Be competitive not cheap

Posted on In Focus Dec 2011 - by Tandoori Editor
Be competitive not cheap

Ajmal Mushtaq is a business expert and is the chef-director of Mushtaqs Restaurant in Hamilton, Scotland.

 
Since my last article - The Spring Health Check for your business - I have noticed something quite unbelievable. Firstly, the number of menus from restaurants being posted through my door has increased to at least 10 per week.
 
Secondly, the prices on these menus seem to get cheaper and cheaper. Thirdly, the cost of chicken and lamb alone has risen 11% in the past two months and finally, the energy companies have just announced that the cost of gas is due to increase by 20%. 
 
What this means is that while costs are increasing at an unsustainable rate, Indian restaurants are busy competing on cost. This is commercial suicide! 
 
As a business expert, I have delivered multi-million pound projects for some of the UK’s biggest companies and now I have implemented the same practices to Mushtaqs restaurant in Hamilton and have seen some incredible results. 
 
In this edition of Tandoori, I explain how we can take a closer look at the flawed Indian restaurant mentality of competing on cost - “sell it cheaper than the competition and we will win the customer” - and explain the three steps Mushtaqs undertook as part of its Profitable Pricing Strategy. 
 
Before we get into the detail, here is some homework for you:
Order a meal at your own restaurant. E.g. a chicken tikka masala. Instead of eating it, take out the chicken and weigh it – you will probably find it more than enough to fill you up.
 
Next, go to any European restaurant and order something with protein and you will find that there is hardly any meat content. I was at an Italian restaurant recently and I ordered a salmon pasta. Instead of chunky salmon, all I got was a few thin shavings of raw salmon sprinkled over the top.
 
If this had been an Indian restaurant, the amount of salmon would have been significantly more – and profit significantly less.  
 
The point here is we do not need to give huge portions of quality produce and then charge a low price for it. Indian restaurants should all compete on quality, not cost. 
 
Here are three rules that I implemented as part of our Profitable Pricing Strategy: 
Portion Control You don’t expect to go into a quality restaurant and receive a plate piled high with great food. However, this is exactly what happens in Indian restaurants.
 
By giving a bigger portion, you inadvertently devalue your product. The portion size should be just right. Mushtaqs assessed this by asking four members of the public to have dinner and provide comment. The feedback was the portions were far too big.
 
‘Doggy Bags’ If you get a handful of customers requesting doggy bags each night, then the chances are you need to take a closer look at the size of your portion sizes. Mushtaqs reduced the portion size for sit-in meals by 20%. 
 
Profitable Pricing If there is national publicity around price increases e.g. 20% increase in the cost of gas, this is a great time to increase your prices.  Mushtaqs focuses on quality and our customers are happy to pay extra for this.
 
Mushtaqs pricing strategy is simple – ‘little increases often’, instead of a big increase every year. These are easier to implement and less noticeable for customers. Running a restaurant is all about providing great food, great service and making a profit.
 
A move away from only competing on cost can only be a good thing for your business. This worked really well for Mushtaqs - instead of looking over the fence and undercutting the competition’s prices, we focused on providing quality to customers and then charging more accordingly, resulting in more satisfied customers and more profit. 
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