More than ever restaurants must adapt to a continually changing landscape of industry trends and macroeconomic variables in real time. As restaurants continue to navigate a post-pandemic era, brands have a better understanding of what changes ushered in by Covid will stay or go. Sound digital strategies and a lack of discount dependencies during the pandemic have already proven to be key indicators of brand health and success, and the lasting legacies of the pandemic.

The hospitality industry as a whole watched as restaurants without digital investments suffered, while those with established digital strategies in place capitalized. When dining rooms are shuttered for example, more tech-savvy restaurants could fall back on already existing digital ordering channels.

At a time when restaurants had an unprecedented focus on careful spending while also having to drive much needed sales, many brands realized that an over-reliance on discounts was detrimental. And with shrinking margins and the continued growth of third-party delivery aggregators, this has never been truer. Discounting is not only a race to the bottom against third party services, it also devalues brands and negates profits on owned channels.

Why discounting is no more a solution

Successful restaurants work on having a business model that relies on long term stability and less uncertainty. “However, when you offer discounts to customers, the business automatically takes a hit, unless you price your offerings disproportionately higher and then offer discounts. Apart from that, there is a risk that customers get used to the discounts and then the attention goes towards the value of the discount rather than the value proposition that the restaurant offers which could be food, excellent beers, cocktails, ambience or service,” Teja Chekuri, managing partner of Ironhill India commented.

Once a restaurant habituates customers to a discount driven model, it risk looking like a low-quality place while also carrying the additional risk of losing revenue once the discounts are rolled back. And if inflation is added into the mix, it becomes extremely difficult to sustain a business through any sort of discount.

“What we realised from the pandemic is that as long as the price point and the offerings are right, the customers will return, but if you were a discount driven place prior to the pandemic, then, cutting down on those discounts post pandemic would have been catastrophic for the restaurant,” Chekuri added.

Sudhakar V, co-founder and CFO of Leon's also opined that Discounts or offers used strategically to induce trials or reward a loyal customer works wonders for brand trust and loyalty. And these should be coveted from the brand. “If you use them too frequently it will tend to devalue your brand image,” he felt.

However, discounting is not inherently a bad strategy. “It’s the frequent and widespread use of discount prices that has become problematic. Using discount schemes selectively during festivals or special days are great ways to attract new customers and engage with the existing ones,” Debaditya Chaudhury, managing director of Chowman shared.

Changed dynamics of competition

While there are opportunities with digital ordering channels particularly owned ones like direct ordering that include data capture enrolling customers in loyalty and CRM, and optimizing the ordering flow for upsells, there are also challenges. Namely, competition.

Now that the majority of consumers have become accustomed to digital ordering, proximity no longer limits overall engagement for restaurants, but rather encourages increased competition. Restaurants are not just competing with the businesses next door. Any restaurant with an app or digital ordering channel that can be reached on the customer’s phone or computer (at their fingertips, literally) exposes brands to competition.

The word ‘discount’ by itself is not one with a negative connotation, said Udayshankar Shenoy, owner and chef at Lazy Suzy, Bengaluru. In fact, discounts are a great way of promoting business , when done periodically or seasonally. It was the deep perpetual discounting model , which was the real culprit.

“During the pandemic with fewer footfalls, businesses had to micro audit each expense and the overheads like rents , salaries etc . With sales hitting rock bottom , deep discounting was  impractical and akin to digging your own grave,” he commented.

This coupled with retail inflation, where prices of every raw material shot up and minimum salary demand of workers jumping by about 10 to 30 percent , during reopening after covid, businesses were compelled to sell without discounts . The endeavour was to keep the business running and not about increasing sales. Many businesses closed down and the ones that had to survive clearly realized that deep and perpetual discounting was out of question.

How to succeed when third-party apps compete?

The worst competition, of course, comes from third party delivery aggregators. While it is no secret third party deliveries has built their businesses by retaining steep commissions and a monopoly over customer data, their in-app marketplaces have become equally problematic. These deep pockets of companies continuously offer heavy discounts to earn the transaction at all costs.

Sharing his thoughts, Sudhakar commented that dark kitchens are cropping all over and will continue to as the industry evolves. Third party apps did start them a while back but because of the competition clause have pulled back drastically in promotion of the same.

Chaudhury feels that the only way to compete with third-party apps is to become self-reliant because restaurants can’t resort to steep discounts and also give commissions to them. “We launched our App in 2020 and have our own delivery fleet. We provide exclusive deals and discounts on our app and offer free delivery too. At present, we have 1.2 lakh subscribers and 30 percent of our orders come from Chowman’s App,” he informed.

While using third party apps for raising customer awareness and acquiring customers is great, there is a risk that you'd be forced to take part in the discounting model. Hence it is vital to have a great product and service at the right price point, strong social media game and that attract the right crowd. 

“If you have watched the documentary/experiment by Vice on how an almost non-existent restaurant named 'The Shed at Dulwich' made it to the top of the charts on Trip Advisor in London, you'll see what hype can do for a restaurant. We are obviously against fake reviews, yet The Shed makes a good point about how restaurants can do great business based on a well thought out hype,” Chekuri commented.

However, if the owner has invested in the brand image, quality and reputation one need not worry. Customers know that and trust the brand to deliver that wow factor with every order. When discounting devalues your brand and reduces your profit, incorporating engagement strategies such as exclusive access and customized guest experiences will not only improve margins but will also generate a personalized experience for customers that builds lasting loyalty.