3.2: Understand Your Competitors

When analyzing competitors, it is important to determine the total amount of food service dollars’ currently spent by customers in your trading area. These data are invaluable and provide an idea of how much money there is available to food service operations as a collective. This analysis will indirectly indicate how hard the operation must fight to protect and increase its portion of the marketplace. These numbers are typically available from various suppliers to your operation such as food or beverage suppliers, local restaurant association, or the place that most restaurant operators would never think to inquire - the local sales tax official. Sales tax information is a matter of public record.

Evaluating your competitors

The most important overarching theme a new entrant competitor needs to comprehend clearly is what it is that you are actually evaluating. First, competitors can disappoint their customers over time with poor or inconsistent food or service, aging facilities that look un-kept, a lack of imagination, or cleanliness, and so forth. In such cases that will, through their inability to provide for their customers, sent business to you.

On the other hand, operations can flourish through excellent food and service, pristine surroundings, an inviting physical environment - and a consistently fresh attitude where their customers are concerned. Such foodservice operations build barriers for their competition. When dealing with a perceptive competitor, you must market and pry customers away from them - because they give their customers no reason to leave or explore other operations. They set the bar high and defy your attempts to lure customers away. Figure 2.2 contains important themes by which potential or existing competitors can compare and contrast to each other, as well as your operation's strengths and weaknesses.

General Evaluation

A good place to start would be the telephone book or Website for the marketplace. This will give you an idea of the number of competitors in each restaurant segment (QSR, casual, fine dining, and so forth). Another good source for competitor information is a city's Chamber of Commerce. The Chamber's function is to make known all businesses in the community so do not expect them to provide you with an evaluation of different operations. They will acknowledge the existence of, but not a quality comparison. Observe the restaurant operations that are similar to your concept and gauge their marketing effectiveness and number of clientele during different meal periods. A time effective and efficient method of gathering relevant information is to 'mystery-shop' the competition to determine their strengths and weaknesses and whether or not they pose a threat to your concept. Figure 2.2 contains important themes by which potential or existing competitors compare and contrast to each other and your operation's strengths and weaknesses.

Another effective way to determine the approximate sales of a competitive operation would be to sit in the parking lot and do customer counts during various meal periods over a few days, arrive at an average check amount by bundling say an appetizer, entree and dessert from their menu and simply do the math. This can be time consuming, but prior to opening your operation a new entrant is essentially invisible to potential competition. You can speak with servers in the dining room, sample food, and gather impressions from other customers from conversation. Additionally, one can observe 'who' their customers are in terms of age, financial position, couples, families, and so forth. Observation is powerful and telling if well structured.

Age of the competitor

Understanding how long a competitor has been operating in a marketplace is another important consideration that needs evaluation. Typically, over time, a restaurant will proceed down one of two paths. The first path leads to ongoing success through customer connections with birthdays, anniversaries, meals with loved ones who have passed on - in short, a repository of wonderful memories of times experienced and offerings that have achieved the term 'comfort food.' This occurs over some years or over generations in some cases. Beware of these operations, you are not simply dealing with another restaurant, you are facing an 'institution' in the community, which can be a formidable task that takes a healthy amount of consideration.

Number of restaurants in a Trading Area

This includes the overall number of restaurants in the marketplace as well as the restaurants you compete against on a daily basis. It is important to remember that a trading area has a finite amount of disposable income for food service and the number of competitors available to customers will dilute the share of that potential revenue to your operation. Markets can over-saturate or, become under-served - you must be aware of which scenario exists.

Diversity of competitors

Think about the different restaurant marketplace groupings. For, example, what about the ethnic breakdown? How many, Chinese, Japanese, Thai, Mexican, Soul, Cuban are available to the public? Is there a void that your concept could fill? What about price diversity? Can you group restaurants by price points? Service is another area of importance. What are the different types and levels of service offered in the marketplace?

Types of Competitors

There are two basic types of competitors - both are important to know. The first type are 'direct' competitors, foodservice operations that are after the same customer, have similar types of menu, level of service, and are within plus or minus 15% of your pricing. The second type are the "indirect’ competitors who sell food and beverage but are not usually going after the same type of guest. For example, a fine-dining restaurant is an indirect customer for a quick service restaurant (QSR) like Burger King - and likewise from the perspective of the QSR operation. Remember, the importance of knowing all of your competitors lies in the quantification of disposable income - there is only so much and everyone wants a portion.

