Catering to the Millennial Generation: What Really Drives Success?May 17th, 2012 | Posted by in Restaurant Analytics | Restaurant Trends
Generation Y, better known as “Millennials,” are 18-34 year old individuals who are self-described as tech-savvy and progressive.
One of the latest challenges for the restaurant industry is trying to determine how to better cater to this segment. Should messaging be different? Do they like different foods? Do restaurants need to project a different atmosphere? A recent article in Nation’s Restaurant News suggests the answer to many of these questions is probably yes. But to what extent should restaurants focus their energy and resources on driving incremental Millennial traffic?
Let’s consider MealCo, a hypothetical restaurant, that decided to shift its marketing and menu strategies to focus on capturing more Millennials. MealCo is a 1,000 restaurant chain, each restaurant serving 100 guests per day, 25 Millennials and 75 from other generations. The average check from a Millennial is $15.00 and the average check from others is $20.00, making the weighted average check $18.75 and the average daily revenue $1,875 per restaurant per day.
After shifting its strategy to focus on the Millennial generation, the following scenario may be possible. The new program led to 10 incremental Millennial guests, but, because of messaging that appealed to a different population, MealCo lost 10 guests from the “others” segment. Although total restaurant traffic was unchanged, the segment shift caused a $0.50 decrease in check size and lowered revenue by $50/restaurant/day. Applying this across a chain of 1,000 restaurants equated to $50,000 in lost revenue per day, or over $18 million over the course of a year.
Though this scenario is purely hypothetical, it serves to illustrate the dangers of shifting strategies without testing. The best way for restaurant chains to innovate with the least amount of risk is to run controlled tests in a subset of their restaurants to determine how the test-generated insights could be applied more broadly across the chain. If MealCo tested their new program in a subset of their locations or a subset of their markets, they would have been able to quickly and accurately determine the answers to three important questions:
- Does this program drive incremental revenue?
- Which elements of the program are most effective and in which locations does it work best?
- How can we tailor this program for maximum impact moving forward?
Now let’s assume MealCo tested their new strategy in a subset of their restaurants. By testing they learned that, in aggregate, the program lead to a decrease in total restaurant revenue, as described above. However, in areas where over 50% of the population was between 18-34 years old, they observed a significant lift. MealCo then determined that 10% of their sites, 100 restaurants, fit this criterion. At these sites, MealCo learned that they would still lose 10 “Others” but would gain an incremental 20 Millennials. Despite a further decrease in weighted average check size, the 10 incremental guests drove $100 in incremental revenue per restaurant per day, translating to $3.65 million in incremental revenue across the chain.
Again, though this is a hypothetical example, it is a powerful reminder that initiatives based on trending topics – like catering to the Millennial generation – must be tested before rolling out system-wide. With so many of the top restaurant companies beginning to embed testing into their decision-making process, those restaurants that do not test are now at an extreme competitive advantage.
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