Southwestern Oklahoma State University

Hospitality, Restaurant & Gaming Management

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Volume I Issue 2
November 2010

Dawg Bytes


Don't let the bedbugs bite.....

Nickel & Diming for customers.......

In 1879 a man named Woolworth changed the face of retail when he opened his first store. In many ways he pioneered a new, unheard of approach to retail. His store was open to the general public and most items were set at fixed prices of either a nickel or a dime, thus the 5 & 10 store was born. Another major change was the way the merchandise was displayed. It was out on counters for the customer to see, touch and claim for purchase. Previously most retail stores had clerks who held the merchandise behind counters and would assist the customer in every sale. Woolworth's let the customer serve themselves and offered fixed low prices. It was as revolutionary as Mr. Ford's Model T because it made retail available to the masses. It also made Woolworth a very rich man and founded a retail dynasty that still exist today. The greatest selling point in this retail success story was the incredible marketing of the Five & Dime concept. It hooked a buying nation because of the Perceived Value concept it fostered. In today's recession-slammed market the name of the game for survival is the same concept, Perceived Value. Under that banner, we are seeing the marketing efforts of restaurant chains to capture that Five & Dime marketplace once again. In this case it is $5.00 and $10.00 as the price points that seem to capture the customer's view of Perceived Value.

Since the crash of 2008, restaurants have been struggling to capture the limited dollars guests have to spend on dining out. Just as companies downsize in troubled times, so does the consumer. When economic times get tough, the guests cut back on discretionary spending. The guest downsize. Those who frequented the Houston's move down to Outback, Outback diners move down to Chili's, Chili's diners move down to Applebees or Golden Corral and those folks step down to McDonald's. There are less dollars out there and everybody fights for sales. When you look at the restaurant landscape in the USA, you see how many chains are positioning themselves around either the $5.00 meal or the $10.00 price point. You see Friday's offering packaged meal deals for two for $20.00 and it is copied by several other chains.

There is still a substantial market out there for sales. The family landscape as changed so dramatically that we will not return to the days of stay-at-home moms and all meals made at home. In fact, in tough economic times, both parents have to work and often more than one job. There is greater need for prepared meals but value has become the key decision maker. I have watched over the last ten years as major restaurant chains have tried to push their guest check averages higher and higher to increase sales. The industry uses Same-Store Sales figures as a major indicator of a company's health. As the market became more competitive with more and more concepts flooding the restaurant field, one way to keep store sales up was boosting the guest check average. What I saw were more and more restaurants boost their portion sizes along with their menu prices to keep that value connect. A great example is the lovely chicken breast entree. As the healthy eating issue grew so did the demand for chicken on the menu. Every casual dining restaurant offered the wonderful boneless, skin-less breast filet in one or more entrees. Yet guest value perception always pegged the chicken as a much cheaper entree than a beef one. So we saw a price fixed a between $9.00 and $11.00 on most menus for their chicken entrees while steaks enjoyed much higher prices. What was the solution? Well, we just up the chicken portion and up the price. Many chains began serving two chicken breast on their entrees and prices moved to the $15.00-$17.00 range. The thinking was that the guest perceived the great value in the bigger portions because they couldn't finish their meal and had leftovers to take home. Wow, two meals for one!

Many a time, while dining out I would look at the menu and see the description and price for the chicken entrees and resent that they would serve me more than I wanted and charge me more that I thought I should pay. However, economic times were good and the public was dining out in greater numbers and spending more dollars than ever before. The trend became for portions to get bigger and bigger and prices to move up with them. Guest check averages grew higher in the casual dining segment. Same store sales figures looked good each quarter and Wall Street was happy and rewarded those companies and punished those who's sales were flat. The bubble burst in the fall of 2008. Now it is a struggle to capture every dollar possible and we see the rebirth of the Five & Dime marketing concept.

In the collective wisdom of the marketing gurus for the restaurant industry, it has been determined that $5.00 and $10.00 are the price points to motivate the guest to dine with you. The lunch business, still a substantial market due to the working public's need to eat each day has set the $5.00 value mark as a motivator to dine with them. Since dinner is more of a discretionary action, this is a harder market to cultivate, thus the $10.00 value mark. We see all the major casual dining chains (Chili's, Applebees, Fridays, etc) all pushing this price point. The pizza chains, Pizza Hut and Pappa Johns, are also heavily marketing this price point. I am curious, Pizza Hut says any pizza,any style, any size, just $10.00, do they think someone is going to ask for a small pizza and pay $10.00 when they will sell a large for the same price? How is that perceived value? Anyway, the market place has decided that 5 & 10 is the winning combo to recapture sales.

We are facing rough times for the new few years. This economy is not going to recover to where it was pre-Sept 2008 in the near future. The dining out pie has become smaller and there are a lot of new faces out there fighting for their piece. Two things you can count on in tough economic times is increased sales in fast food and movies. Americans go to the movies more to forget for awhile how rough it is. They spend their few precious dollars at fast food more. Ironically, sales at McDonald's are up slightly but not as much as in other bad times. If you look at guest transaction counts, well they are much higher but the guest is spending less because they are tapping the value menu (the $1.00 items) more. So guest check average is not as high but guest counts are up. Value, especially Perceived Value, is going to be the guest watchword for the next few years. I believe that will have to accept reduce guest check averages for the next few years. This means pulling back on portion sizes to more realistic plate presentations. Unfortunately the investment many chains made in large plateware will not play well with more modest portions. The wise operator would play into the growing national concern about obesity and overeating by Americans. Instead of touting lower prices while quietly downsizing portions to keep customers and maintain margins, operators should be pushing the health value of more modest but satisfying portions with the value of lower prices. This is a win/win because you are showing concern for the guests health and wallet! The restaurant company that can successfully market their products to the guest's new value perception, will be the ones that survive. This means matching proper portion size with price point and service options. It requires taking a realistic assessment of your client base, what is their value perception and how can you meet/surpass that expectation.

Today's economic atmosphere has provided the restaurant industry with an opportunity similar to what Woolworth faced in 1879. There is a mass market out there that needs your product and they are willing to adapt to a new approach to get it along with a keen sense of perceived value. How you decide to move forward to grab your share of that market will not only decide if you will lead and win big or follow safely in the pack and maybe not survive.


SWOSU-Sayre will be hosting a Career Day for area High School students on Wednesday November 3, 2010 from 9:00 am till 12:30 pm. The Hospitality, Restaurant & Gaming Management Program (HRGM) will be making a presentation to potential new students, offering some fun activities and refreshments along with the information about this exciting new program! We welcome any and all inquiries about this great day - call or e-mail for more details.

Recipe of the Month

A great monthly feature - we will highlight an interesting recipe idea for your menu! It can vary from a fun appetizer, intriguing entree or just some super ideas for theme dinners. We will have the recipe, cost breakdowns and pictures - so enjoy our monthly recipe. Bon Appetite!

Waffle Nachos Appetizer

One long-time favorite that is making a dramatic reappearance on the casual-dining menu is the hot, tasty, stringy cheese fries! Chili's has been particularly successful in introducing this item onto their appetizer menu. We offer a fun twist on this old favorite - a combo of the cheese fries and the popular nacho plate!

Waffle Nachos

You will need:

  • Waffle-cut French Fries -- 14 ozs.
  • Cheddar Cheese (shredded) -- 6 ozs.
  • Crisp Bacon Slices (crumbled) -- 1/2 cup
  • Jalapeno Pepper Slices (nacho style) -- 1/2 cup

Serve with sour cream or guacamole or ranch dressing on the side.