Restaurant Turnaround Consultant Begs Question: Raise Prices?

There were two contrasting stories that talk about whether raising prices is a good idea especially if you are restaurant turnaround consultant. Of course, if you are charged with helping a failing restaurant regain lost market share, the first thought is to increase customers by way of lower priced promotions, specials and so on. However, given the state of worldwide food costs on the rise, particularly in the last two years, can this offset of higher sales supersede the higher expense? Here are excerpts from those two stories and how it may fit into your food and beverage operational repositioning or turnaround from our perspective: According to the article in Bloomberg “Higher-priced menus reflect growing confidence by eateries that consumers can afford to pay more to eat out. Restaurants are emboldened in part by the success of U.S. airlines, which have raised fares almost 10 percent since a year ago, according to Dean Maki, chief U.S. economist at Barclays Capital in New York.” One issue to consider is that gas prices have been going up recently and this is starting to impact consumer’s ability to eat out more. Also, along those same lines is that the gas prices went up significantly two years ago and then Airlines increased prices accordingly. The caveat here from the view of a restaurant turnaround consultant is that increasing your base menu prices will help and not deter short term sales. In Nation’s Restaurant News, it was reported that “Consumers are becoming more sensitive to scaled-down portion sizes and rising menu prices in restaurants, according to a new survey by research firm Technomic Inc. In addition, consumers are skeptical about the reasons behind smaller portion sizes in restaurants and supermarkets, Goldin said. Most of the people polled by Technomic said they thought companies were downsizing portions to enhance profitability or keep retail prices the same despite higher input costs. Only 10 percent of respondents said portion sizes are being adjusted to improve menu items’ healthfulness.” The most important point here of you are an operator or restaurant advisor is consumers do not want to feel cheated. They ultimately believe reduced portions as sign a you are being cheap, only profit motivated and not interested in providing value. In terms of your foodservice business, are you planning to raise prices in 2011 and by what percentage? Have you also consulted staff, other operators or a restaurant turnaround consultant and what did they recommend??