Restaurant Competitive Analysis


Your competitor analysis serves many purposes. By understanding your competitors, you position yourself to truly understand your market and create value propositions, differentiators, and a marketing strategy that goes above and beyond the competition. What better way to create an appealing business plan built to attract investors?

When you’re choosing your location, you need to map out the local competitive landscape to know exactly who you’re up against. Doing this will also help you determine whether a particular neighborhood is ripe for the picking, or is over-saturated with competitors.

In this article, you’ll learn:

  • The difference between direct and indirect competitors
  • The function of a competitive analysis
  • How to perform a competitive analysis
  • How to apply your competitive analysis to your decision making

Restaurant Competitive Analysis

What is a competitor?

In business, the definition of a competitor is any company in the same industry that offers similar products and services and caters to the same market. For restaurants, a competitor is any business that sells food to the same target market. Competitors can be divided into direct and indirect competition.

Direct Competition: Direct competitors are restaurants that are very similar to yours. They sell the same restaurant cuisine, operate under the same service model and appeal to the same target market. A few examples of direct competition are:

  • Pita Pit and Extreme Pita: Both are quick service restaurants that offer pitas.
  • McDonald’s and Burger King: Both are fast food restaurants that offer hamburgers.
  • Lao Sze Chuan and MingHin Cuisine: Both are Chicago-based, family style, chinese restaurants.

Indirect Competition: Indirect competitors are harder to spot. They can sell different types of cuisine or operate under a different service model. But these businesses are competition because they cater to the same target market. While indirect competitors might not offer the exact same meals, they are still vying for the same hungry guests.

For example:

  • Panera Bread and Chipotle: Both are considered fast casual restaurants, however Panera Bread offers sandwiches where Chipotle offers Mexican dishes.
  • Freshii and Earls Kitchen: Freshii is a fast casual healthy eats restaurant. Earls Kitchen is known for its upscale, trendy atmosphere and serves gourmet comfort food. They are two completely different restaurants but both cater to the same target market, which means they classify as indirect competition.

What is a competitive analysis?

A competitive analysis is the methodical practice of analyzing your competition from a variety of different angles in order to understand the marketplace and define your place in it. To complete a competitive analysis, you’ll look to your direct and indirect competitors and analyze menu items, marketing tactics, business practices, pricing, and brand positioning.

Why create a competitive analysis before you choose a location?

It may seem counterintuitive to look at competitors before you’ve determined your location, but creating a competitive analysis early on will help you:

  • Determine neighborhoods that have a market gap which your restaurant can fill
  • Refine your restaurant’s offering to match and exceed local competition
  • Add evidence to your business plan
  • Attract investors

Evaluating competitors can also help determine the market’s appetite for your concept. If competition is doing well, your odds for success are higher. If not, you might be taking an unnecessary risk and be forced to reevaluate your concept.

How to Create a Competitive Analysis:

Open your favorite spreadsheet tool, whether that’s Microsoft Excel, Google Sheets or Apple Numbers, and begin with the following steps.

List out competitors by neighborhood and type of competition.

To get a lay of the land:

  • Compile a list of competitors by neighborhood
  • Indicate whether they are a direct or indirect competitor

Capture all direct and indirect competitors within a 10km radius of those five to eight potential neighborhoods you narrowed down when choosing a location for your restaurant. At this point, you may have further refined the neighborhoods you’re evaluating, which is great.

Pro tip: if you’re gathering competitive information to round out your business plan, include an analysis of competitors whose business model you admire. these competitors won’t add much to your location analysis. however, a successful competitor who has a business model worth emulating will add to your analysis. you can use their business operations and activities to dictate your own.

Once you’ve mapped out the competitive landscape, for each individual competitor, perform the following analysis:

  • Operational Analysis
  • Menu Analysis
  • Promotional Analysis
  • Customer Review Analysis
  • Overall SWOT Analysis

You’ll notice in each analysis, we recommend that you perform a SWOT analysis.

What is a SWOT analysis?

