is what brings in foot traffic. Price and product can easily be replicated, but it's hard to copy stellar customer service. All it takes is one negative experience and customers will switch to another restaurant to dine at.

After 1 negative experience, 51% of customers will never do business with that business again

A plethora of options makes it very easy for people to switch from one restaurant to another.

Consumers have a wealth of information at their fingertips with the amount of information that is available online. They also consider reviews from their friends and family when weighing their options.

Americans tell an average of 15 people about a poor service experience, versus the 11 people they'll tell about a good experience

If people see a lot of negative reviews for a particular restaurant, they're not going to go there. They'll go to the competition right down the street, they have nothing to lose by trying out a new place. Consistent 5-star customer service is what gets consumers coming back for more.

Threat of Substitutes

The threat of substitutes is very high in the restaurant industry. One of the reasons that consumers choose not to dine at casual dining restaurants is that service tends to be slow and lackluster. They can go to another restaurant where they'll get better customer service for the same price.

64% of people find customer experience more important than price

The minute that customers walk through the door, they've developed their first impression of that restaurant. If they're not greeted in a timely manner and left waiting too long, it leaves a bad impression. A first impression can only be made once, and this is why it's so crucial to make sure that consistent 5-star customer service is provided every single time.

Customers won't hesitate to dine at another restaurant where they'll feel valued. When people enjoy the experience they've had, they'll become regular customers at that specific restaurant. Stellar customer service is what keeps foot traffic coming through the door, and if people aren't satisfied they'll go to a competing restaurant.

Competitive Rivalry

In the restaurant industry there are different segments:

  • Fine dining
  • Casual dining
  • Fast casual
  • Quick Service

Customers have many choices to consider when they're thinking about where they want to go. With so many choices, this is why it's important for restaurants to differentiate themselves. The best differentiator is customer service because it cannot easily be replicated. Restaurants that are providing 5-star customer service at a consistent rate are the ones who have a loyal customer base. The quality of customer service makes a big difference for whether or not a restaurant will be able to fill up the seats at their restaurant.

Restaurants that struggle to fill the seats up at their restaurant because of low traffic experience lower sales also. It's a detrimental combination for them because it gives their competitors the opportunity to steal their customers.

Regardless of what type of restaurant customers go to, they want quick and friendly customer service. If they don't feel like the level of service given meets their expectations, they will go to a competing restaurant. Consumers have everything to gain by going to a competitor, meanwhile restaurants have everything to lose.

Applying some of Porter's 5 Forces to analyze the restaurant industry gives restaurant owners a deeper dive into the competitive market and the forces that shape it.