Know and prove your value
Does your restaurant provide a good value to guests? If it seems like the term has become the buzzword of the moment, it is only gaining momentum: The market research firm Innova Market Insights ranked value as its top trend heading into 2023, replacing sustainability, which was this year’s prevailing trend. In the midst of the high inflation we’ve been experiencing throughout the year, an Ipsos poll of more than 2,000 U.S. consumers found that more than half of respondents are forgoing or limiting impulse purchases, 47 percent are choosing less expensive brands and 33 percent are buying less.
While this means many consumers are leveling down when it comes to their spending – and likely opting for more economical menu options and restaurant categories when they eat out – there is still room for higher-end meals that feel like worthwhile experiences. Indeed, a recent Restaurant Business report cites the example of Papi Steak, the Miami restaurant that serves an off-menu, 55-ounce tomahawk steak. The meal, which is accompanied by a throng of dancers and its own entrance music, is presented to guests in a bejewled briefcase and branded at the table with the restaurant’s logo. The cost: $1,000.
Granted, most restaurants can’t go to these extremes to provide a memorable experience that guests can share with friends – or with the world on social media. But in every restaurant category right now, operators need to define clearly what providing value means to their guests. A fine-dining restaurant may need to create their own version of the Papi Steak experience. A quick-service brand where guests expect deals may face some extra pressure to make elevated prices feel more worthwhile to consumers than preparing food at home.
A recent Restaurant Dive report likened restaurants’ management of prices to a tightrope walk – operators must charge prices high enough to protect the bottom line without turning guests off and potentially losing traffic to competitors or even grocers. Consumers are showing resilience so far when it comes to spending. Still, according to Paul Westra, managing director of restaurant investment research for Capital One, input cost inflation has been surpassing menu pricing. So while average menu increases have hovered around 6 percent in the past 18 months, they would need to rise to 11 percent to protect profits. The math seems to be working out at McDonald’s, for one, which reported a 6 percent sales increase in their latest earnings report despite year-over-year menu price increases of 10 percent. Restaurant operators may even get some financial relief if inflation levels off further. Still, knowing where your guests draw a line in the sand on cost – and at what point the experience you provide no longer feels worthwhile – will continue to be important to determining how you can provide value.
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