“Should I take price?” has been the primary question from our restaurant clients of late. Our answer, surprisingly, remains the same now as it was pre-COVID: “That depends.”
We remain in the midst of the greatest challenge the restaurant industry has ever faced. Yet we also have a better understanding of the mountain in front of us. Life is not going back to pre-COVID normal. The dining experience has changed for the short-term, likely for the long-term and, potentially, forever. It’s time, then, to start planning for success in a new environment. And that means looking at menu design and pricing in new ways.
Here, RMS Vice Presidents Dora Furman, Chris Norton and Justin Pridon share how assessing customer sensitivity and pricing has changed in the time of coronavirus.
It’s a crisis. You can still consider raising prices.
You are conscious of the pain many of your guests are experiencing. That’s a good thing. Yet your brand is likely experiencing pain, too. Traffic is down. Costs are up — a result of labor, additional safety and health equipment and processes, new delivery/distribution channels and supply chain issues, to name just a few.
“Now more than ever,” said RMS VP Chris Norton, “restaurant brands are in a pressure cooker.”
Yet, he warns against trying to mitigate 100% of cost pressures with increased prices.
“When we get down to the granular level – per ticket, per store, per market – and look at offsetting additional costs with price, it becomes very clear that it would be impossible to do; the overall price impact would be just too high for customers to pay.”
A pandemic is a new situation, he goes on to say, but brands shouldn’t toss all their past planning. “For many of our clients, it’s been as long as 7-8 months since they’ve made price adjustments, which means they could be 1-2 pricing rounds behind their normal schedule.”
“We might advise taking a little less price than in the past,” said Norton. “But we are working with clients to look at real cost pressures, find a safe pricing approach and, most importantly, keep the doors open.”
Consider raising prices, but with different considerations.
Everything about how guests interact with restaurants has changed.
- Occasions are different — as evidenced by our recent consumer survey that shows 33% of respondents have changed their breakfast habits, and 44% have changed lunch habits.
- Channels are different. Dine-in traffic is still down as much as 65-70% YOY for some brands, while drive-thru traffic soared to 20% growth YOY for some weeks (as outlined in our weekly Impact Reports).
- Ordering behavior is different. What guests order, for whom and how have all changed. Group or family orders, picked up curbside, have replaced a family night out, for example. And while traffic might be down, check size is growing to meet the new occasion. In fact, we’ve seen checks below $10 on the decline, while checks totaling $15 and above have grown rapidly.
RMS VP Dora Furman said her team is leaving no data point unexamined. “We used to predict the future based on past performance,” she said. “The restaurant industry is no doubt experiencing a situation without modern precedent, but we still rely heavily on our many years of experience and lean into all the data and assessment tools we have, including new ones added during the pandemic as we plan for the future.”
“We used to predict the future based on past performance. We still rely heavily on our many years of experience and lean into all the data and assessment tools we have as we plan for the future.”RMS VP Dora Furman
RMS launched both quantitative and qualitative surveys in April and has been working with partners such as Sense360 and Rival Tech to deliver up-to-the-minute insights. RMS is also relying heavily on economic indicators and their years in the industry to deliver insights.
“We have all worked with this wide breadth of clients, over a long arc of time,” said Furman. “Despite the pandemic being truly a one-of-a-kind event, we do have a lot of understanding of what unemployment or underemployment, for example, can do to consumer behavior.”
Pridon reinforces Furman’s point. “Don’t completely throw away the past because you think our future is so different. We still need to learn from the past and recognize that while the environment is without precedent, consumer behavior remains relatively constant.”
Which brings us to what hasn’t changed: a guest-centric approach.
Never forget the guest.
The key to managing change — whether it be menu, price, real estate or a promotion — is to meet guests where they are and provide what they want, at a price they will pay.
Furman notes that this is where RMS’ broad set of solutions is important. “We are called Revenue Management Solutions, not ‘pricing solutions.’ Right now, the guests are in a different place, and they want different things. Revenue management really starts with taking a broad view of your menu, promotions, bundles, channels AND price.”
Furman notes that many brands cut their menus immediately to manage the crisis. They didn’t think about profitability or guest frequency — they couldn’t.
“We believe it’s time to examine the initial cuts and possibly return items to the menu,” said Furman. “But iterative is the way to go right now. Make small changes, test and learn, then make more small changes.”
The mantra “test and learn” holds true for any change brands are making during these uncertain times.
“The future is uncertain at best,” said Pridon. “But with flexibility and a multipronged approach to analysis, we can find a safe pricing approach that meets the needs of the guest — and keeps the doors open.”