Why marketing and advertising are so important for restaurants

Market Realist

Must-know: Why restaurants are so important to investors (Part 9 of 11)

(Continued from Part 8)

A good marketing strategy can boost sales

Restaurant chains spend about 3% of their revenues on marketing. You can gain exposure to these companies using the PEJ and PBJ ETFs.

Mainstream channels of marketing—like radio, TV, and print ads—are still common. But many restaurant chains have also used social media to increase their brand presence. McDonald’s (MCD) sponsored the 2012 Olympics as part of its 2012 advertising expenses.

In the above chart, we compare marketing expenditure between fast food restaurants and fast-casual restaurants. McDonald’s (MCD) and Yum! Brands (YUM), both fast food restaurants, had a marketing expenditure of $803 million and $607 million, respectively, in fiscal 2013. Meanwhile, all three fast-casual restaurants—PNRA, BAGL , CMG—together didn’t even add up to $100 million in marketing expenditure.

Brands names

Advertising keeps a brand name fresh in the minds of existing customers. But it also brings awareness to new customers.

McDonald’s (MCD) is a mature company in this market. It operates in over 100 countries. The company has a different approach to marketing in each country. It has identified several target customers—like parents, children, business customers, and teenagers. It advertises heavily to kids in the  U.S. , for example, but targets adults and kids alike in markets like India. McDonald’s (MCD), has to be careful about how it advertises its price points. Low-priced items may hurt sales due to customer’s perception of low quality. McDonald’s (MCD) also uses promotions such as loyalty schemes, direct marketing, door drops, and merchandising.

Panera Bread (PNRA) and Chipotle Mexican Grill (CMG), on the other hand, don’t heavily advertise.

Technology

In this day and age, customers use the Internet to find restaurants, read reviews, view menus, and reserve tables online.

Restaurants are increasingly adopting online mediums for marketing and advertising their brand.

Chipotle Mexican Grill (CMG) rolled out two online campaigns, “back to the start” and “scarecrow.” The videos had 8 million and 13 million views on YouTube, respectively.

You can gain exposure to the restaurant industry through the exchange-traded funds PEJ and PBJ.

Continue to Part 10

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