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Know about RGM: A tool that helps your restaurant grow

RGM tool for restaurant sales

What is RGM?

Restaurants can serve up a profitable growth by mastering revenue growth management, which involves ensuring that pricing, promotions, and menu offerings work together. Many restaurant executives are preparing for another challenging year, as they anticipate significant increases in labor and input costs. They also face pressure to meet evolving consumer demands in a highly competitive environment. However, despite the importance of revenue growth management (RGM), many restaurant brands fail to invest adequately in it.

How is RGM critical?

According to a 2022 survey by McKinsey, more than 70 percent of restaurant executives acknowledge that they have limited their RGM efforts due to resource or capability constraints. Even companies that devote ample time and resources to RGM often define the concept too narrowly, missing out on its full potential. The past few years have been difficult for the restaurant industry, with pandemic-related shutdowns, supply chain shortages, and inflationary pressures. However, food service has recovered to pre-COVID-19 levels this year, and consumer sentiment has improved. Many brands have strengthened themselves by creating new omnichannel models, developing resilient supply chains, and crafting menus that meet consumer demand while minimizing operational complexity.

Research suggests that restaurants will continue to face challenges in the coming years, including rising labor and input costs, changing channel mixes, evolving consumer demands, and an increase in consumers trading down. To succeed in this competitive and complex environment, brands must move away from reactive measures and focus on building strategies for long-term success. RGM will play a vital role in safeguarding restaurant performance.

Is RGM effective?

To keep up with rising costs, many restaurant brands have raised their prices. However, relying solely on price increases may drive away consumers if financial pressures intensify. Leading brands are adopting a more holistic approach through disciplined revenue growth management. They coordinate decision-making across pricing, promotional offerings, and menu compositions to boost sales and respond to margin squeezes. Piecemeal approaches do not yield maximum returns, and RGM strategies should be integrated and based on multiyear plans.
Unfortunately, in a survey of restaurant executives, less than 20 percent of respondents indicated that their brands were making full use of the RGM toolkit. Only 30 percent said they were incorporating RGM into a multiyear plan. However, brands that opt for a fully integrated RGM approach powered by advanced analytics can achieve sales lifts of 6 to 10 percent over a two- or three-year horizon.

How does RGM work?

There are four key areas where restaurants can gain significant RGM advantages but often fail to integrate the necessary elements: menu offerings, price architecture, value offers, and franchisee execution. Brands should align menu offerings with their overall strategy and consider factors such as the role of each item, demand elasticity, operational complexity, and opportunities for new products or pricing tiers. Proactive price architecture involves finding optimal pricing gaps between menu tiers to encourage trading up and discourage trading down. Pricing should also consider variables such as sales channels and store locations.

Value offers should be profitable and individualized, tested against the consumer value proposition, and integrated into a longer-term strategy. As customer-level data improves, brands can design personalized promotions that encourage specific behaviors and improve efficiency and return on investment.

Franchised brands often struggle with executing harmonized RGM approaches across their systems. It is crucial to align franchisees around a shared pricing strategy by being transparent and sharing insights and learnings. Frequent communication, such as town halls or pricing forums, can help franchisees report on successful tactics in their stores.

Leading restaurant brands maximize the value of their RGM strategies by using advanced analytics to understand consumer behavior, evaluating and adjusting their strategies more often and in more detail, and forming dedicated RGM teams that include data scientists. These actions help brands build a strong foundation and leverage RGM to its full potential.

Implementing a robust RGM strategy requires understanding the opportunities for value creation, setting tangible ambitions, protecting existing organizational strengths, and leveraging a fact base and advanced analytics. Every brand’s RGM journey will be different, but these actions can guide brands toward success.

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