Customer Loyalty Key to Success (Restaurants USA, February 1998)

February 1998 issue

Customer Loyalty Key to Success

Restaurants USA magazine's final issue was published in September 2002 but these archived articles remain available for our readers' convenience.

Restaurants USA, February 1998

In today's competitive marketplace, one of the biggest concerns of tableservice-restaurant operators is winning customer loyalty ?pleasing patrons enough to make them want to return to the establishment again and again. With the number of foodservice locations in the United States approaching 800,000, operators should focus not only on attracting first-time consumers but also on building a solid base of repeat customers.
By Bruce Grindy

According to the National Restaurant Association's Tableservice Operator Survey, repeat customers mean big business for tableservice restaurants. Many operators derive a large portion of their revenue from those loyal patrons. Tableservice operators with an average check size of less than $8 report that repeat business accounts for roughly 80 percent of their annual sales. Operators of restaurants with an average check size of $25 or more are only slightly less dependent on those frequent diners, reporting that repeat customers contribute 60 percent of their total revenue.

This reliance on repeat customers was confirmed in a recent Association report, The Frequent Dinner Customer, which declared that purchasing dinners prepared by a restaurant has become a way of life for some consumers. Although virtually all adults purchase meals away from home at least occasionally, frequent dinner customers are responsible for an overwhelming 74 percent of all dinner occasions when the meal is purchased outside the home.

The value of value

Recognizing that repeat customers are a major source of revenue, restaurant operators are trying to make those repeat visits as simple and satisfying as possible. One way to keep customers coming back is to maximize the value they receive for the price they pay. Consequently, restaurant operators are placing great emphasis on delivering more value for the dollar.

Roughly half of all tableservice operators report that their customers are more value-conscious today than they were two years ago, while less than 5 percent indicate that their patrons are less value-conscious. And operators seem to be successful at giving their customers lots of bang for the buck. According to the Association's 1997 Consumer Survey, a strong majority of consumers say that the value they received for the price they paid at tableservice restaurants met or exceeded their expectations. They are particularly pleased with the value package at moderately priced tableservice restaurants, with 86 percent of patrons reporting that the value they received for the price they paid met or exceeded their expectations.

Customers of higher-priced tableservice restaurants also display a strong sense of value satisfaction, with 71 percent of them indicating that the value they received for the price they paid met or exceeded their expectations. However, patrons at the more upscale eateries are also twice as likely to report that the value they received fell below their expectations.

In general, diners' perceptions of value at tableservice restaurants have remained relatively steady over the last year. According to the 1997 Consumer Survey, more than seven out of 10 consumers believe that meals at moderately priced tableservice restaurants represent the same value as they did a year ago. Meanwhile, 63 percent of consumers think the same about meals at higher-priced tableservice establishments.

Not all patrons of higher-priced tableservice restaurants are quite as pleased, however. According to the report, nearly one out of four patrons feels that meals at such establishments are a worse value than they were a year ago, compared with only 15 percent of consumers who are similarly dissatisfied about meals at moderately priced tableservice restaurants.

Building loyalty is no easy task

Customers may seem generally satisfied with restaurants now, but keeping them that way — and keeping them coming back for more — is a significant challenge, at least in the eyes of tableservice-restaurant operators. Despite the high level of customer satisfaction, the industry remains an extremely competitive arena. When asked to identify the most significant challenges their businesses are likely to face in 1998, roughly one out of five tableservice operators cited competition and maintaining the volume of business.

According to the 1997 Tableservice Operator Survey, tableservice-restaurant operators are finding it more difficult to maintain customer loyalty now than two years ago — especially at lower-average-check-size operations. More than six out of 10 tableservice operators with an average check size of less than $25 report that their customers' loyalty is more difficult to maintain than it was two years ago. Only 10 percent of operators with check sizes of less than $25 feel that customer loyalty is easier to maintain compared with two years ago.

In the $25-or-more average-check-size segment, tableservice operators are having a slightly easier time maintaining customer loyalty. Fifty-two percent of those operators say that their customers' loyalty is more difficult to maintain today compared with two years ago, while 17 percent say it is easier to maintain.

The future looks bright

Despite the many challenges they face in their restaurants and in the increasingly competitive marketplace, tableservice-restaurant operators are overwhelmingly optimistic about business conditions in 1998. Nearly three out of four tableservice operators with an average check size of $25 or more expect business to be better in 1998 than it was in 1997, while only 7 percent predict a downturn.

At midscale and lower-check establishments, the future looks bright, too. Nearly two-thirds of operators with an average check size of less than $25 expect business to improve in 1998. Only 3 percent anticipate a slowdown.

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Bruce Grindy is an economic analyst at the National Restaurant Association.