Adjusting Your Menu Prices to Reflect Rising Costs: Is There a “Sweet Spot”?

According to the National Restaurant Association, menu prices are projected to inflate this year by 2.7% across the industry due to the increasing costs of wholesale foods. Since price is by far the most important factor determining a restaurant’s traffic, this creates a challenge for restaurateurs. They have to increase their prices to cover their costs, but to do so across the board would be suicide.

Instead, restaurant owners need to be selective about their price increases and take steps to identify where the ‘sweet spot’ lies in terms of a customer’s sense of value about buying a meal at their establishments.

 So What’s the Menu Price ‘Sweet Spot’?

In an effort to determine what price points would bring consumers back to restaurants, the NPD Group recently conducted a study examining the relationship between a customer’s level of satisfaction and the amount of money they spent on their check. The measures of satisfaction were affordability, good value for the money, and intent to return to the establishment again. The results of the study were revealing, showing that there are, in fact, some ‘sweet spots’ in the price points where customers feel the most satisfied.

For the fast casual dining sector, this sweet spot sits at about $9-11 for a dinner time meal. Surprisingly, the results for regular casual dining establishments were more mixed. The study showed that while over 35% of consumers were paying more than $17 per dinner, their results showed that they would be more ‘satisfied’ with the value of the meal if it were between $10-13.

This difference between where a customer would feel satisfied with the value of their meal versus what they are actually paying may be one of the factors contributing to the struggle for some restaurants in the casual dining sector to stay afloat.

Rising Costs and a Recession have Created a Different Type of Consumer

During the course of 2011, the national inflation rate was 3.2%, bringing costs up for everyone. Consumers were hit even harder by inflation of the cost of groceries which rose by 4.8% during that same period.  Ironically, the gap between the amount of inflation in menu prices versus that of groceries actually works somewhat in the favor of the restaurant industry.  After seeing the price of things in the grocery stores, customers aren’t quite as surprised or turned off by seeing an increase in menu prices.

What’s more, people remain willing to pay for the increased value of the restaurant experience over that of a grocery store; they’re just far more sensitive to the perceived value of the service they’re getting.

One-Size-Fits All Pricing Is No Longer Viable

The take-home point here is the importance of understanding where your consumers’ mindsets lie in regards to price vs. value and to provide opportunities for your customers to hit their pricing sweet spots.  Customers are still willing to pay more for a restaurant experience, but it is now more critical than ever that they feel that they have gotten a good value for their money.

The challenge is understanding which price points resonate with your consumer base and then featuring promotions and options within that range. Work over your menu list, discount items whose price may not have increased much, and provide options such as portion sizes to help your customers manage their checks.

Focusing on finding your customer’s ‘sweet spots’ makes them feel like they are receiving a valuable service for their money and goes a long way toward ensuring their loyalty toward your establishment.

Tags: economy, inflation, menu price, recession, restaurant, restaurant management, Restaurant Management Group, Restaurant Receiverships, Restaurant Turnaround Management