Willing to Pay More for Local Food

Restaurant customers are willing to pay more for local, fresh ingredients, found a recent study focusing on the customer's perception and value of local foods.

Amit Sharma, assistant professor, School of Hospitality Management, Penn State said that even when the meals made with local ingredients are slightly more expensive, restaurant patrons will choose them over those made with non-local ingredients.

Furthermore, when the price of local meals increases, so does the proportion of customers willing to pay for it, concluded the international team of researchers.

The study included 322 customers who ate at a training restaurant on a Midwest university, that serves between 45 and 85 customers each day.

For their experiment, they first set the prices for local and non-local meals on the menu at $5.50, and they found that when the price was the same, there was no clear preference for one option or the other.

Nevertheless, when local foods were priced at $6.50 (18% higher that non-local foods), more customers preferred them, said Sharma, who worked with Frode Alfnes, associate professor, department of economics and resource management, Norwegian University of Life Sciences.

He added that this is good news for restaurant owners, as “it shows that customers were willing to pay slightly more for a local dish, with the emphasis on 'slightly.'”

Customers do have a price limit for local foods, and to prove it, when their price went up to $7.50 (36% higher than for non-local food), the customers lost interest and chose the regular menu.

The price of a product can be interpreted as a sign of quality by buying customers, and having the local products slightly pricier than the others is a signs that they are fresher.

Sharma explained that “the higher price of the local dish was an indicator of higher value.

“So, customers were comfortable with a slightly higher price for the local food.”

This research could help restaurant owners set prices for local foods and see whether it is profitable for them, in terms of costs, to have local products in their menus or not.

“The study helps restaurants make decisions on whether it makes sense to offer local foods,” Sharma said.

“If local foods are a natural fit for some of these restaurants, then it would definitely be a good strategy to price the food higher because there is an indication of value with fresh food.”

This research will be published in the fall/winter issue of the International Journal of Revenue Management.