When a new competitor opens nearby, trade often dips as people try somewhere new. The businesses that come through it stay calm, watch their numbers closely, continue doing what their customers value, and avoid a price war. One of our clients, a local restaurant, saw trade fall by around 30% when a new venue opened along the road, and took that approach.
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What happened to one of our clients
About a year before we spoke to the owner, a new restaurant, bar and coffee shop opened just along from a restaurant we work with. Everyone likes something new, and in the weeks that followed, trade dropped by around 30%.
The owner didn’t panic. In his words, of course it hits you, but you have to ask what good can come of it. He stayed optimistic and worked with us to review the business and its figures. He says that review enabled them to continue trading for a further year, with some very good moments.
Why trade dips when someone new opens
New places attract curiosity. Some customers try them once and come back; others move for good. The first few weeks rarely show the long-term picture, which is why panic decisions often go wrong.
Know your break-even point first.
Before you change anything, you need to know the sales level that covers your costs. Your break-even point is your fixed costs divided by your gross margin, the share of each pound of sales left after the cost of what you sell. If margin is new to you, read markup and margin: the language of profit.
Take an illustration. A venue has fixed costs of £5,600 a week, covering wages, rent and bills, and a 70% gross margin. It breaks even at £8,000 in weekly sales. If its usual £10,000 drops by 30% to £7,000, its gross margin falls to £4,900. After £5,600 of fixed costs, it makes a loss of £700 a week.
Now suppose it cuts prices by 10% to win customers back. The cost of each dish stays the same, so the gross margin falls to about 67%, and break-even rises to around £8,400. The venue has to sell more to stand still, while the new competitor may be able to hold out longer. That is why a price cut is rarely the first answer. Our post on contractor rate vs salary looks at the same question from the other side: setting a price that covers your costs in the first place.
What to do when a competitor opens nearby
- Do not cut prices straight away. A price war shrinks your margin, and the new business may be able to hold out longer than you. Know your break-even point before you change anything.
- Watch your numbers weekly. Track sales, margin and cash for the first few months, so you can see whether the drop is settling or getting worse.
- Remind customers why they came to you. Double down on what they value, whether that is quality, service or atmosphere, and tell them about it.
- Review costs and opening hours. A dip can be the right moment to cut waste or quiet sessions.
- Stay positive in front of your team and customers. People notice when a business looks worried.
What to track each week
In hospitality, the useful weekly figures are the number of customers, the average spend per customer, gross margin and cash in the bank. Splitting sales this way shows whether you are losing customers, or keeping them but selling less to each. The answer points to different fixes: more visibility and reasons to return if customers are falling, and a look at the menu and offers if spend per head is dropping.
Compare each week with the same week last year where you can, as well as with the week before. That removes normal seasonal ups and downs.
Give regulars a reason to come back.
A new competitor wins on novelty. You can win on familiarity, quality, and how people are treated. Some things that help:
- Stay in touch with regular customers by email or social media, and tell them what is new
- Ask happy customers to leave Google reviews, and reply to every review, good or bad
- Try something new yourself, such as a seasonal dish, an event night or a local collaboration
- Make sure the basics are right every time: welcome, speed of service and consistency
- Train your team to know regulars by name where they can
Our post on customer service for better business has more ideas. If one or two large customers make up most of your trade, Graham’s advice on not relying on one customer applies too.
Use it as a chance to review the business.
A new competitor forces you to look at the business with fresh eyes: what customers really come for, which costs you could live without and how much cash you need to ride out a quiet spell. A cash flow forecast shows how long you can absorb a drop and what sales you need to get back on track.
It is also a good moment to talk to your regulars. Ask what they like and what would bring them in more often. The answers cost nothing and often point to small changes that make a difference. If you want outside help, the government’s Business Support Helpline can point you to free local advice.
On costs, focus first on the ones that move with trade: staff hours on quiet sessions, stock ordering, and waste. Fixed costs such as rent are harder to change quickly, but it can still be worth talking to your landlord and suppliers early if a quiet spell looks like it will last. Cutting too deep can damage the things customers come for, so change one thing at a time and watch the effect.
Glossary
Gross margin: The share of each pound of sales left after paying for what you sold, such as food and drink.
Fixed costs: Costs that stay the same no matter how much you sell, such as rent, wages, and bills.
Break-even point: The level of sales where income exactly covers costs, so you make neither a profit nor a loss.
Spend per head: The average amount each customer spends on a visit.
Price war: When competing businesses keep cutting prices to win customers, which reduces profit for all of them.
Cash flow forecast: A month-by-month estimate of the money you expect to come in and go out.
Related reading
- Contractor Rate vs Salary: Why £50,000 Isn’t £50,000
- 3 Things I Wish I’d Known When Starting My Business
- Break-Even Point Calculation Guide
- Markup and Margin: The Language of Profit
- Customer Service for Better Business
Facing new competition?
We can help you review your figures and plan your response. Book a free chat with the team.