The topics just get harder and harder, you know? This is certainly one of the tough ones. Every brand handles price changes in a different manner. As an independent, we take the impact of price increases very seriously and understand that we need to be very conscientious about the effect on our customers. La Nova has built our reputation on quality items at a premium price point. For us, increasing an already high cost versus our competition is a sensitive subject. We don't do traditional advertising and we rely on combining items into packages to drive our business.
That being said, I want to discuss two different strategies that we think are effective and insulate our business against loss due to increases in prices. We understand what the cheese market can do to the bottom line and when core item pricing goes up, no one can afford a hit to the bottom line in a business that is so margin sensitive. As we have seen and will continue to see, even a natural disaster like Hurricane Katrina can have a huge trickle-down effect. When fuel costs go up, all of our item costs go up and then somehow we need to recoup that margin without losing business.
The two strategies we suggest are the following: Incremental Steps and Raise and Deal Pricing.
These are terms that we use to describe them and they are fairly simple directions. Incremental steps works for us specifically. Raise and deal pricing is what we have suggested to our partners on the La Nova Wings side of our business, which has seen great success. Having the experience of working as a manufacturer of an item that has tripled in cost over the last 10 years has really helped us understand how to avoid scaring customers away while maintaining quality and brand strength.
Incremental increases are what we have always done here at La Nova. Rather than raising our core item cost $.50 or $1.00 one time only and holding it, we raise it $.10 or $.20 quarterly and allow the customer to ease into the increased cost. There are a few things to be aware of here. Identifying what your core items are is extremely important. If your cheese and pepperoni pie accounts for 40 percent of your total business, then it is probably a smart idea to make that an item you slowly move up. Understand what 10 items drive the greatest percentage of your total business and make sure you raise them accordingly and all at once. The reason for the blanket change is you have to create new menus every time you increase prices. There should be a serious cost there since you are giving a menu to each and every customer, right? Be aware of that and change and create new menus only as frequently as you feel you can afford. One other helpful hint is to have your menu saved in an electronic format that is easy to change and adjust so you can save design and creation costs. Buy them in the best possible quantities and shop your printing aggressively.
Raise and deal price changes also help to avoid customer backlash. You would again identify the core items that really drive your business and raise the prices for all of them at the same time. Then what you do is take those items and categorically discount or combo them during non-peak business times. If you raise your C&P pizza $1 due to crazy cheese costs, then you can do two different things to be able to react to customer feedback. Make Tuesday or Wednesday evening your Pizza Night where you sell the pie on off peak times at the original price point. It will help drive business during times when you are slower and you will reap the better revenue when it counts. Another option is to combine that core item with some sides that make good margin or are popular (wings, of course!) and discount the combination of the whole package the same $1 that you raised the pizza. It will increase your average ticket and offset the discount while also allowing you to give customers a relief option if they inquire about higher prices. Direct them to the combination and sell the marginal discount as a great deal.
There is no way to avoid some customer reaction. At La Nova we have always believed that the customer we desire is one that is willing to pay for a quality product. We have preached this for years and it works for us. As long as you are purchasing quality items and giving your customers value for their dollar, we have proved as an independent operator again and again that your business can still grow. Pizza is the best value for the money as far as we are concerned. I hope that you follow this strategy and have great success in your own operations. I understand every market is different and there are serious competitive concerns, but I also will preach that quality will persevere against cutting costs and quality all day long.