Apr 25, 2016

How to use data science to grow your restaurant/cafe Startup ?

How to use data science to grow your restaurant/cafe Startup ?

Ideal time for applying Data science to Restaurant Businesses: 
The restaurant business in India, nay, the entire world has been a happy hunting ground for many entrepreneurs, big or small. The sector is still seeing high growth and a huge amount of investments, with new chains opening at a rapid pace. For some of the older players though, the time has come to consolidate their businesses and/or expand. This requires systematic management and oversight to ensure a smooth transition so that the basic fundamentals on which their businesses have been built is not scarified at the altar of growth. This is the ideal time for embedding Analytics into their everyday business processes.

How can Analytics increase revenues? 
The question that most Restaurant owners would ask is how Analytics is going to positively impact their revenues. There are many indirect ways in which Analytics can help restaurants make more money, but for the purpose of this discussion, we will concentrate only on the direct ones :-

A- Helps you understand your customers
Trip Segmentation- helps to understand what kind of meals do customers come to your restaurant for; you might surprised that a large number of your customers maybe buying only one item(solo trip), some maybe on a dinner trip while still others are on a pure drinking binge
Visit patterns- different types of customers visit your cafe at different times of the day; hence, menu differentiation is hence necessary for different day parts to boost your business
Customizing offers for different parts of the day is an effective differentiating strategy. Customers need to be led to believe that they should order certain kinds of meals at certain times of the day, even though you maybe having an all time favourite meal- like the “English Breakfast” running all day.
Running a business is also about conserving costs- when your data reveals that your restaurant is not doing business at all, at either the early hours of the opening or closer to your closing hours, you should think of changing the timings; this will reduce your electricity costs, reduce fatigue of employees etc.

B- Increase the share of wallet of existing customers – Where is the Loyalty Strategy?
Understand what your customers like and personalize offers for them
Get your customer to visit your restaurant one more time and buy one more meal
Your loyal customers are your biggest brand

C- Removing slow moving items from your menu -When you have a long menu card, it is important to analyze what people are consuming and what they are not

D- Pricing Strategy
Identify items which are consumed by price sensitive customers
Identify items which are consumed by upmarket customers
Undertake pricing trials to check price sensitivity of customers to different menu items

E-Menu Mix solution- Which items bought together contribute to maximum sales? Create combinations of such items and offer discounts to drive up sales and productivity.

Let us now look at the above mentioned aspects in greater detail.

A Understand your customers
The most important aspect of any business is the ability to understand your customers. If you know your customers well, what they buy, when they buy, how they buy etc., half your job is done. When your business is small and your clientele is limited, it is easy to remember your customers at a personal level, often knowing what their favourite orders are. But, when your organization gains scale and it is difficult to even recognize them by face it is important not to lose track of that very attribute which helped you establish your business in the first place - your ability to understand your customers ! When you have more than one restaurant, the job becomes even more difficult. That is why you need to harness the power of data. But before you do that, you must devise mechanisms to collect the data on your customers. If you do not have a mechanism to collect data that identifies your repeat customers- don’t lose heart. You can still do a lot by analyzing the POS(Point of Sale) data.
Understand Customer Behaviour
Understanding customer behaviour is a good proxy to understanding your customers. When you have hundreds of thousands of customers, ordering different items from your menu cards, it becomes imperative for you to look at groups of customers to understand their consumption behaviour. The data from your POS systems can be analyzed to come up with segments based on different kinds of consumption behaviour of people. One of the most popular segmentations used in Analytics in restaurant businesses is the Trip Segmentation.
Here is a hypothetical example of what different kinds of trip segments that can be there in a restaurant business and how they can be used with tremendous impact on the business.

In the above example one is able to analyze the data and come up with these segments which split the population into meaningful segments. Once, the segments have been identified and profiled, the next step is to devise strategies to tap each of the segments for increasing revenues. Let us pick up one segment for furthering our discussion on this: “The Solo Trip Segment”. This segment provides opportunity for increasing sales with a bundled offering. This can be done by identifying the most popular combinations that are ordered by the rest of the segments along with the most popular items being ordered by the this segment. The next step is to come up with a promotion, offering couple of items together as a bundle/combo. This will help increase sales and coax the solo item buyers to order another popular item from the menu. Distribution of segments throughout the day – By plotting the segments across various times of the day, you may be surprised to find that the penetration of certain kinds of segments maybe more in certain day parts than in others. This provides a great opportunity for differentiated offering/promotions in different day parts, depending on the kind of customers coming to your store. It will also help in kitchen management better, because you would be aware of what kind of orders to expect at different day parts.
In the above hypothetical example, the occurrence of solo trips is maximum between 15:00 to 18:00 hours and is the perfect time for the restaurant to promote combo offers with the most popularly sold solo items. Dashboards: Measuring your business real time. We may have all heard about the popularity of management dashboards and maybe wondering what use they might have in the running of restaurants. On the contrary, a dashboard for a restaurant is one of the most powerful tools that an owner of a restaurant can have. The Management dashboard for the owner/top management of a restaurant chain will help him get an immediate snapshot view of the business in real time.

