Catering is trapped by low prices, and group buying destroys the experience?

"Group buying special offers, compete for a good meal!" As the leading service industry, the catering industry has seen an increasingly fierce price war in recent years. The increasingly exaggerated group buying competition has put both practitioners and consumers in an awkward position. Why are the low-price promotions in the catering industry becoming more and more competitive? What is the profit to be made in this low-value-added consumption chain of group buying? Are we, as consumers, being ripped off? I believe you can get the answers to these questions from this article.

A few days ago, two consecutive conflicts broke out at the Manner store within one day, which directly put it at the center of public opinion. The "cyber arena competition" between netizens supporting consumers and those supporting store clerks has almost never stopped. On the Internet, both sides have their own positions and opinions.

But it is not wrong to support the store clerks or consumers. In essence, since the price war of 9.9 yuan for freshly made drinks began, the entire catering industry has gradually become alienated. People used to say, "Customers are God," but now, I am afraid that "low price is God." Therefore, everything except low price seems to be ignored and sacrificed, including the benefits of service providers and the experience of consumers.

When low price becomes the first principle and pursuit, content that cannot attract consumers' attention at the first time, including experience, product details, quality and after-sales service, will naturally become gifts that can be placed on the altar and "sacrificed" to the "God of low prices."

01 Trapped by low prices and group buying

Let's first look at a set of data. The latest data released by the National Bureau of Statistics shows that in May 2024, the national catering revenue was 427.4 billion yuan, a year-on-year increase of 5.0%. However, corresponding to this set of growth data, the China Cuisine Association has clearly stated that the problem faced by the national catering industry in May is "increased revenue but not increased profits", and price wars, homogeneous competition and increasing cost pressure are the important reasons for this phenomenon.

Of course, we have heard enough stories about price wars in the tea and coffee industry, whether it is the endless stream of 9.9 after coupons, or the lower extreme promotional price of less than 4 yuan per cup after coupons, and even brands that are already based on cost-effectiveness, which directly give the industry a little price shock.

In fact, price involution has become a common practice for almost all chain formats. Even chain restaurants can hardly escape the vortex of price wars. In addition to the most famous "KFC Crazy Thursday", a series of Western chain restaurant brands such as McDonald's, KFC, Dicos, Burger King, etc. have launched their own membership days, and almost all of them are live-streaming discount packages on major short video platforms. Various 9.9 and 19.9 packages are emerging in an endless stream. Tustin Burger, which has grown very fast in recent years, often sees various 50% off group purchase packages on short video platforms.

In addition, the discounts on various Chinese simple meals are even greater. Some products of Xishaoye are only sold for "9.9"; Hehegu, Nanchengxiang, and Jiahe Yipin have also launched activities such as "3 yuan for unlimited porridge", "3 yuan for buffet breakfast", and "2.8 yuan for any porridge". In addition to these simple meals, various party catering such as hot pot and barbecue are also following the price reduction.

But in fact, almost all new tea and coffee brands have their own APPs, and coupled with their own marketing and unique social currency attributes, the track of freshly made beverages has more or less its own traffic. But for the catering industry, in addition to the cost pressure brought by low prices, the biggest problem may be where the traffic comes from?

On local life service platforms such as Douyin and Meituan, major catering brands have been cutting prices in exchange for traffic, which has become the only way for these brands to obtain traffic. Chain brands can evaluate supply chain advantages and use endless discounts in terminal stores to exchange for traffic to attract consumers, and even further begin to give up the brand premium built up through years of marketing and hard work.

However, the traffic of group buying platforms is capped, and price wars quickly began to spread with the help of the platforms. However, non-chain or smaller chain restaurants obviously do not have sufficient bargaining power on the supply chain side, so the out-of-control of low-price group buying has become inevitable in the next round.

02 Low-price group purchases are polarized: who will buy if you are slow?

When low-price competition becomes the quickest and most effective means to attract consumers' attention, competition between platforms further intensifies this contradiction.

According to the "2023 Local Life Service Industry Insights" released by QuestMobile, the number of overlapping users between Meituan and Douyin exceeds 300 million, and the proportion of overlapping users of Douyin accounts for 81.0% of Meituan users. Faced with the aggressive Douyin local life, Meituan must take countermeasures, and the competition between the two sides will naturally return to the most familiar field of Internet platforms - burning money!

