Price isn’t everything
Anyone following this blog may have noticed that I keep pounding away at the importance of experience in a restaurant. About a month ago, an article in Nation’s Restaurant News stated, ?Even in tight economic times, price isn?t everything for restaurant consumers, according to the 2010 U.S. Restaurant Satisfaction Study released Tuesday by J.D. Power and Associates.? Well, now I feel vindicated. They found that the 93,410 people surveyed believe ?customer satisfaction was distinguished by quality service and atmosphere as well.?
So, if price is not everything, and you have a nice restaurant, is it ok to raise your prices above market prices? That doesn?t quite work either. My company recently worked with a high-level international brand that touted the best hamburger in their city. They charged $19.95 for a burger with cheese. It wasn?t a burger with truffles, or even truffles in the potatoes; it was just a hamburger, and guess what? It didn?t work. Finding the tipping point on price elasticity is a delicate thing. It first shows up in your abstract of sales (sales mix,) and, secondly, in head counts. The spot to go for the ?best hamburger in town? served just 50 people all day – and not many hamburgers. You could say that, statistically, their check average was good, margins were outstanding, but they lost about US$500,000 a year.
I have also been working in a small, almost tertiary, city lately where there is a restaurant that actually has three full pages of wine flights by the glass to choose from, and only a small selection of cheeses to go with them. The F&B costs are moderate; the room is simple and fun; and yet the average person was spending US$35 or more per person for wine flights and cheese. People everywhere appreciate the excitement of going out and having a good time, whether it is in hip, urban cities, or smaller cities with few visitors. They also understand value and the value of experience.
I think it all boils down to one simple equation: Value = (Experience + Service)/ Price