Thailand's F&B brand and price management: Secrets of success in an over stocked hospitality market
published : 15 Oct 2019 at 10:03
writer: Andrew Clarke & Michael Clarke
More and more nightlife establishments are opening up every year, meaning the amount of competition is increasing dramatically. In Thailand alone, the number of nightlife establishments that were opened or relaunched grew by a total of 9.1 percent from 2012 to 2017, bringing the total amount to just under 9,000.
Bricks and mortar establishments in Thailand's Hotel Restaurant Café sector grew by 16.6 percent from 2012 to 2017, reaching a total of just over 24,000 establishments and still counting!
Between the rise of the Baht and the speed of development, it is easy to see that the market is becoming very saturated and more competitive, resulting in a lot of nightlife establishments beginning to suffer. So how can a business plan to survive this current financial crisis? The rise of the Thai Baht has already impacted tourism, with the number of international arrivals by air to Bangkok's main airports showing a drop of 27 percent from January to September 2019, compared to the same period of the previous year.
MORE THAN 1 IN 4 NIGHTLIFE ESTABLISHMENTS RUN AT A LOSS
There is a considerable lack of efficiency that can be observed from the operations throughout the different outlets where people go and have a drink. The global sit-down food & beverage market is worth US$2.6 trillion, yet a lot of these establishments operate at only 30 percent of their capacity. F&B is the only stream that remains underserved in the Hospitality Industry, whereas hotels and airlines have practiced yield management for decades, with airlines launching the practice in the 1980s. So, what can nightlife establishments do to fill empty seats, rooms and tables?
Many general managers, especially here in Thailand believe the best way of approaching this issue is by offering happy hours. It has become apparent that more and more venues are resorting to this approach, but often to an extreme, with establishments selling beverages close to or at cost price, thus cannibalising their own profit margins. In the short run, it is a great way of getting patrons to come in for the time frame of the happy hour, but statistically it is shown that on average, only 20 percent of those people will be encouraged to stay afterwards. In the long term, establishments doing extreme happy hours will suffer. Patrons will very quickly become accustomed to discounts, leaving some of them with a bitter taste when the prices suddenly double from what they have become educated to perceive as the correct psychological pricing for offers or services.
When you see two bars side by side, and one is packed with lively people while the other one is empty, which one would you go to for a drink and why?
Most people will go to the packed bar. But what if the empty bar made better drinks, had a great sound system and was much cleaner? It would not matter. People naturally want what other people have, and they feel a certain level of comfort from following the choices of others rather than having to think about the situation for themselves. Statistics show that peer-to-peer recommendations usually resulted in an average of 80 percent of customer conversion, against an average of 30 percent without the same validation.
While we may not realise it, we see Social Proofing around us all the time, and most of it is subconsciously processed in our brain. We use Social Proof to decide what clothes we are going to wear, what colour the walls in our house will be, and what car we drive.
This is why many establishments use happy hours as their unique selling point, but is it really the best way to entice patrons to come to an establishment? If all competitors are doing it, what makes any one offer unique enough to convince a patron to choose that place rather than the more conveniently located pub next to their office or residence?
THE IMPORTANCE OF UNDERSTANDING PRICE SENSITIVITY
Understanding the importance of price sensitivity among customers who regularly use establishments that serve alcoholic beverages, is a key role for any F&B manager.
A recent study conducted by Heather Skinner, Gloria Moss, and Scott Parfitt from Glamorgan University, focused on understanding what customers rated when going to an establishment selling alcohol. They came to find that “low alcohol prices were rated as the most preferred service offering by 40 percent of survey respondents…”
Furthermore, although Happy Hour promotions appeared popular, only 11 percent rated that service as their most preferred service offering, 18 percent as their second preference, and 33 percent as their third preferred service offering. Buy-one-get-one-free promotions were rated as the most preferred service offering by only 10 percent of the sample, yet 46 percent rated it as their second preference. By contrast, other forms of service offerings such as quiz nights, special DJs, ladies' nights and special events, were rated low with less than 12 percent of respondents rating such offerings in any of their top three preferences…”
Now what if an establishment cannot compete by lowering its retail prices?
There are many ways management can reduce overall costs per unit. Contact various suppliers to see if they are overcharging. Is the establishment getting any FOC (Free of Charge) or can the management further enhance the relationship by advertising their products in return for better offerings? How about negotiating a discount when settling accounts payable under 30 days? Most suppliers will be interested in increasing their accounts receivable turnover ratio as it will reflect positively in the company's overall financial health and a reliable client base.
Even small errors, such as over-pouring can have a significant impact on an overall financial situation. We have come to notice that most establishments see these mistakes as unavoidable and as part of the daily hustle and bustle of the F&B Industry – whereas their thought process should be “How can I help my staff to minimise the amount of mistakes” – once management has a stronger, more proactive way of thinking while also thinking about the staff, the positive ROI will be reflected.
Fear not, there are ways around it. One of the major issues we have noticed with a lot of establishments is the lack of understanding they have with marketing – and when done correctly, the importance it has.
Many establishments tend to brand themselves incorrectly, especially on social media platforms. They tend to be all over the place in terms of using different fonts, colour schemes, no logos on the social media posts/events of the establishment, there simply is a lack of consistency. Having clear guidelines on what brand is will help people understand what type the establishment really is. Because let's face it, every time we see the golden arch, we all know what it is.
Do not underestimate the power and potential of social network advertising. Simple yet very effective advertising tricks can be used on an establishment's social media pages. Instead of using static pictures on the Facebook cover, use cover videos. Cover videos are more likely to keep people engaged, especially on mobile apps, since the trend shows that an increasing percentage of people searching for a particular business will do so from their mobile devices. In 2018, 80 percent of internet usage was estimated to be on mobile, with 40 percent of users worldwide only using their mobile to do research online. Optimising different online platforms and content for the mobile will result in a higher level of engagement and conversion, in addition to mobile specific PPCs having lower costs for PPC advertising and a higher ROI.
FIND UNIQUE HAPPENINGS
A lot of establishments do not seem to use the vast amount of information that can be accessed from a simple Google Search. Just in the upcoming months, there are a number of unique days such as American Beer Day, Black Friday and Champagne Day, just to name a few. It is highly recommended to implement these special events in developing a marketing campaign depending on the establishment's theme. It is important to stand out! Create that additional awareness by highlighting the establishment's USP and combining them in creative and innovative ways with these one-time or yearly opportunities.
Authors: Andrew Clarke with Michael F. J. Clarke, CEO, Kingsmen Hospitality Services, a leading advisory and training organisation for the hospitality industry. Michael Clarke can be reached at firstname.lastname@example.org
Series Editor: Christopher F. Bruton, Executive Director, Dataconsult Ltd, email@example.com. Dataconsult's Thailand Regional Forum provides seminars and extensive documentation to update business on future trends in Thailand and in the Mekong Region.