Entry barriers to the marketplace

A competitor can place or cause different types of barriers for your operation to overcome as a cost of entry into the marketplace. A physical barrier could be a prime location in an area with limited parking, or well a well-lighted parking area adjacent to the restaurant - the only close lot on the block. Physically, your operation could stall because there is no available location in the exact area you need to service the trading area. Emotional barriers such as generational barriers - habits, memories and good
times remembered. A competitor's strong service component could be difficult to replicate in a known trading area. The core competencies and competitive methods of your competitors can come together to present obstacles to your operation. This is another important reason why visiting the competition is a vital to assessing their capabilities. When any new operation enters a marketplace, there will be a reaction to the new competitor. Knowing this, take the time beforehand to evaluate your competitors to understand what capabilities they have to react to your entry into the market in a way that could be hurtful to you.

Another barrier could come in the form of licensing such as a liquor license. How easy or difficult is it to obtain one? Learn in advance. If licenses are scarce and you are lucky enough to have one, you may be able to relax just a bit - but not too much! A potential competitor aware of the issue may request an exemption prior to opening. Licensing is often a moving target - and not to taken for granted as a certainty or uncertainty by any competitor.

Successful competitors

Pay special attention to competitors who are obviously successful. What can you learn from them and implement in your own operation? It is a good idea to 'benchmark' the competition. Benchmarking is the process of determining ‘who is the best’, say, in terms of service level, value, food quality, and variety of menu offerings. Who is setting the standard in the marketplace? What is the standard? Can your operation emulate that standard? If you are aware of where the bar sits prior to opening your operation, you can plan strategies that help you reach or surpass that standard. You should determine how that ‘best’ status came about, and determine what you need to do in your operation to gain that status. If you do not know what the standard is, you cannot measure your operation and thus improve your standing.

Reality should always drive your operational goals. First, the goal is never to be the best. To be the best, you must first learn exactly what it is that you can master. Thus, you can only be the best at things you do extremely well. Extremely well is the most accurate way to state that proposition. Think of it all this way: does a customer ever look forward to a bad meal? No, the minimum expectation is a 'good' meal and as such, the minimum stand acceptable to your operation must be at a higher level than ‘good’. Good only suffices - it never inspires. 'Good' as a standard is what a strong competitor is hoping you see as an everyday requirement from your staff.

Affiliation of competitors

Affiliation can denote strength or weakness - sometimes where you might least expect it to appear. For instance, if there are quite a few chain operators, they can typically hold out a long time in a tough competitive market. Nevertheless, chinks in the armor do in fact exist. Chain operators are generally financially strong but lack the flexibility to make menu changes or pricing adjustments. Chain operators, then, are the keeper of the status quo. The products offered are the same from one geographical region to another which does not always please all of the customers all of the time. Chain operations are a bit like government. When democrats and republicans argue their respective positions, normally everyone get a little but no one gets everything they either want or need. They are often sitting ducks for an operation with consistently good innovative food and service.

Independents do have strength

The independent restaurateur does not usually have the financial strength of the larger chain operators which leaves them in danger during poor economic times are from threats launched by their larger counterparts. Additionally, their operational strengths are typically lacking in areas such as management, cost structures, menu engineering, and environmental scanning. However, a well-informed independent can overpower a larger operation by playing to strengths that are un-encumbered by corporation ideologies. They can change, re-direct, and produce products tailored to their clientele. New York City is a perfect example of a major city with fewer chain operators than a small community because of the large number of generational small operations that abound and offer eclectic food tailored to their neighborhoods and community. Chains lack the flexibility and discerning quality to compete in that form of arena. Thus, the message is simple, do not fear your competition, but equally, do not fail to assess their strengths and weakness - and the marketplace itself.

