One Price To Fit All?
Burton-on-Trent is considered by many to be the home of British brewing, apologies to anyone wishing to make a counter claim. And although the number of brewers still there has fallen dramatically since it’s heyday in the late 1800’s and early 1900’s. It is still the home of Molson Coors (nee Bass) and Marston’s Pedigree, along with a number of smaller microbrewers. As a result of this concentration of brewing and its bi-products, 1902 saw the creation of the Marmite Food Company. This was after a German scientist, Justus Liebig, discovered brewer’s yeast could be concentrated, bottled and eaten. Dig a bit deeper and you will also discover that in 1922 it was also the birth place of Branston Pickle. Although sadly it has been some time since it the brand was actually made there.
Whilst Burton’s association with Brewing, Marmite and Branston Pickle is well documented. I was surprised to discover the other day that it had another claim to fame. As the country moved into recession in 1990, Poundland opened the doors to its first store in the Octagon Centre, a small low-rent shopping mall in the town centre. Where it still has a store today, albeit in a bigger unit!
Poundlands success has been built on selling everything at the same price, a £1. The thinking behind this being that a) it is a very attractive price point for shoppers and b) it simplifies the whole decision making process. It’s worth noting that since its beginning even Poundland have evolved this approach slightly and whilst the majority of items still conform to this price, they do have a number of exceptions on a store-by-store basis.
This had me thinking, what the benefits or otherwise are when pubs and restaurants adopt a similar simplistic approach, albeit not necessary at a pound a pint!
Flat rate pricing
Creating menus, be it for meals or drinks isn’t easy. It takes time and quite a lot of thought. In my experience most operators take the construction of their menus very seriously when it comes to what to include or indeed not include. Where many of them let themselves down however is when it comes to setting their prices.
In lots of cases they have a price point in mind. Whilst this has to be influenced by local market conditions and what customers are likely to be willing to pay, too often it can be driven by what they see their main competitors charge. If the restaurant down the street is charging £8.99 for burger and chips then that’s what they look to charge. Once this price point get locked into an operator’s mind it becomes very easy for everything on the menu to gravitate to the same price. This approach can also be seen in many pubs. As they unashamedly declare “all cask ale £1.90 a pint” in an attempt to price match Wetherspoons!
The argument I hear from those who do this, and it does have a degree of merit, is that it makes it easier for the customer to choose – and in some cases to simplify things for their staff.
Personally I think it doesn’t give customers or indeed their teams enough credit, but I recognise that in some situations this simplistic approach can work. That said where I think it can become flawed is when you start to looking at profitability.
Does it all cost the same?
Having a flat pricing structure or only a couple different price points may simplify the ordering process for your customers but what is it doing to your profitability? A fundamental problem with having a fixed retail selling price is when it comes to looking at margins and profit. It assumes that it costs roughly the same to deliver each menu item. The reality is that unless you have been extremely meticulous when it comes to your planning, this simply isn’t the case. This means that your profitability or even worse losses will fluctuate significantly depending on what customers order during any given sitting. The same is true when looking at your drinks pricing. It is unlikely that the cost of a 3.6% cask ale will be the same as one at 5.3%, or that all your wine costs the same? Which means your profitability will also be different.
So what can you do about it?
Know your costs
My initial response when I come across businesses which adopt this approach to pricing is to stop it.
But that’s often easier said than done. And in some instances this might not work. Plan B is therefore to make sure that you are completely on top of your cost base. Make sure you know down to as much detail as you can what it costs to deliver each item on your menu. If possible try and tweak ingredients or portion sizes to ‘normalize’ margins. If that can’t be done make sure everyone across the business is clear on the relative merits of each dish and drink on the menu. You may also wish to encourage your team, when asked, to direct customers to those dishes or drinks which deliver the best margins.
My preferred approach when constructing your menus is don’t be afraid of having multiple price points. Although price can be a big driver of customers coming to your outlet, in my experience it is often given more weight than it deserves. Most people recognise that they need to pay more for crab and lobster than they do for pork and chicken. When constructing your menus it’s perfectly acceptable to have items competitively priced to meet local market conditions. It’s also a great way to get people through the door in the first place. But don’t feel you have pitch everything on the menu at the same price. Once customer are inside don’t be afraid to give them and you the opportunity for trading up.
Final thoughts…
Although Poundland don’t pay exactly the same for every product they buy, they are ruthless when it comes to driving down costs. They are also far more relaxed as to what is on their shelves than most of the major chains. Products go into their stores because they are able to hit a price point not because it is a favourite item which they know their customers want to buy.
Having flat rate pricing if you are a pub or restaurant can have it benefits but if you go down that route make sure you do with your eyes wide open.