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Increasing Deli Foot Traffic in a Declining Market May 15, 2008

Posted by David Dirks in Building Foot Traffic, Retailer Store Strategies, Sales Strategy/Tactics, Solving Business Problems.
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In the building I work in, there is a nice little deli that serves breakfast and lunch.  While they have the advantage of being a monopoly service business within the building, the also suffer from the not-so-infrequent moves of tenants.  Right now, the building tenant situation is that they are losing tenants and therefore, a good chunk of their existing deli customer base.  Having talked with them, the deli owners have taken a big hit in their daily revenues. 

So what did they do to counter this sales trend?  First, they reduced expenses wherever possible.  They reduced staffing to the size necessary to adequately service the current flow of business.  This is a good and basic counter to lower revenues.  Then, in order to stabilize revenues they did the next worst thing:  dramatically raised prices on common items.  The prices of coffee, soda, and other commonly purchased items have been raised by 50% to 75%.  Like no one would notice! 

Why is that the wrong policy?  Well, they weren’t underpriced to begin with.  They were always considered a bit more expensive than the deli you’d have to drive 5 minutes to from the office.  Premium pricing was their deal…why not…they have a monopoly in the building, right?  Not so fast bucko.  The remaining customer base that has always frequented the deli notice right way.  When a bottle of flavored water goes from 1.50 to 2.00 overnight, people notice.  I’ve talk to a bunch of folks here that have decided not to frequent the deli anymore.  The deli owners have reached what I call the maximum elasticity of their pricing…they have gone over the line in trying to desperately stabilize their revenues in the face of significantly lower foot traffic. 

So, what could they do differently to stabilize their revenues?  Three things come to mind for this posting: 

1) Reach out to the many who do not frequent their deli or don’t use it at all.  Never assume you have 100% market penetration.  In this case, there are still several hundred people in this building.  My guess is that only a small percentage actually use the deli on a regular basis…less now with more tenants moving out or reducing headcounts.  This calls for creating a compelling reason for folks to venture out of their cubes and come to the deli.  Outside of being the only deli in the building  and having high prices on everything, there’s not much to compel the brown-bagger to come in and buy a sandwich once a week.  Once they have created some compelling reasons for people to visit them, then the task is to insure you have ways to communicate those compelling reasons. 

2) Stop the price increases.  Making your remaining customer base pay for your lack of foot traffic is not a winning strategy.  In fact, I’d be willing to bet that in the long run, the higher they raise their prices…the less revenue they’ll get.  In stead of keeping customers, they’ll drive them away.  It’s cheaper to go down to the local grocery store and buy in bulk what you need for drinks, snacks, etc. if you don’t want to pay those ridiculous prices. 

Raising prices in the face of dwindling foot traffic and sales is the easiest and dumbest thing you can do.  It’s like hitting the panic button without realizing that there is still plenty of business to mine from the area.  In this case, there are plenty of people still here in the building to more than make up for what sales they have lost.

3)  Now’s a good time to start a simple customer loyalty program.  How about a card that gets punched everytime you make a purchase over $5?  Or get 10 coffee’s on your punch card and get a free (you fill in the blank)? 

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