Chain Leader

Lane Cardwell

Sizing Up Portion Size Trends
June 23, 2008

We are not an industry known for trying to be first. First, as in fastest to market with an idea. The desire to be first is usually inversely proportional to the size of the chain. In English, that means that the bigger chains will almost always move more slowly to adopt something than the smaller chains, or independent restaurants. We are not in the business of discovering cures for diseases, patents on new technologies, or even establishing new fashion trends. We feed people, one meal at a time. We can't patent a recipe for a new menu item, so the need for speed in the restaurant industry is not high on our priorities. Our leaders have learned during their careers that the punishment for implementing something that doesn't work is infinitely more severe than for being the second, fifth or twelfth to implement something that does work.
 
The restaurant industry conducts massive, nationwide consumer tests all of the time. We let a chain with a new idea, or a new approach, implement it and then we watch. And wait. Why do research when you can follow the results of someone else's implementation of a new idea? Seldom, if ever, do you see a rush of companies trying to get an idea to market quickly after some other company has gotten out there first. In the packaged goods industry, one good idea is quickly followed by a flurry of copycats. Heck, they'll even rush to copy a mediocre idea. Not us. We'll watch it carefully to make sure that it really, really is working.
 
And this is why, after TGI Friday's has had their "Right Portion, Right Price" menu category out in the market for one year, other restaurant companies are just starting to tinker with their own version of the program. You would have to be inside the industry to appreciate the risk that Friday's took by introducing these menu items. To those outside of the industry, the idea of offering menu items that are one third smaller for one third less price probably seemed like a no-brainer. Not by a long shot. Even Time magazine and The New York Times ran articles when the smaller portions were introduced, highlighting the risks that the company was running.
 
What exactly is the risk in introducing smaller portion sizes? For one thing, customers have come to equate larger portions with greater value. It is possible to increase a portion size, charge a little bit more money, and increase the value perception when comparing the item to its smaller counterpart. The second risk is that smaller portions need smaller prices. Smaller prices yield a lower guest check average. A restaurant menu is like an algebra equation. Daily customers X average price per item X average number of items = sales. Let one number in the equation drop and sales drop. If you drop the average price per item, then either more customers, more items sold, or both, are needed to keep the economic wheels from falling off.
 
When Friday's introduced their Right Portion menu in 2007, references were made to Ruby Tuesday's experience in 2004 when they trimmed some portion sizes, and printed nutritional information on the menu for all menu items. Customers complained, sales dropped, and within five months the portions were returned to their original sizes, and the nutritional information was eliminated. A valid comparison to a competitor who implemented the same strategy before the customer was ready for the change? Not really. The driving force behind the Ruby Tuesday strategy was the addition of the nutritional information. Portions were reduced, where necessary, to bring the calorie, fat, and carbohydrate levels down to a marketable level. In most cases, prices were not reduced. Customers reacted to a reduction in value, and TMI while dining (Too Much Information).
 
Comparisons were also made to The Cheesecake Factory and the lunch-sized portions that it added to its menu. Again, not a valid comparison to the Friday's strategy. To have been comparable these items would have to be available all day, instead of until just 5:00. The dynamics at lunch are different when it comes to portion size and perceived value. 80% of Cheesecake's customers take home leftovers, an activity more suited for dinner than lunch.
 
One year after the introduction of "Right Portion, Right Price," Friday's has seen the category account for 15% of items sold, while the check average has stayed about the same. In essence they are selling more appetizers and desserts to a customer who feels that they have both the stomach room, and the wallet room, for add-ons. True to form, others are jumping on the bandwagon. Eat'N Park debuted its "Smaller Portions at Smaller Prices" menu in March covering all three dayparts. As Yogi Berra said, "It's déjà vu all over again."
 
Friday's issued a press release in May on the anniversary of the Right Portion menu addition. "A year ago, the industry thought we were nuts when we announced smaller portions at lower prices across the menu, all day every day. They said it was a crazy idea and it would not work," said Richard Snead, president and chief executive officer of Carlson Restaurants Worldwide, parent of T.G.I. Friday's. "Providing value and choices is our business. T.G.I. Friday's was the first to take a broad position on portion size and it's a leadership position we won't relinquish."
 
They then announced the smaller portions would finally become a permanent part of their menu. It seems that even when we are first in this industry, we still like to hedge our bets.
 

Posted by Lane Cardwell on June 23, 2008 | Comments (2)