Many operators have great menus, but the wrong pricing strategy. One of the best quotes I have heard is “if you are an inch off at takeoff, you can be a mile away when your reach your destination.” By starting with a pricing strategy that is on point today, it can deliver the profits you deserve come the end of the month.
With all of the great menu trends and tips in this issue, I want to add some perspective on how to review your pricing strategy against your true direct competitors. Your pricing strategy is having a larger effect than you might realize on your revenues and, more importantly, your profits.
At Results Hospitality we take our clients through a competitive pricing analysis at least once a year. I know that many of you will review your pricing every year if not multiple times per year; it’s not enough to just review the numbers on your menu. What follows are the critical steps for you to consider in your next pricing review. Doing this process the right way can add thousands to your bottom line in coming months.
Evaluate the Competition, Not the Neighbors – It is important when reviewing your pricing to compare your strategy to your actual competitive set. Often people compare their pricing to their neighbours, the bars and restaurants that are closest to them. I recommend comparing your pricing to the top 5 locations most similar to you (if someone were looking to go to your restaurant, where else are they considering?). Although some of these locations might be across town, they offer a similar location, menu and/or experience. If you can’t come up with a list of competitors off the top of your head, check out the social media review site YELP.ca; they offer a feature which allows you to see what “people who viewed this also viewed”. Do a little bit of digging and you will get a better sense for who else your guests are thinking about when looking to visit your location.
Compare Apples to Apples– When checking out the competition’s pricing, one critical factor is that you understand their serving size. In the front of house alone you may have 20oz, 18oz or 16oz pints along with 5oz, 8oz and 9oz wine glasses. I can’t tell you how many of my clients have made critical pricing mistakes because they considered the competition’s pricing, but not their serving size. Don’t make this mistake; it can cost you thousands!
Position Your Price Point – After you’ve evaluated the competition’s pricing, you must consciously decide where you want to be positioned on price vs. your direct competitors. Do you want to be the most expensive, middle of the pack, or the lowest-price option? Decide where you want be positioned and share your position with your staff to be sure your message gets to your customer. If you are the most expensive relative to your competition, you will need the absolute best service; if you are keeping prices low for your guests, make sure to let them know. Often a location’s pricing strategy is not properly communicated to the front line staff. Communicating your strategy goes a long way towards engaging your sales force.
Factor the Impact of Possible Increases – While I am not telling everyone to raise their prices, often the decision to not increase prices comes from the misunderstanding of what the impact will be on a business. Especially for core products, the increase can be dramatic. We suggest pulling an annual sales report from your POS system and multiplying the potential increase by the number of items sold for the year. Our clients are often surprised at the impact a $0.20 increase can have on their bottom line.
For Example: $0.20 Increase X 52,000 pints sold (10 kegs a week @ 100 pints per keg) = $10,400 in additional revenue
I believe if you go through the steps outlined above at least once a year you will be on top of the ever-changing market conditions. Keeping your menu at the proper price point for your market, your position and your profitability is key. To receive a programmed Excel sheet that walk you through “Factor the Impact of Possible Increases,” please email me directly. I will be happy to share this process with you in hopes of bringing your business greater profitability in the coming year.