Article

I Spy... Keeping an Eye on Your Competitors

The restaurant business is attractive because the market is huge. Nearly everyone wants to eat three meals a day. Government statistics indicate approximately half of meals in the U.S. are eaten outside the home.

On the other hand, it is still massively competitive. Even with the closure of approximately 110,000 units in the wake of the pandemic, according to the National Restaurant Association, there are still more than 500,000 restaurants in the U.S. Among these concepts, who are your competitors? Can you give an elevator pitch to describe not only your menu and concept, but what makes you stand out in the marketplace?

There are few businesses as competitive as the restaurant business. Gathering "intel" is necessary when competing for brand awareness, guest traffic, and repeat patronage.

Assessing the competition is a critical first step in developing a business plan. And a business plan is something you should be updating annually, not only in the startup phase. Scoping the competition often raises more questions than answers. And questions are good. They make you think about the how, the what, and -- most importantly -- the why of your business. Which restaurants are popular in your trade area? Which districts and neighborhoods are being served and underserved?

You can bet the national chains analyze the market heavily before opening a new unit. And so should you. The good news, you have a number of useful tools at your disposal -- including your natural curiosity and the Web.

Never Too Early

Ideally, startups should begin to consider the competition 18 months to two years before they open, says Izzy Kharasch, president of Chicago-based international foodservice consulting company Hospitality Works, Inc. Bear in mind, this includes when you are considering adding an additional unit to your existing concepts. A trap for aspiring multi-unit operators with one success under their belts is to believe that success will be replicated elsewhere if they stick to their model. Even if your first unit has done exceptionally well for the past five years and you have your menu and operations down to a science, your second unit will be opening in a new location and time.

Kharasch encourages independent operators to keep a close eye on the competitive landscape as they contemplate their concept, and after they're open. Launching a new concept can take a year or more. You cannot "hit pause" on the market. Competition is always brewing, particularly in developing communities. You might find you need to make adjustments to your concept and marketing during your development period. Keep your eye on the landscape, says Kharasch, "You'll see people breaking ground for new developments and you should be asking who is going to be building there or are they building restaurant spaces."

Twenty years ago, Kharasch would advise clients to look at the competition and dining demographics within a three-mile radius for competitive analysis, since that was how far most people would travel. Now, he recommends a 30-minute drive time, given urban sprawl.

TRACKING COMPETITOR GUEST TRAFFIC IS A BIT TRICKIER, BUT NOT IMPOSSIBLE if you or one of your managers is a bit of a sleuth.

He also suggests operators think about "who is our competitor as we look out our front door." For a suburb, this might be a half-mile radius, but "if I'm in a city, we're only looking at three blocks."

And none of this is to suggest you have to get in your car and patrol the neighborhood -- although it is not a bad idea to do this occasionally. Any restaurant that hopes to succeed in the current market has a website, often with photographs and menus. You can find out a great deal about concepts in your market from their websites.

Checking the competition's website can help you understand how yours might look to a diner who's deciding between you or the similar concept down the road. Guest reviews on Yelp can illuminate the strengths and weaknesses of other concepts. You might also follow your competitors on Facebook, Instagram, and Twitter (via a private account if you are concerned you appear to be a stalker) to find out what they are saying about their concepts, and more importantly, what their followers are saying.

Indeed, user review sites are a goldmine of data on the competition. While the bad reviews might make you smile, Kharasch encourages operators to keep it in perspective: this month, they're in the hot seat, next month, it could be you.

Kharasch suggests looking at the last six months' reviews to learn what customers like and don't like. He'll do this when working with new customers, even places that have been open for ages. "Before I go to the property, I try to read a year of reviews to understand how they got to where they got," he says. Not only is Kharasch looking at the rating, he wants to see whether the owner responded to every review they received, whether good or bad.

Read the industry trade magazines for coverage of national chain activity. If your concept competes with a multi-unit franchise, it could be useful to stay abreast of plans for unit expansion or closure, changes in menu, etc.

Show Me the Money

Pricing is key to the success of any concept, and yet getting it right is a tremendous challenge, especially today. With food and labor costs increasing, you can't afford to leave money on the table. On the other hand, you want to avoid sticker shock, which is common today, even at relatively casual restaurants.

