The accommodation and food services industry contributes almost $50bn to the economy every year, employs roughly a million people and is made up of around 100,000 businesses.
It’s a significant industry not only economically but socially too. Bars, restaurants and cafes are the glue of the high street and essential to Australia’s ‘support-local’-loving communities. However, our communities have had to watch as thousands of their favourite venues closed down or struggled to stay afloat over the last three years. For all the challenges, though, the enduring sentiment is of resilience and adaptability. Those traits are still being relied on.
Today, the medium- to long-term effects of the pandemic and other global events are setting in, with significant increases in both inflation and interest rates in the last 12 months. The result is businesses faced with soaring costs at the same time as consumers face a cost-of-living crisis. A recent pause to inflation appears temporary with the Reserve Bank of Australia conceding that increased wages and migration made ‘reducing inflation more difficult’. As already-tight profit margins are eroded further, businesses are facing the difficult choice of increasing their menu prices or absorbing the cost of inflation themselves.
As non-negotiable costs like produce, rent, salaries and utilities continue to increase, it makes the issue more pressing. There is no one-size-fits all answer, but there are ways to offset and overcome financial pressures through a customer retention strategy built around direct relationships and personalisation.
Direct drives loyalty
While the constant and evolving discussions about the potential for a recession will do nothing to ease business owners’ fears, there is reason to be optimistic. That’s because Australia’s appetite for supporting local businesses is still fierce. In fact, SevenRooms research found that four in five (79%) Australians believe local restaurants, bars, hotels and cafes need their support more than ever. They also said, irrespective of the macro economic trends, they’re more likely to visit venues that offer exceptional and personalised experiences.
Customer retention, which costs roughly 7x less than customer acquisition, takes on greater importance than ever before. The best way to navigate the question about increasing prices or absorbing costs, is to drive retention to such an extent that answering it is no longer a necessity. The most effective way hospitality businesses can incentivise retention is through direct relationships. Direct booking and ordering channels allow consumers to forgo third party fees, but the real value is what they get in return.
Direct relationships enable venues to collect approved guest data that showcases their dining and spending habits and preferences. With these insights, businesses can provide personalised marketing and exceptional experiences tailored to them individually. Unique rather than one-size-fits-all experiences incentivise loyalty increases, which is worth its weight in gold.
For example, if a semi-regular hasn’t visited for a period of time, an operator could reach out with an offer or promotion based on their previous visit or a free drink if they make a reservation during an off-peak time. Personalised, meaningful experiences incentivises loyalty, which turns slow days into good days, and good days into great days. So the best way to avoid difficult questions about inflation and pricing is to build guest experience and retention strategies that ease economic pressures entirely.
Unfortunately, for some venues the issue might be difficult to avoid entirely. Any decision must be made based on data. Venues should calculate their operating costs, how they’re likely to change over time based on inflation forecasts, and offset those against expected revenue and their existing bookings. That enables venues to understand whether price increases are necessary, and if so, how to find a balance between easing the pressure on their business without overburdening their customers.
This is where the ‘support local’ sentiment is essential. Australians don’t want to see their favourite venue suffer or close down, and many would be willing to pay a little more for their favourite pasta and red wine. Operators shouldn’t hide the increase, though, but communicate it candidly. Transparency sets an important and valuable precedent. Venues should use email marketing to explain why it was a necessity. For example, so that they could continue offering the produce, staff and experience their customers know and deserve. They should also explain what happens next, anything their guests should be excited about and, above all, thank them for their ongoing support and understanding.
Ultimately, the more direct and meaningful a venue’s relationships with its customers, the easier it is to avoid or answer difficult questions. Inflation is likely to persist for some time, but not nearly as long as Australia’s love for local or the value of a guest retention and experience strategy built on direct, meaningful and personalised relationships.
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