We frequently see pricing pitfalls in the restaurant industry. When market conditions result in rising cost pressures and greater guest expectations, operators often resort to quick, reactionary measures that offer limited flexibility. Here are three common examples that look like fast fixes, but are not sustainable, long-term solutions.
Cost inflation on the P&L is often the primary reason restaurateurs increase prices. While it’s understandable – given thin margins and the risk that shrinking margins can pose to a business – many restaurateurs overlook the likelihood and scope of these pressures. Whether it’s food, wages, occupancy, or other costs, inflation is almost inevitable.
To stay prepared, factor some degree of cost inflation into your forecasts, and have a plan for offsetting inflation with gradual price increases. Planning ahead for small, regular adjustments (e.g., 1-2% every 6-9 months in the current environment) will help you stay ahead of cost pressures and absorb random fluctuations. A consistent cadence of gradual increases at modest rates can help avoid the need for sudden, substantial hikes that risk losing guests when costs spike.
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If you run a pizza restaurant and your cheese costs jump by 15%, it’s tempting to raise pizza prices enough to protect your margin. However, there are alternatives to large, reactionary price increases, especially targeted at the affected items.
Common among these include sourcing cheese at a lower cost, adjusting recipe amounts or portion sizes, focusing on waste reduction, or a combination of similar reactions. A less common but effective approach is to look for price increase opportunities elsewhere on the menu. A small increase on toppings or drinks, for example, can offset the increase without affecting core items that drive traffic.
Additionally, featuring higher-margin products without significant cheese dependency or creating bundled options to increase attachment rates can help offset cost escalation. And if you’re already implementing a plan for small, regular price increases (see point one), you may already be covered and not have to worry.
Most restaurateurs pay close attention to competitors’ prices, and often overestimate guests’ sensitivity to price. While some guests are indeed price-conscious, most care more about their overall experience than the price they paid. Promotional pricing can effectively drive trial but only sustains frequency if the experience consistently meets or exceeds guest expectations.
Price wars tend to distract from what truly matters, which is delivering a great guest experience. Moreover, guest expectations for products and experiences vary, as does every restaurant’s ability to deliver on them (including you and your competitor). The products may be very close to identical, but the experiences from a guest perspective might be quite different.
It’s still essential to remain competitive, with total prices in line with similarly positioned brands. But the best way to build long-term guest loyalty is for your team to deliver excellent experiences at a fair price. What a competitor charges for a similar item will ultimately matter far less if you focus on this approach.
These are just three of many common pricing mistakes restaurateurs make. By better understanding your guests and the data behind their behaviors, you can uncover valuable insights to guide your pricing strategies.
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