PRICE WARS TO CUT OR NOT TO CUT
Regardless of how original the concept is or how rare the offerings and products are, restaurateurs will have to tackle the challenges that competition brings, if not today, then in the near future. So what’s the best approach in this situation?
The classic scenario of battling competitors was particularly evident early on within the fast food industry, before extending its reach over the years to various concepts and eventually becoming known as the Price War.
What exactly is a price war?
A price war describes the situation in the F&B market when existing competitors are battling to gain the largest market share by cutting their prices through the adoption of various strategies.
A special focus on the Lebanese market
In order to attract more clients and primarily to survive in a particularly small and highly competitive market, restaurateurs seem to have experimented with different competing models over the years. Historically, Lebanese restaurants focused on offering the best food quality and services to their clients. Today, this ‘quality war’ appears to have evolved into another battle.
Quality war vs. price war
Looking at the Lebanese F&B scene, it’s soon apparent that some restaurants have embarked on a price war. Competitors have innovated in terms of strategies adopted to enter this initiated battle. While such strategies are being implemented by diners and fast food chains, fine dining outlets are also opting to adopt plans to regain and sustain their clientele. A close examination of the market reveals several examples of the strategies chosen:
Special discounts and offers: A study of the famous sushi market reveals that some restaurants have created a new trend instantly adopted by other competitors. Ichiban Express initiated its ‘Crazy Offer’, comprising 44 pieces of sushi, a crazy salad and two soft drinks for just USD 29.04 (LBP 44,000). This offer was available from Monday to Wednesday, allowing Ichiban to attract customers during slower service days. The offer quickly had a domino effect, with competitors like Sushi Ko launching the ‘Sushi Promo’ offer, comprising 20 pieces at USD 19.14 (LBP 29,000). Likewise, OBI produced an open sushi package, available from Monday to Wednesday, which included a crab salad, temaki and drinks for LBP 44,000.
At cost: Society Bistro is the ultimate example in Lebanon of the ‘at cost’ pricing strategy. Located in the Saifi Suites Hotel, Society Bistro is a French restaurant that has existed for several years, but became a serious hotspot in 2016, after dramatically reducing the prices on all of the items on its menu.
Offers: Recently, Roadster Diner, followed by Classic Burger Joint, adopted a strategy based on proposing seasonal or conditional offers. Roadster Diner’s newest offer, ‘The Spicy Meal’, consists of a USD 20 meal for two people, available for delivery only. Classic Burger Joint’s most recent promotion is the ‘Classic Burger Winner Combo’, offering a chicken or beef-burger with a soft drink and French fries for USD 8.
A different situation in the UAE
Rather than entering a price war, restaurants in the UAE focus more on differentiating their positioning. The branding of restaurants is a core focus of players in Dubai and Abu Dhabi, which place the emphasis on creating a special combination of unique qualities peculiar to their outlet. Tailored concepts and renowned brands are what interest clients in the UAE. Some examples include celebrity chefs’ restaurants in the most prestigious hotels in Dubai and Abu Dhabi, like Nobu or Jamie’s Italian, and recognized brand franchises, like Hakkasan.
An alternative approach to discounts
UAE restaurants, unlike those in Lebanon, rarely provide offers or discounts. Instead, these deals and other initiatives are implemented by the search and delivery engines themselves, such as Zomato, Deliveroo and Ubereats, or The Entertainer.
A study conducted by KPMG on the UAE’S F&B market revealed that 20 percent of respondents look for deals when choosing a new restaurant. This trend is driving several restaurants in the UAE to offer an increasingly larger number of online deals and promotions. Circle Café, for example, which sells freshly tossed salads and handcrafted sandwiches, launched a deal offering a 50 percent discount on delivery orders during summer’s low season through Zomato to encourage clients to place orders online.
How effective are promotions?
Some restaurants see deals as something of a double-edged sword. They can be very effective in getting people through the door, which is useful for a new outlet or one that’s fighting to attract customers. However, restaurants don’t want consumers to expect a deal or a promotion every time they eat out. What does this imply? Winning by cutting prices is more of a risk to a business than coming out on top by offering superior value and building a base of loyal customers.
When looking at the F&B market in the region, it’s clear to see that the sector will always be a competitive one for businesses and that the days of monopolies are long gone. CEO at hospitality consultancy firm Amber Consulting, weighs up the age-old question: to cut or not to cut prices