Josh Kopel | Award Winning Restaurant Consultant

Restaurant Financing: Pricing Strategies for Profit Maximization

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We’re being haunted by a ghost. It seems to come up week after week on the show. It’s a difficult conversation to have because, though it begins with us talking to each other, eventually we’ll need to have the same conversation with the folks that we serve.

I’m talking about pricing. 

The system is broken, and I am as responsible as anyone else for breaking it. Cash, more specifically cashflow, is king in the restaurant industry.

Our margins are razor thin even in the best of times. On average 94 cents of every dollar made by a restaurant goes back into the economy. That is crazy. 

The good news is that there are thought leaders within our industry that are working towards solutions. One of those people is Joelle Parenteau, owner, and operator of Wolf Down. She’s developing solutions within her business that may work industry-wide. She’s experimenting with pricing and involving her customer base to avoid alienating the folks that are paying her bills. I spoke to Joelle about her strategy on the show and here’s what I learned.

Delivery Can Be Profitable

One of the most effective ways I have seen restaurateurs ride the wave of food home delivery while keeping their bills paid is to increase the cost of delivery. Parenteau inflated delivery cost to cover the commission associated with using apps like UberEats. She noted “We asked ourselves what does the customer want. They want food delivered to their home. We said okay we will give them that option but it comes at a premium. We ask customers if that’s okay and by the thousands, they have said yes”.

For her, it is a small, simple way of recuperating the increased costs associated with delivery. 

Price Increase Can Be Gradual

When COVID hit, the idea of raising prices may have seemed crazy. If everyone is struggling, wouldn’t you be pricing yourselves out of the market? To Parenteau, it is all about baby steps. 

She was surprised at how little customers care about price inflation if it is done sensibly and with intention. Granted, it may not be advisable to raise your flagship pasta dish from $20 to $40 out of the blue. Such a big jump would likely be noticeable to loyal patrons. 

As restaurateurs, we have such a fixed mindset of what “reasonable” pricing is. In keeping those ideals, Parenteau suggests we could be clipping our wings. Making these tiny changes in pricing saved her business.

When she first made the change, she was shocked by the response. “The irony, of course, is that we raised our prices and braced ourselves for the response, and nothing happened. Either they didn’t notice or they just accepted that “yeah, I’ll pay $12 for a sandwich”. We realized then, why did it take us so long to do this?”

Creating Value Is Key

“Everyone feels like customers are going to revolt when you raise prices but then as a business owner, you also need to increase value to justify that higher price. So you need a very quality, differentiated product if you are going to charge higher prices” says Joelle Parenteau. 

This is such an interesting perspective. Now, when I look at menu, location, systems, and staff, I’m trying to determine what more I could bring to the table? 

For Parenteau, she brought a niche product with well-sourced, fresh ingredients that justified the higher price point. Some may think that $12 for a sandwich is expensive, but not the customers at Wolf Down.

Competing on price is a losing battle with no victor. Differentiating could be key to standing out in a crowded market. 

Pricing will always be a sensitive subject but it’s also one of the most important. Knowing how to price correctly can be the difference between thriving in the new world or struggling through it. Folks like Joelle are incredibly inspiring to me. It’s through her efforts that we all have the opportunity to live better lives and run better businesses.

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