Sticker Shock Therapy

How to Manage Guest Perception That They Are Being Priced Out of Dining Out

Friday night and all the restaurants in your area are hopping, except yours.

You had been busy on most nights of the week; but in the past year or so, your customers seem to be patronizing more affordable competitors. Although you have done your best to keep costs in check, rising food and labor prices have forced you to raise prices.

And now you are concerned that you are pricing your concept out of the market. What now?

First, Identify the Real Problem

First, you must ask if menu prices are driving away guests. The business and trade press often glom onto theories about why certain concepts are failing. Consider that these theories do not necessarily apply to all concepts, let alone yours. You need to diagnose the real issue behind this drop in traffic so you can select the appropriate tactics to get your restaurant busy again.

This is easier said than done since it is difficult for entrepreneurs to keep their emotions at bay when the business is struggling. That is one of the reasons that restaurant consultants are valuable. In any event, you must do what is necessary to apply cold, hard facts when you are considering making any kind of change to your operation. And that means doing a deep dive into your restaurant’s data.

You have three sources of information to analyze to determine whether pricing is your problem:

1. What your competitors are doing?
2. What your customers are saying?
3. What does your point-of-sale (POS) system tell you about covers, check average, and product mix?

Begin with your POS data. Are cover counts down? How about the average check? A drop in cover counts but no change to check average suggests that while you may be losing customers, the customers who still dine with you are not particularly price-sensitive. A drop in average check but steady cover counts tells you that your customers still like you but are having to dial back their spending. If this is the case, take a closer look at what you are selling (commonly referred to as your “p-mix” or product mix). Analyzing p-mix can help determine whether guests are choosing less-expensive entrees, sharing apps, not ordering that second beverage, or maybe the problem is “all of the above”.

One restaurant I know accommodated a significant rise in protein cost for its sandwiches by bundling them with a side of waffle fries, which used to be only available a la carte. The lower food cost for the fries offset the necessary cost increases for the sandwiches, resulting in a lower overall food cost for the bundle. Customers felt they were getting more value with the bundle and increased their sandwich purchases by close to 10%.

What is more likely these days is that two metrics are dropping simultaneously. You are getting fewer guests and they are spending less per person. If that is the case, look at your competition. Do they appear to be slower as well? If so, then the issue may be broader economic conditions. But if your competitors seem to be bringing in more guests than you are, it’s time to do some in-person reconnaissance.

Visit several restaurants that target the same customers that you do. These competitors do not necessarily have to offer the same menu items as you do. Choose competitors that your guests view as a viable alternative to you, either because they are in the same neighborhood or offer what a typical diner might view as a comparable experience. Make careful notes about how much these operations are charging for all kinds of items including beverages, sides, and desserts. Capture the range of prices for each menu item category, not just the average price across multiple items.

Additional Resources

Competitive Analysis Worksheet

To run a successful restaurant, be vigilant about what your competitors are doing. A competitive analysis is a way of researching and evaluating your rivals in the same market – it only focuses on your competitor’s activities. It helps you learn about their products, sales, and marketing strategies, as well as their strengths and weaknesses.

By doing a competitive analysis, you can find out what makes you stand out, discover gaps and opportunities in the market, and boost your business performance.

Summary of Features & Benefits:

• Helps you know who your competition is
• Helps you spot the competition’s strengths and weaknesses so you can take advantage of them
• Helps you to check if your pricing is right
• Prepares you to create your marketing strategy and improve your business performance

Check out the Competitive Analysis Worksheet here.

Once you have a handle on what your competition is charging for a side salad or a local craft beer, turn to the voice of the customer. Read your most recent reviews on as many platforms as you can monitor and any comments on your social media postings. Do not put stock in one-off compliments and gripes, but rather look for themes. If your pricing is something that comes up again and again, you may have become too expensive for your regular customer base.

What Do Restaurant Consumers Really Think About Price?