When you listen to the recent strategies on how to be a mega-successful business, you will likely hear some of the following advice:
• Find a need and fulfill it.
• Solve a problem.
• Find your niche and then provide the best content (or some variation of that mantra).
• Get 1000 followers and then you will have a business.
• Be the very best at just one thing or really good at two things.
• Be first to market. (“I want to be the first Poke restaurant…oops too late!”)
But evidence would suggest that maybe there is a simpler strategy for becoming a successful restaurant and it is the idea of Inelastic Value.
My first real dip into this idea came from my first job as a waiter at The Original Claim Jumper Restaurant in Los Alamitos, California. Claim Jumper served homemade, delicious food from scratch in gigantic portions at a fair price. Every table had to take food home, and we were grand-central station busy, no reservations and a two-hour wait on the weekends.
People would think that the portions were the only value driver, but they were wrong.
When you put your name in for a table, they would hand you a gold rush themed fictitious name on a card like “Yosemite Sam,” and that is what they would call when your table was ready (this was pre-page, pre-smartphone). They had freshly popped popcorn in the lobby and an old-time strength testing machine that cost a dime (remember coins?). There were authentic western artifacts everywhere and river rock accents. It was like you stepped into a mini theme park.
It was awesome. It was the perfect family restaurant.
Not to mention the restaurant was incredibly clean, the staff was well trained and well paid. A manager would touch every table. All these elements combined to create incredible value. All the way down to the free root beer candies that came with your bill.
It wasn’t cheap, either. Probably a $25 per person average at the time (mid-1980’s). But you almost never heard any guest grumbling about the price and they were almost always smiling as they carted a to-go bag in one hand and a toothpick in the other. They were one of the top 50 highest grossing restaurants in the U.S. at that time. Prices would increase occasionally, but the guest counts remained steady or climbed.
How much more would your guest be willing to pay for your service/product and still feel like they were getting a great deal?
In 2016, the research firm Piper Jaffray did a study of 1500 U.S. Netflix subscribers. They found that only 4 percent were expected to leave the service if they raised prices. 96% of clients would continue with the service regardless.
Netflix subscribers feel like they are getting so much value that they would gladly pay more to keep it and their subscriber/client base is still growing steadily. Let that sink in.
• Their subscriber/client base (revenues) are increasing by 25% per year.
• Their churn (loss of reoccurring guests) rate is shockingly low.
• And they have room to raise their prices, and not lose clients.
High Inelastic Value is when the quality or benefit of the service is so elevated and meaningful that it always feels like a bargain to the guest. The “value” perceived by the guest doesn’t diminish (it’s inelastic) even if the price of the service goes up.
So, how can you create high Inelastic Value in your restaurant business? Here are some tips:
1. Focus on the guest’s journey.
Make sure that every element of your client’s experience is thought out and as frictionless as possible. Make access and ordering your product easy, guest service friendly and transparent. Analyze every point of the guest experience from beginning to end. (If you are a restaurant, you would start with the parking lot and end with the guest walking out the door.) Do all the elements add up to a great value?
2. Do more than necessary or expected.
Look for opportunities to do a little more. It may be as simple as offering to personally help a guest with carrying their take our order to their car. Remembering their name or last order. Nicer packaging. Or a hand-written thank you note. If you give them only what they expect, you should expect to lose guests to someone else.
3. Hire for Long Term guests.
All your actions should be pointed at how it will affect your guests/clients long term, this includes hiring and training. Hire people who are interesting, curious and enjoy other people, and then “over-train” them. Make sure the busboy, server or cashier really knows the menu, your history, and can answer all the questions a guest might ask. Cross train like crazy, if someone drops the ball, some other team member can pick it right up and the guest should hardly notice. Sacrifice a little bit of training cost now for a long-lasting bulletproof and profitable relationship with your guests later.
We at KROST CPA’s have been helping restaurants owners and operators grow their businesses and become more profitable for more than 70 years. Please contact us if would like to schedule a free one-hour consultation for your restaurant.