The question of whether it’s a good idea to raise prices or not comes up often, especially during times when sales decline, costs rise, and profits fall. For most markets across the country this is one of those times.
Yesterday I received the following comment from a member and decided I would share my response with all of you:
Dear Coach Morse,
My market recently sent out new pricing recommended by the local FAF board. They want everyone to raise prices on sandwiches in tier 2 and 3. Should I go along with them or keep my prices where they are now (at company recommended price)?
Thanks for your help,
Jimbo
Thanks for your question Jimbo. There are times when raising prices make good business sense, for instance when supply is low and demand is high, or when higher commodity prices drive up unit cost, or when minimum wage hikes occur. However, in most markets I don’t believe these situations apply at present.
Instead I think what we are seeing is the effects, the recession is having on the consumer, hitting us head on. As our customers have less money to spend they are visiting less, and when they do come in, customers are looking for the value proposition, gravitating toward specials, lower cost items, or buying fewer items. What this means for us as owners is a difficult time holding onto last year’s sales volume and the possibility of elevated costs. As sales decline and costs rise, the desire to raise prices is a normal response that many business owners experience, but acting on that desire could be a costly mistake for those of us in the QSR industry.
In my view, Jimbo, you should keep your prices where they are, at the company recommended level as you have indicated, and here’s why:
- With the unemployment rate above 10% there is an over supply of products and a shortage buyers. Our competitors are lowering prices, offering deals, promoting value menus and the like. In this environment, raising prices will help our competitors recruit our customers away from us.
- Higher prices on tiers 2 and 3 will encourage more customers to buy from tier 1 which will reduce the the sales and increase the food cost even further.
- A lot of research goes into determining company recommended prices. Markets that deviate from these prices threaten to disrupt pricing consistency from market to market throughout the country, which has a negative impact on the chain as a whole.
- You risk damaging your reputation among customers who might view your price hikes as gouging them at a time when they need a price break the most. This would not only hurt your sales, but could bring down sales throughout your entire market as well.
This winter will be a challenging one for all of us. I encourage you to focus on providing great customer service and adhering to sound business practices as the way to come through it successfully. No doubt HQ is researching prices and will come out with new recommendations soon. I would wait to make price adjustments at that time.
If anyone else has questions or comments on this or any other issue, please feel free to comment here or send me a message using the form on the contact page.
Here’s to your success!
Coach Morse
