Pricing Theory & Practice for Caterers

One of the most complex calculations a caterer must make is how to price their products, and pricing strategies tend to be specific to different catering sectors. In the full-service catering world, where much of what we sell is intangible experience and the cost of the product is relatively high, there are several primary goals from the seller’s perspective.

First, the goal is to get the highest price possible without the client feeling as if they have been taken advantage of. The second is to use pricing to develop and maintain a sustainable competitive advantage.

The third is to use variable pricing to develop client loyalty, to the extent possible. Lastly, the pricing must be appropriate to maintain a reasonable profit margin.

Pricing breakdown by sector

Among the factors that make this pricing challenge so complex are the varying ways in which caterers, as well as their competitors in the events industry, charge for their products. The three largest sectors of the catering industry (on-premise, off-premise, and retail/delivery) each tend to have different pricing models. To make a comparison even more complex, the pricing structures and variances among caterers in different regions of the country can be vast.

When we talk to caterers around the country to get an idea of their price point, we typically ask how much they charge for a wedding reception. Of course, a reasonable answer would be it depends on the wedding, but most caterers immediately give us their median price. The answers we get are fascinating, and from these we have been able to make several observations:

What are the conclusions to be drawn by the difference in pricing for weddings?

The full-service catering market, which is dominated by weddings, dwarfs the other catering sectors. This market is shared by on- and off-premise caterers, hotel banquet operators, resorts, restaurants, clubs, and specialty event venues such as excursion boats and tourist destinations.

Despite the large number of entities competing in this market, overall peak load supply and demand seem to be much more in balance than in the delivery or corporate catering markets. Of course, there are many empty banquet halls and off-premise catering companies without much business in the less busy times of the year. But in the peak seasons and dates for weddings, caterers are able to price aggressively. On spring and fall weekends every year, demand exceeds supply for wedding caterers and venues, so prices stay relatively high.

Not just about price

Many caterers seem to believe that price is the only determining factor in the decision that buyers make about which caterer to use, and that all buyers are extremely price sensitive. As an active observer of pricing by many caterers over many years, I feel confident in saying that this is empirically and provably incorrect.

When our consultants work with caterers to improve their sales intelligence, one of the recommendations that we make is that caterers survey any potential clients that decide not to use them after going through a proposal process, to find out the reason why.

Most caterers assume that the reason that they lose events at the proposal stage is almost always because of price. But this is not at all the case—price is typically chosen by only slightly more than 50% of survey respondents based on surveys we have reviewed. A range of other reasons, none of which are directly price-related, make up the balance.

Another important point: if lower prices were the primary motivating factor in decisions about using caterers, then budget caterers would rule. But they don’t. They don’t even rule in the more price sensitive categories like delivery catering, and they certainly don’t rule in the full-service market.

One final point about caterers’ pricing—many or most caterers do their best to limit pricing transparency, making it hard for competitors and clients to see the prices being charged. But we know of several very successful and profitable caterers that do publish their price ranges, if not their specific prices.