The level of discounting in the eating and drinking-out sector hit epic proportions last year and shows no sign of abating as we head into 2018, according to industry experts.
The last quarter of 2017 was marked by big brands slashing their prices and offering the kind of eye-catching promotions usually reserved for quieter trading periods, raising questions as to when a tipping point will come. It is estimated that the number of vouchers available has increased by 60% to 70% in the past year.
Many of the casual-dining chains were offering discounts late into the festive period.
Prezzo, for example, was offering 30% off food bills until a week before Christmas; Café Rouge was marketing 30% off food bills every day, bar Saturday until 29 December; and Frankie & Benny’s was promoting 33% off mains and a free drink. Come the new year, the deals got even bigger, with Frankie & Benny’s offering 50% off mains and a free dessert or salad, available at any time.
“In the last quarter of 2017, we were surrounded by a sea of discounts,” TGI Fridays chief executive Karen Forrester told MCA. “Coming into the new year, it hasn’t abated. In the second week of January we had one brand offering two-for-one on all starters, mains and desserts. Another one was offering 50% off food and free cocktail or mocktail. It’s just not sustainable,” she said.
There are concerns that many operators will only be able to continue cutting prices, and consequently their margins, for so long before more casualties are seen. Mark Brumby, chief executive of Langton Capital, said that when discounting hits that point of unsustainability, “there isn’t a breaking mechanism, but a crashing mechanism”.
RSM UK head of leisure and hospitality Paul Newman told MCA: “In a now-saturated casual-dining sector, we expected 2018 would quickly see numerous site closure announcements as operators are forced to take a more ruthless approach to culling under-performing sites.” A prediction that has quickly become reality for a number of well-known brands, “with the clear message that discounting is not the solution for a sector facing unprecedented competitive and economic headwinds”, he said. Despite this, he doesn’t expect the trend to slow anytime soon.
Cenkos leisure analyst and senior executive Simon French agreed: “Traditionally, you would expect it to taper off through to Easter and then to the summer, but I don’t necessarily think you’ll see that this year – it will have to remain at higher levels,” he said. However, he is more positive about the direction of the trend. While he believes there will be more dis-counting over the next year “it will be more targeted and hopefully more efficient and that more companies will look at it from an ROI perspective”.
In Forrester’s opinion, “something has got to give”. She continued: “You can understand from a consumer point of view that when they are bombarded by these offers, they are going to be attracted – but there can’t really be a winner in the end.”
