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Operators are getting creative with pricing strategies as consumers reach their limit.

How some operators are getting creative with their pricing strategies

A panel of restaurant operators discussed tactics like testing different cuts of meat at different price points, lowering prices on high margin items, and promoting combos to navigate the current environment.

Perhaps the most important topic in the restaurant industry right now is pricing. We’ve seen consumers reach – and surpass – their threshold on pricing during the past couple of quarters as operators have passed along their higher input costs, and it’s eroded traffic counts across segments.

“Consumers are tapped out. We are in the end of this post-Covid jubilee,” said Lauren Fernandez, founder/CEO of Full Course and one of the panelists during Nation’s Restaurant News’ CREATE Roadshow event Monday evening in Atlanta. “As a result, consumer demand is latent.”

That said, the industry is still projected to grow, which is a reflection of consumer behavior toward eating out.

“The good news is the average American doesn’t know how to cook three meals a day, seven days a week. Consumer demand isn’t going away. This is a blip on the radar,” Fernandez said. “The problem with now is they have less discretionary spend and available credit.”

In such an environment, value becomes a critical piece of every restaurant’s strategy and fellow panelists Katy Young, founder/owner of Yumbii, Michael Alberici, SVP, head of marketing at Smalls Sliders, and Steve Simon, partner, Fifth Group Restaurants, provided insights on how their respective brands are navigating such unprecedented times. For Simon, the only panelist who works with full-service concepts (Alma Cocina, Ecco, Ela, La Tavola Trattoria, Lure, and South City Kitchen), a pricing strategy comes down to menu design.

“The gift and curse of what we do is we get to change our menus all the time and that’s when we can get creative from a product standpoint, especially when we’re looking at proteins and what’s seasonal,” he said. “We’ve got products that are low cost – grits are not expensive, mashed potatoes are not expensive – but we’ve got proteins that are. Halibut is expensive, so we have to get strategic. That means different price points, cuts, and cooking techniques.”

Fifth Group, for instance, will put a $38 pork dish and a $21 pork dish on the menu featuring those different cuts and cooking techniques and will then watch how they sell to understand how to proceed.

“I hate to say we’re throwing darts, but after 30 years in the business, we have pretty good eyesight,” Simon said. “We have four really different locations and those clients’ wants and styles are different, so it comes down to menu design and product selection in the areas where we know we’ve got some latitude.”

Young’s concept started as a food truck and has expanded into four brick and mortar fast casual locations around Atlanta. She said the pricing conversation is constant because input costs have increased so much; last year, for instance, chicken wings were $58 a case. This year, they went up to $118 a case.

“We’ve taken certain things on the chin for a while, but you get to a point where you don’t have a choice but to raise prices. One of the things we’ve done is look to see where we can lower prices, too,” she said. “Where are we making so much margin on our menu that it could make sense to lower costs and then where do we need an increase. It’s been great because then we can say to customers, ‘yes, we had to increase prices, but we’ve also lowered in some places, too.’ It’s more palatable for customers that way.”

Yumbii has also focused on combo meals to provide a better value proposition. Combos are also the name of the game at Smalls Sliders, which offers a simple menu – combo one, combo two, combo three, combo four (one slider, fries and a drink; two sliders, fries and a drink, and so forth).

“We sell one thing, so we have to make sure our pricing is right at all times. We start at the macrolevel by listening to consumer insights and making sure their experience is worth their time and money,” Alberici said. “The last thing we want someone to say is ‘it was good, but it was very expensive.’ Value is making sure we’re providing a best-in-class experience so when we do take pricing, they don’t feel like they’re being duped.”  

Smalls Sliders also “exhausts every opportunity” to make sure its restaurants are profitable from a cost of goods and labor standpoint, including with its supply chain strategy.

Understanding those prime costs – COGS and labor – is the best thing an operator can do to maximize efficiencies versus passing costs down to consumers, Fernandez added. She believes technology is evolving quickly in this space, and “in the next three to five years,” could better help operators quantify pricing.

“We are so slow to take pricing sometimes because calculating those metrics is painful. But price always has a ceiling. Consumers have a ceiling and they’re seeing price everywhere, not just food. Are you measuring appropriately?” she said.

Communication is key

As Young explained, even if you are measuring appropriately, some input costs have become too high to avoid not taking pricing. In those instances, she said communication and training with the front-of-house staff is critical. If employees understand why you’re taking pricing – chicken wing prices increasing by 103%, for example – it should be easier for them to communicate with customers.

“Also, if you have a customer that is super focused on value, talk to them about where on the menu they could get the most value. Talk about the nachos; they’re a great portion size, chips are cheap, they’re easy for us to make a little bit bigger for the value customer. Talk about the combo meal – those things can help them walk away feeling like they got more bang for their buck,” she said. “We don’t need to get into a global discussion about chicken prices, but we do need our guests and frontline employees to understand why we’re doing this sometimes. If they don’t know why and they can’t communicate that, it’s hard for us to keep their trust.”

Contact Alicia Kelso at [email protected]

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