Does It Add Up? - Ashdale Business Consulting

Does It Add Up?


In the course of my work I have the need to travel by train quite often.  Actually that’s not entirely true, in some cases I could drive.  However when going to the likes of London or Manchester I often find that being on the train will give me time to catch-up on emails, read or indeed just give me some thinking time.

Running my own business, I need to be smart when booking tickets to get the best prices.  The difference between just turning up at the station compared to a bit of planning can be nearly £100 on a simple day return journey.  What is common knowledge to anyone who does something similar is that on balance the slower the train the cheaper the ticket.  And the further you book in advance the better prices you can get.  These principals can also be found when looking at airfares.

When it comes to other sectors, product or services these accepted norms then often get turned on their head.  The casual dining and hospitality sector being a great case in point.

The fast food paradox

Unlike the world of travel, when it comes to serving food, rather than commanding a premium, fast food is seen as the cheap option.  Now clearly when it comes to high street burger chains etc. this can easily be rationalised as there is no table service, plates are plastic or paper and a high proportion of sales are for consumption off premise.  However casual dining and even more upmarket venues often adopt a similar approach.  Regardless of where you live it is almost impossible not to come across at least some food-led outlets which advertise ‘Express Lunches’ or something similar.  With these ‘offers’ usually very competitively priced.

From an operators point of view the rationale is often that it encourages those customers short on time who otherwise wouldn’t consider sitting down to eat lunch.  So generating incremental sales.  For others the speed of service can mean that they are able to have a higher turnover of covers in a relatively short space of time.  This resulting lower ‘cost to serve’ is one way they can maintain their margins or at least better cover their costs.

The really interesting thing for me is how these offers then psychological condition customers in seeing these prices as the norm.  And by definition signalling what level of pricing to accept across different times of the day.

Different session pricing

Notwithstanding the benefits to offering these lunchtime deals, they can have a negative impact on how customers value what you offer later in the day.  It is not uncommon for restaurants, both casual and more formal, to have the same or a very similar menu available at lunchtime and in the evening.

The potential conflict comes when the venue looks to charge a premium during those later sessions.  From an operators point of view there may be many very good reasons for this.  Running costs will almost always be higher, more heating, lighting etc.  It is also likely that more staff will be needed.  I know many operators who pay more to those who work in the evening not least as they tend to be more experienced and better trained.

From a customer’s point of view however it is far less easy to reconcile.  Their focus is almost always on the actual price they pay for the food on the plate.  Any additional benefits or otherwise they may enjoy in the evening compared to at lunchtime in most cases are forgotten about.

This is where operators need to get smarter.  The easy solution is not to offer the same menu during both sittings.  If that’s not an option, then making noticeable changes, not subtle, is another way of signalling to why a customer will be asked to pay more.  This may include adding low cost but high perceived value additions such as bigger or extra side orders.  Free bread and oils or other nibbles will also help differentiate the customer experience between the two different times of day.  The key is that whatever you decide to do it should be there to premiumise the experience to help customers understand why they are being asked to pay more.

Less is more

Children’s menus aside, the other times restaurants offer the same dish in a different portion size is when there is an option to have it as a main or a starter.  When this is done there doesn’t seem to be any hard or fast rules on what price differential should exist.  The reality is that even if there is only half the amount of food on the plate, the starter version is likely to be more than half the price of its main course equivalent.  From a customer point of view as long as the price being charged is in keeping with the rest of the starters on the menu then they will accept it in good grace.

When it comes to drinks however then customers can have a very different attitude.  A key reason for this is probably that serve sizes are quantified and comparisons between different glasses can more easily be made.

Although it is a legal requirement to offer a 125ml serve for wine, it is becoming harder to see as an option on any wine list or menu.  Instead the entry point is more commonly 175ml or even 250ml, if buying by the glass.  Where 125ml are advertised they are very rarely priced at half that of the 250ml.  They will usually command between a 5% and 15% premium, with this difference in pricing rarely challenged.

Draught beer however seems to have a much tougher time.  I have lost count of the ‘discussions’ I have had with operators, mostly licensees, who insist that the price of a half should be exactly that of a pint.  This approach only makes sense if the venue has built its pricing up on the basis that it only sold half pints, so that all of the overhead and running costs would be accounted for.  Of course the reality is that it is not usually the case.

What many customers never understand, is that the liquid in the glass is only one element of what drives the overall cost of the drink.  You don’t pay your bar staff less for serving a half rather than a pint.  You don’t turn the heating down or lower the lights.  In fact in some cases serving a half may cost more.  The challenge as always is helping your customers to understand what it is they are paying for.