In a highly competitive hospitality market where every penny counts, operators must realise their true value, price accordingly – and not be afraid to go on the offensive when it comes to marketing and generating repeat trade, says restaurant guru Peter Harman
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Make people love the product, love the hospitality and make them feel important | Photo credit: Tim Mossholder
1. Raise prices
We live in a world of heavy-duty inflation, but it’s important to think about raising prices and how to do it right. Too many hospitality businesses feel they have to charge less because they don’t have the scale of major operators, like Starbucks, but that’s a horrible idea. Many restaurants and cafés make amazing food and beverages but discount because they don’t feel good enough.
Restaurants work in what I call ‘30-30-30-10’. Imagine you have $1m in sales: $300,000 goes on the cost of goods, $300,000 on labour, $300,000 on everything else and there is a 10% profit. But a 10% discount means I’m giving away my entire profit.
If you’re not sure where to price something – raise it. Charge $0.50 extra for a cup of coffee or $1 more for your specialty coffee and don’t be afraid to price those products at where they need to be to cover costs and then a little more.
Starbucks is selling cups of coffee for up to $7. There is a huge mark-up on that, but many small grocery stores charge as little as $2. If you’re building a brand, it needs to be worth 20-30% more than the commodity equivalent. Take the example of a successful brand like Nike, which comfortably charges a premium for its products even though you can buy a pair of sneakers at the supermarket for far less.
Brand gives you leverage and the goal is to build a cult following. Make people love the product, love the hospitality and make them feel important – and make sure you charge appropriately for that.
2. Keep customers coming back
It’s vital to keep the customers we have, and we do that by delivering on our customer promise. Let customers know what you’re going to do for them: We’re going to give you the best cheeseburger you ever had in your life and it’s going to cost you $5, $6 or $7. That’s our price, we can’t budge, but we keep customers coming back by delivering on our promise of great quality, service and experience.
“Eighty percent of your future sales will come from the people who you’re doing business with today”
3. Increase average customer spend
The key to increasing average customer spend is upselling, which can be challenging because most staff don’t want to be pushy with customers. The way I teach this is to imagine you’ve got an important guest coming to your restaurant and you’re picking up the tab. The goal is to get them excited about your new sourdough pizza, spring rolls, stuffed tacos and new specialty coffee. All of a sudden, you’re not a salesperson, you’re a tour guide. Remember that employees will never be more excited about the business than the owner, and customers will never be more excited about your business than the employee. If you’ve got the right staff, they’re going to impart that enthusiasm to customers, but it must come from the top.
Photo credit: Amin Ramezani
4. Get customers to join your ‘club’
The best way to do this is to start a club by making your restaurant or coffee shop an event. I like to use the old radio terms ‘P3’, ‘P2’ and ‘P1’. P3 is a person who’s never heard of your restaurant or coffee shop. P2 has visited your place before and P1 is a member of your club.
Go out on to any channel – Facebook, Instagram, TikTok or even radio, TV or a billboard – and put out the message to P3s that you have the best cheeseburgers or coffee in the world.
“Brand gives you leverage because the goal is to build a cult following”
Most marketers are afraid to offend, but I disagree with that approach because most marketing is so vanilla that it’s useless. You have to go out to the edge, take a risk and say things that are going to actually get people talking.
The goal is to have two types of marketing – the air campaign and the ground game. The air campaign should get the P3s into the business, where they convert to a P2. The goal of the ground game is the one-onone sales that happen inside the restaurant and it’s the job of your teams to convert that P2 into a P1 by getting them to join the club.
That means delivering on your customer promise and providing firstclass hospitality to make people fall in love with your brand. Remember, anyone that walks into your store is either going to love it, hate it or feel neutral. But even the one third who love what you do will likely never come back if you don’t get them into your club and you’ll lose them forever.
Give someone who’s never visited you before a free lunch, free cup of coffee, a Danish or a side. Give them something to get back in and beat a path to your door by creating a habit that’s worth their time. Giving something of value also means customers are more likely to come back with someone else.
We determined that it cost $43 to get a new customer through marketing on Facebook. But what about the customer who stumbles across your store and is given a $5 coupon? Yes, it’s going to cost a bunch of free coffees, but you can’t afford to get people in with traditional social media marketing because it costs too much to convert digital audiences into sales.
Don't be afraid to charge what your product is worth – and then a little more. Premium peaches on sale at Pike Place Market in Seattle, US | Photo credit: Zoshua Colah
5. Reject the wrong customers
Who’s the wrong customer? A wrong customer is the person who hates what we do, but they just happen to live next door and complain every time they come in. Instead, we want customers who appreciate our products and what we’re trying to do. We’re going to adapt to accommodate them because that’s what hospitality is all about, but there are certain lines we won’t cross.
The wrong customers wear out your staff. Once they’re gone, they can go across the street and wear out your competitors.
6. Bring in new customers
Eighty percent of your future sales will come from the people who you’re doing business with today. Walt Disney always said he wanted to produce movies so good that people would have to come back and see it again with their friends – that’s the goal in hospitality.
Hospitality owners are spending most of their time on marketing to attract customers, but what they really should be doing is focusing on creating an incredible experience so that people feel they have to come back.
Most operators spend 80% of their marketing effort on trying to get new customers and 20% of their effort on trying to keep the ones they have. The secret is to flip that and not worry so much about social media and marketing.
If you were on Facebook in 2009, everyone who liked your page would see an advertisement you posted. But in around 2013, they changed the algorithm so that only 10% of your followers would see the post.
There are still ways to use social media, but you have to consistently put out a high volume of quality content. People like Gary Vaynerchuk have done this very successfully without paying anything for advertising.
Peter Harman is a chef, restaurant owner, author, podcaster and restaurant growth expert with a goal to help restaurant owners build better businesses and earn the gold standard of the industry. Harman is the author of several cookbooks and business strategy books and is the host of the Build A Better Restaurant podcast.
This article was first published in Issue 21 of 5THWAVE magazine.
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