I was in the Northern Boot of Idaho on a Steel-head fishing trip and found myself in the towns only bar. It was defiantly a throw back in time complete with a smoke filled bar area and karaoke blaring away on a big screen that appeared to be one of the first ever built. It was late and my group was hungry when the special posted above the bar caught my eye. "Anglers Special:Whole Chicken and Beer $5". I couldn't pass that up so I ordered up. About a minute passed when my server returned with a bottle of Coors Light and one hard boiled egg and with a grin giggled "That'll be $5 bucks....enjoy!" The locals were enjoying the moment tremendously and I must admit I thought it was pretty great myself.
The restaurant guy in me also thought what a great marketing scheme.
In the restaurant/bar business real world it more often than not leads to not so humorous consequences.
The good old "Loss Leader" these days can turn into just a Loss pretty easily with a few other unintended consequences. Lets look at how savvy customers work around the leader these days. Example: "1/2 Off Dinner Tonight at Bella Viva Italian Bistro". The owner is thinking that the deal will fill the place and the customers are sure to buy that great bottle of wine where the profit will live. The COG on the one plate is 30% which I will receive the full price for, they will surely spring for a full price app as well. I'll only be giving away 30% on the free plate so my investment into getting the customers to purchase the others will only equate to $4.50 (Entree is $15). This will be great!
2 for 1 (1/2 off) $15
Bottle of wine $32
Bill for two $56
Entree $ 9 (60%)
App $1.80 (20%)
Bottle of Wine $9.50 (29%)
Gross Profit: $35.70 (63%)
Sounds like a great way to promote and get those new faces that will surely be back at full price right?
Now here come the deal seekers and they are savvy, "We'll have the Chicken Alfredo and water with lemon and can we get some more bread and olive oil". Your COG just went above 60% which is UN-survivable. The next night someone else has "The Deal" and round it goes. Your special should be your product and the environment and manner in which it is presented. The restaurant business runs on very tight margins, choose your path wisely. Another unintended consequence is reinforcing the average customers belief that you make a killing at full price and by cutting the price by 50% just goes to show that....I mean, Look at your place....it's packed, you must be making a fortune!
There is a formula, it is necessary for success just as a good location and revenue stream are. Follow it and compete with a better quality product and your chances of an enjoyable and profitable endeavor increase dramatically. If your revenue stream is dependent on giving it away change your approach.
If your going to work for free find a good charitable organization and make the world a better place! This is a business, run it like one and it will reward you in the greatest of ways, mismanage it and you will work the longest of days everyday just trying to survive.
There is a difference at The Restaurant Farm, your not a commission, your a restaurant person and I speak restaurant. If your considering selling or buying I hope you'll place a call and lets have a discussion about YOUR goals and what will work for YOUR unique situation. If your restaurant/bar is struggling, let InLine Restaurant Consultants help. "Long Live Small Independent Business in America"