When it comes to pricing, it’s the “topic on every restaurant, every company, and every CEO’s mind,” said Dylan Bolden, managing director and senior partner at Boston Consulting Group.
Moderated by Alan Hickok of Boston Consulting Group, Bolden, joined by colleague Mary Martin, addressed the crowd in a panel discussion on next-generation pricing and personalization at this year’s annual Restaurant Finance and Development Conference in Las Vegas.
The forecast for 2023 is a “really unprecedented environment with a lot of mixed signals,” said Bolden. He said to expect high inflation to persist but to note that despite consumers’ worry about an impending recession, they continue to spend.
“We’ve done some research about what the consumer is thinking as they go into 2023, and it’s that they plan to spend more on food, utilities, experiences, travel and events,” said Bolden.
However, if you’re a brand that is exposed to lower-income consumers, Bolden said to expect a “significant decline in traffic” as disposable income for bottom percentile earners has decreased in the double digits.
Bolden referenced moves seen by value space leaders in this era. Taco Bell has gone from 20 items on the value menu to about six, McDonald’s raised its prices by 10 percent and dropped the $1 soda, and Domino’s, which has been at a $5.99 opening price point for almost 13 years, has gone up to $6.99.
In addition, from September 2021 to 2022, menu prices have gone up 7 to 9 percent nationwide. Still, the average check has gone up by only 3.4 percent-—as customers dial back on quantity or trade down within the menu.
Mary Martin, partner and managing director at the Boston Consulting Group, gave insight on navigating the current pricing landscape and categorized strategies into three levels, traditional, revenue management and next generational.
Traditional covered the basics, optimizing bundles, add-on structures and selective price increases. Martin suggested adding premium pricing for items the brand is exclusively known for.
“Think about consumer willingness to pay,” said Martin. “Items customers associate with the brand and are willing to pay more because it’s the only place they can get it,” she said.
For revenue management, Martin discussed channel pricing, an avenue she said is becoming increasingly common.
“Think Domino’s, a lot of their value offers are online only,” said Martin, “Brands like Chipotle have a significant price delta between ordering online via their app versus third-party services.”
Martin also referenced McDonald’s dynamic yielding strategy, which used daypart technology to look at characteristics like the weather in determining specific daily prices.
Levels Martin categorized as next generational included switching from mass CRM to true, one-to-one personalized ordering. The strategy included intelligent up-sale and recommendations based on customers’ previous orders or what is in their cart.
“When brands switch to personalization, they typically see a 5 to 10 percent revenue lift per member,” said Martin.
Martin also discussed hyper-localized promotions opposed to company-wide mass promotions, as ways to extract additional growth.
“Obviously, these require a more advanced digital infrastructure,” Martin said, but it represents kind of the next step for brands that may not have any room left in some of those more traditional pricing levels.”
If applicable, Martin said it’s essential for businesses to begin investing in critical technology and building a modern ecosystem.