Washington, D.C. (PRWEB) December 08, 2016
Today, Applied Predictive Technologies (APT) released its annual State of Business Experimentation report for restaurants. The report outlines what leading restaurants say are the biggest threats to their business and how they are solving these challenges. Click here to view the full set of insights.
Jonathan Marek, head of APT’s restaurant practice, commented, “It’s incredible to see the wealth of value that comes from these insights about restaurant strategies. Our restaurant clients are using the data to understand where they’re investing more or less than their peers, and what strategic opportunities lay ahead for 2017. We’re thrilled to share these results more broadly, and are excited by the value they’ll drive for executives who are thinking about conducting more experiments.”
Summary of Findings
Increasing labor costs, strong growth of traditional competitors, and changing consumer preferences are the three biggest threats to restaurant organizations this year, and restaurants are responding to each of these challenges by experimenting with new innovations. Here are the key trends for each area, and how leading restaurants are reacting.
1. Restaurants are responding to increasing labor costs by conducting pricing, labor, and operational experiments.
Given the recent proliferation of wage rate laws, 30% of restaurants identified increasing labor costs as the largest threat to their business in 2016. As a result, many restaurants are preemptively preparing for these new labor costs by testing price increases. Some restaurants also tried new operational strategies to increase employee productivity, including improving training programs, altering compensation and incentives, and adding digital ordering. Conducting business experiments to understand new strategies in a subset of locations before minimum wage changes are enacted gives restaurants an advantage to learn which ideas are most profitable and curtail any negative impacts.
Menu-wide price increases and variable pricing were the most popular pricing strategies that restaurants experimented with in 2015, each tried by 37% of restaurants. Other pricing experiments included item-level price increases and localized pricing (11% of restaurants). Some restaurants even tested item-level price decreases with the hopes of driving traffic and increasing overall check size.
2. Restaurants are leveraging marketing and promotions to combat growth from traditional competitors.
Growth from traditional competition is heating up, and 25% of restaurants named this issue the biggest threat to business in 2016. In response, restaurants experimented with new strategies across a broad range of functional areas. The three most frequently tested areas included marketing and promotions (37% of total tests), menu (27% of total tests) and capital expenditures (26% of total tests).
Within marketing and promotions, restaurants started to test a wider range of mobile, loyalty, and digital initiatives. However, TV-related strategies were still the most frequently tested marketing area, comprising 36% of all marketing and promotions tests. New item introductions and localized menu items were the most frequently tested menu ideas.
3. QSRs and FSRs are adopting Fast Casual elements to satisfy changing consumer preferences.
20% of all restaurants identified changing consumer preferences as the biggest risk to business in 2016. The fast casual industry has fulfilled many of the latest consumer needs for healthy, affordable, and quick meals. To keep pace, many QSRs and FSRs are adopting elements from the fast casual industry into their business models.
70% of QSRs tried adding fresher menu items, and 50% invested in in-restaurant technology and order-ahead options. Additionally, QSRs tested upscale remodels, loyalty programs, and tweaks to existing service models. 63% of FSRs responded to fast casual players by reducing wait times for guests, and other popular strategies included adding lunch offerings, introducing value menu pricing, and adding to-go/delivery services, each tested by 38% of restaurants. Experimenting with these strategies is allowing QSRs and FSRs to cater to the speed, menu offerings, and overall dining experience that guests desire.
For each of these initiatives, restaurants are finding that business experiments maximize learning and profits. To that end, restaurants conducted over 60 tests during 2015 on average, with the top quartile of restaurants conducting over 125 tests during the year. Restaurants also reported that 27% of these ideas did not break even, enforcing the need to test each new idea before broad rollout. By testing each new initiative in a subset of locations and comparing performance to similar restaurants that do not implement the new initiative, restaurants can learn which ideas are most successful. Testing also allows restaurants to learn how initiatives can be refined for further success and targeted to only a subset of the network for maximum benefit.
Preview of the Full Report
Biggest Threat to Business in 2016 (percent of restaurants):
- Increasing labor costs: 30%
- Strong growth of traditional competitors: 25%
- Changing consumer preferences: 20%
- Economic headwinds: 10%
- Other: 10%
- Continued growth of fast casual: 5%
Testing by Functional Area in 2015 (percent of total tests):
- Marketing & promotions: 37%
- Menu: 27%
- Capital expenditures: 26%
- Labor & operations: 6%
- Pricing: 3%
To view the full State of Business Experimentation report for restaurants, please visit: http://download.predictivetechnologies.com/apt-state-of-business-experimentation-restaurants/.
The State of Business Experimentation report is part of a larger set of reports that includes also includes insights for retail, manufacturing, financial services, and more industries. All results are based on self-reported data by a subset of APT’s clients. APT works with 20 of the top 50 US restaurants.
APT, a MasterCard Company, is a leading cloud-based analytics software company that enables organizations to rapidly and precisely measure cause-and-effect relationships between business initiatives and outcomes to generate economic value. Our intuitive and proprietary Test & Learn® software utilizes sophisticated algorithms to analyze large amounts of data, enabling business leaders to conduct experiments and allowing them to make optimal decisions and implement business initiatives at scale. APT also offers products that support decision-making for specific business needs including transaction analysis, space planning, promotion design, category management and location selection. APT’s client portfolio features some of the world’s best known brands, including Walmart, Starbucks, Coca-Cola, Victoria’s Secret, American Family, Hilton Worldwide, SUBWAY, TD Bank, T-Mobile, and others. APT has offices in Washington, D.C., San Francisco, London, Bentonville, Taipei, Tokyo, Sydney, and Chicago. Visit http://www.predictivetechnologies.com to learn more.