Some restaurants charge more but try to make you feel like you’re getting a bargain

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Video above: Consumer packaging gets smaller but prices stay the sameRestaurants raise menu prices as wages rise and inflation hits ingredients and packaging. But they still want customers to feel like they’re getting a good deal. It’s a tricky proposition, especially for fast food, casual and casual dining restaurants – places where low prices are part of the appeal. Take, for example, Applebee’s and IHOP, owned by Dine Brands. “Both of our brands are value brands, and that’s especially important right now,” Dine Brands CEO John Peyton said on a March analyst call. This means that franchisees walk “a tightrope…maintaining value”. for our customers while protecting their margins.” IHOP and Applebee franchisees increased prices between 3-4% last year. Usually these prices increase between 1-3% per year. So how do you raise prices while continuing to convince customers that your food is cheap? Restaurants hope that customers consider more than absolute price when deciding where to eat. They could, for example, consider the ambiance of the restaurant or how much food they get for their money, and they might swallow higher prices at one of their favorite restaurants because those prices are always lower than a competitor. as the situation evolves, customers may want to shop around to try and make sure they’re not paying too much.Price vs. valueBrands are hoping that as prices rise, consumers will their own calculations – and will find that all things considered, the prices are still quite good. At Applebee, “the value equation…is so much more than price,” Applebee’s president John Cywinski told CNN Business in a recent interview. “It’s the food, it’s the experience, the packaging,” he said. “You can get, for a pretty good price, the Applebee experience.” Some places, like Domino’s, are taking a more surgical approach, raising the prices of some items while keeping others low. On March 14, Domino’s raised the price of its classic “mix and match” offer by a dollar, from $5.99 to $6.99 – but only on packing slips. For delivery, the deal is still priced at $5.99. the $5.99 take-out price serves a dual purpose: to give customers the cheaper option they’re used to and to encourage them to pick up food rather than have it delivered. Take-out transportation is a more cost-effective option for restaurants. Darden Restaurants, which owns Olive Garden, Cheddar’s Scratch Kitchen and other restaurants, also hopes customers will see its prices as relatively affordable, even as they grow. because the price increases are relatively moderate. “We will continue to look for below-inflation pricing opportunities,” Chief Financial Officer Rajesh Vennam said on a recent call with analysts. Darden executives mentioned that Olive Garden is always less expensive than other full-service restaurants. Inviting customers to compare prices with the competition is a good strategy for larger companies that can keep prices low. But it can also inspire customers to shake things up. And they should – now is a good time to look around and make sure your go-to spot is still a bargain. All is relative. Chipotle raised its prices by about 10% last year. But, CEO Brian Niccol said on a call with analysts in February, Chipotle’s food is a bargain even with higher prices. “The chicken burrito, in most parts of the country, is still under $8,” he said. “That’s phenomenal value.” Consumers may well accept this argument. If a product “was 99 cents when everything else was $2, and now it’s $1.99, when everything else is $4 – the same relative price is true,” said Mark Bergen, James D. Watkins Chair in Marketing at the Carlson School of Management at the University of Minnesota. Before the pandemic, consumers might have had places to find the best deal. But a lot has changed since then – and not all in the same way. “Different companies have different pressures and cost structures,” Bergen said. “It may turn out that Chipotle was the good deal before. But there’s another company that’s a much better deal because of their supply chain or the way they do business.” Bergen pointed out that while prices go up, not all items are affected. in the same way. “Inflation is not a monolith,” he said. A look at the consumer price index, a key measure of inflation, offers a good example of how prices fluctuate even within a category. seasonal adjustments. But some categories have seen smaller bumps, and others bigger ones. The price of cheese, for example, increased by about 2%. Bacon, on the other hand, was up almost 19%. So while all companies face higher prices, not all are necessarily facing the same pressures. Consumers can forgive price increases during inflation. But we also pay attention to that list price, Bergen noted. “As consumers, we tend to know absolute prices,” he said. “I think there will be a pushback.”

Video above: consumer packs are getting smaller but prices stay the same

Restaurants are raising menu prices as wages rise and inflation hits ingredients and packaging. But they still want customers to feel like they’re getting a good deal.

