Posted on: 05 June 2019

Why chain restaurants are losing customers

After the recent news of Jamie Oliver’s restaurant chain going into administration, concerns have been raised that the food industry is on a steep decline. Food and drink chain establishments such as Carluccio’s, Byron Burger and Gourmet Burger kitchen have also closed down some of their stores to cut costs, with Gourmet Burger Kitchen announcing £47m losses in 2018. However, since 2015, the industry has seen a growth in turnover - £86bn in 2015, £92bn in 2016 and £98bn in 2017, with predictions showing that the industry would hit £100bn in 2018. So much so employers in the UK have said that one of their main concerns is recruitment, because they can’t hire enough staff to fill the demand for their staffing requirements.

Despite many chains closing, it appears that the food industry is booming. However, does this perhaps reflect a change in customer habits rather than a decline in the industry?

Customer attitudes

The decline of the UK high street has partially be attributed to customers becoming increasingly more concerned about the value for money that they are getting from the products that they want. Experts even think this has been a contributing factor to the decline of John Lewis.

This is also reflected in the food and drink industry, which has seen a large increase in people moving away from chains to support local businesses.

Quality

Business Matters identified a major customer concern was the quality of the food. Quality is often a concern at chain restaurants because of how the restaurant makes their food, and the ingredients they use. Large chains often use cheaper ingredients, which can also affect the quality and taste. Jamie Oliver’s restaurant was also found to be using the same steak supplier as Wetherspoons, yet charging twice as much as the pub chain for the meal.

Chains will also use the same recipe in all of their restaurants throughout the country, which means that a meal that you might choose in Glasgow will taste the same as the same meal in London. Whilst customers are getting the same experience regardless of the location, they don’t receive much variety.

On the other hand, independent food businesses can work to a recipe, changing menus to take advantage of seasonal produce, or if they receive customer feedback to make a change, they will be able to do this at short notice without having to make substantial changes to how they operate. This flexibility can offer customers a higher level of variety when choosing to eat or drink at smaller businesses.

Shopping locally

Some people prefer the idea of helping small businesses by buying local and putting money into the local economy rather than into the pockets of a corporate chain. Research from IRI found that 55% of UK shoppers prefer to buy from independent businesses rather than chains, and chains know this. Starbucks, for example, even set up their 15th Ave Coffee & Tea café in Seattle to shy away from the more corporate image, to a coffee shop that sourced local produce and recycled fittings.

Research from Liberis also found some of the reasons why people shopped locally, identifying themes such as convenience, boosting the local economy and more unique products on offer.

Changes

Business Matters identified another of the reasons that chain restaurants or cafés could be losing customers is that many rarely make changes to their style or menu. For instance, if you went into a Nando’s or Starbucks and ordered your favourite meal or drink, chances are that they would look and taste the same as they did 5 or more years ago. Some may have started to offer vegan or gluten free menus, but fundamentally chain restaurants change little from year to year.

Again, independent catering businesses are free to change their menu or styling whenever they want and to whatever they want, giving customers the chance to experience an ever evolving menu.

Friendliness

Many people prefer local businesses because they are seen as more friendly than a chain restaurant. Small catering businesses will get to know their customers, often on a first name basis, and you can get away with giving the odd little extra for regular customers or on special occasions. This kind of interaction is rare with a chain restaurant or café.

By getting to know your customers personally, you are more likely to have repeat customers because they will appreciate the good service they get at your business.

Industry insight

Recent insight provided by MediaCom North into the UK restaurant market, looks at how independent restaurants have fared against chain restaurants in the last few years.

It showed that over the last two years, chain restaurants had shown a fall in value, from £4.8bn to £4.6bn, a drop of 3.68% [1]. However, independent restaurants had shown a growth of 3.71% from around £13.8bn to £14.3bn in two years. This clearly shows that customers are becoming less interested in chain restaurants and are starting to move to independent restaurants.

Case Study

It also looked at a restaurant called Wahaca who decided to rebrand themselves with the “independent spirit” of the company’s co-founders. They noticed that more independent restaurants and pop-up eateries were emerging, and were offering customers a better choice of food when dining out, which has left the big chain restaurants struggling.

Customers looking for something new

The insight also listed some trends in the chain vs independent food market.

  • Over saturation – Whilst some believe that the UK restaurant market has too many restaurants, this is not actually the case. The problem is that the market is saturated with too many of the same restaurants.
  • Individuality – Casual dining has seen a decline in growth, but creative entrepreneurs are ensuring that there is a steady growth in the independent restaurant industry.
  • City growth – Liverpool and Manchester have both seen a 25% increase in independent food and beverage concepts since 2014.

Learning from cafes

MediaCom noted that since 2011, the number of branded coffee shops has doubled, but numbers of independent coffee shops saw a 41% increase in 2017 alone.

One of the reasons for this is because high quality independent cafes have the ability to stand out in a crowded market. The same goes for independent restaurants, which can make an impact in their community.

Young entrepreneurs also noticed a lack of authenticity when visiting chain coffee shops which they used to their advantage by using authentic ingredients and styles in their own businesses.

Expert quote

Simon Mydlowski, partner at Gordons law firm in Leeds, and hospitality industry expert quoted:

"To be successful in this sector you have to be constantly evolving - from the menus and the drinks choice, to the way you engage with customers"

"Faced with higher rent, rising food prices and increased competition, restaurants need a point of difference - it's no coincidence that smaller brands with the freedom and flexibility to keep things fresh are currently the ones performing well."

Hospitality & leisure insurance with Premierline

There are many different types of businesses in the hospitality and leisure industry, and we know that a one size fits all approach doesn’t work when it comes to your business insurance. This is why our trained insurance advisers assess your business insurance needs and find the perfect policy for you.

Get in touch with a member of our team to find a competitive, no obligation business insurance quote, covering hospitality and other industries.’

Source:

[1] Euromonitor Full Service Restaurants 2016-2018 Market Sizes by Value

Credit: Real World Insights at MediaCom North

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