Friday, July 31, 2009

Discounting at the sterling level

How do you tactfully offer a bargain when your customers view you as a Mercedes-class experience? That’s the quandary facing Ruth’s Chris Steak House, a longtime favorite of the expense-account crowd.

The chain tried a bundled-meal deal—the equivalent of a Dollar Menu to the Gold Card set—in February. Patrons could have shrimp, a six-ounce filet or several other upscale entrees, packaged with a side and a dessert, for a mere $39.95. By the standards of that segment, this was dangerously close to a tie-in with a blockbuster summer movie.

The nod to value played well with Ruth’s clientele. “It has been well received by our guests and is representing a sizable portion of our sales mix,” CEO Mike O’Donnell told analysts during a conference call today.

Indeed, he seemed to suggest, the promo might’ve been too well received. The chain’s typical guest check fell 6.5%, to $70. Ruth’s was getting less per guest, which would’ve been fine if more guests were drawn by the head-turner.

But comp sales fell by more than 23%. The numbers indicate that traffic was down as well as the average check.

So what’s a high-end chain to do?

The chain is currently testing a bistro menu in the lounges of six restaurants. A second possibility, a $19.95 steak-and-fries platter, is being tested during the normally slow beginning of the week at three locations.

But the chain’s not abandoning its prix-fixe deal, at least not this summer. Apparently the company feels it was enough of a brake on the traffic decline to keep it in place. O’Donnell cited expectations that the value offer might catch on and hit an “inflection point,” where it becomes a boon to traffic, even though the average tab might slip by a few more dollars. And as he noted in response to a question on that point, patrons can “buy up” to a $49.95 version.

I guess it’s like trading up to a large drink.

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