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Two well known organizations, Ticketmaster and the St. Louis Cardinals baseball team, have gone to dynamic pricing to stem declining sales. Is this an effective strategy or yet another form of denial? Read more
I was just introduced as a pricing guy to an airline consultant when he said “Our dynamic pricing model is working very well.” What is dynamic pricing?
It’s constantly changing pricing that factors in limited seating capacity, the number of reservations made, time to departure, typical number of cancellations and other factors that influence how full the plane is upon departure. The goal is to fill the planes so that revenue is maximized on each flight. (For restaurants the calculation is called RevPASH, or Revenue Per Available Seating Hour. For Hotels it’s RevPAR, or Revenue Per Available Room.) While thismight seem like a worthy goal, here are some overlooked realities associated with this strategy.
In their white paper, Dynamic Pricing in the Airline Industry http://tinyurl.com/38x95kq, R. Preston McAfee and Vera te Velde of the California Institute of Technology cite one estimate that American Airlines “changes half a million prices per day.” Even if that number is off by a factor of 10, that’s 50,000 prices changes a day. Let’s take a look at what that means for us as consumers.
First, it makes our lives more difficult. We can’t simply go out to our favorite airline’s website, purchase a ticket and feel comfortable that we’ve gotten a fair deal. Instead we’ve got to go to multiple sites, discover what the best price is, jockey our schedules accordingly and hope that, once we hit the reservation button, we’re not going to find a better price later.
Second, the price to which we agreed isn’t necessarily the full price. There are a myriad of other fees that may be added later as we are asked to pay for extra bags and other services we might desire. None of this is clear at the time we purchase the tickets.
Third, it places the company’s interests ahead of its customers’ interests. Any time that a company, in any industry, places its needs above those of its customers it encourages buyers to seek alternatives. Indeed, how many of you have made a conscious decision to drive instead of fly to another city if it was less than 5 hours away?
That decision was based on several factors:
Is it any wonder that the flying public is so vocal about its displeasure with the airline industry? Let’s contrast that with a pricing strategy that simplifies rather than complicates flyers lives.
What if the airlines establish a price that factors, as most businesses do, their limited capacity? In essence they’re pricing so that on any given flight they can make money if the airplane is 80% full at departure. The price factors in the length of travel, the destination and how much luggage a passenger typically takes on this flight as well as other services (pillows, blankets, meals, internet access) that they typically use during these flights.
The airlines could still offer different levels of comfort and service in the form of first class, business class and coach. Their pricing would reflect the service and comfort provided. The flyers to whom these are important will pay the premiums to get these services.
Wouldn’t that make your life a lot easier and the experience of airline travel a lot more pleasant? Then why don’t more airlines adopt this policy?
My guess is that they’re afraid that if they raise prices they’ll lose business to their ‘competitors.’ They’re also afraid that people will opt to drive rather than fly.
Yet the reality is that these fears are being realized every day. Flyers who are searching for the best deal, at the the airlines’ behest, are going with the airline with the lowest price which means that every other airline lost that customer’s business. If you’re going to lose business anyway, why not get higher prices and margins on the business you retain.
People are already choosing to drive rather than fly because the airlines make using their services so difficult and so uncertain. Why not pull these potential buyers back into the fold through more customer centric pricing strategies?
It’s apparently more counter-intuitive than I’d have imagined, but focusing on your needs instead of your customers’ desires is not the way to win and retain loyal customers. Create the customer experience your customers desire and they’ll reward you with higher prices and repeat business. That’s how you build solid customer relationships profitably.
Is gathering your competitors’ pricing information a worthwhile endeavor?
Conventional wisdom is that you need to know your competitors’ pricing. My question is “Why?”
The answer I get most often from business owners/leaders is that their company’s pricing has to be competitive. Then I ask “So what is a competitive price? Is it 10% more, 10% less, in line with your competitors? What does it mean to you to be competitive?” Interestingly, few have a concise answer. They simply feel that their price needs to be close to what their competitors are charging.
Lack of a clear definition of ‘competitive price’ isn’t the only problem. There are a number of flaws in the ‘conventional’ wisdom regarding the value of pricing intelligence.
First, it overlooks the fact that we tend be more critical of our offerings than our competitors’ offerings. We know where the warts are in our offerings. They’re less visible when viewing competitors’ offerings. It’s difficult to get fair compensation for the value you provide when you’re consistently discounting that value.
