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Blog
Pricing with impunity?
April 21, 2008
Raising prices again? In this week's "MK Table Scraps," Morgan Keegan analyst Robert Derrington assumes operators will continue to pass cost increases onto consumers -- and, perhaps, get away with it.| ... Menu pricing appears to remain aggressive for most, with limited-service (QSR) chains averaging in the 4.4% range and full-service (casual-dining) chain averaging 3.9%, according to the Bureau of Labor Statistics and the National Restaurant Association. Given the escalating operating costs, most chains are likely to continue to push base menu prices higher to attempt to protect shrinking profit margins. The ultimate question companies must ponder is how much menu pricing is too much before customer traffic declines too much. Given the escalating operating cost environment, we believe more and more chains are likely to error on the side of being too aggressive with pricing, rather than too little. We believe companies will try to counter the perception of aggressive pricing with low-priced limited time offers designed to bring traffic in, and possibly trade customers up to higher priced core menu items. It's a game of cat-and-mouse with consumers we are likely to see more and more of in the coming weeks. |
Another analyst, Amy Greene Vinson of Avondale Partners, says customers "have nowhere to hide" when it comes to avoiding paying more for food, in restaurants or at the grocery store. She adds that in order for casual-dining operators to attract traffic, much of which is going to fast-casual restaurants, some full-service chains have resorted to promotional gimmicks:
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Restaurants are changing their strategy for getting customers in the door. Casual Dining and Specialty Casual are using promotional menu items to increase traffic. In addition, restaurants are starting to focus on under-utilized beverage sales to spur revenue growth. Beverage sales are among the highest menu margin items at restaurants' disposal. Mimi's Café, owned by Bob Evans Farms, (BOBE, MO), is revamping its restaurant's bars and expanding its selection of both alcoholic and non-alcoholic beverages in efforts to increase bar traffic and revenues. The company is putting increased emphasis on its beverage sales and wants to change the culture of the restaurant to a location were one stops by for a espresso before work and a cocktail on the way home. ... We will see in the coming month's comps if these strategies pay off. |
Speaking of gimmicks, check out California Pizza Kitchen's ploy to entice repeat business with big-dollar awards. But hurry, supplies are limited!
Posted by David Farkas on April 21, 2008 | Comments (0)