The Blind Spot


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The Blind Spot

  1. 1. THEBLINDSPOT lty the New Loya Location and os or Health HalSticker Shock t Addiction The Discoun Generation Z The Guys of HEART VS. GUT BUILDING BRAND LOVE IN THE RESTAURANT BUSINESS
  2. 2. HEART VS. GUT BUILDING BRAND LOVE IN THE RESTAURANT BUSINESS The Discount Addiction 02 Sticker Shock or Health Halos 06 Filling the Psychological Gaps of Strategies to Satisfy Conflicted the Good Deal Consumers and New Nutrition MandatesTHEBLINDSPOT Location and the New Loyalty 04 The Guys of Generation Z 08Restaurant executives receive plenty of opinion polls, but finding actionable insights Ditching Cards in Favor of Check-Ins Digital Content and Dude Foodon what truly motivates consumers and influences their dining decisions is another and Social Brand Advocacymatter. There are blind spots in industry data that require fresh perspectives and Heart vs. Gut 10new angles of inquiry. This report offers a high-level perspective on the most critical The Identity Crisis of Fast–Casual Pretendersissues impacting restaurant brands. Please contact us for a full presentation of ourresearch findings and our strategic approach to growing restaurant
  3. 3. 03THE DISCOUNT ADDICTION: THERESEARCHQUESTION The Coupon Deprivation Study: How deep is the psychologicalFILLING THE PSYCHOLOGICAL GAPS need for savings – and how can it be filled? We will challenge the couponing culture of Gen-X moms. A sample group will undergoOF THE GOOD DEAL a two-week diet from discounts, eliminating coupons and dining specials entirely from restaurant outings. This intervention will reveal which connections and experiences survive – and which brands will win – during the dreaded coupon withdrawal. Frugality and thrift are a source of identity and consumer pride.Among Gen-X moms, the expectationof a good deal has exploded. Discounts were meant to be widely accepted social norm, promo codes, checking menu The menu for deal-seeking moms And the time is now. Commodity a temporary fix – a pragmatic amplified by the shareability prices on smartphones and signing should include search, social, prices are on the rise and cost recalibration, not a permanent of social networks, where up for digital deals before heading location-based services, online pressures are forcing many brands shift in strategy. Now they are a online coupons and money- out. There’s no escaping the daily deals, thematic content, to consider increasing menu crutch for many brands, particularly saving tips light up Facebook impact of these shifting consumer relationship marketing, reward prices. Pricing power is attainable,THEBLINDSPOT among those fearful of botching a carefully constructed value and Twitter conversations. And the mainstream push of digital behaviors. Marketers simply can’t continue to serve coupons and programs and mobile apps. Together, these platforms can but it won’t be distributed evenly across the industry – and it proposition with reduced portions deals from sites like Groupon, discounts a la carte, nor can they counterbalance margin-reducing certainly won’t come withoutConspicuous Couponing: It’s worse than you think. Deals and discounts, or tiered-pricing. LivingSocial and Tippr means do away with discounts without discounts by boosting new some hard work by brands. Theintended as a temporary recessionary fix, have changed consumer behavior. using coupons at even high- finding ways to fill the psychological traffic and return visits. There most successful chains may have Among Gen-X moms – a key end establishments no longer gap that’s left behind. Promotional are opportunities for innovative enough muscle to push prices byAnd you can’t just take them away. Now that frugality and thrift are a source target for restaurant brands – engenders embarrassment. It’s a offers and discounts must be a brands to surge forward, leaping a couple percentage points, butof identity and consumer pride, your sales are at stake if discount withdrawal the expectation for a good deal badge of honor. point of departure, a gateway to over the economic slump if even they can’t expect to instantly has exploded, spurred by a deeper engagement – tied to an they can deliver campaigns that wean moms off their steadyensues. How can brands fill the psychological savings gap? powerful combination of cultural, In this new era of thrift, Gen-X experience that beneficially defines add some zing to the zeitgeist diet of discounts and deals – not technological and economic moms work harder, scouring or broadens a brand’s positioning in while coordinating tactics across without giving them something trends. Frugality is now a online sources for coupons and the minds of consumers. marketing channels. else in return. 02