SWOT stands for:

  1. Strengths: What is the competitor doing right? By understanding what your competitors are doing right, you can do it better.
  2. Weaknesses: What could the competitor do better? Learn through your competitor’s mistakes by identifying holes in their operations.
  3. Opportunities: How can you exploit those weaknesses and do better?
  4. Threats: Do they offer something unique that you can’t? Perhaps the competitor offers delivery, whereas your service model is table-service only. Alternatively, perhaps they are famous for a secret sauce they only make in-house. Identifying threats early will help you develop a defense before you move into the location.

OPERATIONAL ANALYSIS: How and why does their restaurant operate?

You can find most of this information on the competitor’s website.

In our competitor analysis template, fill in the following information.

  • Cuisine type.
  • Concept type. For direct competitors, this answer should emulate your concept type. For indirect competitors, indicate if they fit the fast casual, family style, fine dining, cafe, pub, or quick service concept models. For a detailed explanation of each restaurant concept, read The Different Types of Restaurant Concepts.
  • Mission statement. Find this on their homepage, “About” page, Investor Relations page, or Franchise Relations page. Some restaurants explicitly define their mission statement. For others, you may have to decode this information from their about statement or restaurant history.
  • Market saturation. Unless the restaurant is part of a publicly traded company, you won’t find an exact metric to fill this field. It is enough to indicate if they are part of a global franchise, an umbrella restaurant group or are an independent restaurant.
  • Date founded.
  • Hours of operation.
  • Number of seats. How many guests can they accommodate?
  • Restaurant services. Indicate if they offer pick-up, delivery or exclusively full-service. Indicate whether they use apps for pickup and delivery or strictly through phone-ins. (E.g. UberEats, Seamless, GrubHub, Doordash)
  • Operations Strengths.
  • Operations Weaknesses.
  • Operations Opportunities.
  • Operations Threats.

MENU ANALYSIS: What do they offer that’s different and how is it priced? What are they known for?

Find this information on the competitor’s website. Some restaurants won’t have their menus on their website. If this is the case, you might be able to find pictures of their menu on Yelp or other review sites.

On the template we provided, fill in the following information.

  • Best sellers. Is there a dish the competitor boasts as a bestseller or fan favorite? This might be indicated through a symbol or verbiage on their menu or on their website.
    Differentiators. For this section, indicate if the competitor adds custom twists on staple dishes, uses all organic ingredients, or any other menu-related offering that would set them apart.
  • Specials. Are they piggybacking on a current food trend or offering a seasonal dish?
  • Pricing. As we outlined in Restaurant Menu Ideas and Testing, perform a categorical analysis of appetizers, mains, desserts and staple dishes. For every food category, write down the highest and lowest price of items to determine the range (i.e. lowest cost for an appetizer vs. highest cost for an appetizer). Then repeat for each food category. Feel free to add columns for granular price ranges for categories like pasta dishes, salads and seafood.
  • Menu Strengths.
  • Menu Weaknesses.
  • Menu Opportunities.
  • Menu Threats.

PROMOTIONAL ANALYSIS: What are they doing to attract customers?

Find this information on the competitor’s website homepage or events page. You might be able to find additional promotional information on the competitor’s social media pages.

On the competitor analysis template we provided, fill in the following information.

  • Current promotions, deals, and dailies. Promotions include coupons or freebies. Deals include concepts like burger and a beer or half priced appetizers. Dailies would refer to daily recurring specials like Taco Tuesday or Wing Wednesday or happy hour.
  • Special events. For example: Live music, games night, Thanksgiving dinner.
  • Promotional Strengths.
  • Promotional Weaknesses.
  • Promotional Opportunities.
  • Promotional Threats.

CUSTOMER REVIEW SITE ANALYSIS: What are their customers saying?

Find this information on customer reviews websites like Yelp, OpenTable, TripAdvisor, Zomato.

For efficiency, choose one site and complete the fields below using the template we provided:

  • Positive reviews: Analyze 4 and 5 star reviews to determine what the competitor is doing to please guests. This could range from a particularly noteworthy dish, to enjoyable service or ambiance.
  • Negative reviews: Analyze 1, 2, 3 star reviews to determine where the competitor missed the mark. Was it cold food, a wrong dish, poor customer service? Also note if the restaurant responded to the complaint with an offering like a personal note, a coupon, or a free meal.
  • Customer Strengths.
  • Customer Weaknesses.
  • Customer Opportunities.
  • Customer Threats.

