Doggy Bag

Thank you very much for taking part in tonight's tasting.  Amidst all of the flavors, textures, and colors that you experienced, here are a few nuggets that I would like you to take home with you:

-Data is omnipresent in the restaurant industry but is drastically underutilized at present.  In the future, successful restaurateurs will need to leverage this data to develop analytics that will drive business decisions.

-The ownership of data is critical to the above endeavor.  Only when it is clear who (restaurateurs, POS systems, reservation systems) owns what (transactional data, reservation files) can this information be fully exploited.

-To grow the business, restaurant managers must spend a significant amount of time each day addressing strategic, as opposed to operational, issues.

-Inspiration for analytics should be sought outside of the restaurant industry.  By spending money getting to know its customers as opposed to simply impressing them, Harrah's has developed a business model that is likely to succeed despite the current economic crisis.

The recent increase in the adoption of CRM strategies across industries implies that customers are increasingly seeking personalized experiences in all facets of their lives.  Although many industries have been quick to recognize and adapt to this trend, the restaurant industry has not done so. Whether one attributes the tardiness of this response to the familial nature of the business or to the economics of its operations is irrelevant; what does matter is that those restaurants that fail to customize their services will lose out on revenue in the future.  By harnessing the power of data and analytics, restaurateurs, both present and future, can ensure that they maximize the revenue that they capture from their customers to ensure the longevity of their operations.

Take the above ideas, microwave on high for 2 minutes, and let sit. Contents will, no doubt, be extremely hot.

      

Statistical Gastronomy

In recent years, molecular gastronomy has gone from being an obscure style of cooking practiced by a few, zealous chefs to an accepted artform embraced by the greater foodie community. The proponents of this craft seek to infuse chemistry into cooking, often times resulting in the deconstruction of classic dishes. For instance, consider this deconstructed glass of white wine created by Chef Jose Andres. By tasting each of the individual components that are present in the wine, diners come to appreciate the complexity of the product and respect the notion that the whole is in fact greater than the sum of its parts.

Believe it or not, there is a statistical corrolary to molecular gastronomy - conjoint analysis. Conjoint analysis seeks to understand the relative importance of certain attributes in a product by asking respondents to rate the utility of the product as a whole. Using regression analyses, researchers can then determine what truly matters to consumers, and which levels of particular attributes are ideal. Like Chef Andres deconstructed glass of white wine, conjoint analysis demonstrates to us that consumers may not be aware of which components are truly driving their perceptions of a product.

How might conjoint analysis be used in the restaurant industry? Let's say that one is designing a new restaurant and would like to understand the importance of a few key variables: theme (French v. Italian), average check ($20, $30, $40), and presence of celebrity chef (Yes/No). Individuals can then be asked to rate the utility of combinations of the above attributes and those ratings could be analyzed using regressions. After a little bit of statistical gastronomy, the restaurateur will not only know which of the above attributes is most important, but also which level of each attribute is preferred.

Conjoint analysis has been used quite a bit in the hospitality industry; in fact, Courtyard by Marriott was developed through the process. Nevertheless, conjoint has yet to make its way to the restaurant space, perhaps because it is difficult to determine all of the attributes that impact a diner's experience. Going forward, I expect to see statistical analyses such as conjoint becomming more prevalent in foodservice, particularly for major brands. Just as molecular gastronomy has raised haute cuisine to a whole new level, statistical gastronomy can do the same for consumer insights.

The Promotional Web

I just returned from a panel entitled "The Las Vegas Restaurant World" at Hotel Ezra Cornell, an annual tradition at The Hotel School during which hospitality industry executives descend upon Ithaca for a weekend of fun, food, and lively discussion. Given the current state of the economy, the panelists, which included food and beverage luminaries such as Elizabeth Blau, Todd English, Jason Lapin, Damian Mogavero, and Steven Schussler, elected to discuss the restaurant industry in general as opposed to focusing on Las Vegas specifically. And although there is much to report from their discussion, I would like to focus on one comment made by Todd English - the rise of restaurant promoters.