  4. 4. 05 THERESEARCHQUESTION You Are Where You Eat: Can location-based marketingLOCATION AND THE NEW LOYALTY: Location-based services and “check-ins” offer an attractive alternative to traditional achieve what loyalty cards never could? Loyalty today is no longer just about brand preference; it’s a projection of self-identity. Now that location-based apps and rewardDITCHING CARDS IN FAVOR OF CHECK-INS loyalty programs. programs broadcast consumer “check-ins” on Facebook and other social networks, what was once a one-to-oneAND SOCIAL BRAND ADVOCACY relationship between brand and consumer has shifted to the new one-to-one-to-many model. For years, loyalty cards added cards. Location-based services be used to build preference sets cards, top restaurant chains 20 percent of all transactions at Facebook, Twitter and other social salad. On the other hand, With increasing sophistication, a familiar bulge to consumer and “check-ins” offer an attractive and drive incremental sales. have become highly tactical in Starbucks stores in the U.S. sites, creating a shared, semi- teenage guys proudly plowing segmentation and customization, billfolds and extra clatter to alternative to traditional loyalty identifying incentives that keep public history of check-ins that through Double Downs at KFC the emerging class of digital keychains. More than 80 percent programs. New technology enables brands people engaged, as well as More than a tactic to increase can be tracked by consumers’ might be perfectly happy to keep loyalty programs will create of U.S. consumers carry a club to design location-based loyalty their optimal rate, randomness, sales, loyalty programs present friends and followers. their online peers in the loop. opportunities for restaurants to card for at least one supermarket, Several chains – including programs and run segmented value and intensity. The “My a customer service opportunity tailor incentives across a broad yet the restaurant industry never McDonald’s, Starbucks and campaigns simultaneously from a Starbucks Rewards” prepaid to enhance interaction and This “social broadcast” Apps and location-based service range of demographics. The fully embraced loyalty programs. Chipotle – were among the first single dashboard across multiple card program, for example, engagement. Coupons might get effectively transforms the one-to- programs also provide the merger of location and socialTHEBLINDSPOT Early efforts at some chains were scrapped after executives brands to participate in the debut of Facebook Deals in November, platforms, such as Gowalla, Foursquare and Facebook Deals. offers multiple tiers of loyalty with rewards that increase somebody in the door, but an enjoyable experience and effective one relationship between brand and customer into a one-to- ability to alter brand messages to individuals based on their media presents a compelling new approach for restaurants looking decided they were too difficult to a reward application linked to the These tools can coordinate progressively: first, a free drink frequency programs keep them one-to-many model, which has day-part identities. For example, to redraw the line on loyalty.Disloyal Diners: Loyalty cards manage and maintain. Customers location-based service Facebook and deliver relevant messaging on your birthday, then free refills coming back. The value of strong important ramifications for how men aged 18-25 display huge at other restaurants frequently Places. Customers who used (e.g., texts and tweets) to and trial offers, and, finally, customer relationships doesn’t restaurants approach their loyalty differences in behavior when younever managed to drive retention lost cards and – just as often – their mobile phones to check in at customers at the right time and exclusive invitations to concerts end at retention. Brands must programs. Dieting boomers, for compare their lunchtime identityfor restaurant brands. lost interest. participating Chipotle restaurants place: targeting the breakfast and film screenings. Because transform loyal customers into example, might not want their with their late-night self. In the received a buy one get one free commuters while they’re still in these are prepaid cards that advocates who recommend the spouses, colleagues or friends latter, they’re about indulgent, Frequency programs are evolving entrée offer. But the check-in is their cars, or reaching out to the carry a cash balance, consumers experience on social networks to know they’re indulging in hedonistic dining, whereas in the and now include card-free just a starting point. There’s a lunch crowd at noon. are less likely to carelessly lose and via word of mouth. mid-afternoon munchies at former, they’re conscious cost- options, such as mobile apps and great deal restaurants can learn them – and Starbucks earns all McDonald’s but perhaps they savers essentially avoiding what automatic systems that identify about their customers through Moving beyond the boring and the revenue up front. The cards Location-based apps are often would want to earn some social their late-night self craves. customers based on payment these programs – data that can predictable calculus of punch now reportedly account for nearly automatically integrated within cred from ordering a low-cal 04
