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  • Good News from Walmart, Bad News from Jack in the Box

  • Grocery stores feel a bit more at ease today as Walmart announced, in it's recent ER, that food deflation seems to have bottomed.

    Food prices have continued to drop, that it's created a very competitive environment, it's hard to profit.  Everyone is slashing prices and margins, so those that are the biggest (like Walmart) can suffocate the smaller businesses.  The big get bigger and the small die off. 

    If food inflation can start to strengthen, then you'll see a reset in grocery store pricing, which will help alleviate the large value gap that is harming many restaurants.  As food prices at grocery stores go lower, non up-scale restaurants prices must go lower to entice consumers not to eat at home.  This effects the more price sensitive consumers, so up-scale restaurants tend continue to win in this environment.  At the other end of the spectrum, low cost places like Domino's Pizza (the Walmart of the restaurant industry) tend to win.  Everything in the middle suffers. 

    In the same day, Jack in the Box announced they are being forced to join the price slashing.  So while food prices may have bottomed, it doesn't mean they are bouncing higher anytime soon.  This is dangerous for most restaurants as sustained discounts lower your brand image.  You reduce your brand value when you discount heavily, which is why we only recommend it for a few events a month to draw buzz.  This helps ensure customers don't feel they should only visit you when there is a discount as you've limited it to only a few days out of an entire year. 

    As we continue to preach, if you want to compete in this industry, you must know how to build value inside your restaurant and outside of it.  That is why having the right online branding strategy for your business (restaurant or not) is essential. You can not allow places like Yelp to control your brand image, you must learn how to build it yourself and continue a steady stream of customers regardless what economy we face. 

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