Balancing Acts

Attracting new customers is essential, but so is encouraging loyal customers to return more frequently and bring their friends. Can both strategies coexist?

By Kate Leahy, Associate Editor -- Restaurants & Institutions, 3/1/2007

The British Beer Company brings authentic spirit to pub openings. Locally made furniture supports the community at Matthew Jansen's restaurant Mateo. Gary Simon (l.) and Harry Gnong (r.) of The British Beer Company welcome John Rankin of Boston's British consulate to the grand opening of the Walpole, Mass., location.

Jamie Bunnell knows that his business relies on loyal customers. His restaurant, Jamie’s Bar & Grill in Sacramento, Calif., has an unlikely location near a cemetery and a television tower, and to find it, you have to know where to look. Yet despite its low profile, the restaurant stays busy with regulars. These loyal diners, who make up 80% of Bunnell’s business, not only keep the lights on, they also help build his customer base by spreading the good word.

"Word of mouth is the best advertising you can get," acknowledges Bunnell, who uses money others might earmark for advertising in ways that benefit his guests directly. "I run a little higher food cost while making sure that people are accommodated. It might mean that we don’t make money from them the first time they come in." But for Bunnell, the investment pays off in reliable, repeat business.

Building new customer relationships while fostering those that are established is an ages-old balancing act. While some turn to targeted marketing strategies to secure additional business, most also realize the value in loyal customers.

Frequent-diner programs and menu promotions—designed to gain new business and retain the regulars—are infiltrating every segment. Overland Park, Kan.-based Applebee’s Neighborhood Bar & Grill is hedging bets with two different offers. In August 2006, the chain introduced menu items—such as Herb-Crusted Chicken topped with Italian Country Salad—developed by television chef Tyler Florence. President-COO Dave Goebel says he hopes the items will lure Applebee’s customers whose loyalty may have begun to waiver. Meanwhile, a three-course combo meal promotion of appetizer, entrée and dessert starting for $9.99 appeals to Applebee’s loyal, often price-conscious diners.

"The most cost-effective and easiest way for most restaurants to create sales is by getting the customers who come in today to come in more often and buy more. But you can’t forget new-customer acquisitions," asserts David Scott Peters, a Peoria, Ariz.-based restaurant systems coach.

Making New Friends, Keeping the Old

Summa Health System’s Akron City Hospital in Akron, Ohio, has found ways to do just that: Gain new customers while providing existing customers with reasons to increase their visits.

Despite the hospital’s large internal customer base of 3,800 employees and a steady flow of visitors (from patient families to sales representatives), it has taken some time for the self-operated entity to capture the interest and loyalty of potential customers. When Don Smith took over nine years ago as director of food, nutrition and retail services, he watched a daily lunchtime exodus as employees walked across the street to a bustling, standalone restaurant. That has since changed since Smith increased menu variety on the Akron City Hospital’s campus.

The cafeteria earns $1.7 million in annual revenue while on-premise Starbucks and Einstein Bros. Bagels units ring sales of $180,000 and $170,000, respectively.

Still, Smith found a hole in his operations. After staffers noticed improvements in patient room-service meals, they wanted more-healthful, upscale options for themselves. That led the hospital last June to open Virtues, an on-premise restaurant with an open kitchen and a seasonal menu. Because the restaurant operates like an upscale independent, an under-represented category in the area, the concept has attracted business from outside of the hospital. Now 35% sales come from the Akron community, with Smith predicting that Virtues’ anticipated first-year revenue of $600,000 will increase by $200,000 for the first few years.

"People who find out about it in the community keep coming back two or three times a week because it’s exciting. For the business community in Akron, it’s the place to be seen," Smith says.

Even so, "we’re always trying to figure out how to draw new customers," Smith acknowledges. One tactic has been a marketing campaign themed "You set the pace" to appeal to time-strapped workers. It allows guests to choose whether they want to linger over a three-course meal or be out within 30 minutes.

Virtues extended dinner hours to 10 p.m. and acquired a liquor license to boost evening sales among Akron locals. Meanwhile, takeout items and coffee as well as value-priced pizza specials provide more-economical options.

Source Locally

As Akron City Hospital found a sweet spot among local diners and hospital employees, other operators are appealing to their local community to retain regular customers and acquire new.

Having established his restaurant Mateo in Boulder, Colo., Chef-owner Matthew Jansen analyzed the role that his second restaurant, Radda Trattoria, would play in a bustling, mixed-use development. "There’s a great sense of awareness here of where residents shop and dine," Jansen says. To build neighborhood loyalty early on, Jansen struck up relationships with nearby businesses and is planning wine dinners with the wine importer across the street. After dinner, diners "will be able to go across the street and buy the bottle," he says.

Like Jansen, Plymouth, Mass.-based The British Beer Company seeks to reflect the characteristics of the local community, even as it grows into new markets. Pub managers also are encouraged to organize charitable events that engage regular customers as well as establish a broader reach within the community. "We’re a real pub," says Harry Gnong, director of operations. "We’re there for the local people. We get very involved in local civic events that get people into the pub."

As the seven-unit regional chain expands, it selects new locations adjacent to strong customer bases and invites customers from established locations to their new pub openings. "Whenever there is a new one, there is customer carryover from an old one," CEO Gary Simon says.

Just as important as being a graceful newcomer is graciously welcoming newcomers to your neighborhood. Peters notes that when people move into an area, they are not as likely to have established relationships with area businesses. "You’re getting the customers right at the beginning when they’re formulating their habits. You get on their list of choices really fast," he says.

For some operations, new customers are essential to keeping business afloat. Philadelphia-based dinner cruise ship The Spirit of Philadelphia finds that most of its business comes from first-timers acquired through marketing that targets corporations, tourism groups and individuals. But to maintain business, advertising on billboards, radios and the Internet is critical. "I have to stay front of mind. I have to remind you that we’re out there," explains General Manager Bob Gregory.