Wednesday, July 2, 2008

Restaurant Pricing

Did you ever notice that when you go to a restaurant the bill is roughly constant? My wife and I tend to go to moderate family restaurants, and the bill is almost always about $20.00 for the two of us before tax and tip. Restaurants of all types design their menus around the amount of money they wish to receive from each customer. In a typical family restaurant where we live, you can purchase an egg/pancake dish for $7.95, a sandwich plate for $7.95, or a dinner special for $7.95. To be sure, you can shave the price slightly by ordering only one egg or get a better dinner for a few dollars more. In addition, the pricing is biased by whether you order drinks, side dishes, or desserts, which are higher profit items.

Restaurants today are businesses which happen to serve food as their product, rather than hospitality centers where the main goal is to impress the guest with the quality of the food and service. The primary approach is to attract and process through as many customers as possible at a certain average dollar value per customer. This is usually done by compressing the range of prices on the menu as discussed above and by streamlining the process in order to get as many customers as possible through in a given period of time. The latter approach is the fast food philosophy.

It will be interesting to see whether the restaurant business starts to introduce some cost-reduction innovations now that gasoline prices are getting higher every day. The easiest way to compensate for the higher cost of gasoline is to eat at home, saving both the costs of driving and of the restaurant. Some restaurants are now packaging menu items as frozen entrees that you can purchase at the supermarket and eat at home. Is this the best of both worlds?

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