The Price Is Right (or Is It?)
Posted by estiator at 10 March, at 03 : 57 AM Print
MANAGING FOR SUCCESS By CONSTANTINE N. KOLITSAS Business Coach
I remember when I was just out of college and I took a temporary job waiting tables at the new upscale Italian restaurant in town. The restaurant was the first to bring northern Italian cuisine out of New York City and into my area, and, along with it, high prices. “What kind of pasta are they serving for $10?” asked Mrs. Kostopoulos, one of the women in church who ran a pizzeria with her husband. “Is that pasta made out of gold?”
And while her reaction was in line with many of the people of the small city, the restaurant’s 250 seats were packed full on weekends, as well as on most weekday lunches and dinners. High prices didn’t chase anyone away as long as the quality and innovation were in place.
Flash forward to the September that just passed. A restaurant about a mile away from the pizza concept that I own just spent the span of two seasons (COVID’s first spring and summer) advertising two unbelievable deals: two large pizzas, a salad, and a 2-liter soda for $20 for takeout; and a dine-in 2-for-$30 special that included two entrées, salads, a bottle of wine, and dessert.
“Did you see what the pizzeria on the green is doing?” my chef said to me in a panic. “What kind of special do you want me to do so we can compete?”
“None,” I told him. And I was right. By October they were out of business, while we were posting our biggest numbers in the 12-plus months since we opened. To add insult to (mortal) injury, I had just raised prices a month before they went belly-up.
The thing to understand is that your price communicates quality to the public.
While I understand the sensitivity to price pressures, I have always been a staunch defender of the need to raise prices to protect profits. Minimum wage was going up in my state in October, so I took a proactive price increase a month earlier before it could erode our margins.
The thing to understand is that your price communicates quality to the public. The restaurant on the green that went out of business was telegraphing with its aggressive price deals that its food was only worth the cost of its special. If someone could get two pizzas, a salad, and a soda for $20, that means his large pizza is really only worth seven or eight bucks. By contrast, the same bundle from my restaurant would cost a customer exactly twice the amount he was paying on the green. My business certainly didn’t suffer, and there was plenty of profit in my price. My customers understand that I give them quality. Whether or not this former competitor gave them quality is up for debate. But suffice it to understand that there was no difference in the soda or the salad that we were both selling, so the extra $20 they were spending was all in the pizza.
So, the question becomes, when is it okay to raise your prices? Most independent operators look for a few signals to raise price, including rising labor costs, rising food costs, and the realization that competitors are getting more for the same food. There are other operators that simply plan out periodic increases on their calendars. Some take an acrossthe-board percentage increase every year, while others cherry-pick menu items where they think there are the best opportunities, increasing different items by different amounts. This strategy takes time and effort, but is the most strategic and will most often result in the least push-back from customers.
Finally, when planning an increase, understand where you are in your business’s life cycle. In its infancy, you should never be the highest-priced place. Get your price, but leave a little on the table. And if you feel the need to incentivize guests with giveaways, think of loyalty discounts rather than coupons and broad blanket discounts, which cheapen the perceived value of the food you serve.
Constantine Kolitsas is the president of CNK Consulting, a restaurant consultant and coaching business. He can be reached at 203-947-6234 or at ckolitsas@gmail.com.
