$4 is the New $5

$4 is the New $5

The Art of Delivering More for Less

Driving sales and traffic is difficult for many restaurants these days. Yet some chains manage to do both.  The legendary burger brand Krystal, for example, has applied a successful pricing strategy for decades, putting their iconic square-shaped burgers at its core. As a result, sales and traffic have climbed.

$4 is the New $5
Jason Abelkop,
Chief Marketing Officer for Krystal.

“When we release a new promotion, we see store traffic increase and we see the average guest check grow as well,” says Jason Abelkop, Chief Marketing Officer for Krystal. “For instance, when we released 10 Krystals and 10 Bone-in Wings for $10 after 5 pm, we saw a surge in late-night business. Now, those same guests are returning during that daypart as well as other dayparts because we’ve reset our relevancy with them. Ongoing, sustainable revenue will always benefit our franchisees and business more than temporary price-cuts.”

Krystal offers 12 of its eponymous burgers for under $10, an unmatched value in the industry. Smaller groupings of 3, 4, or 5 classic Krystals, Cheese Krystals, or Chik sandwiches (plus fries and a drink) have hovered around the $5 mark. Now, the brand is ready to make waves again with a More for $4 special.

Over the years others in the industry have questioned whether or not this pricing strategy is profitable, yet what Krystal gives up in per-item pricing it quickly makes up in volume. “The interesting thing is that the profitability scenario is only impacted if you assume $4 will not become a driver of new and additional business — and that’s simply not the case,” Abelkop says. He also cites a Shrimp Po’ Boys promotion from earlier this year, which offered guests the sandwiches at a 2 for $2 pricing structure. The average guest check during that promotion was actually close to $7, suggesting guests were not relying solely on value offers.

Krystal is already positioned to maximize the $4 position thanks to serving sizes that are easy to expand into various quantity combinations without changing the core product. In contrast, a hypothetical nationwide burger chain known for bigger-sized burgers would face the challenge of making their burgers smaller (and turning off customers) or simply reducing the price point (turning off franchisees and potentially making customers question quality).

$4 is the New $5
Alice Crowder,
Vice President of Marketing for Krystal.

What Krystal has in place is different. “Guests view our products much like a sampling menu to begin with, and with so many different options we can build a highly cravable meal for $4,” said Alice Crowder, vice president of marketing. “Because we’re not making any changes to our core product offering we can continue to offer classics with values that work for our guests and franchisees alike.” Guests continue to receive the same flavor and quality they expect from Krystal, but packaged in a new, stronger value. The payoff for franchisees is equally promising, as value-driven sales begin making an impact almost immediately.

At the current $5.69 average price point for a 4-Krystal Combo (includes fries and drink), a $4 price point would seem to mean a $1.69 loss on each order. However, since the new deal contains 2 Krystals, 2 boneless wings, a cookie, fries and a drink, the overall food cost stays under 35%. Plus, each new or existing guest motivated by the price point who would not have otherwise made a purchase actually generates $4 in otherwise lost or non-existent revenue. And, if $4 becomes a driver for store visits, any up-sell or additional purchase also becomes recaptured revenue. A single purchase resulting in two orders of the $4 offer then yields more than $3 that was previously not available at a $5.69 price point.

Outside the core value offering, the brand leans heavily on innovation to keep price points front-and-center.  Recently, the brand unveiled Country-Fried Steak sandwiches and Junkyard Fries (think everything-but-the-kitchen-sink loaded fries). Abelkop says both were traffic drivers. Other new innovations in side items, breakfast, and desserts may be introduced alongside $4 price points and other “power prices.”

$4 is the New $5This approach stands in stark contrast to much of the rest of the industry, which typically uses LTOs as an opportunity to introduce a higher price point or larger, more complex menu items — or a temporary value that isn’t sustainable long term. By balancing the innovative new releases alongside competitively priced core favorites, Krystal meanwhile creates value parity across its entire menu. This, of course, is at the heart of what fuels Krystal’s approach: Guest loyalty.

“Krystal is a heritage brand in many of the communities we serve,” explains Crowder. “We have a responsibility – and it’s a privilege – to deliver the same delicious, southern-styled tastes as we did 20, 40, or even 80 years ago. It’s why our guests are so loyal – Krystal is an experience that means something to them.”