The second wave brings with it another perfect storm of restaurant calamities, food and dry-goods supply shortages, higher labour prices, and minimal labour supply, all inflicted on an industry in which the average profit is only 5 to 8 percent.
With how the restaurant industry looks right now, from shifting consumer behaviour and volatile demand, strategically pricing a menu has never been so complicated, nor so important. The cost of running a restaurant is higher than ever. According to an analysis by Buyers Edge Platform, a restaurant supply-chain company, restaurants are now spending 38 percent more just on food costs alone. Operators have also been compelled to spend on safety products from masks, sanitizing supplies, and various touchless systems to protect their staff and customers. Amid all these situations, raising pricing is the last thing that restaurant owners would want to do.
Manvir Singh Anand, a food business expert and Founder & CEO of Knight Gourmet commented that historically, one can't increase prices when the disposable incomes of all strata of society are hit. Restauranteurs will have to cover losses by leveraging multiple revenue streams, dine, takeaway, delivery and a major focus on bulk meals and catering services, leveraging the power of customer data and CRM.
Looking at the tough times for both restaurant owners and the customers, it definitely does not make sense to charge more. Anand further mentioned that dynamic pricing is at the core of price restructuring, i.e. having affordable dining experiences for basic and standardized menus followed by more curated and personalized dining experiences being positioned at a premium.
Determining the pricing elasticity of items can also help the restaurants to maintain their existing prices. By elasticity, it means ‘the responsiveness of demand to a change in price’. Commodity items like soda and wings have low elasticity. Unique and signature items tend to have high elasticity. The higher the pricing elasticity the easier it is to raise the price.
“Studying the competition well and restructuring pricing to build price parity should be a good strategy to stay relevant in future times. Backend/Supply chain with a focus pricing constant, the supply chain and menu engineering will be pivotal,” he said.
The sector understands that covid has affected the purchasing power of customers and when people are fighting for survival in the market rise in charges will just lead to an ugly price war that will not benefit the industry.
According to Kushang, Co-founder and CEO of SupplyNote, the solution is not to charge more from the customer rather the restaurant owners should focus on lowering the cost of operations.
“The efforts are more towards widening the reach and filling the gap created by the pandemic. The outlets are focusing more on catering clients through online delivery systems till the situation gets better. Also, they are gradually moving towards technology implementation in their operations to be more sustainable and avoid any sort of losses,” Kushang commented.
In order to lower down the operation costs, restaurants should take various steps like eliminating high cost/slow-moving items in the menu. Similarly, vendor re-negotiation should be done and procurement and par stock levels will have to be reviewed. Above all, stringent control of the food cost and wastage percentage will build cost-consciousness.
While price restructuring is the only sustainable strategy for dine-ins to stay relevant and revive in the coming times, Anand feels that dynamic pricing comprising of safer and affordable dining experiences is a sure shot recipe for revival.
In the present situation, restaurants are witnessing the food cost on a higher side due to several operational disruptions. Many owners are grappling with this issue. “The reason is apparent enough. The supply-demand of raw material has been adversely affected by the pandemic and the lockdown, thereby directly increasing our food cost. In spite of this we are going vocal for local and in due time prices and the supply chain will be positively restored,” Abhayraj Kohli, Founder of Tori said.
The restaurant industry is a competitive market. And it would be incorrect to say that any one particular restaurant is functioning within a consistently secure space. “Having said that we as an industry or individually we cannot afford to increase our prices to recover from the loss sustained because it comes down to survival of the fittest,” Kohli commented. The testimony to the statement is reflecting from the past year when the industry was hit badly yet took all the pain without passing on the losses down to the customer.