New York, USA (CNN) — Restaurants are raising menu prices as wages grow and inflation affects ingredients and packaging, but they still want customers to feel like they’re getting a good deal.
This is a tricky proposition, especially for fast food restaurants – places where low prices are a key part.
Take, for example, Applebee’s and IHOP owned by Dine Brands.
“Both of our brands are valuable brands, and this is especially important right now,” John Peyton, CEO of Dine Brands, said during a call with an analyst in March.
This means that franchisees are walking “a tightrope… preserving value for our customers as well as protecting their margins.” IHOP and Applebee raised prices between three and four percent last year. Typically, these prices rise somewhere between one and three percent per year.
So how do you raise prices and convince customers at the same time that your food is cheap?
Restaurants hope that customers will consider more than absolute price when deciding where to eat. They might think, for example, regarding the ambiance of a restaurant, or the amount of food they get for the money. They may accept higher prices at one of their favorite restaurants because these prices are still lower than those of competitors.
As the situation develops, customers may want to make a comparison to try to make sure they aren’t paying too much.
Price for value
Brands hope that as prices go up, consumers will make their own calculations – and discover that following all things considered, prices are still good.
At Applebee’s, “The value equation … is so much more than price,” the company’s president told CNN Business. Some places, like Domino’s, are taking a different approach, raising prices on some items while keeping others low.
Darden Restaurants, which owns Olive Garden, Cheddar’s Scratch Kitchen and other restaurants, hopes customers will see their prices relatively reasonable, even as they grow, because the price increases are relatively small.
Inviting customers to compare prices is a good strategy for big companies that can keep prices low.
But that may also prompt customers to turn things around. It’s a good time to look around and make sure that the deal you’re going to get is actually still a bargain.
