Find out if discounts can really raise growth, profit
Find out in part 3 with QSR Media’s interview with four industry and marketing experts on discounting.
QSR Media: How big of an impact can discounts make in a restaurant’s growth and profit?
Steve Hansen—King of Strategy at Think DONE Management Consultancy: The impact that a discount can make can be huge, but it is always about the volume required. One product if it is what the customer wants and needs, promoted at a price, can drive sales up dramatically, but depending on by how much it has been discounted, the number of real sales required to achieve the same margin needs to be known.
You may make the same profit as the previous period whilst having sold many more of the one product, but if you have created more awareness of the brand and its products and you are sure that you have also provided a great buying experience then many of those new customers should return.
Costa Anastasiadis—Director of ENA Hospitality Group: Discounting for growth could be effective in the short term particularly to gain quick market share advantage. But you need an effective discounting strategy if you want the short-term increase in growth to make a difference for your company long-term. The risk of discounting to profitability is you really need to ensure your volume is far higher then normal for profits not to be effected. Very risky.
Merrill Pereyra—Mentor at Start Up & Emerging Ventures: Higher the discount higher the impact on GP( Gross Profit), the Sales would increase but you need to work out the balance between high sales and less profit.
Armina Soemino—Emerging Equities Research analyst at J.P. Morgan Chase & Co.: Discounting can have a huge impact but a lot depends on the customer profile. A key case is the recent competition between Domino’s and Pizza Hut in New Zealand. In its 1H13 result, Domino’s Pizza posted relative weak Same Store Sales growth of just 0.4% in ANZ vs. 8.7% in the prior corresponding period.
A key part of this was attributed to Pizza Hut being able to win market share in New Zealand as a result of its NZ$4.90 Large Classics Pizza discount pricing campaign. This saw total FY13 sales for Pizza Hut in New Zealand (as part of Restaurant Brands) increase 20.8% to NZ$52.2m. However, Pizza Hut’s campaign has not been able to make the same impact in Australia, which is testament to the difference in customer profiles between Australia and New Zealand.
In other words, our friends across the ditch appear to be more economically minded (at least in the current environment) than we are. It is mindfulness of this difference which I believe determines the success of a discounting strategy.