Q: With skyrocketing labor cost due to minimum wage increases, wage compression for those close to minimum wage and tight labor market, I feel I don’t have an option but to increase prices. The crew and I are afraid we are going to lose guest traffic. What are some ideas to maintain or improve traffic while increasing prices?

A: Nationally, wage increases are widespread. The federal government increase the minimum amount of salary to avoid paying overtime while clarifying how an exempt employee is properly classified. States and cities are following suit. Minimum wage is at historic adjustment levels across the nation. This news has overshadowed inflation in the supply chain as well as commodity prices. Most companies will have little option to maintain margin but to increase menu prices. Historically, higher prices have led to lower demand and traffic levels. One reason is the guest is paying more for the same product they paid less for previously. To combat this the guest must receive more value for more money. To increase prices while driving traffic, consider the following:

Know your price increase target – the hospitality association offers a calculator that will consider the variables  to maintain or improve profitability and provides a targeted price increase to do so. If you discover the price increase needs to be 5% start increasing prices on high movers first. Make strategic choices. Use proper schemed such as ending in $0.50 or $0.95 (may also end in 9). Too many operators have thought it was more modern to have even dollar pricing. Some walk away from profit by losing the ability to creepy pricing rather than jump in $1 increments. Offer different sizes and squeeze prices together. Use successful promotions like restaurant week where guest counts increased. Bundled pricing appeals to price-sensitive guests even though they spend more.

Know your guest – It’s easier than ever to know your guest. Use structured and unstructured data. POS can provide useful structured data of guest menu preferences and trends. Analyze these trends to see what behaviors have emerged and predict how pricing will affect volume. Know the frequency of guest visits by using a tracking system to measure how often guests are returning and how many are first-time visitors, then build retention strategies around each. Use a loyalty system to frequently reward the best guests. Analyze what the most loyal guests order and increase the offerings of items akin to them. If they come back more than one time usual, sales grow majestically. If they bring their friends one more time, sales will grow will grow at least double digits. Unstructured data includes online reviews, social media activity, reservations, third-party sales activity, etc. Wean every piece of data and analytics to know your online guest better. Let this be the year of maniacal focus on knowing your guest; you’ll know how much they’ll spend. Remember, a fully-engaged guest spends at a 15% premium and are much more likely to spread the word organically, the most trusted source of referral.

 

Re-evaluate, re-train, and re-enforce stronger hospitality – the restaurant business is a game of emotion and mathematics. That’s why it’s fun. The emotion of the business must be carefully tended. Each person touching your guest represents your brand and can be the difference between a returning and non-returning guest. Before and after prices have been adjusted have a meeting with your staff. Upgrade the service in every area and ensure everyone knows a smile is worth a thousand words. The goal is to provide a flawless guest experience every time regardless of concept. Every position in the restaurant must be focused on meeting and exceeding the needs of the guest from door to door. Remember guests are five times more likely to return to your restaurant if they have a memorable experience with an employee!

 

Continually monitor and adjust to meet guest expectations – soliciting feedback from regular and new guests is important. Build a feedback loop with the guests and act on suggestions. Be specific, rather than, “How is everything?”

While not an exhaustive list by any means, connecting with your guest, strengthening hospitality, providing strategic pricing moves with strong copywriting will more than provide break-even traffic – it will drive it.

 

For more information on improving profitability and driving performance, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.