The Brand Landscape

I recently had a columnist interview me about value. Her assumptions were purely financial…getting value by avoiding high mark-up menu items that are low-cost to the restaurant. Frankly, I don’t buy that paradigm. I think that value is in the eye of the beholder.
By that I mean, a simplistic view of menu item prices would be to look at the “cost of goods–food cost as a percentage”…the higher the percentage, the better the value to the consumers. Her example of pasta and eggs (which have a low % food cost) compared to steaks (which typically have higher food cost as a %) would reflect this definition of value. But the truth of the matter is that because steaks have a higher price point than eggs or pastas, customers are paying more gross margin dollars–for a steak than for a pasta dish. So for a smaller total ticket, the steak customer and the pasta customer get the same amount of service and atmosphere, so the pasta purchaser actually gets a better value on the “experience” than the steak customer.
• A steak costing $25 with a food cost percent of 40% has gross margin of $15 versus
• A pasta primavera costing $15 with a food cost percentage of 25% produces a gross margin of $11.25
• ($15 for the experience versus $11.25 for the experience)
The other difference between a steak and a pasta primavera is the labor involved in producing it and the ability of consumers to make it for themselves (given all the ingredients they would have to buy and steps involved in the prep).
• With a steak, a cook would throw it on the grill
• With a pasta dish, there are sauces to prepare and vegetables to chop and more labor intensive work that most people won’t and can’t do for themselves–that’s why they value it.
So, my point is, guests have a more holistic sense of the value of a menu item versus the simplistic calculation of the food cost percentage. The true meaning of VALUE is what’s valuable to them, and they wouldn’t buy it if it didn’t represent a value. That’s why most restaurants try to find a price that covers their costs (labor and food) and represents a good value to their customer because they know if it is not appropriately priced, it won’t sell.
The interviewer asked me, “What tips do you have for diners to choose high-value items when navigating the menu?” My response to her was, ‘If their definition of value is the highest % food cost, then the steaks are the best choice. If they are looking at it as something they wouldn’t be able to make for themselves for that (or any) amount, they should look for signature preparations and proprietary sauces because they couldn’t get those at any cost. Oversized portions are also perceived as a good value because the leftovers can be taken home and would supply an additional meal.
She also asked, “Would you say that opting for 2 or 3 appetizers instead of say, the $30 seafood or steak entree represents a better value meal for the diner?”
I basically told her, it depends on your definition of value. Some customers (young men in particular) gauge value based on how full they are after they have eaten, so fatty items produce that feeling of fullness at a reasonable price. Bone-in chicken also produces that sense of value because it looks like such a big portion.
Finally, she asked, “Can you suggest 2/3 specific dishes that are commonly found on restaurant menus that offer value for the consumer?
• If you use the “it-looks-really-big-for-the-money”definition, a roasted chicken or t-bone steak are good choices.
• If you use the “it-fills-me-up” definition, something cheesy and high carb like lasagna or enchiladas are a good choice.
• If you use the “I-wouldn’t-or-couldn’t-make-this-myself” definition, pick something with a lot of unique ingredients or hard to do prep work like a signature pasta dish or a burger with elaborate toppings or a signature salad with lots of fresh ingredients and a proprietary dressing would be good choices.
• If you use the “How-much-did-it-cost-them-compared-to-the-price” definition, go for the steak!
Especially in the current economic environment, offering great value in any and all of these ways is the cost of doing business.
Until next time, I’d love to hear your thoughts.