Operations – Menu Pricing and Food Costs
by Richard Walker, Vice President, Bellissimo Foods
An effective way to increase sales and profits is to manage menu pricing. That doesn’t necessarily mean raising prices and it isn’t as simple as “my food cost is 25%”. Each category; entrees/mains, appetizers, sides/salads, and desserts each might warrant a different pricing strategy. Also, some individual items might have a different target than the category target.
Your menu prices should reflect two basic elements. First, they should be sold at a price that will achieve your required food cost percentage. But, the prices must also be in a range that reflects the general level of the market. If these two critical benchmarks are far apart, you must re-examine your menu selection and ingredients.
Start with a market survey of your competitors. Don’t look only at the menu prices. You need to look at portion sizes, ingredients, and things like atmosphere/ambiance, and service style for a fair comparison. A restaurant with more upscale décor and furnishings can command a higher price just like a restaurant that offers table service versus counter service may warrant a higher selling price. This should help you understand the general level of prices that you will need to charge for an item.
The next step is to calculate your food cost. You’ll need to cost each recipe using ingredient weights and expected costs. Next, take the menu item cost and divide by your anticipated selling price and you’ll have the food cost % for each menu item. You can also calculate a selling price based on your target food cost %. This will tell you what price you need to sell the item to meet your target.
Compare the food cost percentage and profit for each item with your market survey and see if they make sense and you are competitive with the market for equivalent offerings. A high food cost percentage might make sense in some cases, especially more expensive entrees. (Remember, you put the profit $ in the bank not the profit %.)
Overall entrees/mains are the biggest portion of total sales and profits so first focus on setting prices and calculating food cost on key items. Moreover, pricing can be an effective way to increase profits by selling more items or attracting more customers. Selective discounting and promotional pricing can be effective tools, but be wary of continuing cheaper prices unless they’re permanent. Lowering prices is a lot easier than raising them because customers get used to cheaper prices. (You only have to look at the big national chains to see this.) If you think you need to discount, try it on a limited basis on a few popular items and/or as a draw on your slow days.
A great way to utilize price promotions to add bottom line profit is in the other categories besides entrees/mains. The biggest opportunity to add profit $ is to sell additional items where profit margins are typically larger. Special limited time offers on these items can be very effective. Remember anything you sell after your main/entrée adds profit $ to the total sale. However, don’t just offer the discounted price. Ask for the order on these items. If you don’t get the order, be prepared to come back with a special offer. Give your order takers or servers the opportunity to offer a special price.
Click here to see a table of some typical examples:
Of course, the table only offers some examples. Do your homework of updating your information about your competitors and your own menu item costs; and compare. Not only will the information give you some new marketing ideas, but it will enable you to fine tune your menu offerings and prices, and that will benefit you at the bottom line! If you need assistance, please contact your Delco Foods Representative. Good luck!
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