Your competitors can help you learn the range of your market, and where you fit. Take prices from competitors' menus, then get averages for every category, like starters, entrees, desserts and drinks. Kharasch believes independents should look at places that serve similar items and other local restaurants within the same price point. "We might be a sports bar, but there's a BBQ place and their price point is the same as ours. We want to understand what's going to bring [a customer] to us vs. someone else," he says.

This quick study will help you understand the price range the local economy supports, says Kevin Gregory of New York-based hospitality advisory firm KGRHC. If you are a quick-service or casual concept, you don't want to price yourself out of market. This is particularly true if your restaurant has shifted a significant percentage of your business to delivery or takeaway. These customers are paying for a meal, not an experience. If you're selling tacos and every other taco place charges no more than $5 per taco, selling your tacos for $7 apiece is risky business, unless there is something really special about your tacos and the market gets it.

A competitive price analysis can also prompt you to determine how to justify being on the high end of the market. What differentiates your concept to encourage pay more? Don't hide your light under a bushel.

If you have an accomplished chef on board, you might want to promote him or her and their credentials more effectively. Does your website leave visitors with the impression that your concept offers a higher-quality experience than your competitors?

The point is, you should not drop prices in a knee-jerk manner as an attempt to remain competitive. Rick Camac, dean of Restaurant & Hospitality Management at the Institute of Culinary Education operated an Asian concept in New York's West Village, which charged $6 for a pork bun. Some customers griped about the cost when they could get a similar product for $2 in Chinatown. They weren't wrong, but the Chinatown bun was served to-go in a bag without the ambience of the full-service restaurant. And the quality of his ingredients and preparation were superior. He made an effort to make sure the restaurant's target audience understood the difference and was happy to pay more.

YOU WILL WANT TO GET A SENSE OF HOW WELL YOUR COMPETITORS ARE FARING OR STRUGGLING IN THE LABOR CRUNCH. A well-staffed restaurant with happy employees is a tremendous competitive advantage in today's market.

Tracking competitor guest traffic is a bit trickier, but not impossible, if you or one of your managers is a bit of a sleuth. Camac suggests this method to spy on a competitor's revenue: "Go with a clicker (they are often called a "tally counter" and you can purchase one online for $20) and keep clicking every time someone walks in," he says.

"As labor intensive as that seems, it's probably a better indicator than most in terms of volume." You'll get the best data if you make multiple visits at different times, such as a weekend night when crowds are more likely and a weekday afternoon when things might be quiet.

Once you know how many people visit the restaurant, calculate their check averages by pulling menu prices. Multiply the check average by the traffic and you'll get a fairly accurate snapshot of their sales for any given day and daypart, says Camac. It won't be as exact as if you used weighted averages, Camac cautions, but he insists that it is useful competitive information.

Let's Get Physical

Restaurants operate from a physical location. The three most important factors in real estate value, goes the old saw, are "location, location, location." And this takes on special meaning for off premises dining. It is not just enough to be in a district or neighborhood that attracts guests. You also have to have easy ingress and egress.

When it comes to location, "take notes of everything," Gregory says. "If your concept relies heavily on delivery and take-away, compare your location to your competitors. How easy is it to provide curb-side service? Can you even compete in the space you are going to be in?" he asks.

When evaluating the location, Gregory looks at the number of parking spaces, proximity of public transit, and whether the concept is walkable. "A lot of restaurants die before they have a chance to succeed because the concept doesn't fit the location," he says. Since the lease is one of the only things an independent operator can control, he recommends that aspiring operators vet the location as a fit for the concept in advance.

Operational efficiency is also a competitive factor. Thus, when assessing your competition, it might also pay to take note of the technology they're using both on-premises and online. Tech can be a competitive advantage across the board, whether table-side transactions or online orders. Kharasch emphasizes this is particularly relevant for new operators in the planning and startup stages.

When new operators "open on the cutting edge of technology" through adopting new technologies, they can set themselves up for success, adds Kharasch. Are your competitors using QR code menus effectively to speed up ordering? Are their servers using handheld devices to close out checks table side to speed up table turns?