  5. 5. 07 THERESEARCHQUESTIONSTICKER SHOCK OR HEALTH HALOS: Redefining Indulgence: Will government requirements on nutritional data send consumers scrambling to find healthier alternatives? Will they begin seeking the truth about what they’re eating and make more prudent choices? Consider the halo of “fresh-cut fries” or “all-whiteSTRATEGIES TO SATISFY CONFLICTED meat.” Many consumers need only one good reason or well-chosen word to allow themselves to dig in. But what happens when they realizeCONSUMERS AND NEW NUTRITION MANDATES their favorite “all-natural” sandwich on “artisanal” bread packs almost 1,000 calories? How do restaurants win the numbers game? The list of the fastest-growing vehicle for fast food chains, as KFC’s infamous Double years ago. Consumers claim they inform their behaviors. restaurant brands is a telling believed that a 1,000-calorie Down. Yet Panera still enjoys a want more information about the Our ongoing dialogue with barometer of consumer sandwich had only 500 calories, reputation as a healthful dining ingredients in their food, including consumers reveals that healthful sentiment toward healthy according to findings from the destination. The presentation of sources (e.g., “local”) and nutritional eating isn’t necessarily a clear-cut food, featuring fried chicken, Cornell Food and Brand Lab. lower-calorie alternatives – and content. At the same time, however, numbers game. Beyond calorie and hot wings, Mexican food and added transparency on nutritional around 40 percent of consumers fat counts, a number of cultural buffets – cuisine that is not Common sense suggests that data – appears to have boosted complain that nutritious food simply and experiential factors influence particularly known for being kind the “health halo” would diminish the chain’s overall business. doesn’t taste good, according to how individual consumers assess to waistlines. And a number of – if not disappear altogether – Good health may be priceless, data from the Food Marketing the health quotient of foods. other chains have been innovating when consumers are confronted but, apparently, the perception of Institute. Many others are put off Restaurants can offset hard in indulgence with new gut- by actual nutritional data. good health is enough to boost by the perception that healthy food numbers with contextual cues that busting entrées, such as Denny’s However, that doesn’t appear profits. generally has higher prices. aid the rationalization process thatTHEBLINDSPOT Fried Cheese Melt and Friendly’s Grilled Cheese BurgerMelt. to be the experience at Panera Bread, which began posting With new federal and state This suggests that reconfiguring begins the moment consumers are told that what they want isn’t calorie counts on its menu mandates requiring restaurants food choices to accommodate the good for them. Cues to freshness,Calorie Rationalization: Many restaurant Last year, University of Chicago boards in March 2010. This move to post nutritional data on health conscious isn’t guaranteed authenticity, whole grains and researchers found that food certainly hasn’t crimped sales; menus, there’s never been a to be good for business. So how real ingredients can help putchains – not just QSRs – fear that labeled as “healthy” (as opposed Panera reported increased returns more important moment for the can restaurants provide relevant the fat facts in the back of theirrevealing health-related information to “tasty”) actually made people of 9.9 percent in the second industry to confront the facts health-related information to people mind, diminishing the negative impact this information might havewill scare away patrons and skew their hungrier and more likely to eat quarter of 2010, followed by on healthful eating. However, who want it most – and comply with otherwise had on their decision- more. Paradoxically, the more upticks of 6.9 percent in the third there are huge discrepancies new federal and state mandates onmenus. Federally mandated calorie consumers pay attention to what and 5.8 percent in the fourth. Not between what consumers say nutritional data – without