Business and Operations
No free lunch: To comp or not to comp?
No free lunch
Imagine pulling up to a gas station and discovering the pump you’ve chosen is out of service or that you have to wait your turn. Perhaps the receipt printer was broken. Maybe you work for the gas station and have been a loyal employee for years. Would any of these circumstances prompt you to expect the gas station to say, “So sorry, that tank of gas is on us. Yep, that $60 worth of petrol is free and clear and our way of acknowledging our error”? The notion seems ridiculous.
Yet across the foodservice sector, it’s commonplace to “comp” – provide a complimentary meal or experience – because a patron feels something wasn’t quite up to their standards. It’s also common to give employees free food and experiences as rewards. While it may be unfair to compare procuring a tank of gas with a dining event, the need to control costs begs us to examine this ritual more closely. When it comes to keeping employees and customers happy, is our commitment to the fine art of hospitality killing us?
Many large companies carve off a portion of their budget for “promotional activity.” Advertising is often budgeted for separately and used for outbound activities such as ads, posters and digital marketing initiatives. Promotional activity differs from advertising in that it’s more situational and used to court key decision makers. It’s a way of accounting for pricing flexibility, sales, giveaways, and for those times when giving something away for free will help pave the way to a larger sale. For many businesses with products that command a high profit margin, giving away product doesn’t impact the bottom line significantly. If you sell coffee where a cup retails for hundreds of times more than it costs, free product means you’re out a few cents.
Restaurants buy ingredients, create a consumable food item and serve or deliver the food for consumption. The costs incurred in that process are fairly substantial related to the price paid by the end user, so restaurant profit margins are typically low. Giving away product means you are giving away the labour involved in making and delivering the product too. It’s a big deal.
Free product may be given to either employees or customers. There are ways to be smart about how you administer both of these streams. Employees often work long and unpredictable hours in the hospitality industry and providing employee meals is a nice benefit. It helps them experience the food first hand and will help them sell it to customers who have questions about what menu items taste like. The key is to plan for this and control how it’s administered. Many restaurants offer a staff discount for employees to dine while working or to come in as customers. If they are eating while working, make a batch of something for everyone to share rather than individual meals made to order.
If staff come in to dine on their own time, you can offer them a discount of 20 or 25 per cent up to a group size of your choosing. Be diligent about the rules around this and insist that the employee be present to allow the discount. Otherwise, you may find every one of their friends and relatives comes in demanding the staff discount. The hospitality industry is notorious for giving discounts and freebies to people who work at other establishments. This is a drain on your resources and your profit. Don’t be part of the vicious cycle.
Giving customers a free meal is often a defensive play. There are times when it is perfectly appropriate to allow a customer not to pay. However, those times should be few and far between. If the meal was not cooked properly or found to be unsatisfactory, it should be replaced. If the diner is consuming the meal in your restaurant, make sure your servers are checking in early on to ask if everything is acceptable. A customer who says everything is OK during the table check and then decides at the end of the meal that they didn’t like the food is probably gaming the system. If you Google “how to get stuff for free” you will find entire chat rooms devoted to ways to complain about food just to get it cleared off the bill.
It may seem counterintuitive to explain that you aren’t going to comp the meal even though a customer claims to be dissatisfied, but if you take this step your business won’t be known as an easy target. It’s hard to hold your ground when a customer gets blustery but don’t give away freebies to make a problem go away. If the customer complains after they are delivered or take away the food, it’s harder to do that check-in around quality. Having a next-order-free policy may make a lot of sense, but it’s important to have controls around it. Otherwise, anyone can call up and say they are owed a free meal. Take a name and number and keep a ledger or enter it into the customer field in your point-of-sale system. People who game the system will learn you have a process to track the freebies and be less inclined to target you.
Free product means you worked for no money in return. Look for ways to do an end run around situations where giving product away is the only way out. It just may be the most profitable decision you’ll make all year.
Michelle Brisebois is a marketing professional with experience in the food, pharmaceutical and financial services industries. She specializes in brand strategies.