How Independent Restaurants Can Avoid the Discount Trap

Times have been tough for owner-operator and other small business restaurants, even as hospitality sector employment bounces back from its pandemic-era crash. Inflation continues to drive consumers towards groceries over eating out, and PYMNTS’ research has found that 64% of restaurant purchases in the U.S. now total less than $20. Just 9% exceeds $50, meaning profit margins may be thin. 

To cover rising expenses, restaurants have had to raise menu prices, which has had drawbacks, leaving patrons less satisfied and impacting their tipping habits. It also may have steered customers toward less costly options: 39% of surveyed consumers cite price as a factor when choosing where to eat out. Even when restaurants absorb higher supply and overhead costs, the sacrifice tends to go unnoticed by patrons.

Small business restaurants seeking cost-cutting options that won’t impact service quality are in an especially tight bind. Owner-operator and similar eateries generally have tighter margins to work with than their quick-service competitors, which also face the challenge of balancing quality and prices. 

Alongside the hit to margins that may come to table-service restaurants by offering early bird specials or other discounts, there’s also a possible reputational hit. After all, table-service restaurants are generally destinations or reserved for special occasions and some diners may be dissuaded by markdowns. 

However, as noted in the PYMNTS’ report, “Connected Dining: Rising Costs Push Consumers Towards Pickup,” there may be a few options for small business restaurants to increase traffic without necessarily sacrificing revenue. 

That takeout choice incentives are dominated by discounts is no surprise, as the report further found consumers are opting to pick up 80% of their off-premises meals. For 58% of takeout customers, saving on fees is top of mind — and likely contributing to diners choosing pickup four times more than delivery. With no immediate end in sight for inflation’s impact on consumers’ wallets, this signals a behavioral shift restaurateurs may choose to lean into instead of fight.  

After all, there are customer preferences that a small business restaurant may explore as part of its loyalty strategy that will not eat into margins or sacrifice reputation. Notably is the finding that despite all these small savings strategies, consumers are willing to consider other non-monetary incentives in their restaurant choice. Using time savings as an enticement, 49% of surveyed consumers said they would be persuaded to choose pickup over delivery if there was a dedicated pickup line. Of surveyed consumers, 55% would choose delivery if there was a promise of it coming within a set window. Both incentives would be guaranteed by a discount if the delivery or pickup fell outside the allotted timeframe. However, with the right setup in place, these kinds of in could cost restaurants nothing more than dedicated personnel time in implementing, preserving margins and reputation in the process.

Loyalty strategies such as pickup lines and time-sensitive delivery windows don’t entirely do away with the possibility of discounts. However, they may be limited with the right support staff system in place. And as most owner-operators know, all it takes is one large meal order to make or break an otherwise slow night.