While few restaurants serving lesser customers might make them churn profits, it may not be the case with others. The whole restaurant economics runs under certain factors. Keeping menu prices high so that profit margin can be attained even if the order volume is less can be one of the strategies but for the majority of the restaurants across India, they operate in small ticket size and large order volume strategy.
Any successful restaurant owner knows that, in order to thrive, they need to keep their eyes on the bottom line. One of the most important techniques for boosting profits is to increase the average order amount per customer. Every additional item they tag to the order increases the ticket size and expands a restaurant’s margin.
“For us, it has always been about the volume game. We want to be the largest burger QSR and that involves being in every food court, every highway location, every high street. We have something for everyone. In our menu, you will see something at every 20 rupees. We have something for the value-driven customer and the premium burger lover,” Kabir Jeet Singh, CEO and Co-Cofounder of Burger Singh commented.
Suitable only for certain food concepts
One of the famous food joints in New Delhi, Hunger Strike has always been dependent on order volume in order to bring in more profits. “We have a tandoori momo priced at INR 120 for 6 pieces. If we do not engage the maximum number of orders per day, our profits go down drastically. Honestly, all the expenses cannot be met in a mere amount of INR 120, but we cannot up the price because looking at our customer base, no one would like to spend more than that for momos,” the owner explained.
Customers when enquired have accepted the fact that they refuse to go to certain outlets for having the same dish (Tandoori Momos) because they think they don't want to pay a heavy amount for the same. This thus reflects that the small ticket size and high volume game can only be applicable to certain types of food or cuisine.
SGF chain of restaurants that is known for its various versions of ‘Chaaps’ is another great example. The restaurant chain has implemented an affordable menu pricing strategy and thus it leads to high order volumes which ultimately cover the cost making it thrive in the next normal.
“One of the most overlooked details of restaurant management is menu pricing. No matter how great your concept and how excellent your food is, it won’t matter much if your customers don’t think your menu prices are worth paying. While it’s only natural that you want your prices to be profitable, being too aggressive with your pricing strategy can scare customers away. On the other hand, being too meek can make you lose out on valuable profits. In other words, your pricing strategy is something that you shouldn’t neglect. Small details can go a long way to encourage your customers to spend more without feeling forced,” Kewal Ahuja, Founder, SGF India restaurant commented.
To cater to the large order volumes, many restaurant chains have built their own online-ordering mechanisms on their websites or mobile apps are working to make sure these can handle an increase in demand. Despite physical-distancing regulations, small restaurants chains continue to generate sales. In localities that prohibit on-premise dining, the outlets have ramped up their takeout and delivery capabilities and adopted new marketing tactics to reach consumers who may not actively be searching for these services.
Being the ‘cheapest seller’ won't do good always
One of the fundamental shifts in the current juncture has been due to the ambush aggregator pricing (where there is a stark difference between pre-order to order cart prices), almost everyone is trying to find a suitable way to reach potential customers and the key differentiator in many ways becomes the pricing.
Explaining it further Food Business Expert, Manvir Singh Anand commented that nowadays with the rise of single-person ordering, has put pressure on the ticket size of orders, owing to which the focus is volume vs margin. Hence, most founders end up investing heavily in ad spending and other promotional activities not realising that it becomes a double-edged sword where they are neither able to cover costs or acquire customers - because there is always someone who can charge below the other competitors, which makes the unit economics worse.
“Being the cheapest seller of food doesn't get you anywhere, especially in a business where hygiene and perceived value is really important,” Anand believes.
For him, there are four aspects to consider when focusing on volumes vs ticket size debate. Pricing will have to be done as per what the market wants. One can either have the option of forgoing the customer or curating the items at the same cost, reducing the portion.
There should be a focus on upselling like bread, beverage and other items which can be easily made and increase the ticket size. There should be open multiple revenue streams especially of bulk ordering and catering orders irrespective of festive seasons, which will push the ticket size higher, regardless, of the number of retail orders restaurants, are doing.