Competitor marketing strategies

These strategies focus on the seven basic principles of hospitality marketing. All competitors in one way or another manipulate these principles commonly referred to as the 'marketing mix' of an operation. Price: the dollar amount you place on your products. When combined with the other principles, it denotes a certain value that should be consistent with the perceived value the target audience places on your products and services. Product: This includes your menu items as well as any other products and services that you buy, prepare, or sell to your clientele. Promotion: This is the overall message you relay to your target market, including advertising, sales promotions, personal selling, and public relations efforts. Place: This includes the location of your restaurant, the surrounding neighborhood, and its accessibility and visibility. Process: This consists of the way in which you deliver your service. Do you have a wait staff? Do you utilize a buffet? Do customers get their own soft drinks? How do you handle take-out orders? Do your servers prepare items such as desserts in the dining room? Participants: the people you want to participate in your operation. You choose them. They are your customers, employees, and other stakeholders, such as purveyors and other outside service providers. Physical evidence: Your physical facilities create a particular atmosphere. They provide tangible clues to the customer. For instance, the exterior appearance can denote a casual restaurant. It can also send a message regarding who is welcome and who is not. A neat and clean dining room provides the customer with evidence of a well-managed restaurant.

The first four are the traditional principles developed for marketing all tangible products. The other three are unique to restaurants. Managers often think of marketing and advertising as the same thing. However, advertising is just one form of promotion, which in turn is just one element of the marketing mix. Depending on the situation, an operation may not even use advertising in their mix. While all of the marketing principles are interrelated, the marketing mix is normally unique to the type of restaurant segment. For example, the mix needed for a successful quick-service restaurant will differ significantly from the one used by an upscale steak or seafood operation.

Differentiation is important, but eventually emulation of your innovations by your competition will occur. Thus, an operation cannot become stagnant in its marketing efforts. The key is to create a ‘differentiation’ strategy that renders you unique. It is impossible to copy uniqueness.

The best way to tell which of your competitors are ‘winners’ is to look at as many competitors as possible. When you can observe the collective marketing schemes of the trading area and identify positive results, you can formulate a productive plan regarding what to do, and of greater importance, what not to do.

Signature items

What are their main moneymakers? Can you match them or do improve on them? If you intend to copy a product made popular by a competitor make sure that it is as good as, or better, that the original product. Consumers will judge your product by the taste profile of the original product - and customers must perceive the new product to be a better value.

Competitors' strengths and weaknesses

Understanding the strengths and weaknesses of your competitors' is almost as vital as understanding your own core competencies and vulnerable areas. Always play to your strengths and always be shoring up your weaknesses. For any operator the first step toward success begins with the ability to honestly assess where you and your operation stand - what do ‘we’ and ‘others’ do really well, and what would make us a better company.

Do not try to go head to head with a competitor who is especially skilled in particular aspects of foodservice operations. Until your company becomes established, avoid competitors who know how to hold up well in a murderous competitive environment. Better to let those types of opportunities go by the wayside. It would be more profitable in the end to stake out a trading area where you can grow unencumbered and establish your concept, your operation, and yourself and partners where applicable. Initially, try to compete against those who are reluctant to challenge you. Build your brand before you clash with established operations.

Market niches - any available?

Are there any market niches vacant in the trading area? This is a way to eliminate head-to-head confrontations with established competitors. Is there a valid reason why no one is offering a certain type of menu - or is this an opportunity waiting to be explored?

Competitor stability

Are foodservice operations constantly opening and closing in the marketplace, or is the area stable? Either way you need to be on the right side of this kind of cycle. An un-stable competitive environment usually indicates there is no compelling reason for guests to visit the local restaurants. If so, evaluate what you might do to avoid this situation. To compete you will have to do something to stand out, something that compels customers to visit you consistently. If possible, try to focus on one or two competitors' life cycles. How did they start? How was the pre-opening marketing, and initial customer contact handled? What significant changes did they make along the way? If they went out of business, was it because of operational difficulties or uncontrollable events such as a major rent increase?

In sum, evaluate the path of the failed operation and avoid their errors. When an operation enters a market place, all customers' know about the company is the image and actions presented to them. All positives equal a positive impression. A problem a customer does not see is not a problem. You will generally not lose clientele because of it. If a difficulty reaches the customer, you must always act immediately to correct the issue because a problem equals reduced value in the mind of the consumer and value is what prompts continuous return customer to your operation.