Small is beautiful for the food industry when it comes to pricing. This can be seen at popular restaurant chains, which recently hiked prices in the range of 5-7%, but kept prices of their cheapest items on the menu constant. As these items are also the most popular, they generate the volumes for most restaurants, because of which it makes sense to maintain low prices for entry-level items.
Says Smita Jatia, MD, Hardcastle Restaurants, which runs the McDonald?s franchisee in west and south India, ?Our Happy Price Menu products begin at R25 and are extremely popular among the youngsters.?
Clearly a segment they would like to grow, McDonald?s recently also introduced a new item in the low-price segment ? the masala grill burger for R45. The chain raised prices in February, but saved items like the egg burger from the hike.
In the price-sensitive $48-billion food service industry, other quick service restaurant (QSRs) also believe in retaining their entry-point prices and promotional offers, which they believe are their ?bestsellers?.
As Cafe Coffee Day?s president (marketing) K Ramakrishnan says, ?Our entry-level items are very popular with young people. We are not increasing the prices of products like dessert shots and samosas, which sell for R20, as this is where we get our value sales from.? The coffee chain increased prices of other products by 6.5% in April, but says it is not planning any more hikes this year.
Jubilant Foodworks, which operates Domino?s Pizza and Dunkin? Donuts chain of stores in India, has launched a low-price pizza mania range starting at R44, while it plans to raise prices of most other products by 6%.
The adjustments in prices and strategies come at a time when the industry is struggling with slow growth as consumers tighten their purses.
?People are increasingly eating out at inexpensive restaurants, and are staying away from expensive eating-out options,? says Riyaz Amlani, the chief executive officer and managing director of Impresario Entertainment & Hospitality. The company runs eating joints such as Cafe Mocha, Smoke House Deli and Salt Water Grill.
Discretionary spending has taken a beating over the last four quarters as the slow economic growth ? the lowest in a decade ? affected the ability of customers to spend on items like food and fashion. A survey of consumers released by Credit Suisse shows that consumer confidence is at a two-year low, which, in turn, would impact spending levels.
?We used to go out for dinner thrice a month, but that has come down to once a month. We have instead increased our trips for snacks and light eats and go out every weekend,? says 27-year-old Pooja Mathur, a professional in the entertainment industry, summing up the mood across many urban middle-class consumers.
This mood has been evident in data too, with most companies showing a slowdown in same store sales. Jubilant?s same-store sales grew 16.2% in FY13, while it was 29.6% in FY12. Hardcastle?s same-store sales grew a modest 6.2% over last year against a backdrop of difficult consumer sentiment. The company declined to specify the same store sales growth last year.