One of the most complex calculations a catering company executive has to make is how to establish an effective pricing structure. With all the competitive variables that go into a pricing decision, many businesses are nervous about raising prices during an economic downturn, especially after not having increased prices for several years.
Sector Pricing Models
Caterers and their competitors in the events industry charge in a variety of ways, which makes pricing complex. The three largest sectors of the catering industry (on-premise, off-premise and retail/delivery) each have different pricing models. To add to the complexity, companies in different regions of the country may have pricing variations.
When talking to caterers around the country to get an idea of their price point, we ask two questions: 1) How much do you charge for a wedding reception? and 2) How much do you charge for a delivery lunch? A reasonable answer for either would be, “it depends,” but most businesses immediately give us their median price. From our casual polling, we’ve noticed:
- The variances among prices for delivery lunches, from the least to the most expensive, are minor. Even in the least-expensive markets, a small delivery sandwich-based lunch starts at about $8 per person. The most-expensive markets in the Northeast are currently topping out at about $17, a variance of only slightly more than 100%.
- In the wedding market, the median price variance is huge. Controlling for the different products provided, the range runs from less than $40 in small markets in the rural South to more than $120 in a major Northeastern market for a full-service wedding. Based purely on price, the range is from less than $40 to regular peak season price of nearly $180, indicating a variance of over 400%.
Which Sector Wins Out?
Competition in the luncheon-delivery market is greater than that of full-service catering. The overall corporate-delivery market is estimated at about $6 billion per year in the United States with tens of thousands of retail/delivery companies, restaurants, gourmet stores, delis and fast-food joints all competing for a piece of this market. Supply clearly exceeds demand almost everywhere, so this has a limiting effect on increasing prices. Corporate-delivery of meals is almost a commodity and more susceptible to market forces.
The full-service market, which is dominated by weddings, dwarfs the delivery market. The best and most recent estimate we have seen is full-service may exceed $16 billion in 2011. This market is shared by on- and off-premise service providers, hotel banquet operators, restaurants and specialty-event venues such as excursion boats and tourist destinations.
Despite the large number of competitors in this market, peak-load supply and demand is closer to balance than in the retail/delivery market. Of course, many banquet halls and off-premise service providers stand idle during off-peak times, but during peak times, caterers are able to price aggressively. For example, every year on the third Saturday in June, demand exceeds supply for wedding specialists and venues, so prices stay relatively high.
So, Is Price Really Important?
Many companies believe price is the only determining factor. When our consultants work with businesses to improve their sales pipeline management, one of the recommendations we make is that they survey clients who decide not to use them after going through a proposal process. Most caterers assume they lose events at the proposal stage because of price. Although this is true for some potential clients, it’s not the only reason. Price typically is the reason listed by only slightly more than 50% of those surveyed, so nearly half of those deciding not to use a caterer have non-price reasons for going elsewhere.
If lower prices were the primary motivating factor, then budget caterers would lead. And they don’t — not even in the more price-sensitive categories like retail catering. What this shows is that a place remains for all price points in the marketplace.