According to Mr. English, restaurateurs have begun to leverage promoters as a channel through which they can spread the word about their restaurants. This is not surprising given the industry's reliance upon word-of-mouth marketing; what is surprising, however, is that the practice is becoming more formal in nature. In order to ensure that these efforts are effective, restaurateurs should leverage the data contained in their POS systems to target the right people for the job.

How might a restaurateur go about identifying and courting the ideal promoter? To begin the process, it is first necessary to determine what the characteristics of an ideal promoter are. In the absence of restaurant-specific data, I would suggest that restaurateurs search for individuals who (a) make reservations for large parties and (b) who spend a significant amount of money while dining. With this definition in mind, transactional data can be analyzed to identify these key individuals and their primary means of contacting the restaurant. Promotions can then be designed in order to encourage them to spread the word about the restaurant.  For example, reservationists can ask guests seeking to make reservations how they heard about the restaurant.  If the guest indicates that he or she discovered the restaurant through a recognized promoter, that promoter would receive credit towards future dining at the establishment and that guest could be designated for special service by management.  By providing both the new guest and promoter with incentives to return, the restaurant will be able to increase repeat patronage.

Although there is always the potential that a promotional system such as the above could be exploited, I believe that its benefits outweigh its drawbacks.  Considering the fact that word-of-mouth is so important in the restaurant industry, it only makes sense to ensure that the practice is occurring in the most effective and cost-efficient manner.  By using transactional data to identify and court promoters as opposed to randomly rewarding certain guests, restaurateurs are much more likely to see a return on their investment.   

Intermezzo

I know that was a lot to digest so I thought that I would give you, my readers, a brief break from theory to examine the work of actual practitioners.  For your intermezzo today, I'd like to discuss a fascinating concept out of the Netherlands - The Restaurant of the Future ("ROF"). Earlier this semester a colleague of mine, Andrea Jang (read her blog here), told me about this learning laboratory after hearing its founder speak at Taste3, a conference bringing together a variety of stakeholders in the foodservice industry.  In many ways, this concept represents much of what I have been proposing thus far although it approaches the topic of consumer behavior from a very different perspective.

How does the ROF work?  Each day students, researchers, and visitors to the Wageningen University and Research Centre patronize the ROF, which serves as the organization's central cafeteria.  During their meal, they are observed using cameras to measure a variety of key metrics (e.g. meal duration, amount and order of food/drink consumed, etc...).  Significantly, all visitors to the ROF must consent to being recorded in order to enter the premises, thereby decreasing the establishment's exposure to privacy concerns.  In addition to the casual observation described above, the ROF also houses a sensory lab in which focus groups are convened to evaluate potential new products.  By observing diners in structured and unstructured settings, the ROF enables corporations to gain insight into both food preferences and consumption behavior.

How can the ROF help the majority of restaurateurs who clearly do not maintain advanced research labs within their establishments?  The sheer existence of the lab suggests that it has produced valuable findings for the foodservice industry, thereby imbuing its observational methodologies with validity for future application.  And fortunately for restaurateurs, observations are easy to come by and cheap to obtain.  Owners should therefore encourage management to consciously take note of consumption characteristics - what people do and do not eat on a particular dish, how long it takes for them to eat, how quickly they finish their drinks, etc... In the future, this knowledge could assist chefs with menu development, servers with selling opportunities, and managers with quality control.  Though futuristic in its use of technology, the ROF is not really so forward thinking at all.  By reminding us of the power of observation, the ROF demonstrates how an age-old research technique can be applied to the 21st century.

 

Sushi Bar

Pull up a seat and relax. Tonight we are proud to offer some of the freshest data around, expertly crafted by our master analysts. For your first course this evening, we have a refreshing maki roll featuring your dining preferences, lifetime value, and demographic data.  Please enjoy...