Some of the very useful metrices would be:

Average Sales per chain per day/per week/per month/per quarter/per annum
Like for like sales per chain across weeks/months/quarters/year
Average menu items sold per day/week/month/year
Categories with maximum sales in a particular day/week/month/year
Menu items within larger category heads with maximum and minimum sales
Cost of goods sold for each chain on a daily/weekly/monthly/yearly basis
Cost of raw materials under different heads on a daily/weekly/monthly basis
Performance of chains across different segments
Percentage of repeat visits of customers on a weekly/monthly/yearly basis
Revenue from each segment of customers- daily/weekly/monthly
Top performing chains
Poor performing chains
Share of revenue from top performing chains
Share of revenue from bottom performing chains
When do your different chains get the most traffic?
Identify peak hours in sales which will help in staffing decisions
Which chains are getting more traffic and which chains are not ?
Identify which categories are performing poorly and where?
Identify availability/out of stock issues at chains, at different times of the day
What are the drivers of success of certain products and certain stores ?
Identify the driving factors behind the performance of your chains. E.g. are increased sales due to more customers or the same customers eating more?
Loyalty Strategy
For a business with a very high probability of repeat customers, it is interesting to note that very few restaurant businesses in India have a loyalty strategy in place. Having a loyalty strategy doesn’t mean implementing a cash heavy loyalty program, replete with plastic cards and heavy discounting.

A loyalty strategy means:
Having the ability to track your repeat/loyal customers in each visit : which can be done through simple methods like capturing their mobile numbers while booking a seat, while processing their orders/payments

Designing simple and easy reward mechanisms to reward the customer to show him that he is valued
Having a continuous and open communication channel in place with a loyal customer, incentivising him to make more frequent trips and buying/ordering more items on the menu on each visit.
Building a personal touch with a customer so that he has a top of the mind recall for your restaurant
Understanding the buying habits of your customer so that you know how you could provide more value to his “eating” experience.

For example, if you know the favourite wine of your customer and have the waiter ask him if he wishes to have the same, it creates an immediate connect of a personal nature which is long lasting
If you know that your loyal customer likes a starter(say “spicy mushrooms”) which he has ordered on quite a few occasions and you empower your waiter with that information as well as the authority to provide that as a free starter, you will have won a customer for a life-time
These elements of surprise and delight rewards for customers helps build a huge element of anticipation for the next visit

The surprise and delight reward programs involve low costs, but lead to big impact on customer delight. It also creates an element of suspense in the minds of the customers who look forward to the next reward coming their way and triggers the next visit.


Pricing Strategy
It is important to carry out a well thought out pricing strategy in your chain. You should increase prices, but in a very strategic manner and by measuring the impact of the price changes. There are two phases of the pricing strategy which are critical. One is the pre-increase period when you determine the products for which you are going to change prices and the other is the post price change period where you need to measure the impact of the price changes on the customer buying behaviour. Activities: Identifying menu items for which price should decrease Identifying menu items for which price should increase Identifying menu items for which price should not be changed
The simple diagram above exemplifies how changes in price have affected changes in revenue.
It tells us in simple terms that we should increase the price of liquor items as in spite of increasing price, the revenue also increases.

We should not increase the price of starters as the price increase had impacted the revenue negatively
Price of sandwiches can be decreased as it has had a positive impact on revenues
Decreasing the price of soups had a counter intuitive effect- it actually decreased revenues. So we should hold the price for soups.

The gist of the learning from the above is as below:

  • Identify which items are consumed by price sensitive customers – low or marginal increase in price
  • Identify which items are consumed by upmarket consumers – prices can be increased without impacting sales
  • Introduce Pricing trials to check price sensitivity of customers to different menu items

Menu Mix Solution:
The famous observation that beer bottles and nappies when kept adjacent to each other, led to increased sales in retail stores, introduced a new concept of product bundling/adjacency to the world of Retail. In the business of restaurants, the closest corollary is that of menu mix.

When you find “meals” consisting of burgers, fries and coke are being served to you at discounted price, doesn’t mean that McDonalds is trying to push coke into your menu. It means that they are being customer first and have observed that this one of the most popular combinations that people usually order and they have institutionalized it for the benefit of customers, efficient customer service (you save time instead of ordering individual items) and above all it drives revenue as customers see an inherent “value” in the meals as they get something else at a lower price than what they would otherwise have to pay.

Similarly in restaurants, menu mix should be analyzed and the most popular meals should be bundled together and offered to customers at a lower price to incentivize them to buy their favourite meals. This will increase loyalty of customers to the restaurant, apart from driving more repeat visits from the customers who would like to come back for their favourite meals at reduced prices. The menu mix should only be done for the most popular meals and there should only be a few combos on offer, else it will become complicated and make the customers confused

Conclusion : There is a big opportunity waiting to be utilized by the more entrepreneurial and innovative restaurant owners. Whoever takes the lead will win. Soon, there will be no other option but to innovate and devise strategies, keeping the customer at the heart of all your decision making. The rate at which this space is growing, it will be difficult for laggards to survive. Analytics provides the only solution to ensure scalability, efficiency, keys to customer satisfaction and above all, increased revenues.

About the AuthorSnehamoy M@SMukherjeee
Snehamoy Mukherjee is a Guest writer for Startuptimes.in . Snehamoy is a Data Science & Analytics Leader and Visiting Faculty of Business Analytics at niche B'​ Schools in India

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