Applying Data Science to Grow the Restaurant Business

The restaurant business has been a happy hunting ground for many entrepreneurs, big or small. The sector is still seeing high growth and a huge amount of investments, with new chains opening at a rapid pace. For some of the older players though, the time has come to consolidate their businesses and/or expand. This requires systematic management and oversight to ensure a smooth transition so that the basic fundamentals on which their businesses have been built is not sacrificed at the altar of growth. This is the ideal time for embedding Data Science into their everyday business processes.

The question that most Restaurant owners would ask is how Data Science is going to positively impact their revenues. There are many indirect ways in which Data Science can help restaurants make more money:

Data Science Helps you Know your Customers

  • Trip Segmentation– helps to understand what kind of meals do customers come to your restaurant for; you might surprised that a large number of your customers maybe buying only one item(solo trip), some maybe on a dinner trip while still others are on a pure drinking binge

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  • Visit patterns– different types of customers visit your cafe at different times of the day; hence, menu differentiation is hence necessary for different day parts to boost your business. Customizing offers for different parts of the day is an effective differentiating strategy. Customers need to be led to believe that they should order certain kinds of meals at certain times of the day, even though you maybe having an all-time favorite meal- like the “English Breakfast” running all day.

Loyalty Strategy

For a business with a very high probability of repeat customers, it is interesting to note that very few restaurant businesses in India have a loyalty strategy in place. Having a loyalty strategy doesn’t mean implementing a cash heavy loyalty program, replete with plastic cards and heavy discounting.

  • Understand what your customers like and personalize offers for them
  • Get your customer to visit your restaurant one more time and buy one more meal
  • Your loyal customers are your biggest brand

Removing slow moving items from your menu –When you have a long menu card, it is important to analyze what people are consuming and what they are not

Pricing Strategy

It is important to carry out a well thought out pricing strategy in your chain. You should increase prices, but in a very strategic manner and by measuring the impact of the price changes. There are two phases of the pricing strategy which are critical. One is the pre-increase period when you determine the products for which you are going to change prices and the other is the post price change period where you need to measure the impact of the price changes on the customer buying behavior.

  • Identify items which are consumed by price sensitive customers
  • Identify items which are consumed by upmarket customers
  • Undertake pricing trials to check price sensitivity of customers to different menu items

Menu Mix solution

The famous observation that beer bottles and nappies when kept adjacent to each other, led to increased sales in retail stores, introduced a new concept of product bundling/adjacency to the world of Retail. In the business of restaurants, the closest corollary is that of menu mix.

When you find “meals” consisting of burgers, fries and coke are being served to you at discounted price, doesn’t mean that McDonalds is trying to push coke into your menu. It means that they are being customer first and have observed that this one of the most popular combinations that people usually order and they have institutionalized it for the benefit of customers, efficient customer service (you save time instead of ordering individual items) and above all it drives revenue as customers see an inherent “value” in the meals as they get something else at a lower price than what they would otherwise have to pay.

Similarly in restaurants, menu mix should be analyzed and the most popular meals should be bundled together and offered to customers at a lower price to incentivize them to buy their favorite meals. This will increase loyalty of customers to the restaurant, apart from driving more repeat visits from the customers who would like to come back for their favourite meals at reduced prices. The menu mix should only be done for the most popular meals and there should only be a few combos on offer, else it will become complicated and make the customers confused

There is a big opportunity waiting to be utilized by the more entrepreneurial and innovative restaurant owners. Whoever takes the lead will win. Soon, there will be no other option but to innovate and devise strategies, keeping the customer at the heart of all your decision making.

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