Second, most of your competitors’ don’t have any better idea of how to quantify value (dollars/cents) than you do which means that they, too, have defaulted to ‘industry pricing.’ How is gathering pricing ‘intelligence’ from people who don’t know any more than you do going to help you establish your prices?
Third, if you have an effective business strategy – one in which you’re providing something the market wants or needs that it isn’t getting – how is your competitors’ pricing relevant? There is no frame of reference among your competitors. You’ve got that market entirely to yourself.
Fourth, gathering competitive pricing intelligence focuses the seller’s, and ultimately the buyer’s, attention on price instead of value. It’s value that the vast majority (over 85%) of buyers want, not the lowest price. The reason why they seem so price conscious is that’s where we’ve focused their attention.
Finally, most businesses have taken on business that they shouldn’t have. Whether it’s because they needed the cash or they thought something was a good idea but it didn’t pan out, they’ve taken on business that they shouldn’t have. To get, and retain, that business they’ve discounted their prices. By using their pricing as a frame of reference you’re paying for their mistakes with your pricing. Ouch!
Getting back to the original question – “Is gathering your competitors’ pricing information a worthwhile endeavor?” I have to say ‘No!’ Indeed, I encourage my clients NOT to look at their competitor’s pricing. It helps them avoid the pitfalls outlined above. Hopefully these insights will help you as well.
The question of the moment for restaurant operators: Are the winds of healthy change truly blowing, or is it only so much hot air? Technomic’s newest study finds that nearly half of consumers want healthier menu items, but only about a quarter of them actively consider nutrition when dining out.
“There is often a disconnect between consumers’ intentions and their actions,” says Technomic EVP Darren Tristano. “Many consumers are actually making substantial changes to their overall habits, even basing which restaurants they frequent in part based on their impressions of the healthfulness of the brands. However, as many of us know from personal experience, diners do not always follow through on their intentions once it is time to order.”
The 2010 Healthy Eating Consumer Trend Report was developed by Technomic to help restaurants, manufacturers, and suppliers stay on top of consumer attitudes and trends as they relate to healthy eating. Interesting findings include:
The 2010 Healthy Eating Consumer Trend Report provides an in-depth look at how the foodservice industry can offer healthy options that still meet the needs and expectations of consumers. MenuMonitor, Technomic’s exclusive online trend tracking resource was analyzed to show how leading, emerging and independent restaurants position menu items as healthy and how this positioning has shifted in recent years. Additionally, an online survey of 1,500 consumers explores how consumer attitudes toward health shape their foodservice usage and purchasing behavior.
This report is now available on Technomic’s online Access platform, the industry’s premier consumer research application for busy foodservice professionals.
Cornell’s Center for Hospitality Research has released “The Eight-Step Approach to Controlling Food Costs,” by J. Bruce Tracey, which will help restaurant managers identify and eliminate extra food expenses. The training materials, which include a trainer’s manual, a participant’s guide, and a self-assessment workbook, are all available at no charge from the Center for Hospitality Research at www.hotelschool.cornell.edu/research/chr/pubs/tools/.
“I designed this program so that managers of all types of restaurants can use it. Each step builds on the previous one, so that the manager can gain full control of food costs,” explained Tracey, who is an associate professor of management at the Cornell School of Hotel Administration. “The key point of this program is to involve all employees in watching for waste and controlling costs. This is the most effective way to make sure that food costs don’t get out of hand.”
Using handouts and exercises, the program helps participants gain expertise in each of eight steps of food-cost control. The eight steps are: ordering, pricing, receiving, storage, issuing, production, portioning, and cash collection. Beyond that, the training program explains the critical step of how to enlist all employees in the effort to control food costs.
Exercises include how to determine the cost of each item in a recipe, how to store food properly (and identify storage issues), and how to ensure proper cash control. Once the program is complete, participants work with their supervisors to improve daily operations based on the cost-control principles that they have learned.
About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center’s 78 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.
“Usually, a cutting board will tell you when it needs to be replaced — when it begins to discolor and has too many grooves that discolor,” says John A. Krakowski, a food safety coach and trainer.
Never should raw hamburger meat meet fresh tomatoes or onions on a cutting board.
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Several food experts say raw meat should be prepared on one cutting board, while vegetables and other produce should be prepared on another. But don’t stop there. If you’re in the market for a new cutting board, you might as well buy not two but possibly four — one for cooked meat as well, and one for bread.
“The whole purpose is to cut down on cross-contamination,” says Cherie Napoleon, a chef instructor at the Institute of Technology in California and secretary of the American Culinary Federation Chefs Association.
