Customer Erosion: Why It Happens & How to Fix It
This is the first in a three-part series on customer erosion and how to get your customers back.
Have you ever asked yourself: "Where have all my customers gone?"
There isn't a restaurant owner in the country who has not noticed a drop in customers and revenue at some point in their career. And while economic times are often the cause of a decrease in customers, customer erosion is a completely different problem. Successful owners know how to tell the difference, spot the loss quickly, and turn the dining room around to the packed room it once was.
A common problem I have noticed during the past year is what I will call "sticker shock." It is a major cause of customer erosion. Each of us has inflicted sticker shock on customers at one time or another. And the inevitable outcome is always certain death, although prolonged, for the restaurateurs who do not catch price creep in time.
It begins simply enough. The electric bill arrives, and it is a few hundred dollars higher than the month before. The pasta entree -- the most reasonable offering on the menu -- gets bumped up a buck. Payroll shot through the roof because the recently fired manager was not cutting staff on slow nights. The nightly special suddenly is priced at $21.00 rather than the traditional $18.50. And of course, the perception of the beautiful Halibut Steak can certainly still be enticing, even at $25.00.
Yes, we have all done it, and most of us have managed to erode our clientele while doing it. Because erosion happens slowly we seldom notice the nightly decrease in customers, the lack of dining room din, and the decrease in sales. Suddenly, we suffer from reverse sticker shock -- we become shocked at an empty dining room.
I was a victim of sticker shock the other evening. I had heard favorable things about a new, casual eatery, Jackson's Bar and Oven, and thought I would give it a try on an early Thursday evening. Since the overflow crowd signaled a table was impossible to get I went to Jackson's other restaurant, just down the block.
Kranston and I sat at the counter, overlooking the kitchen. When the menu was presented Kranston grabbed my knee as though we were on a turbulent airline ride. I glanced down at the menu and just under the cheap entrees -- $22.00 - $29.00 -- the Short Ribs stood tall at $34.50.
I might have left, but the arrogance of someone charging such a ridiculous price for one short rib in a neighborhood Santa Rosa restaurant intrigued me to the point that I had to order it. Add the fact that he restaurant looked worn, outdated, and in need of a remodel, and it piqued my interest even more.
The chef, working in the open kitchen directly in front of us, was nice enough. He filled us in on the entire story of how he had taken over the kitchen a year ago and changed the menu. When he asked if we had ever been in before, I explained that we had not. He quickly informed me that the restaurant was closing because business had been slow, and it was time for a remodel -- and a menu change. He said the restaurant was changing to a strictly small-plate menu in an attempt to lower menu prices and that the new place was going to be cleaned up and painted in a few weeks.
When I asked him if he thought business was slow because of a resistance to the menu prices he said he definitely thought people were looking for less expensive entrees.
If that's the case, why did a $34.50 entree ever show up on a newly-printed menu while the chef was in charge of the menu? A professional chef, and owner, can read their customers and dining room and resolve an erosion problem quickly -- if they are paying attention.
Entree price escalation -- the cause of sticker shock -- is difficult to shake once it begins and word spreads about high prices. It rises to epidemic proportions so rapidly that owners seldom realize what has occurred until it is too late.
A good rule to follow in menu pricing is to adhere to a strict business plan and budget, and regularly analyze food costs. Owners need to get involved in their kitchens even if they can't cook. The other, simpler way to research whether a menu is priced fairly, is to ask yourself and your servers if they would pay a certain price for an entree.
Often when business gets bad owners raise their prices when, in fact, they should be cutting their prices to increase business.
Tomorrow: Are you in the rut of raising prices while nightly covers fall?
