Discounting has become a permanent feature of the high street, particularly in the pub and bar business. But is anyone making any money out of it?
My concern is that price-cutting is a dangerous route to take in the bar and restaurant business. Few ever seem to get it right or grasp the mathematics.
An old friend of mine, Professor Chris Muller from the restaurant school at the University of Central Florida, and one of the world's foremost experts on chain restaurant management, picked up on the subject recently.
Wal-Mart, the giant US retailer which owns Asda in Britain, is a master at offering "every day low prices" and understands the science behind its positioning.
What Chris Muller points out is that for the likes of Wal-Mart low pricing is possible because they have taken significant operating costs out of their business models and passed those savings onto the consumer.
By increasing their scale and scope of business they are also able to build high margins into lower priced items. Subsidies and partnership deals with suppliers let them keep even the lowest prices above fixed operating costs. The low-cost retailers are able to complete the trick of not only increasing volume and market share, but margin too.
Can bar and restaurant players hope to do this? The important factor for Muller in the restaurant market is 'value'. The current burger price wars in the US have seen McDonalds and Burger King offering practically every menu item for a dollar or less. In a mature market this is only driving volume at the expense of profit.
Muller contrasts this with the fastest growing segment of the US eating-out market, the 'fast casual' sector. Here the likes of Subway and Panera Bread have menu items ranging from $4.99 to $6.99 and where a lunch can cost up to $8, a lot in US terms.
He argues that here the consumer has worked out that value means higher quality, both in terms of food and service. In fact they probably consider they are getting both high quality and low prices, a real value winner.
Muller also picks out the Cheesecake Factory, a fine dining concept in the US that has been highlighted before in this column for its high riding share price. Cheesecake is able to serve thousands of customers high quality meals in multi-million pound Art Deco restaurants at prices not much above mid-scale family dining levels. As Muller himself says it is the fine dining equivalent of Wal-Mart.
Pricing is crucial to businesses, but is only one part of the equation. Value is where it is at.
Simple price cutting can provide a short-term spike in trade, but does it provide value for either the business or the customer? On the British High Street do consumers think they are getting real value or just a passing cheap deal?
• Retail spending took a major dive last month according to official figures. It prompted fears that this really is the end of the consumer-led boom.
But did anyone in the retail business bother to look outside? March this year was the sunniest just about in living memory. So why weren't the shoppers out on the hot high street or inside Bluewater or the Trafford Centre?
It might be something to do with the weather. It sounds like an excuse but the British climate has always been a major factor in the health of the pub and restaurant business. When it's hot people are outside in pub gardens and not in city restaurants, and vice versa
It may well be the same for shopping? At least it's a factor that ought to be considered before everyone starts predicting the worst.
• Chris Muller runs courses at the University of Central Florida every May for restaurant executives on every aspect of chain management. If you are interested in details contact me at peter.martin@william-reed.co.uk
My concern is that price-cutting is a dangerous route to take in the bar and restaurant business. Few ever seem to get it right or grasp the mathematics.
An old friend of mine, Professor Chris Muller from the restaurant school at the University of Central Florida, and one of the world's foremost experts on chain restaurant management, picked up on the subject recently.
Wal-Mart, the giant US retailer which owns Asda in Britain, is a master at offering "every day low prices" and understands the science behind its positioning.
What Chris Muller points out is that for the likes of Wal-Mart low pricing is possible because they have taken significant operating costs out of their business models and passed those savings onto the consumer.
By increasing their scale and scope of business they are also able to build high margins into lower priced items. Subsidies and partnership deals with suppliers let them keep even the lowest prices above fixed operating costs. The low-cost retailers are able to complete the trick of not only increasing volume and market share, but margin too.
Can bar and restaurant players hope to do this? The important factor for Muller in the restaurant market is 'value'. The current burger price wars in the US have seen McDonalds and Burger King offering practically every menu item for a dollar or less. In a mature market this is only driving volume at the expense of profit.
Muller contrasts this with the fastest growing segment of the US eating-out market, the 'fast casual' sector. Here the likes of Subway and Panera Bread have menu items ranging from $4.99 to $6.99 and where a lunch can cost up to $8, a lot in US terms.
He argues that here the consumer has worked out that value means higher quality, both in terms of food and service. In fact they probably consider they are getting both high quality and low prices, a real value winner.
Muller also picks out the Cheesecake Factory, a fine dining concept in the US that has been highlighted before in this column for its high riding share price. Cheesecake is able to serve thousands of customers high quality meals in multi-million pound Art Deco restaurants at prices not much above mid-scale family dining levels. As Muller himself says it is the fine dining equivalent of Wal-Mart.
Pricing is crucial to businesses, but is only one part of the equation. Value is where it is at.
Simple price cutting can provide a short-term spike in trade, but does it provide value for either the business or the customer? On the British High Street do consumers think they are getting real value or just a passing cheap deal?
• Retail spending took a major dive last month according to official figures. It prompted fears that this really is the end of the consumer-led boom.
But did anyone in the retail business bother to look outside? March this year was the sunniest just about in living memory. So why weren't the shoppers out on the hot high street or inside Bluewater or the Trafford Centre?
It might be something to do with the weather. It sounds like an excuse but the British climate has always been a major factor in the health of the pub and restaurant business. When it's hot people are outside in pub gardens and not in city restaurants, and vice versa
It may well be the same for shopping? At least it's a factor that ought to be considered before everyone starts predicting the worst.
• Chris Muller runs courses at the University of Central Florida every May for restaurant executives on every aspect of chain management. If you are interested in details contact me at peter.martin@william-reed.co.uk