scaring making.counts will redefine indulgence, requiring they eat, the more overweight every meal at Panera qualifies in surveys and how they actually away patrons who might think twice we have become as a country. as diet-friendly, far from it. Both behave at mealtime with menus after seeing the calorie counts? Restaurants will benefit fromconsumers to make a more conscious the Sierra Turkey Sandwich and in their hands. For marketers, the greater clarity and context ondecision to do something bad. Studies have shown that the the Italian Combo Sandwich takeaways from industry data on For brands, the best way to really these issues. They need a fully halo effect of health claims can have over 50 grams of fat and this subject are often conflicting, learn about healthful eating isn’t baked strategy, not more raw improve consumer perception over 900 calories. Even some of confusing and counterproductive. by sending out surveys. It’s by numbers. of the food they’re eating. their soups contain nearly 1,000 starting genuine conversations with Customers at Subway, which calories, once you scarf down More than 70 percent of adults consumers in their natural habitats Studies have shown that the halo pioneered the strategy of the sourdough bread bowl. That’s say they try to eat healthier now and making careful observations effect of health claims can improve healthfulness as a marketing nearly twice as many calories at restaurants than they did two about how their beliefs actually consumer perception of the food they’re eating. 06
  6. 6. 09THEBLINDSPOT Eating out is a ritual in the lives To activate this emerging Across all age respondents in theThe Future of the Restaurant Business: Teenage guys of young men. Chain restaurants demographic requires an study, 49 percent desired mobile are a convenient and familiar understanding of their unique information on sit-down casualof Generation Z – with their peer influences and pack meeting place that serve an social dynamics. They often restaurants, 30 percent wantedfeeding, social networks and mobile media – represent important social function – the eat in groups, making brand fast food and only 23 percent age-appropriate equivalent of the preferences heavily influenced by were looking for fine dining.the future of the restaurant business. This is a highly neighborhood bar. social, digital-driven segment, and though they can be Drilling down into the specifics For quick-service and fast-casual The digital natives of Gen Z – of Generation Z, it is essential toawkward to pursue, brands fundamentally need to start restaurants, it will be important along with Gen Y and the very determine what truly attracts theirbuilding relationships now. THERESEARCHQUESTION to engage the up-and-coming youngest of Gen X – are also attention and drives their decision teenagers of Generation Z, the more likely to seek restaurant making. Do they feel pandered oldest of whom will soon turn 18. and dining information on mobile to by “young hungry guys” Still in high school, these young devices. Only about 10 percent of campaigns from Carl’s Jr. and men remain insulated from the all Americans regularly seek such Hardee’s? Are they digging the Growing With Generation Z: miserable job market and their information on their mobiles, “dude food” category spawned What do teenage guys want when they discretionary income levels should but 50 percent of that group by popular indulgences like KFC’s eat out? What attitudes and actions driveTHE GUYS OF GENERATION Z: be relatively consistent with is between the ages of 13 and Double Down? Fast food has past generations. But beyond 34, according to The Mobile traditionally served as a rite of this generation? Through an ethnographic their immediate spending, it’s Shopping Framework Study passage for teenagers, and there important to consider how their from Nielson and Yahoo!. Though is value in knowing where they’re immersion into teen tribes, Engauge will cultural identities, habits and the earliest adopters tended going now and where they’re explore the social significance of dining outDIGITAL CONTENT AND DUDE FOOD desires should inform strategies to keep them engaged as they mature. to be mobile foodies seeking fine dining and niche meals, the numbers now favor mass chains. planning to go as they grow. in the lives of Generation Z, where fast food serves as a ritual and rite of passage. Fast food has traditionally served as a rite of passage for teenagers. Eating out is a ritual in the lives of young men. 08
