Telltale signs your customers are nearing trade-down or trade-out
  • Early warning signs include reductions in average check, average spend per guest, and add-on attachment rates.
  • Monitor demand by item and cumulative traffic patterns as they can also indicate trade-down or trade-out.

As inflation holds steady and prices go up, how can you prevent your customers from trading down or, worst case, trading out? RMS’ Richard Delvallée, Senior Vice President of Consulting Services, shares where to look among your data for the telltale signs that your customers might be inching toward the exit, so you can be prepared.

Watch for early warning signs

Before trading out, customers will likely modify their purchase behavior by trading down or reducing the add-ons they typically order. While traffic might take two to three rounds of purchase cycles to sufficiently measure, purchase behavior adjustments can be measured within a couple weeks.

Measure check

Keep track of your average check (average spend per guest). However, be sure to evaluate spend in context. Consider seasonality — is a change an anomaly, or are checks always lower during this period? For example, after the holidays, people may reduce the number of items on a check but return to usual spend a paycheck or two later. Also, don’t forget to factor in promotional activities such as a long-term offer you’ve been running. While an extended offer might prove effective for traffic, it could also cause check to decrease.

Track attachment rates

Another telltale sign of impending trade-down might be lurking in what’s not added to the check anymore. Monitor your add-on attachment rate, such as the percentage of alcoholic beverages, appetizers and desserts, sold on every check to indicate overall check management.

Monitor by item

Chances are your customers are drawn to your restaurant because of certain traffic-driver items. But once they’re on-premise (or in the drive-thru lane), they might second-guess their checks. “Prices seem expensive; let’s skip the appetizers.” Or they might consider trading down within a menu category buying less ribeye and more sirloin steaks. If possible, keep track of incidence/units per transaction (UPT)/demand by item within each menu category. Any changes in purchase behavior  within a menu category could indicate customers are trading down to less profitable items.

 Examine traffic

It happens. Customers may start rethinking how often they visit your location, wondering, “Should I visit less? Should I try a different place?” Understanding cumulative traffic patterns can provide a warning sign of looming trade-out. Other revealing sources are operations scores or surveys. Examine survey reports for declines, particularly in the area of “value for money.”

Loyalty member data is also an excellent source to determine overall customer frequency. Is it going down or staying stable?

Finally, if your brand has access to anonymized credit card data for each transaction, evaluate it as you would traffic to determine if overall frequency is declining — not just for loyal members, but for all transactions that use a credit card.

As the industry experiences trade-down and potentially edges toward trade-out, proceeding with a bit of caution and making the most of the data available to you can help. If you’re interested in data-driven solutions based on your specific guest patterns, please reach out to us. We’re here to help.

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