It’s a tricky proposition, especially for fast food, fast casual and casual dining — places where low prices are part of the attractiveness.

Take, for example, Applebee’s and IHOP, owned by Dine Brands.

“Both of our brands are value brands, and that’s especially important right now,” Dine Brands CEO John Peyton said on a call with analysts in March.

This means that franchisees walk “a tightrope…maintaining value for our customers while protecting their margins.” IHOP and Applebee franchisees raised prices between 3% and 4% last year. Usually, these prices increase between one and three percent per year.

So how do you raise prices while still convincing customers that your food is cheap?

Restaurants hope customers consider more than absolute price when deciding where to eat. They might, for example, consider the ambiance of the restaurant or how much food they get for their money. And they might swallow higher prices at one of their favorite restaurants because those prices are always lower than a competitor.

As the situation evolves, customers may want to do some comparison shopping to make sure they’re not paying too much.

Price versus value

Brands are hoping that as prices rise, consumers will do their own math – and find that all things considered, prices are still pretty good.

At Applebee, “the value equation…is much more than price,” Applebee President John Cywinski told CNN Business in a recent interview. “It’s the food, it’s the experience, the packaging [if you get something to-go]” he said. “You can get, for a very good price, the Applebee experience.”

Some places, like Domino’s, take a more surgical approach, raising the prices of some items while keeping others low.

On March 14, Domino’s raised the price of its classic “mix and match” offer by a dollar, from $5.99 to $6.99 – but only on packing slips. For deferral, the offer is still priced at $5.99.

“We believe $6.99 is still a great relative value for our delivery customers, offering variety, great taste and a competitive price,” outgoing CEO Ritch Allison said on a call with analysts in March.

Maintaining the $5.99 price for takeout serves a dual purpose: giving customers the cheaper option they’re used to and encouraging them to pick up food rather than have it delivered. Carryout is a more profitable option for restaurants.

Darden Restaurants, which owns Olive Garden, Cheddar’s Scratch Kitchen and other restaurants, also hopes customers will see its prices as relatively affordable, even as they grow, as price increases are relatively moderate.

“We will continue to look for below-inflation pricing opportunities,” Chief Financial Officer Rajesh Vennam said on a recent call with analysts. Darden executives mentioned that Olive Garden is always less expensive than other full-service restaurants.

Inviting customers to compare prices with the competition is a good strategy for larger companies that can keep prices low.

But it can also inspire customers to shake things up. And they should – it’s a good time to look around and make sure your place of negotiation is still a good deal.

All is relative

Chipotle raised its prices by about 10% last year. But, CEO Brian Niccol said on a call with analysts in February, Chipotle’s food is a bargain even with higher prices. “The chicken burrito, in most parts of the country, is still under $8,” he said. “That’s phenomenal value.”

Consumers may well accept this argument.

If a product “was 99 cents when everything else was $2, and now it’s $1.99, when everything else is $4 – the same relative price is true,” said Mark Bergen, incumbent James D. Watkins Professorship in Marketing at the Carlson Branch of the University of Minnesota. school.

Before the pandemic, consumers may have had places to go for the best deal. But a lot has changed since then, and not all in the same way.

“Different companies have different pressures and cost structures,” Bergen said. “It may turn out that Chipotle was the good deal before. But [now] there’s another company that’s doing a much better deal because of their supply chain or their way of doing business. »

Bergen pointed out that while prices go up, not all items are affected equally.

“Inflation is not a monolith,” he said. A look at the consumer price index, a key measure of inflation, offers a good example of how prices fluctuate even within a category.

Overall, food at home became around 8% more expensive in the 12 months to February, without seasonal adjustments. But some categories saw smaller bumps and some bigger ones.

The price of cheese, for example, increased by about 2%. Bacon, on the other hand, was up almost 19%. So while all companies face higher prices, not all are necessarily facing the same pressures.

Consumers can forgive price increases during inflation. But we also pay attention to that sticker price, Bergen noted.

“As consumers, we tend to know absolute prices,” he said. “I think there will be a pushback.”

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