Technologies can streamline service and help operators operate seamlessly with fewer staff, a competitive advantage in today's business environment. Is any of their technology hurting the guest experience by creating distance between the guest and the hospitality experience? Do staff seem befuddled when using it? Look at technology from all angles.

Labor Pains

You will want to get a sense of how well your competitors are faring or struggling in the labor crunch. A well-staffed restaurant with happy employees is a tremendous competitive advantage in today's market.

In the current market, operators are competing for a limited labor pool. Gregory suggests there's an opportunity to compete by making your restaurant a better place to work. "Everything starts with the culture and what you're offering as an employer. Having systems and structure in place, making sure you have a schedule, clear roles, clear job descriptions, maybe incentives involved. That is, if you hire a talented person, what are you doing to keep them?" he asks.

Succession planning is important and can be overlooked. When you offer people ways to grow in the restaurant, you are more likely to keep talented employees. During a visit to a competitor, see what you can learn about their labor and hiring practices. For example, do they have signs in the window advertising a hiring bonus? Do employees look disgruntled or happy?

Like birds of a feather, traditionally, restaurant workers often gather after hours with other hospitality workers and compare notes about their restaurants. You can learn a great deal about your competitors from your employees, particularly what their compadres in the industry are saying about their bosses. And don't forget your suppliers. Your liquor and food vendors have an excellent feel for your local market area and the other restaurants they serve. Often, they are willing to talk about not only how the area is doing sales-wise, but what other operators are doing to solve problems.

In addition, your guests will often volunteer information about their experiences at competitor restaurants. If a concept is a true competitor, then it only makes sense it will pique the interest of your repeat patrons. You should never solicit information about competitors from a guest. It can be off-putting, at best. But advise your bar and service staff to take note if a guest makes a positive or negative comparison between your concept and a competitor's. Particularly loyal repeat guests are often happy to share their opinions.

Front Row Seats

There is no replacement for dining at your competition, regularly, to find out the good, bad and ugly of their service. When Kharasch visits comparable restaurants with his clients, "we're always looking not just at the food, but did anybody greet us, did we feel welcome? Was there garbage outside the building? Do they keep it clean?" This critical eye continues throughout the visit. He'll notice how long it takes someone to come to the table, the quality of the service, and the quality of the food.

By paying attention to all aspects of the guest experience, Kharasch and his clients pick out points of difference. "We're going to be competing in this pool no matter what and we want people to come to us because [the food and service are best]," he says. Areas where the competitors are getting guest experience or menu execution wrong represent opportunities for your concept.

While visiting a competitor once will give you an idea for what someone else does well and where to improve, multiple visits can be necessary. Camac estimates that he dined at 50 competitors, sometimes up to four times each, when he considered opening a new restaurant. When an operator is opening a place in a new market they don't know as well as their home base, frequent or recurring visits become all the more important, he suggests.

How Competitive Analysis Builds a Brand Better

When you understand your brand, target audience, and unique offering, you can put the data you've gathered -- whether on pricing, service or technology -- into context and develop an action plan.

While competitive analysis is important for all concepts (and at all stages of operation, not just in the startup phase), it matters most outside the fast-casual and quick service demographics. These restaurants are serving something more than a taco or burger, they're serving an experience. Operators either get that or they don't, and "if you don't understand what the experience is about, you're operating on the wrong presumption right off the bat," says Camac.

Use the data you've gathered to identify areas of overlap and places of differences. This reflection is easier when the data you've gathered during visits to other restaurants is quantified. For this reason, Camac recommends rating other restaurants on these variables when you visit, such as with 0-5 rating scale. "Assign everything a number as opposed to just being descriptive. [If you say] the music was too loud, I don't know how to combine that with other information, but if I saw it was 4 out of 5, I can [compare]," he explains. Camac used to keep a log where he'd rank restaurant visits "on everything from service to dishes to overall impressions, sound level, temperature level, design."

