Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.

Thursday, March 19, 2009

Fine Restaurant Retailing…is it Becoming a Price War?

I’d like to expand on the notion of changing retail value propositions to fit changing customer trends and preferences that was argued in my previous post. However, this time the changing trends aren’t the result of new customer tastes but rather people’s response to the recessionary times and the tighter spending that usually goes with it.

Restaurant retailing is very similar to coffee retailing; there are sometimes vast differences between the product quality offered by various restaurants in which a premium price is generally paid to reflect this difference. After all, you are not only paying for the higher costs which go into making better quality food, but also for the perceived higher fulfillment in eating filet mignon instead of a fried chicken sandwich. Generally, both types of restaurants can co-exist with each other since there will almost always be a dependable, specific market for both higher-quality and expensive restaurants and lower-quality, cheaper restaurants.

But what if the average person doesn’t want to pay these high prices anymore?

Currently, with rampant layoffs, less disposable income and general job insecurity; people who may have previously wanted to treat themselves by dining at a fine restaurant in the past may be less inclined to do so now. How do restaurants which pride themselves on the experience and selection value propositions now adjust to these new economic realities?

Granted, there will always be people who are not as affected by recessions as others and will not change their dining habits. However, the same cannot be said for the average person at this point. According to a recent report, in the United States alone, roughly 33% of restaurant patrons are tightening their wallets, paying more attention to price than ever before. Another troubling trend is that up to 28% of diners are already switching to cheaper restaurants.
With the difficult recessionary times projected to last at least another several more months; fine-dining restaurants will have to act fast and temporarily change their value propositions to avoid the fate of the Rainbow Room in New York City.

Instead of taking a wait-and-see approach, many upscale restaurants are already discounting the prices for their high-quality as much as possible. Lacroix at the Rittenhouse in Philadelphia is charging only $24 for a three-course lunch, affectionately known as the “Appetite Stimulus Plan.” Similarly, Craft restaurant in New York City is offering its “Frugal Friday” menu where diners can eat anything on the menu for less than $10 on that day of the week.

I believe these to be great examples of upscale restaurants perhaps swallowing their pride in order to keep diners coming in. However difficult it may be to accept less profit per patron, these creative ideas can more than make it up through higher sales volumes. This represents a temporarily solution to a temporary problem—the recession, in which there is more emphasis on the price value proposition.

Upscale restaurants that are willing to sell their top-notch food at low prices should be recognized for doing whatever it takes to stay afloat in this very competitive industry.

Just imagine getting that filet mignon for under $20—at least for the next few months.


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