However, unlike in the past when platforms spent money to subsidize merchants, the price war in the catering industry has meant that Meituan and Douyin no longer need to provide so-called large subsidies to compete for users. Platforms that already have a sufficient user base only need to use the algorithm recommendation mechanism to push those stores that are willing to offer lower group purchase discounts to the homepage, and by the way, mark how much discount they have given. They can even take a cut and ask the merchants for a small "commission".

Therefore, as the algorithm mechanism tilts towards low prices, catering brands competing for traffic can only offer discounts with tears. As long as their prices are lower than those of other competitors on the same street, they can be ranked higher and naturally be seen by more consumers.
So naturally, the commodities in the market were divided into two extremes. The low-priced group buying packages launched by brands with supply chain advantages or those willing to lose money to gain publicity became the "wool" that everyone must buy.

But as we said at the beginning: "When low price becomes the first principle and pursuit, everything except price will become a sacrifice on the altar to the 'god of low price'." Brands that find it difficult to lower costs in terms of supply chain, operations, etc., will inevitably resort to lowering service quality or even adding some meaningless goods to group purchases to raise the total price of the group purchase in order to create an image of low discounts in pursuit of low prices.

What's even more terrible is that if the group-buying mechanism is really just a simple matter of who has the lowest price and who has the advantage, it would be fine. But for many store owners, it is difficult for them to understand the operating mechanisms of Meituan and Douyin. In addition, the catering industry is notoriously "hard work" (referring to a very hard industry), and it is difficult for store owners to have the time to calm down and study the platform mechanism. Therefore, it is almost normal to hand over activities, pricing and a series of operational rights to local life platform services. If there are some problems in the agreement between the two parties, low-price group buying, or even finding large losses when settling accounts at the end of a month, becomes a normal thing.

Just like some store owners told iBrandi: "I don't understand and don't want to do it, but others are doing it and you're not. Others' stores are bustling while yours is deserted. The most feared thing about catering is desertedness. You have to do it."

Since the beginning of the epidemic, the wave of digitalization has swept almost all industries, but for the catering industry, whether the combination of digitalization + low prices is the cornerstone of building a new retail, whether it is a steady cash flow or "losing money to gain publicity", or is it group buying at a low price for the sake of a low price, I am afraid that the store owners are somewhat clueless.

03 Low price has always been a threshold thing

Of course, working on the supply chain and operations, and providing high-quality, low-priced group purchase packages while ensuring costs, is obviously the most conventional solution to this problem, and is also the answer that best meets current expectations.

But it is undeniable that digital operation has never been an easy task, especially for industries such as catering and retail that are already very close to consumers. As Huang Mingduan, the founder of RT-Mart, once said, only when you do e-commerce yourself will you know that this matter is very complicated, with too many places to burn money, such as attracting customers and developing technology. To put it another way, even if we attract customers, we still have to spend money to retain them, and we need to continue to invest. If time is slow, it is not worth it to continue to burn money.

Although there are great differences between the retail industry and the catering industry, it is undeniable that the ideas behind the two are extremely similar. Whether it is the efforts on the operational side or the supply chain side, the essence is more and more intuitively reflected in four words: control costs.

For example, the Chinese restaurant chain Hefu Lamian has 75% of its company systems independently developed by its technical talent team, which can manage the entire store operation through a mobile phone, supporting the daily management of Hefu's 600 stores and greatly reducing personnel costs. The snack chain brand Kuafu Fried Skewers has cooperated with supply chain companies to establish a full cold chain network of more than 2,800 stores across the country, making distribution a unified arrangement and reducing costs on the supply chain side.

Or we can put it more bluntly. All "low-price group purchases" essentially have a threshold. Whether it is the scale of the enterprise or the operational capabilities, it is essentially a test. If you simply pursue low prices, then this low-price group purchase will become a castle in the air. Manner's situation has proved one thing: if there is no corresponding supporting mechanism, and you just compress labor costs without bottom line, efficiency and service will become weaknesses.

Just as Wu Peng, the founder of Kaye Technology, mentioned when iBrandi interviewed him before: "The reason why we make fully automatic commercial coffee machines is because I believe that under the circumstances of cost reduction and efficiency improvement and the internal price of coffee terminals, it will bring structural opportunities for us to provide products that can improve their efficiency."

Perhaps, it is time for the catering industry to compete in back-end capabilities.

Author: Innocent Roland

Source: WeChat public account: iBrandi (ID: ibrandi)