  7. 7. 11HEART VS. GUT:THE IDENTITY CRISIS OF FAST CASUAL PRETENDERS Fast casual chains have posted Double-digit growth throughout a for this group, and their spending phrase. We define fast casual as and its Fire-Grilled Ribs, priced playbook. Fast-growing fast- some of the most impressive vicious industry-wide downturn; accounts for a significant share of averaging around $7.50 per ticket, $8.99 in major markets, are nine casual chains are distinguished numbers in the industry by relevance with a younger and restaurant revenues. even though Technomics pegs times more expensive than the $1 by their faithfulness to a clear creating popular concepts with more affluent customer base; the check price slightly higher, entrées on the BK Value Menu. and compelling concept. Their plentiful options. Meanwhile, and the siphoning of traffic from These male Millennials have around $8 or $9 on average. (That’s like Applebee’s introducing value proposition is recognizableTHEBLINDSPOT palate and price creep are confusing the value proposition both quick-service and casual chains. entered their prime restaurant- going years during a surge in Check price is the easiest criteria to parse – and it appears to be a $100 steak.) Conversely, full-service chains such as and cogent. By comparison, restaurants that attempt to at QSRs, and casual dining fast casual. Engauge research the one qualification that the Denny’s and Gordon Biersch are satisfy all taste preferences whileTrying to Be Everything to Everybody: QSRs (trading up) and restaurants are trying every trick Young adult men have suggests their love affair with current wave of copycats from descending into the fast-casual accommodating every possiblecasual chains (trending down) have tried to copy the tactics in the book to break the cycle of traditionally been the most fast food may be imperiled by a the quick-service and casual category with new concepts in price point are at the risk of trading down. frequent restaurant-goers, deep and growing attraction to segments believe is the secret urban markets. But honestly, confusing (and losing) customers.of successful fast-casual brands, leading to category creep particularly for QSRs. Male the likes of Chipotle. sauce of fast-casual success. what’s the concept? Cheap casualand price confusion. Yet price is never the sole selling point. Every restaurant chain today Millennials – the college kids and That’s a mistake, because price is and costly fast food. It’s a pure Given the track record of the top- wants to capture the magic young professionals aged 18 to Three years ago, the industry not the point. play for price positioning. performing chains, it’s evidentEven in today’s value-conscious culture, there are better of fast casual, even though 30, also known as Generation Y – forecast from The National that specialized restaurants thatways to build brand love. If brands try to be everything to nobody can quite agree on what have been hit the hardest by high Restaurant Association didn’t From above and below, Clearly, executives at these chains have scaled back their menus fast casual really means. What unemployment levels. Yet eating competitors are racing to meet in have taken note of the breakout to focus on only a handful ofeverybody, they’ll end up meaning nothing at all to anyone. isn’t disputable is the success: out remains an essential practice even mention fast casual, the middle. Burger King launched successes in fast casual, but their products have become more and today only 5 percent of consumers are familiar with the new premium entrées last year tactics suggest they misread the appealing to customers. Young adult men have traditionally been the most frequent restaurant-goers. 10
  8. 8. THERESEARCHQUESTION Heart v. Gut : Explicit gut-level advertising can be popular, particularly with male Millennials (aged 18-30), but does the overall experience leave them feeling full yet unfulfilled? Sated but unsatisfied? Is there something bigger out there – separate from calorie content and price – that drives brand relevance and consumption? How are fast-casual brands building the foundation for a lasting relationship, while so many QSRs settle for a one-night stand?At Five Guys Burgers and they’ve also grown without by providing indoor playgrounds, to 3.7 million Facebook fans – ABOUT THE AUTHORSFries, the menu is so short it’s resorting to discounts. healthful entrée options and four times bigger than Burgerpractically eponymous. But Five superior customer service with King, even though Burger King David Grzelak, Executive Director of Brand PlanningGuys lets customers choose from This is the paradox of pricing. flexibility on issues ranging from has nearly ten times as many As a cultural anthropologist and researcher, David hasnearly 20 free toppings, which In today’s economy, restaurant coupons to the contents of kids locations. That’s not an upstart, dedicated his career to