If this sounds overwhelming, he recommends that operators get in the habit of noticing three things they like and three things they really don't like about any restaurant they visit. "It starts to get you to become more focused on what works and doesn't work in a venue.

Nobody goes back for the hamburger. When you get to full service, it's always about the experience. People go back to places that offer a great experience, and experienced restaurateurs don't seem to understand that," he says.

You have an opportunity to outperform a competitor who isn't doing something well, whether it's the guest experience, marketing or menu execution. Knowing what they can do, ask what you can do better. How can you train employees to create a better guest experience, or a more quality menu item? What did the visits teach you about the competition's target audience, or about your own target audience? How can you take this customer profile into account when marketing your brand?

You can compete where there are similarities, provided you use the data to help you identify and lean into a unique approach. Kharasch gives an example of a client that serves fresh chicken wings. Another local restaurant serves frozen wings. His client decided to use fresh chicken wings and fresh calamari.

"The point of difference for us is we cook to order fresh chicken wings, so you're gonna get a fresher product from us. It'll taste better and say 'fresh' on the menu and our staff will talk about" the quality of the product and be able to serve it proudly, he explains. Fresh wings will cost more, but the target audience will (the client hopes) be happy to pay more for a fresher, tastier product.

While competitive analysis is helpful for new and veteran operators alike, Gregory says it's important to put it in perspective. "The first person you're competing with is your- self. If you don't have a product your customers love, then it doesn't matter what the person next door is doing." Look to the competition to learn how to improve your concept, but d Aim for food and service you are proud to serve.

GOOGLE MY BUSINESS

Kevin Gregory of New York-based hospitality advisory firm KGRHC recommends Google My Business to identify competition (https://www.google.com/business/). Google touts the web-based application as a tool to "help customers find and choose your restaurant or food business on Google, based on your menu, photos and safety precautions". It provides basic information, such as the restaurants within a neighborhood, their hours of operation, ratings, images of the food and menu, and so on. For new operators who are still planning, this can provide valuable snapshots of several possible locations to help narrow down their choices. If a neighborhood is already saturated with the cuisine you plan to serve, it can be challenging to stand out.

As you would imagine, the competitive landscape is continually shifting. Concepts open and close. To stay competitive, it's important to review the competition well after opening day. As a general rule, Gregory recommends checking in quarterly to every six months. New restaurants do not magically appear like mushrooms after a summer rain.

Drive around your market area to see what commercial building projects are underway and signage that indicates a new competitor is taking over a space. Among the benefits of belonging to your Chamber of Commerce is gaining "intel" on changes in the market. Commercial real estate agents can share information on leases and purchases. In some cases, new business owners or managers might join prior to opening to network in the local business community.

Your town might have a portal where you can search recent building permits, and allow you to filter results with search terms such as "restaurant". The data is often sparse; however, if it provided the registered name of the company (e.g., Downtown Restaurant Group, LLC), you search for additional information on the secretary of state website. Local online job boards can also provide information, as new businesses seek staff prior to opening. "Follow [the competition] on social media, because a lot of people give away a lot of free information. Instagram is not everything, but it can show someone's strategy," Gregory encourages. By scanning the competition's social media feed, you'll learn about their marketing efforts, specials, and promotions.

This takes on relevance when it impacts your sales. For instance, if another restaurant has a nightly special and your traffic is lower on that night, there's a natural explanation for lower sales. "Maybe you need to do a promo on a different night," Gregory adds.

UNITED WE STAND

Izzy Kharasch, president of Chicago-based international foodservice consulting company Hospitality Works, Inc. notes that restaurant closures in the pandemic have made new alliances between former competitors, and clients are now doing more collaborative marketing to "let people know we're both here."

Recently, his client, a microbrewery, complained about an Italian restaurant opening across the street. Kharasch assuaged the owners, explaining the upside. "It's only going to help us and bring more people to the area. People are going to see a wait [there] and come to us, that's what happens." As it turned out, the owners became friendly. Kharasch explains. "We have to bring people together, treat them well, and bring them back [to our neighborhood]." So, while exploring the competition's social media presence, website, and prices can give you a checklist of how to beat them at their game, don't overlook opportunities for mutual gain.