Is There an Ideal Restaurant Discount?

Discounting in restaurants is on the rise, as measured by Mirus Index, and is about 30 percent higher than a year ago. Examining this trend, it looks like discounting started climbing in 2015 but was up and down until mid-2016. Since then the trend has been a steady increase in discounting, except for the traditional holiday spike in November and December.

Mirus

Strategic?

The strategy of discounting is often debated among industry experts with some saying it is always a bad idea while others taking a more nuanced position that says discounting can be useful to achieve goals in specific situations.

It has been noted that average check has been increasing as well as discounts. Overlaying the trend for average check against the discount trend, one can see that, while discounts have gone up about 50 percent since the start of 2017, so has the average check, about 25 percent. Could the increase in discounts be related to the strategy of increasing prices?

Mirus

The picture above shows a marked increase in average check around the end of 2017 along with a big increase in discounting. Is this a strategy where discounts are being used to "soften the blow" of price increases? If so, that strategy seems to be mostly working. Notice that when the discounts decrease in early 2018, the average check retains much of the gain from the fall of 2017; it does not decrease in proportion to the decline in discounts. The same trend seems to be repeating in the first few weeks of 2019.

Reactions

One conclusion that can be drawn from this data is that by combining an increase in discounts with a price increase, you could effectively increase your average check. While the market will ultimately determine how much the price of a menu item can increase, matching a higher discount when initially introducing a price increase appears to be an effective hedge.

Customers react to discounts differently across various types of restaurants, so using them may not be a good fit for a specific brand. However, if discounting is already part of your strategy, have they been increasing? Have you recently combined increased discounts when raising prices? What do your numbers say?

With more than 30 years of experience in the restaurant and technology industries, Dave Bennett has steered Mirus through its formative years as well as into its current growth phase. Prior to joining Mirus in 2000, Dave delivered more than $500 million in large-scale information services contracts for IBM Global Services. In addition, he previously served as the vice president for information services for the now Dunkin’ Brands, where he managed the information strategies and policies of more than 5,000 Baskin-Robbins and Dunkin’ Donuts locations. Dave holds a B.S. in Business Administration and MBA from Northeastern University. With prior experience with Dunkin’ Brands and IBM Global Services, Dave Bennett has led Mirus through its formative years and its current growth phase. Dave holds a B.S. in Business Administration and MBA from Northeastern University.