If you’re out board-hunting, you have your choice of several styles and material options. Cutting boards are typically flat and rectangular. However, they also can be round, be raised on stands or even have rubber edges to prevent slipping.
“There are cutting boards of all descriptions out there,” Napoleon says.
The most common board materials are wood and plastic, though some are made of glass. All have their advantages and disadvantages.
If you like wood, soft types such as pine aren’t recommended. “The problem with the softer wood, especially with a cleaver, is they’ll splinter, and you don’t want that with your food,” Napoleon says. “People will go to their lumberyard and use that [lumber] as their cutting boards, and that’s not appropriate.”
Instead, look for hardwoods with a close grain, such as maple, she says. However, “when you see these beautiful mosaics of wood-laminated cutting boards, you have to be careful with them. They can come apart.”
Maintenance is key
As for the plastic cutting boards, even the thin, flexible sheets, make sure they’re designated “food grade,” says John A. Krakowski, a food safety coach and trainer.
“When I say ‘food grade,’ it isn’t recycled plastic,” he says.
While glass cutting boards may be non-absorbent, their surfaces can be slippery. “Your knife can slip off them and cause some cutting hazards,” Napoleon says.
Whether you buy wood, plastic or some other material, it’s important to keep your cutting board properly maintained. After each use, it should be cleaned with warm, soapy water, rinsed and then left to air-dry. Many plastic ones also can be placed in the dishwasher. However, “you have to make sure the sprinklers have access to the entire cutting board,” Krakowski says.
Wood boards should not be placed in dishwashers before reading the label or checking with manufacturers to see whether they can be, he says. Mineral oil also should be applied on wood cutting boards from time to time.
You also can sanitize the cutting boards after you clean them, Napoleon says. In a small spray bottle, mix a tablespoon of bleach to a couple of cups of water.
“After I wash it, I spritz and set it aside in the dish drainer,” she says. “You don’t want to put it away damp.” If you do, “you’re encouraging the growth of bacteria.”
And don’t try saving your cutting boards for years, she and Krakowski say.
“Cutting boards don’t last forever,” Krakowski says. “Usually, a cutting board will tell you when it needs to be replaced — when it begins to discolor and has too many grooves that discolor.”
When they do, chuck them and get new ones.
Garnishes are to a dinner plate what accessories are to fashion models: They set off attributes to their best advantage. But making food look nice — the “halo effect” of plate presentation — doesn’t require foam machines or truffle shavers. Here, a three-element plate gets a simple, effective makeover.
One caveat: Because we tried to show as many techniques as possible on one plate, this comes dangerously close to overdone. Learn to stop garnishing at the first moment of satisfaction — or even before.
Select the plate: Go with plain white, and keep proportion in mind: For three components, a 10-inch plate with a 1 1/2 -inch rim and a slight well gives the food a little room to breathe. The well defines the space and keeps liquids from running. The rim frames food just as margins frame words on a page.
Watch dimension: A little piling goes a long way. Towers of food that topple with the first cut of a knife have gone the way of the ’90s.
Use a kit: When having guests over for dinner, do what restaurant chefs do. Have some of the following items handy to choose from as the muse strikes, provided they make sense where you use them:
Make garnishes work: Too much color can look clownish, and everything should belong. On our makeover plate, the red pepper strips on the sugar snaps and black sesame seeds and scallions on the couscous set off the colors and enhance the foods’ flavors instead of clashing with them.
When it comes to greenery, keep in mind that parsley goes well with all savory dishes, but other herbs should be used only if they are already components in the dish. Basil would be fine on our makeover plate because it’s in the sauce, but sage leaves would be inappropriate.
Some of the most fashionable finishing touches are also the tastiest: varieties of coarse sea salts and freshly ground peppercorns.
Source: The Washington PostÂ
3.1 cups.
50% of the American population puts that down each day.*
Dang. That is a lot of coffee.
(*According to the National Coffee Association)Â
A major part of your prime cost is food cost.
Food cost can be calculated as follows:
Net food purchases ÷ Net food Sales (Net means after the change in inventory)
Costing out the menu is crucial to controlling food costs. The easiest place to begin is at the bar due to price control. From there, move on to the food.
Each category should be broken down into more useful ratios. Have the chef, sous chef, or kitchen manager cost out the menu since they deal the most with the product.
A few tips to help lower food costs are:
If food cost is a consistent problem, an operator should start taking inventory weekly. At one particular restaurant, our client requires his kitchen staff to know daily food cost.
