Restaurants fear cutting prices

Published on
March 17, 2009

Discounts and value-added meal packages are getting more guests to restaurants during tough economic times, said restaurant operators at the “Navigating Restaurant Profitability in the New Economy” conference here on Monday.

The event was part of the Dean’s Leadership Series, sponsored by the Cornell University School of Hotel Administration in Ithaca, N.Y.

Low prices on smaller portions or special menu items are working well for some chains. “We are copying from the McDonald’s playbook, with their ‘99 cent’ menu. We are offering $5 salads, for example,” said Nicholas Vojnovic, president of Family Sports Concepts, the franchisor of Beef O’Brady’s Family Sports Pubs, which has 250 units in Florida.

Beef O’Brady’s is also developing smaller-portioned items, which involves reducing the size of its protein servings, including beef, chicken and seafood.

“You have to charge $10 or $15 for a larger portion, so…we want to bring that protein size down,” said Vojnovic.

Instead of offering deep discounts on food, some restaurant chains are adding value by bundling different menu items together. For example, some Applebee’s restaurants are offering two entrées and an appetizer for $20.

“Applebee’s is focusing on a bundling of products as opposed to ‘buy one, get one free.’ I think discounting things is a dangerous course of action,” says Donald Strang III, CEO of Strang Corp., which owns 29 Panera Bread franchises and 27 Applebee’s restaurants. When restaurants drop retail prices, it is harder to raise prices again when the recession is over, advised Strang.

Alex Susskind, associate professor at the School of Hotel Administration, Cornell University, agreed with the fallacy of offering discounts and free food.

“My preference would be to do the value-added option, rather than the cost cutting,” said Susskind. For example, restaurants could partner with a soda company that would sponsor baseball caps featuring the restaurant’s logo. Guests who order a certain menu item or items would receive a free cap. “Tuesday night, for example, could be ‘cap night.’ Soda could be paired with items on a menu that is $10 or less, or with a new appetizer you are trying,” said Susskind.

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