The sight of empty tables in their restaurants is now a distant memory for most F&B business professionals. Be it early morning or late nights, there is no stopping a consumer from queuing up outside their favourite to enjoy their meal.
However, while Indians are increasingly spending on dining out, they are also seeking value for money at the same time. This is perfect opportunity for can restaurateurs to get their pricing right to attract and retain guests.
Ajit Shah, F&B Angel Investor and Designated Partner, White Panda Hospitality explains how they can do this, taking into consideration fixed and variable costs and then letting it reflect on their menu price.
How can restaurateurs get their menu prices right?
Pricing, which plays a big role in helping people decide which restaurant to dine at, is a composition of variable and fixed costs. Variable cost comprises of staffing and essential costs such as power and water, whereas fixed cost includes wages, rent and more. Market research is also an important factor when it comes to determining the price. Simply put, menu prices comprise food, fixed and variable along with the profit margin earn per dish.
What role does location play while determining pricing?
Location plays a critical role; one must be careful not to go overboard or lower their range as every location has a different sweet spot in terms of price. You also need to understand the market trend in the neighbourhood to set the price. It can’t be exorbitant if it is in a place where the population with lower spending capacity.
Other factors that need to be taken into consideration include competitor pricing and exotic ingredients. If the latter is on your menu, you can add higher profit margin as compared to other dishes, as long as it is within limits. This is because you are offering customers something unique.
Many established restauranteurs are opting for dynamic pricing strategy. What are its pros and cons, in contemporary times, when one can’t make too many long-term strategies?
The demand for your menu items isn’t always going to be steady; certain times are naturally going to be busier and your pricing should reflect this. In this regard, dynamic pricing offers great benefits for a restaurant.
By temporarily lowering the price of certain menu items during non-peak hours, you can attract more customers. According to data, 80% of restaurant operators agree consumers are more value-conscious than they were two years ago, and 75% of consumers say they would observe dynamic pricing if offered.
Restaurants will always have some price-sensitive customers who may change their meal times or try an expensive restaurant in exchange for a reduced price. Conversely, consumers with higher disposable income might not be price-sensitive and hence, will be willing to pay a premium for a desirable table at their specific time. They are willing to pay a relatively higher price as long as restaurants provide good quality of food and service.
Dynamic pricing, therefore, helps you learn more about your customers and understand the price range they are willing to pay for a particular dish, keeping your brand competitive. However, its biggest downside is frequent price changes, which could frustrate customers.
In the process, your brand loyalty would get affected and considering the competitive market, customers could move elsewhere. Judging by these pros and cons of dynamic pricing, restaurateurs should think carefully before adopting this model. It is best to implement it only once the business is well establishment and has set its footprint in the market.
Is it advisable for multi-chain restaurants to have dynamic pricing or should they adhere to uniform pricing?
Multi-chain restaurants globally have a very low product cost, and hence, don’t need to have dynamic costing. However, in some situations while incurring high costs due to a presence in airports or railway stations where rentals and other fixed costs are high, they might have to pass some load on customers. But in most cases, multi-chain restaurant should adhere to uniform pricing.
How can uniform or dynamic pricing strategies respectively impact customer acquisition and retention?
Customers consider the price as a very important aspect while making dining decisions. When it comes to multi-chain restaurants, customers are aware of the average pricing and maximum price points. This kind of uniformity helps attract and retain more customers as most people do not want a fancy meal each time they go out.
On the contrary, dynamic pricing strategies help restaurants gain an edge in creating inimitable dishes with distinctive elements like ambience or exotic ingredients. In such cases, the customer has to pay for the unique dining experience.
How can restaurateurs use dynamic pricing for customer acquisition while planning their entry into newer geographies, taking into account competition and discounts?
Venturing into newer geographies is always exciting for restaurateurs as they try to break into a new customer base. Customer acquisition through dynamic pricing can be challenging, hence for multi-chain restaurants, pricing is mostly constant for each outlet. However, at times they try to add a temporary discount or offer to attract potential customers.
Standalone restaurants, on the other hand, need more dynamic pricing suited to their geography. For example, a restaurant in New Delhi and one in Bhopal would have different price points, since this is a derivative of many factors. Discounts and meaningful offers can be put forward to customers from time to time to attract footfall during less popular periods.
Pricing can definitely be variable to begin with. However, once the business is well-established and has acquired a strong customer base, it can reap better profits through dynamic pricing. Once the dynamic pricing model has been adopted, restaurant managers must be trained to play to its strengths and react quickly.
As White Panda expands into more geographies what pricing strategy will it employ?
Yes White Panda Hospitality is looking to expand into tier-2 cities and smaller towns, in Punjab, Madhya Pradesh and Haryana. Like any other business, I foresee challenges in terms of logistics, manpower crunch and scarcity of raw material. To gain attention of the market we will definitely have to have more comfortable pricing to attract customers. Only once we have a set customer base will we consider a more dynamic pricing.
