Customer Intelligence

The Importance of a Competitive Analysis in the Restaurant Industry

There are a few areas that successful restaurant owners thrive in: forecasting, planning, and identifying effective strategies based on the numbers. I know, you thought I was going to say cooking, creativity, and social media. Good guesses. However, it’s the numbers that tell you what’s working and what isn’t and if it’s time to embrace expansion plans. And, while there are nearly limitless figures to calculate, including labor cost and food cost percentage, prime cost, break-even point, and cost of goods sold, one often overlooked strategy is the restaurant competitive analysis. 

What is a restaurant competitive analysis, you ask? My point exactly. Let’s explore the many benefits this analysis serves and how to use it to increase your restaurant’s success. 

What Is a Restaurant Competitive Analysis?

First, let’s start with why these analyses are so important. While the average restaurant’s annual revenue comes to about $1 million (one reason everyone from seasoned veterans to dog groomers jump on the industry’s bandwagon), the operating profits are often slim, falling in the 4-5% range. By comparison, the profit margin for small businesses usually ranges between 7-10%

In essence, for a restaurant, every penny counts. 

Competitive analysis helps you make intentional decisions based on the strengths and weaknesses of your competitors. It enables you to stand out, determine your place in the market, and grow your business.

How Do Restaurants Perform a Competitive Analysis?

You have two types of competitors: direct and indirect. Direct competitors operate under the same business model, such as fine dining or casual. They may also offer similar cuisines, like fusion or Greek. 

Indirect competitors offer a different menu and experience. However, you may still be competing for customers based on your proximity or target market. Make a list of both direct and indirect competitors in a five-to-seven-mile radius and then exceed their performance. Easy, right?

Don’t consider the radius a hard and fast rule. It varies based on urban or rural settings and how many restaurants are in your area, which translates to how far guests may be willing to travel. Once you have your list, analyze their operations, menu, marketing, and customer reviews. In each area, determine what’s working, their weaknesses, their strengths, and the opportunities you see that ensure you’re the crème de la crème.  

For example, how active are they on their social media platforms? Do customers leave reviews highlighting areas they’d like enhanced? Do they have a solid loyalty program?

How about their menu items and pricing, and how do yours compare? Can you tell by reviews and their website which is their signature dish? Comparing menus is one of the top strategic analyses to consider. An easy way to perform this is through F&B Insights

Their menu pricing database offers the competitor and pricing information you need to make solid decisions in your community and throughout the nation. You’ll also receive alerts when competitors change their menus, enabling you to stay atop market trends.

How Often Should Restaurants Perform a Competitive Analysis?

If restaurants perform a competitive analysis, it’s often in the early stages when they’re trying to determine the market that would be best for their new establishment. It helps them define market gaps that they can fill, refine their offerings, and attract investors. These analyses, however, are best performed at least yearly, enabling you to analyze changing trends, newer restaurants, or those that have significantly updated their establishments and offerings.

Protecting your place in the market is far easier when you have the latest insights into your competitors’ sales, menu items, and marketing strategies. We all know of a restaurant that was kicking it out of the ballpark only to find, eventually, another brand had established itself as the leader of the pack when they weren’t looking.

How Do Restaurants Create a Competitive Advantage?

A competitive advantage translates to an aspect of your restaurant that makes you a preferred choice in your market. This may be your cuisine, beverages, ambiance, service, or entertainment. And, while the price point can certainly play a part, offering the lowest prices in your market is rarely a sustainable advantage. 

One or all of these create a superior value proposition in the mind of your guests. It’s why they consider you before your competitor down the street. It’s what makes you unique.

Which brings us to your mentor or the restaurant you’d like to emulate. While no one wants to claim “copycat,” nearly every company seeks out a business model worth emulating. 

Whether you’re looking to expand your current business, attract investors, or determine neighborhoods with a market gap that you can fill, Emerging Concepts can help. Our team of data scientists, real estate professionals, and restaurant industry experts help entertainment and restaurant brands expand across the country, optimizing profits while reducing risks. To learn more about our process or to schedule a consultation, contact EMERGING today.

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