combining cultural and theoreticalmeans there are 250,000 ways to executives are finding it meals. They’ve also attracted a that’s a new incumbent. And they thinking with sound marketing strategies in order toorder a burger. Similarly, Chipotle increasingly difficult to resist the cult following of male Millennials got there without discounts or a influence consumer behavior in the marketplace. It’s hisoffers five total entrées with a impulse to create tiered value and college students. The droves value menu. goal to truly understand consumer beliefs; that’s why hesuccinct tagline: “Our menu isn’t menus and offer discounts. And of road-tripping young men who spends his time visiting consumers in their natural habitat,long, but it’s long on options.” the prospect of actually raising regularly flock to grand openings Today, what consumers want and where opinions are formed and decisions are made. HeChipotle recently reported 21 prices appears almost suicidal. of new stores aren’t there just get from their overall experience then uses this firsthand knowledge to guide strategicpercent revenue growth in FY Yet several of the top-performing for the free refills. The chain has often matters more than what thinking for clients and brands. His brand experience2010, and Five Guys posted 69 restaurant chains have held the managed to enhance activation they pay, particularly when it includes Perkins, Sonny’s Bar-B-Q, Chick-fil-A, Donatos,percent growth in 2009. line on menu prices, proving that and affinity across these comes to creating long-term Food Lion, Nationwide, Kraft, Brown-Forman, Abbott consumers recognize true value divergent demographic groups brand affinity. That’s true across Nutrition, Georgia Tourism and Hershey’s.A number of the largest is about much more than saving without losing sight of its core all categories and price points,restaurant chains with the a few pennies or getting a free identity. Chicken sandwiches from quick service to casual.greatest top-line growth drink. remain its bread-and-butter There’s a spectrum, for sure; no Mya Frazier, VP Marketing and Strategic Developmentshare these twin strategies business. mass brands can expect to stay Mya’s work is focused on identifying cultural shifts thatof menu specialization and Chick-fil-A, for instance, is a in business if they don’t satisfy represent growth opportunities for client brands. She leadsmass customization. But limited service chain with no Of course, high-paced growth hungry stomachs at a reasonable the agency’s thought leadership and marketing initiatives.there’s a difference between pretensions of fast casualness, is not the only measure of price. But brands need to be She joined Engauge in 2010 after working for more thancustomization (which consumers which ranked fourth among Top success. In fact, the law of much more than just good to the 15 years in both advertising and media. Her writings onlove) and palate creep and barbell 100 Growth Chains in the most big numbers suggests that gut and easy on the wallet if they business and culture have appeared in Advertising Age,pricing (potential sources of recent annual tally by Nation’s the largest incumbents, which want to build customer advocacy American Demographics, The Economist,, Theconfusion). Despite the emphasis Restaurant News. Chick-fil-A have already saturated the and stoke long-term growth. New York Times and Sky Delta. She writes the blog Normson options, the breakout brands has carefully cultivated its market, will naturally tend to and Mores for, chronicling shifts in consumerhave carefully cultivated their singular brand identity through grow slower than innovative behavior and social norms.identity through marketing marketing messages that remain upstarts. But in terms of brandmessages that remain clear clear and coherent across all affinity, too, several breakout Follow her on Twitter @myafrazierand coherent across all target target demographics. The chain chains are pulling ahead. Chick-demographics. In many cases, appeals to parents and children fil-A’s fan base has now grown 12
  9. 9. ABOUTENGAUGEOne of the nation’s largest independent advertisingagencies, Engauge leverages creativity and technologyto connect brands and people. The agency’s client rosterincludes Nationwide Insurance, Perkins Restaurant &Bakery, Ainsworth Pet Nutrition, Coca-Cola, Best BuyFor Business, Chick-fil-A, Brown-Forman, Food Lion, TheState of Georgia, Donatos, NGK Spark Plugs and more.Engauge, which has offices in Atlanta, Austin, Columbus,Orlando and Pittsburgh, is a portfolio company ofHalyard Capital.New Business Inquiries:Mya FrazierVP, Marketing and Strategic Developmentemail: mfrazier@engauge.comoffice: 614.573.1407mobile: 614.485.8607