The new “Hunger Games” movie is a pillow fight compared with the no-limits struggle that’s erupting in the restaurant business. The casualties already include sense and smarts, with profits slipping into I’ve-fallen-and-I-can’t-get-up territory. You’d think operators would have learned from past hangovers, but deep discounting is once again being seized as a short-term cure-all rather than the nuclear option it should be.
Consider the e-mail that Ruby Tuesday recently sent to current and prospective customers. It touts a new menu item, Southern Style Chicken Tenders, served as a platter with ribs. Remember, this is Ruby Tuesday, one of the more polished players in the grill-and-bar market. Yet its remedy for softening traffic is a lure that comes right out of fast food.
The new option does sound like something of higher quality than what you might get at Raising Cane’s, PDQ or Zaxby’s. The tenders are “hand-breaded,” and there is the rib accompaniment.
So why is the item being introduced at a double-digit discount? Customers who buy an order can get a second platter for half price.
Certainly the chain isn’t alone in resorting to wheeling and dealing. At Olive Garden, you can buy an entrée for $12.99 and get a second one to take home at no extra charge. The choices include Smoked Mozzarella Chicken.
Darden Restaurants’ Italian entrant is known for choices like a mega-bowl of salad and more pasta than even my family could eat, cousins included. Is value really more of an issue for the concept than quality?
Contrast that approach with what Romano’s Macaroni Grill is spotlighting, a four-course tasting menu. Executives of the chain’s parent, Ignite Restaurant Group, say units are selling an average of the 25 priced specials on a daily basis.
Casual dining isn’t the only sector that’s pulling a Monty Hall.
Burger King is offering more local deals right now than you’d find on Craigslist.
McDonald’s is trying to shift bargain hunters away from choices priced at just a dollar. As management explained a few weeks ago, it’s betting consumers can be nudged to try items priced between a buck and $2. But that’s still a bargain, just not as stunning a one as the original Dollar Menu choices.
And McDonald’s isn’t getting rid of the dollar items, as CEO Don Thompson stressed in a call with analysts. That’s why the chain uses the name Dollar Menu and More for its revised roster, instead of the name it previously tried, the Extra Value Menu. “The Dollar Menu remains core to our high-low strategy,” Thompson said.
To its credit, McDonald’s is hoping to change a law of physics that says discounting is a one-way journey. If consumers pay 99 cents one week for sandwiches of a certain type, why are they going to pop for a 50 percent increase one week later? Did McDonald’s bet wrongly?
Let’s hope not. Bargain pricing can quickly lapse into a vicious cycle, where the only way to generate interest is to take the price down again. Everyone drops their charges, things even up again, and the distinction of a deal is lost. So prices are hammered down again. So are margins.
The retailing sector looks as if it’s even closer to triggering a price war. Walmart has changed the market with its everyday low prices. The Washington Post reported in a tweet last week that the discount leader is about to introduce an “extreme-value basic brand” called Price First. The line includes staples like spaghetti, brownie mix and noodles, priced at 82 cents, $1.25 and 97 cents, respectively.
Let’s hope the restaurant business doesn’t fall for the same sort of thinking, a strategy that brought 49 cent tacos and burgers in past decades. It should keep in mind that the standout chain restaurants in the current market are the ones that succeed in making quality the hallmark of value—Wendy’s, Starbucks, Chipotle. If you give something better for a slightly higher price, you can win.
It’s something the industry should remember, for sure.
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