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Are Restaurant Deals A Good Trend?

By , August 13th, 2009 | 11 Comments »

A few months ago, I wrote about the death of the DVD as a major delivery platform for movies. At the time, my local video store was charging $5 for five-day movie rentals and its stores were generally not very busy (based on my observations). By contrast, the local library was increasingly busy and even more increasingly devoting shelf space to DVDs.

Fast forward to the present, and the decline of the DVD continues. At the same time, Blockbuster has introduced new pricing models which make rental at times a more attractive option than the library. Blockbuster customers now have the added option of renting a new movie for $2 for one night or an older film for only $1. I love the new model and I admit that I am now occasionally going back in to Blockbuster.

I will gladly pay a dollar or two for a movie rental for a night after I have checked the library (less than a quarter mile away) to make sure that I cannot borrow the movie for free for a week. If my family really wants to watch a particular movie, the rental cost is consistent with the value of the instant gratification that Blockbuster is more likely to present, especially with respect to the rental of new releases. My local video store still is not as busy as it was three or four years ago, but the dollar rentals have made it busier than it was at this time last year, or so it seems to me.

I’ve noticed that a lot of local establishments are following a marketing plan that seems similar to Blockbuster’s. They are lowering prices. Restaurants in particular are offering some amazing deals on meals, including multi-course feasts. Throughout much of August, for example, Maggiano’s Little Italy is now offering a BOGO deal on its pastas as part of its “Today and Tomorrow” promotion. Other nearby higher end restaurants are offering deep discounts on three course meals and dinners for two.

Unlike the price reductions on DVD rentals or other hard goods, which I enjoy, I am not quite as certain that huge price reductions by restaurants are a good thing. With a DVD, whether I pay $1 or $5 or get it for free at the library, I am getting the same product. With food, however, we are much more likely to “get what we pay for.” If dinner for two cost $49 two years ago and the same meal is now offered for $25, how does the restaurant make any money?

I suppose that the restaurants may be relying on patrons to enjoy their meals with selections from the bar, and that a three course meal will ensure that several trips to the bar are possible. Nevertheless, I have to wonder how much of a bar bill patrons will run up if they are attracted to a restaurant by a deep discount on the food.

If restaurants are not using multi-course meals as loss leaders, could they possibly have been making so much of a profit two years ago that they can cut their prices in half now and still make money? I hope not because if that is the case, it will make every meal I have ever had in a restaurant seem more than a little tainted.

And that brings me to my third thought — could restaurants be cutting the quality of their ingredients in order to offset their lower prices? I know that if I want to cut my weekly grocery bill, apart from taking advantage of sales and coupons, I can seek lesser quality ingredients. While that does save me money, it also often cuts the value of the meals that I prepare and decreases the pleasure that I have eating the meals that I cook.

What do you think? How can restaurants cut their prices so much and still make money? Are they sacrificing profits or cutting back on quality? What do you think?

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  • Carol says:

    I think that the restaurants cut their overhead, namely employees, to be able to offer the reduced prices. The few (very few) times I’ve been out to eat I’ve noticed that there weren’t very many people working when it was rather busy. When people stopped going out to eat, they laid off waitstaff, and to entice people to go back out to eat, they lowered prices. That’s my theory anyway.

    I do know that the business rule of thumb is that payroll expenses should be about 30% of your income, and it’s something that companies watch very closely.

  • Annie Jones says:

    I think with those three-course meal specials and the dinner-for-two specials the menu is quite limited. The idea gets patrons in the door, but with only a few options offered, they’ll often eschew the special and order something more expensive. I think restaurants are counting on that.

    There are also huge markups on drinks, both alcoholic and soft drinks, which are often not included in the special.

  • Scott Joseph says:

    While some restaurants have almost certainly compromised the quality of ingredients, cost-cutting does not necessarily mean the end product’s quality is reduced. There are other tactics, such as using different ingredients, such as fish species that cost less or lower grades of meat that, when cooked for longer periods or braised become just as tasty as an expensive product. (Notice all the short ribs on menus these days?) But ultimately — call it the bottom line on the bottom line — profit margins are undoubtedly slimmer all around.

  • Ann says:

    I think both Annie and Carol are correct.

    Personally, I had really gotten out of shape and am now working to become much less of a person physically. LOL I’m not in the least attracted to gorge fests and have found that I enjoy smaller servings (of everything except veggies) which give you a taste to savor without loadng you up with needless calories. As a matter of fact, I’ve become so accustomed to more reasonable eating that large portions, if I indulge, leave me feeling unwell.

    I’m definitely in favor of smaller quantities and higher quality!

  • Monkey Mama says:

    Where we live, lower food prices cames from desparation. The end result? Most eateries are going out of business anyway. The last year we had been eating out a ton more than usual – the coupons and deals have been phenomenal.

    BUT we have not been eating out much at all lately. I was pondering why just the other day, and I Realized all our favorite eateries have gone out of business.

    That sums it up pretty good. I Was just posting in the forums how bad our local economy has been hit though.

  • disneysteve says:

    I think they’ve reduced staff to trim expenses. I also think they shrink portion sizes compared to what they may have been a year or two ago.

    Selling you the 3-course meal avoids having customers come in and skip the appetizer and dessert in order to save money. They’ve rather get $30 for 3 course than $18 just for the entree.

    And I think restaurant owners are willing to forgo some profits at this point in time in order to stay in business and ride out the economic downturn.

  • spicoli says:

    I think most restaurants use deals on multi-course meals/all you can eat specials in the hope of increasing beverage costs. If the food tastes good and you skip the high cost of beverages, don’t worry about the “how can they do this” factor and just enjoy your meal.

  • digby says:

    In the food and beverage business labour costs are generally a big part of your expenses. So cutting some staff can substantially bring down costs (and service). Changing the selection of ingredients instead of foie grass using pate, instead of lobster using river shrimp, slow cooting less meat cuts to achieve great texture and flavour, decreasing the meat/fish part from say 150g per portion to 130g and adding more veggies reduces the cost price per plate. Adding mor things like chicken and spare ribs to the menu lower costs without damaging the direct quality of the meal.
    Furthermore its better to sell your stock cheap with a small profit than thow it away because its off.
    Finally there is a healthy mark up on beverages especially soft drinks were soda water and syrup is mixed such as coke, lemonade etc costs restaurants a few cents per glass. But most importantly keeping your business ticking over and breaking even always beats going bust and in tough times any owner would prefer that to going out of business so enjoy all the bargains you can find.

  • persephone says:

    I still try to avoid restaurants. Lesser cuts of meat tend to be fattier cuts of meat. No matter what I am paying, I would rather eat healthily at home than get a great deal in a restaurant.

  • Trish S says:

    The restaurants are just trying to stay afloat. With less and less people able to afford to eat out they have to run specials to get customers. Even with all the specials, the overhead costs are still driving many restaurants into bankruptcy. Prices wars are waging in almost every town and all any owner can hope for is that they will be the last one standing.

  • Gail says:

    Years ago I worked at a grocery as a cashier. There was a lady in town that was well known for being a caterer and everyone praised her food. I didn’t know why as I had had to eat several of her meals and I thought they were awful. Then I started seeing her picking up stuff at the grocery store, everything was the plain label generic (from back in the days that most generic food was nasty), the cheapest fattest hamburg, etc. So yes, she was running her catering business on a shoestring and I really think that most of her customers just were a bit like the emperor and his clothes. No one wanted to admit that her food was lousy because everyone else said it was great! We are just like a bunch of lemmings!

    You can run your business into the ground by being too frugal just as much as you can run it into the ground by spending too much on non-essentials.


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