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Raise prices and lose business? Or hold prices and lose profits? A restaurant owners dilemma.


Image courtesy of the Food Institute

The rising costs of food AND labor are hitting the restaurant industry hard. And there is hard data correlating an increase in prices with a decrease in foot traffic. Even for fast casual restaurants, where the increase can be mere pennies on the dollar, there is an immediate, marked impact of a price range. Regulars notice and stay away, and business suffers as a result.

But what to do? It's impossible to keep product prices steady with the steady increasing cost of food and labor, which obviously hits the restaurant industry harder because these are the two main costs (with rent - also a rising price - a close third) of staying in business. While its great to pay people a living wage, a $15 minimum wage will hit fast casual restaurants VERY hard - if and when that happens - owners need to be prepared. And of course, it's possible to cut into profits if profits are there, but at the end of the day, a lot of the cost has to be passed on to the consumers.

While most consumers, if asked, would say they would absolutely pay a little more in order to increase the quality of life of the employees of their favorite establishment, perception and reality are two very different things. Customers vote with their feet, so be ware of a drastic price increase - and for PR reasons - NEVER publicly blame labor costs if an increase is necessary.

Another issue for restaurants is that the cost of groceries has not increased in correlation with the rising cost of wholesale goods. Grocers have been happy to cut into their own profit margins in order to keep the cost of food relatively the same, where the cost of going out has dramatically spiked. All this means a noticeable gap for consumers in the cost of cooking at home vs. eating out.

What to do? Fight the cost war with perceptions of value. Create a loyalty program for your fast casual restaurant that will encourage repeat business (more to follow on tomorrow's blogs). If you own a fine dining establishment, establish a restaurant week, or find out about existing ones in your city, and offer and appetizer, entree, and dessert for a low, fixed price. This is especially effective in the slower summer months. Promotions like these can drive price conscious consumers to your establishment while creating lasting brand loyalty for the future.

2016-07-26 00:00:00
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