Comment: Don't price yourself out of customers
Columnist Willi Elsener says hotels simply aren't keeping up with the standalones in the price game
The lead up to Dubai’s Expo 2020 paves the way for an increasingly cut-throat environment for F&B in hotels as well as stand-alone restaurants. The reason for this is an ever-expanding list of new hotel restaurants, stand-alone outlets and celebrity chef events. Time Out Dubai has 2850 restaurant listings for Dubai alone, for example.
Dubai residents and visitors are spoiled for choice with a vast selection of excellent restaurants that suit every pocket size. Competition has a direct impact on rising promotional activity with each operator fighting to attract a bigger slice of the cake.
They are flooding the market with discounts for residents, airline crew concessions, extra-early and extra-late happy hours, lady’s nights, 2-for-1 offers, loyalty card privileges and more. There is therefore a need to seek out a more varied and imaginative F&B strategy to retain existing customers and attract new business — particularly for hotel restaurants.
I have dined in some five-star establishments in Dubai, where I’ve had a two course meal and a low-quality glass of wine, and have felt like I was taken for a ride as a result of the price.
Just for how long is this practice sustainable in such a competitive environment? Value for money is what a customer of today is looking for. Relying on their liquor licence is no longer enough for hotels, with areas like DIFC and Pier 7 emerging hubs where stand-alone restaurants can, and do, offer alcohol.
Today we need to respond to a different dining behaviour and to a variety of market requirements. In order to attract multiple market segments, including that of the next generation, we must provide a balance of exciting dining experiences at different price brackets.
I have completed many market studies in different countries and several for many of my Dubai-based clients.
These have consisted of online questionnaires and live interviews with residents and visitors alike.
One of the questions asked was “When you dine out at a restaurant what is important in your decision-making process?”
In order of the highest vote, the first priorities were taste and quality of food, followed by good service, then venue, and lastly, pricing. Half of the answers related to pricing and value for money.
Effective menu pricing is a skill, and must take into account selling price, ranking, contribution margins/ gross profit for each item on the menu, as well as sales mix.
Customers who live in Dubai know the cost of wine in our shops, for example, so when hotels focus on cost percentages or working with contribution margin only, they come up against challenges.
A middle ground is recommended and the cost/margin analysis uses item food and beverage cost percentage and weighted AED contribution margin to develop a sales mix that will both minimise the overall food cost percentage and optimise sales revenue and gross profit return.
Using this approach, re-evaluate your pricing strategies and methodologies and use the right software to maximise profits.
Above all, you should offer your customers a choice. They will appreciate being in control of their spending and will never feel they are being taken for a ride as I did.
A happy customer equals a return customer and this is where your true profits are. Thus far, just a few companies have had the prudence to make a brave move towards a change.
They are keeping abreast of the market demands and in the process they are remaining competitive and staying busy with their bank accounts rising.
They are establishing different dining experiences at different levels based on new market demands and different dining behaviours. They are accommodating and grooming the next generation of customers. Are you?
About the Author:
Willi Elsener managing director of Bespoke Concepts spent more than 40 years in various sectors of the hospitality industry around the globe. He specialises in food and beverage development, peer review and recommendations, among other services.