Learn how to conduct an extensive customer review analysis in the article Restaurant Menu Ideas & Testing.

Overall SWOT ANALYSIS: How do they compare to your prospective restaurant?

In this section, based on everything you’ve learned about your competitor, form your final impression about them. This section seeks to evaluate how they perform in the market and compare next to your restaurant.

  • Do you perceive the competitor as successful? In a word: answer yes or no. This column in your competitive analysis will help you later as you filter your spreadsheet by competitors you believe are doing a good job and want to emulate or those whose mistakes you want to avoid.
  • Overall Strengths.
  • Overall Weaknesses.
  • Overall Opportunities.
  • Overall Threats.

Tips on How To Use Your Competitive Analysis to Choose the Right Location for Your Restaurant

Competition isn’t always a bad thing.

There’s no hard, fast rule on what constitutes a “saturated market”, whereby there is so much competition, your restaurant won’t capture an audience. In fact, some business experts advise that you open near your biggest potential competitor. This logic may seem counterintuitive, but your business could benefit from overflow traffic.

Say, if that restaurant has a long wait or can’t accommodate a guest. Experts also suggest locating yourself near competition because consumers already associate that location with the your offering.

We see this all the time.

Think of:

  • Busy streets with cafes and pizza joints on every corner.
  • Business areas that host an array of fast casual restaurants.
  • Food courts.

If you can confidently determine that you have a superior business model (a concept more targeted to your audience, higher quality food, better recipes, superior service, nicer ambiance etc.) or an offering that separates you from the competition in the mind of diners, then some competition should not dissuade you.

Of course, it’s important to note that competition isn’t the end-all-be-all when you’re choosing your location. It is a metric to be taken into consideration with other factors, including demographics, traffic, complementary businesses, the building, the space itself, zoning, and availability.

Consider the market share of local competition.

While this isn’t an exact science, with the right information, you can estimate the market share of your competitors to determine what’s remaining.

To determine the market share of your competitor, you’ll need to know:

  • The population of that area
  • The population of the target market.
  • An educated guess of the number of diners your competitor serves in a month. You can roughly determine this figure by their capacity and the seatings they turnover in a night.

For example, there is a population of 80,000 within a 15 minute drive of your competitor’s restaurant. 17,000 of those people make up your competitor’s target market. Estimate that they fill 80 bellies a day based on their seating capacity and general busyness.

Estimated Market Share = (Estimated Total Monthly Diners / Target Market Population) x 100

= ( (80 x 30) / 17,000) x 100

= 14%

Project this against your own prospective market share and the market share of other neighboring competitors in order to gauge the available market. Locations that have high populations of your target market are preferable. There’s more diner pie to go around to every competitor.

Use local competition to re-evaluate your strategic position.

Going up against the competition can mean re-imagining your restaurant in a new way. Refer back to your SWOT analysis to identify market gaps and refine your restaurant offering.

While it’s common to think that restaurant concepts are born into success from the sheer genius of the restaurateur, often success comes from that restaurateur tweaking their restaurant’s business plan to fill a market gap.

Some successful restaurants begin by analyzing the market and creating a concept based on gaps they find.

For example:

Market gaps by concept: If you analyzed a market and found a lot of quick service, take-out Chinese restaurants, you might consider turning your concept into a fine dining Chinese restaurant or a casual restaurant that caters to the hip, young professional elite.

Market gaps by need: A hot vietnamese soup restaurant might perform better in a cold, wet, Pacific Northwest surf town than an ice cream shop.

Market gaps by creativity: Develop a unique menu by adding a special twist on common dishes that stand out from the rest of the competition.

Conclusion

You’re almost ready to start looking at restaurant spaces in viable locations, but your competitive analysis doesn’t end here. As you move forward, your restaurant concept and plans will continue to be dictated and inspired by your competitors.

For the purposes of choosing a location, your competitive analysis should add yet another layer of consideration as you analyse each location. Once you’ve determined a location is a fit based on competition, population, traffic and complementary businesses, it’s time to explore bylaws, zoning, permits and planning.