Create the most effective competitive set for your restaurant

Author: Carmen Mallo (Revenue Management specialist and Founder of REMS Hospitality)

After visiting many restaurants in the last few months and asking what  GMs, owners or other team members think about the competition, I am sharing my views on it, hoping it will help you better understand your competitors and streamline the selection process. No matter how great your food, concept or business model is, it is vital to stay on top of the competitors, as they could eat into your market share.

Generally speaking, a restaurant would define a competitor: as another restaurant that shares similar food, price or location. Often, these criteria get narrowed to being the only independent restaurant in the area, a cosy choice, a Michelin star or the most Instagrammable.

Many restauranteurs can fall into the wrong assumption that if you do not share exactly the same conditions (you use to define a competitor) with other venues, that restaurant will no longer compete with you. Consider indirect competition too, as they also sell cooked food.

Selecting a suitable competitive set starts by shifting that mindset from what we think a competitor might be to what the customers search is. 

For example:

When someone looks for a restaurant to eat at, they would usually consider the following:

• Location
• Food type 
• Price

These conditions change constantly; so one day, you could be competing with a restaurant that shares similar food to you (but is further away), and another day, you could be competing with the sandwich place in front of you because the customer is very hungry and they need to eat something now. On the other hand, If someone is looking for a place to take many pictures, you might compete with another array of restaurants following that criteria.

So how do we define the best possible competitive set for us? We will soon share the magic formula with you, but before...

Ask yourself this question. 

How many people that could have come to my restaurant ended up going somewhere else? 

In every customer search, you could compete with at least 2-3 other restaurants, a dozen or more, depending on what they are looking for. 

However, we must keep our direct competitive set small and relevant (no more than four restaurants). So these are the steps to easily find out your best competition:

1. Create a broader competitive set. Select a minimum of 6 restaurants with a similar location, food and price (they do not need to match all the criteria with your restaurant at once).
2. Below, create three rows with price, location and cuisine and score from 1 to 3 for each competitor according to how relevant their information is to yours.
3. Add another table below to display the results. Each restaurant will score a total based on the previous score times a multiplier. The multiplier is a weighted* amount that considers how important the location, the price or the cuisine is for someone looking for your restaurant. *We have weighted the criteria with the same amount: 33.3, so each factor is equally relevant when someone searches for your restaurant. Note this is mostly never the case.
4.  In the last table, add a small formula that includes the weighted value times the score from the table above. 
5. Add a total row below and conditional formatting to the values. The higher the value, the closer that restaurant is to being your direct competitor.
6. Choose the four highest scorer restaurants.
7. And your direct compset is ready!! 

If you wish to get a free copy of this calculator, please get in touch at hello@remshospitality.com

Thank you for reading!