Clarion Group Announces That Companies Should be Weary of Raising Prices in the Dinning Industry

Kingston, NH, July 09, 2010 --( Companies trying to reduce costs by eliminating the subsidy for their employee dining services should tread carefully, warns Tom Mac Dermott, president of Clarion Group, a consulting firm that specializes in corporate dining and facilities services.

“We have seen companies that abruptly raised meal prices in an effort to eliminate their food service cost actually find the results were worse, not better,” Mac Dermott said. “In two out of two instances, the result of sharply increased prices was a reduction in employee patronage.” The reduction was so great, he added, that the operating loss increased.

Companies must recognize that employees see low-cost meals in their subsidized company dining center as a benefit, like health insurance or free parking, he said. When prices are raised all at once, it’s almost the same as a reduction in health benefits or an increase in premiums. The result often is anger and a drop in morale.

At one company, staff café patronage dropped by half, and at another, by two-thirds, Mac Dermott reported. Efforts to reverse the trend have so far proved ineffective in both cases.

“Employee surveys we’ve taken after a price increase show that people no longer view the café as a benefit and say ‘the food is not worth the price charged,’” he said. “More important, they take action – more people bring food from home or go elsewhere for meals.”

“Once a person has found it’s convenient to bring food from home, or found a convenient off-site alternative, it’s hard to lure them back to the on-site dining center,” he noted, “even though preparing lunch at home is time-consuming and the off-site restaurant’s prices may be the same as, or higher than, the on-site café.”

For some employees, there is a conscious or unconscious effort to “get even” with the company, Mac Dermott said he found in focus group discussions. “College students might loudly protest and demonstrate,” he said, “but employees need their jobs and take a quieter approach: they stop using the café.”

The trend toward having lunch at one’s desk or worksite – which has increase in recent years as employees have been more pressured through staffing cutbacks and other factors – doesn’t help. If an employee feels too rushed to have lunch in the staff café, he or she can save even more time by not going to the café to pick up food in the first place.

“In a corporate employee survey in 2008, we found 35% of respondents said they had lunch at their desk,” Mac Dermott said. “In an identical survey at another company in 2010, the number had increased to 60%.”

How then does a company that needs to reduce or eliminate its food service subsidy do so without causing more harm than good? “Gradually,” Mac Dermott advises. “It’s much better and more cost-effective to plan the subsidy reduction carefully in advance than to try to patch up the damage later.” A two-year plan, with specific targets at three-month intervals is the best approach, he says.

The first step, he says, is to work with the food service operator to make internal improvements that will reduce waste, tighten up on labor costs and take other steps to improve efficiency. “Often, price increases just mask an inefficient operation without doing anything to cure the underlying causes of high costs.”

If prices must increase, do so gradually. Raise the price of a product when its cost goes up. People will understand, because they’ve seen higher prices when they shop. Introduce new products at a higher price point, including for example, “premium” meals, new sandwich, pizza and other products. Reduce the frequency of low-margin or unprofitable menu features.

“Introduce an ‘action station’ where a chef prepares a meal at the service counter to the customer’s order while he or she watches,” Mac Dermott suggests. “People will see a greater value in a meal prepared to his or her order and will pay a higher price for it.”


About Clarion Group: Since 1995, Clarion has helped companies and institutions to improve the value and reduce the cost of their in-house employee dining, executive dining, conference and catering services and facilities support services, such as conference and event management, audio/visual services and lodging.

For information, contact
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
Clarion Group
Tom Mac Dermott