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.

Creative Strategies to Entice Diners and Build Loyalty during a Recession

The recession has changed the face of the restaurant industry, and those in the business are now looking for ways to retain and build their consumer base. Consumers are still eating out, but their needs and values have changed and it’s important as a restaurant owner to recognize that shift and adapt accordingly.

What’s important now is to provide a unique and exceptional service that customers value and to focus on strategies that build their loyalty toward your business.

Gimmicks to Bring People in and Give them a Rewarding Experience

As you know, customers love to feel that they are receiving great value by patronizing your business and there are several promotional gimmicks you can use to bring them in. One way to do this is to run differing discount promotions regularly throughout the week so that people have a reason to put you on their calendar.

For example, you might offer a “buy one-get one” deal on Wednesdays, a free scoop of ice cream to kids who come in with their families during lunch hour on Sundays, or perhaps a “date night” special on Friday’s where couples get half off a nice bottle of wine when they buy a meal.

Other promotional gimmicks that work well include loyalty reward programs, small contests that people can play while they eat, and a free dinner roll or chips to start the meal, to name a few. Your success with these types of promotions is limited only by your creativity and they can be a fun and rewarding tool to create a strong customer case.

Atmosphere and Experience is Everything

When people dine out, they’re doing so because they are seeking an experience. Creating an enticing atmosphere in an establishment entails more than simply having a little mood lighting, though, of course, that helps too.

It also includes factors such as the hospitality and warmth of your staff, the quality of your food, the timeliness with which it was delivered, how the layout of your establishment facilitates or discourages privacy and conversation, as well as whether or not you offer entertainment.

Fortunately, all of those points are easy to accommodate with relatively little cost. Investment in training and retaining quality staff and adapting your business to facilitate a pleasing dining experience goes a long way toward creating and retaining loyal customers.

Target Social Trends and Appeal to Customer’s Sense of Well-Being

One of the smartest ways to set your restaurant above the crowd is to demonstrate its commitment to the health and well-being of the community it serves. This can be done by offering health conscious or organic menu items, buying produce that is sustainably or locally produced, or even by giving a small percentage of a customer’s bill to a charitable cause.

Because today’s consumers dine out with more discrimination, appealing to their sense of health and well-being is a powerful way to reach out and claim their attention. Everyone loves to feel like they are supporting a good cause, and businesses that build their reputation around these types of ethical cornerstones stand out and make people take notice while creating a fiercely loyal customer base.

With the costs of operation rising and customer’s budgets tightening, survival of your restaurant depends on your ability to creatively adapt and respond to today’s situation. Focus on innovative ways to build customer loyalty by offering a valuable service experience is the key.