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Deloitte warning over discounting trend
Restaurateurs that rely on discount vouchers to bump up revenue might be cannibalising profits and creating problems for the future, as the economic climate begins to improve.
According to business advisory firm Deloitte, consumers have become much more aware of, and responsive to, promotional initiatives such as discounting and two-for-one type deals.
Glyn Bunting, partner of Deloitte's hospitality team, warns this might become a problem in the mid to long-term, as customers will expect the discounts and the operators brand might suffer as a result.
"Operators need to use such promotions wisely, to ensure that their initiatives genuinely increase sale rather than cannibalising profit margins on business they would have anyway," he said.
"As the economy begins to emerge from the recession, a key challenge for operators will be to wean consumers off these discount deals. The deals clearly help to buoy up trade while customers focus on value, but continuous discounting tends to undermine long-term value creation from brand building."
The practice of discounted meals has clearly been noticed by consumers, as a recent survey by Moneysupermarket revealed that more than a quarter (26 per cent) of Britons will only go to restaurants if they have a money-off voucher, while more than 40 per cent use a restaurant voucher once a month.
The trend of restaurants offering discounts has also had a knock-on effect on the informal eating out market, as the price differences between the two sectors has been narrowed.
A report published by industry analysts Allegra Strategies suggested that the informal eating out market - including fast food outlets, takeaways and pubs - is in decline for the first time in 40 years.
Jon Lake, director of Deloitte's hospitality team, added: "Although few things are recession-proof, we do know that people still want to eat and drink out regularly, to socialise and to celebrate.
"Those outlets that can offer a differentiated drinking and dining experience combined with real value for money will continue to show sustainable growth."
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