He ignores inventory and uses purchases over sales. He even makes the kitchen track each entree sold. So if only one lobster is sold, the staff better not order lobster the next day. Any operator can take this one step further by tracking daily sales and purchases.
A dollar budget can be set based on projected demand. For example, if an operator expects to do $50,000.00 in food sales for the week, the chef should be given a budget of how much to spend. If the operator’s food cost goal is 30%, they can order $15,000.00 worth of food ($50,000 x 0.3). If the operator tracks purchases daily, he or she can let the chef know how close he is to the budget.
Food cost has a direct impact on a restaurants operating profit. Because no two operations are identical, it is necessary to calculate the food cost of your particular restaurant at least monthly – we always recommend weekly. Industry averages cannot be used as an accurate standard.
The concept of food cost must be examined at several different levels in order to take into account any and all variables. For example, one variable is your menu sales mix. When one menu item sells better than another, there will be variances in your overall food cost and you should know how this affects your profits.
Essentially, there are four aspects of food cost that must be individually calculated for each operation
The maximum allowable food cost figure determines the food cost percentage an operation needs in order to achieve its profit objectives. It is calculated from the actual operating budget of the business. To calculate the maximum allowable food cost percentage, select a representative accounting period and determine the amounts for: payroll related expenses (salaries, wages, taxes, and fringe benefit), overhead expenses (advertising, utilities, maintenance, other supplies excluding food costs)
Also include a target figure for profits before tax. Convert the dollar value for these three areas to a percentage of the total sales. Remember that food cost is not included.
Now subtract these numbers from 100 to determine the maximum allowable food cost percentage.
If you are working with following percentages of sales, payroll 27%, overhead 20%, profit 15%, then the maximum allowable food cost percentage is 37 % (100 minus 63 ).
The actual food cost percentage appears on the monthly income statement. This is the cost of the food consumed by your guests, and does not include employee meals or waste. Although the actual food cost indicates what the food cost is currently running, it has little value unless the operator knows what the target percentage should be.
Potential food cost is a theoretical or ideal percentage which indicates what the food cost should be in a perfectly run restaurant, given the sales mix. It reflects the fact that the most popular menu items will have the greatest influence on the overall food cost percentage. To calculate the food cost percentage of each dish: Multiply the food cost per item with the number of portions sold. Add both columns and then multiply the total cost by 100 and divide it by the total of the sales column. This will result in the potential food cost. If then your total cost is $ 3,000 – and your sales $ 10,000 – your potential food cost percentage will be 30.0.If the sales mix produces a potential food cost that exceeds the maximum allowable cost, profit objectives cannot be realized.
Management needs to adjust the potential food cost to include waste and spoilage that occurs during normal preparation, as well as an allowance for complimentary or discounted meals to employees and guests. An acceptable variance will range from half to three percentage points of food sales. The exact percentage is determined from management studies. The standard food cost percentage is calculated by adding this variance percentage to the potential food cost. The difference between actual food cost and standard food cost reflects inefficiencies that should have been controlled by management.
Bringing all four aspects of food cost together shows the importance of each in examining food costs
Assume that you have a maximum allowable food cost percentage of 35. The month-end food sales and inventory figures for the same period result in an actual food cost percentage of 34.0. If the food cost analysis stops at this point, one may conclude that the cost of food is in line because the actual food cost is slightly below the maximum allowable food cost percentage. However, further analysis using the weighted sales mix analysis reveals a potential food cost percentage of 29.4. The variance that exists between the actual and potential food cost percentage is 4.6 percentage points, much too high for the existing menu sales mix.
Management has set a standard food cost percentage of 2% to take into account as acceptable food waste, etc. The actual food cost percentage is still 2.6 percentage points higher than the standard food cost percentage. Thus minimum profit objectives are being exceeded, but they are not being optimized. Investigation is required and its results could improve the financial performance of the restaurant in the future.
Call us toll free at 888-9988-SHG (744) (744) for a free consultation and to begin the process of Coaching you to achieve the kind of success you envisioned when you first started your business. It costs you nothing to understand about the kind of success you want and what we can do to help get you there!
Replacing refined starches and supersizing fruits and vegetables
REPLACE REFINED STARCHES WITH WHOLE GRAINS
Americans have largely moved away from whole grains, but elsewhere, these nutritious foods remain firmly on the menu. Here, for inspiration, are how cooks in other countries and from other cultures treat these wholesome grains:
BARLEY
Stuffing for roast duck (China).
Breakfast porridge (Scandinavia).
Twice-cooked rusks: These are softened in water, topped with chopped tomato, garlic, feta and basil and drizzled with olive oil (Greece).