Like chefs at a sushi bar, restaurateurs can slice, dice, and roll data in a variety of ways in order to deliver value to guests and increase profitability at the same time. In this post, I will examine one of the most basic yet powerful types of data analysis - customer segmentation - and explain how it can be applied within the context of the restaurant industry.

Customer segmentation provides business owners with a means of better understanding their customer base in order to develop targeted products and services for them. Of course, such an undertaking relies heavily upon data analysis, which is perhaps one of the reasons why it is so prevalent in the consumer packaged goods industry. Yet despite what restaurateurs may believe, they too possess the data to conduct such an analysis. Demographic and preference data for guests can easily be compiled from internal databases or reservation agents such as Opentable. Spend data, contained within POS systems such as Micros, can be linked to particular guests through the use of unique identification numbers. By fostering communication between customer databases and POS systems, restaurateurs can not only understand who is patronizing their establishments, but also how much they are spending.  

The information gleaned from a customer segmentation analysis can be used in a variety of ways. For instance, by conducting a statistical analysis of guest preferences, restaurateurs may be better able to develop products and services to meet guest needs. By understanding the lifetime value of guests, promotional offers can be developed to encourage additional consumption. Clearly, the data housed in restaurants' walk-ins has great potential. Yet it is up to the master chef, the analyst, to turn it into a delicious dish.    

Caviar in the Walk-In

For those of you for whom my last post piqued your interest, here's an article that you might find particularly interesting.  Writing for the Harvard Business Review, Gary Loveman, CEO of Harrah's Entertainment, describes how investing in data mining produced dividends for his company far beyond that which could have been generated through elaborate casino design a la Las Vegas.  Using a variety of analytical techniques, Harrah's was able to determine who its most profitable customers truly were and how they might be able to better target and serve those individuals.  Although Harrah's initial investment in technology was large (but probably nothing compared to building a replica of Venice's canals), the knowledge gained from its implementation is without measure.  

And so I ask you this - If gaming companies have found data mining to be a profitable endeavor, why doesn't the restaurant industry give it a try? 

The Walk-In

So where is all that fresh, nutritious data sashimi kept? Why in the walk-in of course!  For those in the restaurant industry, you know this feature well -  a cold metal box in which all items requiring controlled temperatures are held. For those who are not in the industry, I'll cut to the chase - it's a big refrigerator. And regardless of how many actual walk-ins a restaurant may have, there is always one that management forgets - the data walk-in.

In my previous discussion of raw data, I noted that restaurateurs have myriad opportunities to collect data on customers and their preferences. Yet far too many simply stop there, gathering data and letting it spoil on the shelves of the walk-in. Why is it the case that so few restaurants fully exploit the power of their data? In this post, I'd like to explore that question and offer some practical suggestions to restaurateurs who are scared to open that heavy, metal door.

The very nature of the restaurant industry makes data mining a difficult task. During the course of a typical day, managers are inundated with paperwork, preparing for service, or facilitating operations on the floor. Thus, there is little time for data analysis, despite the fact that it would likely contribute to the bottom line. And even if time were not of the essence, training most certainly would be. As digital divide exercises have demonstrated, it is not sufficient to simply provide individuals with IT; to truly benefit from such an investment, users need to receive both adequate training and support. 

So what are restaurateurs to do? In my opinion, the answer is fairly simple - hire an office assistant. Managers should be focused on creating value for the company; therefore, they must concentrate on strategic, as opposed to administrative, issues. Yet in order for them to sufficiently attend to these issues, they need both time and training. By hiring an office assistant, a restaurateur demonstrates his or her commitment to spending management's time wisely.  Of course, hiring a new employee is a costly endeavor, especially in this economy. But not hiring an additional employee might cost even more if only restaurateurs considered the value of data that had spoiled under their noses, wasting away, on their walk-in's shelves.