The economic uncertainity has severly effected consumer restaurant spending decisions and even if consumer do visit restaurants, they are opting for value meals.
Restaurants have responded by competing with each other to offer the most attention grabbing deals and discounts. Restaurants are luring consumers with high-low pricing strategies, quality premium products, combo meals and attractive price points. I had a chance to interview few restauranteurs last week and their response on this situation was “Since everybody is doing it, we have to do it and there is no other alternative”. This has squeezed bottom lines further resulting in cutting food input costs and operational efficiencies. And then there are those restaurants who have not joined this discount bandwagon but have also suffered with squeezed bottom lines.
It is critical to understand when, how and how much to raise prices and this requires detailed understanding of your consumers, competitors and most importantly your restaurant’s point of differentiation.
A recent research shows that consumers don’t blame restaurant for increasing menu prices.
How to further stimulate consumer spending?
The research further affirms that consumers do exhibit tolerance for price increases depending on the type of the restaurant and the daytime. Consumers are willing to spend only about $5-8 in a casual dining restaurant ,$8-12 for a lunch in a family dinning place and in a casual dining place some consumers are willing to pay as much as $15.In case of dinners, price ranges from $8-11 in a casual family place to $12-15 in a casual dining place.
In each of these cases, certain “extras” tempt customers to spend more. These include cleanliness, great ambience and friendly staff. Unique and differentiated menus are also very important. Consumers mentioned that premium meats would also persuade them to spend more.
Tolerance for price increase
Research shows that most consumers are willing to pay 13%-20% more than what they consider the ideal price. At a full-service restaurant that’s already more expensive, they’re a little more resistant, willing to pay 12%-16% more.
Consumers will be more willing to accept price increases for “must have” items that they cannot easily duplicate or switch out with a substitute. Most consumers are more flexible about price hikes for items they can’t prepare at home, and less flexible when it comes to breakfast, snacks, or meal “add-ons” such as appetizers or desserts. A small price increase will have less impact than a large one. A large enough hike will convince almost everyone to opt out of the item—or even go to another restaurant.
Research also shows that consumers are more tolerant of smaller, more frequent menu price increases—even as often as twice a year. They’re more resistant to large, infrequent boosts that could provide a rude surprise when they check the menu or menu board.
Gathering Intelligence
To understand whether your consumers will be convinced to spend more for a menu item, you first have to know yourself and I again repeat know your customers—that is, understand your customers’ motivations for visiting your particular restaurant instead of another, and for choosing a particular item rather than an alternative. And of course, you have to know the competition.
When weighing potential menu pricing changes, consider asking customers directly: Interview or survey them to learn what they think of your menu and what they’d be willing to pay. You should also evaluate your POS data to understand your customers’ spending habits and spending threshold.
Once the price of a menu item has been raised, review the impact on purchase patterns.
What Makes a Menu Item Worth More?
Consumer research points the way to a number of elements that can add value to a particular menu item or your whole menu. These include:
- Premium ingredients
- Appropriate portion sizes or a variety of sizes
- Perceived freshness
- Included extras at no charge
- Uniqueness
- Craveability
- Select use of “natural” and “organic” labels
- Non-menu-related elements of the value equation—service, ambiance, alignment with customers’ needs.
It is understandable that in this tough economic environment,increasing menu prices is big NO but if done in an appropriate way it will only contribute to your revenues.Think and protect your restaurant business by considering these ideas.
Jaskaran Kalra, Business Consultant, Toffa
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