Restaurant’s Answer to Economic Woe’s Dangerous!
A recent article in the Detroit Free Press scares me. The subject was the economy and the struggle we restaurateurs are having with the perfect storm of negative conditions impacting the bottom line. The author states that food costs have gone up 18.4% in the last eighteen months, minimum wages have gone from $5.15 to $7.40 since 2006 and gas prices have soared. Restaurant sales in the area are down 3-15%.
According to the article, one restaurant has met the challenge by offering guests a buy-one, get-one free coupon at lunch time. Regulars love this according to the column.
Let’s see, help me with the math – costs are up, sales are down, so let’s give 50% off our prices.
Where is the logic? How does this work? What you lose on each sale, you make up on volume – that theory has been around for years. The bankruptcy courts are full of restaurants that had that marketing idea. Some “consultant” probably came up with that one and was paid because of the sales increase!
What happens when the economy improves and the regular guests have been trained that you are willing to give away your product for less? Can you wean them off the bargain hunting bandwagon, while they wait for you to lower prices?
Coupons that cut into shrinking margins aren’t the answer. Even the QSR chains are pulling back away from the $1 value menus. Sales have increased, but profits have eroded.
Here are a few ideas:
- Create new menu items that expand your margins and add real value for the customer.
- If you must offer a coupon, have a group of specials that fit into the offer.
- Look for bargains from suppliers. Use those for lower cost items on the menu.
- Offer smaller portions at a discounted price.
You can be consumer friendly without putting more red on the bottom line.
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