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Too Much of a Good Thing

March 19th, 2010 | Posted by JMarek in Restaurants - (Comments Off on Too Much of a Good Thing)

There’s nothing quite as frustrating as a good idea that turns out to be too “good.” Case in point: Sonic was lauded for launching a traffic-driving “happy hour” promotion in 2009. While the promotion was successful in driving traffic, recent analysis indicates that it also exacerbated a downward mix shift by cannibalizing higher margin checks. The incremental traffic and extra add-ons were insufficient to make up for the surrendered margins. What is a decision-maker to do? In an environment where every company is aggressively defending share, can promotions attract new guests and be profitable? In a nutshell, yes. By carefully examining historic transactions, better understanding likely trade-ups and trade-downs, and quickly testing promotions in a subset of markets, executives can avoid these types of surprises.