Restaurant gimmicks not cool, even for them

Due to the crisis, a lot of restaurants have decided to pursue discounting and other promos in order to induce traffic at their stores.  Even for the cheaper fast food chains, pursuing this strategy just to avoid being hit by falling demand looked like a good idea. Or so they thought.  A report from the WSJ shows that the promotion strategies of the restaurants are back to bite them in the behind.

While Yum! Brands posted a higher profit for the quarter, it still saw its sales decline, primarily driven by an 8% decline from their Pizza Hut franchise.  If not price cuts, promotions are being used by companies such as McDonald’s and Starbucks.  “Starbucks has lowered prices on some drinks and McDonald’s on Monday began a promotion called “Mocha Mondays,” in which customers can get a free sample of iced or hot mocha from 7 a.m. to 7 p.m. every Monday until Aug. 3,” writes Julie Jargon of the WSJ.

I think this news presents two interesting foods for thought.  First, it seems then that what many thought were excellent strategies, particularly price cut, would boost demand.  From the report, the owners said it didn’t.  Second, even if you’re the cheaper alternative to other restaurants, it does not necessarily follow that you have the support of cash-strapepd consumers.  It is not simply a matter of spending less, but instead of not spending at all.

In that regard, as unemployment continues to increase, do we presume then that earnings for these restaurants just won’t pick up soon? Or if it does, is it enough to provide them with decent earnings? Does it rely then on what brand we’re speaking of? This report from WSJ seems to point out that, maybe it’s not so much the discounts as it is a new product at a cheaper price – a story of psychology and of maintaining profit margins.

Read the report HERE.

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