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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