Monday, October 27, 2008

Adjusting Menu Selection a Good Short Term Fix

This was done for Gerson Lehrman News and Published October 27

Original Article: Restaurants may change menus, hike prices www.msnbc.msn.com


Implications:

1) Customers are resisting higher prices
2) Food prices will come down, but not rapidly
3) Market the selections as new variety

Analysis:


The restaurant industry has a real dilemma on it's hands. Customers, given the current economic climate, are resisting price increases with fewer trips to dine out and lower per-ticket purchases.

At the same time, the core ingredient "proteins" have experienced a much greater than CPI increase in cost. Given the recent steep decline in energy costs, we can expect there to be a stop in the cost inflation, but any decrease in supply prices will come due to weak global demand, a bad sign for consumer spending in general and discretionary spending in particular. No one wants the downturn to be so great that actual "deflation" sets in. The farmers and food production industry are operating on very tight margins as it is.

So, what to do? Dress up new menu items with coatings, breading, sauces and lots of marketing. A hot ham and cheese sandwich can be made into an alternative to a cheeseburger, if presented correctly.

Certainly people are used to "Nontraditional" menu items at all the fast feeders and casual restaurants. If marketed right, both sales volumes and margins should be able to be maintained. Remember when fast-food breakfasts were a novelty? Now, they are a staple item in the product mix.

Layoff news at marquee firms across the board, the seeming end of the US automobile business as we all know it, and the unrelentingly bad economic news are going to cause people to review their personal expenditures much more carefully, but America loves to "Eat out".

The right mixture of cost containment and good menu planning, along with a great invitation to the consumer to check out the new items, will be able to allow restauranteurs to weather the storm

No comments: