10/18/08 10:24AM EDT
While there will always be issues around the use of discounting, the difficult economic environment leaves few other options. Recent NPD data suggests that discounting has been driving traffic in this tough economic environment, particularly when gasoline prices reached $4.00 a gallon. The key issue to watch - can restaurant companies develop promotions that consumers find attractive while maintaining margins?

It comes as no surprise that consumers are looking for savings in these tough economic times and some restaurant operators have responded by offering very attractive price points. Over the past three months, 23% of all visits to restaurants included some form of discounting. According to NPD, deal visits were up 9% versus last year. During the same period, non-deal traffic declined by 1%. For the past three quarters, all of the industry’s traffic growth has been driven by the resurgence of value positioned promotions.

While increased dealing can be found in both the Quick Service and Casual Dining segments, most of the increase in deal activity has taken place in the Quick Service arena. Over the past 3 months, QSR deal traffic was up 10% versus last years. During the same time, deal traffic was up 6% at Casual Dining restaurants. For both segments, non-deal traffic was negative.

In this environment, positive same-store sales can be a misleading indicator of a company’s health. Those companies that are discounting heavily today will pay the ultimate price in the end.

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