STOP the Catering & Hospitality Self Harm Trend!

STOP the Catering & Hospitality Self Harm Trend!

Share

Stop “self harming” your business!

Having spent a large part of my time last week, working with owners and managers to put plans in place to bolster their businesses as a result of insufficient revenues, I feel compelled to offer some words of wisdom this week.

I’m not naive enough to think I can stop it entirely, but I’ll do my part in helping reduce what can only be described as SELF HARM within the industry that we all love.

That may sound rather dramatic…self harm, but it has to be said – Cutting your prices in order to attract someone else’s customers is one of THE most deadly cuts that you can inflict on your business!

Here’s WHY…

There will ALWAYS be a competitor prepared and able enough to under-cut you by offering a lower price than you.

Avoid entering into a price war because it’s very unlikely you will win. It’s a road to eroding your margins at best and bankruptcy at worst!

Unfortunately it’s also the most popular “marketing” road that ill informed owners and managers take as they try to “buy market share” from their competitors.

If you’re one of those businesses, please STOP doing it right now.

There is a much better way!

All you need is a little bit of smart business intelligence…

Let me share with you a table that many of my clients have found sobering when I’ve shown them, because it clearly shows the impact that discounting has on a business. See for yourself:

Price Cut
You will see that if your current GP is 50% and you cut your prices with a 10% discount, it will make it necessary for you to increase sales revenue by 25%.

Putting that into operational perspective, you need to work an additional 1.5 days to make up that lost 25% if you’re going to retain the same 50% GP.

Pretty impossible I’d say as we only have 7 days in the week. Thus, your GP goes down and you’re on the slippery slope!

NOW, let’s look at a more positive way…

because the fact is, customers are far more interested in VALUE than they are about price.

Yes, that’s right – Value and price are NOT the same.

Price is normally the last consideration in the purchase process, after all other factors have been considered.

If the opposite were true, no one would buy an Apple laptop for £1100 when you can get a Dell for £450. And similarly, no one would pay £30 per head for a meal at a casual dining restaurant when they could get 2 meals for £10 at the local pub.

So, instead of focusing on price, turn your attention to VALUE.

By adding more value to your product or service, customers are prepared to pay you more.

For example – If you provide a more personalised service, add extra garnish to a dish, serve your food on better quality tableware or provide free wifi or entertainment, the extra value can justify a higher price.

So, as an alternative to cutting prices, raise them!

WHAT?

What prevents many owners and managers from putting prices up (even though they would like to) is FEAR.

Fear that they will lose customers and be worse off.

Does any of this sound familiar?

Let’s take a look at this next table:

Price Increase

It’s inevitable that you will lose a few customers when you raise prices, but invariably they are the ones that “buy on price”

It’s worth mentioning that only about 15% of the population buy on price alone, and you’d do well NOT to attract those type of buyers because they are rarely loyal and they will consume not only your food but more importantly – your TIME and ENERGY. Sack them!

Instead, use that time and energy to show more value to the customers that will appreciate you for it.

As you will see from the table above, if you raise your prices by just 5% on current GP of 50%, you can afford to lose 9% of your sales without affecting your GP.

So, by increasing a menu item costing £12.00 by just 5%, the new price will become £12.60 (making you an extra 60p per menu item)

All those new 60p’s will make a big difference over time and the irony of this is that the most profitable customers will often not pay attention to the price increase as they are not buying on price alone, but on VALUE.

So here’s the important point to takeaway…

Cutting prices invariably attracts the “not-ideal” customers and eats away at your profitability.

Putting prices up means you lose the “not-ideal” customers and become more profitable as a result.

I’ll leave you with this question:

Which would your prefer?

Please leave us a comment below and/or click the social share buttons to send this article to others who might be appreciative of it.

Share