Scotch broth: A soup of meaty lamb bones, barley, root vegetables and cabbage (Scotland).
Crispbread: Griddle-cooked flatbread made with barley flour and whole-wheat flour (Norway).
BUCKWHEAT
Blini for caviar or smoked fish (Russia).
Kasha: Buckwheat groats, typically toasted with egg, then cooked in water or stock (Eastern Europe).
Kasha varnishkes: Buckwheat groats with egg noodles (Eastern Europe).
CORN
Tortillas (Mexico).
Buttermilk cornbread (Southern U.S.).
Garlic cheddar grits (Southern U.S.).
Cornmeal-blueberry pancakes (Southern U.S.).
OATS
Muesli: Breakfast cereal with rolled oats, dried fruit and nuts (Swiss).
Oatcakes: Scone-like baking-powder breads (Scotland).
Buttermilk oat bread: Baking-soda bread made with oats soaked in buttermilk (Ireland).
WHEAT
Farro and borlotti bean soup (Italy).
Farrotto: Risotto made with farro and sometimes mushrooms (Italy).
Tabbouleh: Chopped parsley and bulgur salad with tomato, mint and lemon (Lebanon, Syria, Israel).
Bulgur pilaf with chickpeas (Turkey).
Bulgur and lentil soup (Turkey).
Green bean and bulgur pilaf (Turkey).
Bulgur and chickpea salad (Lebanon).
Greek soup of wheat berries, dried beans, lentils and rice (Crete).
Kibbeh: Ground lamb meatballs with bulgur (Middle East).
SUPERSIZED FRUITS AND VEGETABLES
Why should only burgers, fries and sodas be supersized? Consider revising at least some of your plate concepts to bring the vegetables center stage. Here are some tips to keep in mind as you look for ways to showcase produce:
•Reposition vegetables as the feature, not the afterthought. Offer daily special sides, just as you have daily special entrees. “Today we’re featuring fresh Blue Lake beans. Would you like a bowl for the table?â€
•Develop complete plates that take the emphasis off animal protein. Other cultures and cuisines offer good models. Take a look at the Indian thali, a meal on a rimmed silver tray. There is no main course on a thali; the components—meat, legumes, vegetables, yogurt salad, rice and/or bread, pickles, relishes, sweets—have roughly equal weight. Indian flavors may not be appropriate to your operation, but you can borrow the idea of the thali in rethinking plate balance.
•Talk to your suppliers about fresh pre-cut product. Demand that they respond to your needs.
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BRING ON THE NUTS
Tree nuts are an excellent source of monounsaturated fatty acids. Pounded nuts are the foundation of many sauces in many cultures.
FROM SPAIN
Romesco: A thick pounded sauce of dried chiles, pimiento, almonds and/or hazelnuts, garlic, extra virgin olive oil and wine vinegar. Serve with: Seafood. Pepitoria: A thick sauce of ground almonds, fried garlic, bread, spices and hard-cooked egg. Serve with: chicken, rabbit, meatballs. Picada: A mixture of nuts, bread, saffron, garlic, parsley and spices. Serve with: meatballs, chicken, fish, shrimp, squid. FROM GREECE
Skordalia: A mortar-pounded sauce of stale bread, almonds or walnuts, garlic, extra virgin olive oil, and lemon juice or wine vinegar. Some versions include yogurt. Serve with: Seafood or chicken; cooked beets; grilled vegetables. FROM TURKEY
Tarator: A sauce of pounded almonds, walnuts or hazelnuts, with bread, garlic, water, lemon juice and extra virgin olive oil. Serve with: Seafood or vegetables. FROM MEXICO
Mole: Many mistakenly think that chocolate is this sauce’s signature taste. In fact, many Mexican moles contain no chocolate, but they almost always contain toasted and ground nuts or seeds.
BEVERAGE ALTERNATIVES TO SODA
Reduce refined sugars without sacrificing taste.
•Make it fun with fruit garnishes, straws and eye-catching glassware.
•Explore Mexico’s aguas frescas, lightly sweetened blends of fresh fruit and water.
•Offer an iced mint or peach tea with sprigs of fresh mint. Try lemon grass, mint or chamomile tisane.
•Low-fat yogurt drinks and smoothies offer lots of creative potential. Frozen fruit whipped with buttermilk makes a low-fat, high-fiber beverage with eye appeal.
•Use club soda as a base for refreshing spritzers.
•Buy a vegetable juicer and develop a signature cocktail.
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