Market segmentation in the restaurant industry is the practice of targeting a specific customer base to maximize sales, even if it means alienating other potential customers. Going for a smaller piece of market share by offering a benefit attractive to only one group often leads to customers in that group becoming repeat buyers, spending more with you than if you tried to get more people buying from you by offering a generic product.
Consumers buy products or services based on the benefits they offer. This is why so many competing products in the same general category can successfully compete with each other. For example, one group of car buyers might have little money to spend and shop based on affordability. Others have large budgets and want prestige and all the bells and whistles. Mothers who cart their children around each day prize safety and roominess. Auto marketers segment the market by creating cars that emphasize benefits such as affordability, safety, status or reliability. Emphasizing one benefit limits the total number of target customers who will buy from you, but generates bigger sales among that smaller group.
Some restaurants segment the market by offering food at a low price. They know that office workers, for example, eat out regularly but can’t afford to pay $10 or more each day for lunch. These restaurants offer fewer menu items, smaller portions and fewer amenities, targeting the large market segment that wants to eat a good meal without paying more than $6 or $7. Some restaurants offer high-priced menus to create perceived value, targeting affluent diners who want a complete experience. These restaurants offer upscale interiors, use expensive ingredients, offer expansive, exotic menus and might serve wine or liquor.
Many people who eat out do so because of necessity, rather than a desire for an experience. Restaurants who want this segment of the marketplace offer quick service, including counter, buffet, self- or drive-through service instead of traditional seated dining with a server. These restaurants combine fast service with low prices to offer multiple benefits to customers. Upscale restaurants offer more service, including guaranteed reservations, valet parking, music, a wine sommelier and tableside preparation of some items.
Restaurants often use consumer demographics to guide them in developing their brand or concept. For example, if a restaurateur is located in a community with a large number of retirees, he might open a low-service, moderately priced restaurant. If the area has a large number of affluent young people, the restaurateur might offer an international menu, craft beers and live music. In a college town, restaurants know to offer a balance between low prices and a fun atmosphere.
One of the easiest ways to segment a restaurant market it by the type of food you offer. This allows you to offer two more benefits. For example, if your specialty is Italian food, you might create an upscale Tuscan eatery, open a low-cost pizzeria, or offer family and senior dining. If your area has a large ethnic community, you can target that group, offering milder, less-authentic menu items to attract outsiders who enjoy that cuisine. If there are no other seafood restaurants in the area, customers might be wiling to pay more for that type of restaurant.