COVID. Supply chain issues. Inflation. Wage increases. These are just some of the many issues facing our industry today, putting the squeeze on profitability and making a “day at the office” tougher to bear. Added to the things that keep us up at night is the question of how and when to increase our menu pricing. If we do, will we lose guests as a result? If we do not, will we survive the long haul? The tossing and turning we feel around this subject is not at all uncommon, as most of us have wrestled with this nagging foe at some point recently.
So how is it that we can walk the line between making our margins and keeping our guests coming back? Perhaps we can use some tried-and-true methodologies to give us the peace of mind that we so dearly need.
Here are a few metholodogies on menu pricing to get you started. Keep in mind that any one of these methodologies is not enough on its own to constitute a change; instead consider how they all play together to get an overall picture of how our menus should be priced.
Measure the Margins
As the cost of goods rise, our margins shrink accordingly. The cost of our goods is directly proportionate to our sales, so even if we do more volume, our bottom line will be negatively impacted due to that increase. Other than adjusting portion sizes and curbing waste (which we should be actively pursuing), the best way to combat this is to raise our pricing to compensate. As a general guide, I recommend estimating the % increase of cost overall and applying that percentage to the menu pricing to offset.
Consider the Market
When deciding how and when to adjust pricing, understanding our market is a very important component and deserves some analysis before jumping the gun. A fine dining restaurant in an area with a higher-than-average median income may be able to justify a substantial increase, so long as the experience the guests receive is as elevated as the menu.
For more casual establishments, we may consider running some great happy hour and approachable options in addition to increasing overall pricing to allow for a feeling of value and accessibility for all of our guests.
In any case, it may be helpful to analyze our competitors to see what is working for them in terms of their overall pricing. This will give a good indication as to what our guests are willing to pay as they are shopping our online menus and deciding where to invest.
Measure the Volume
One of the best times to raise pricing is when we are consistently experiencing very high volume. If we have a line out the door most days, this is a great opportunity to capitalize on that volume and raise prices, perhaps not dramatically, but slightly. Not only could it be an indication that we are priced lower than the market, but it is most certainly clear that guests are more than willing to pay those prices, so they will likely be willing to pay slightly more.
If our volume is well below what we would expect, that does not mean we should not raise prices at all. In fact, it may be that we will need to in order to survive. Perhaps an increase can quickly fund some marketing efforts that will bring in more business. Maybe we can cut other costs at the same time to facilitate the growth we need. In this case, we should carefully analyze the margins and the market and decide how much of an increase we can take to meet our goals.
The Bottom Line
Of all of the things that keep us up at night, growth and profitability can be the proverbial sandman that brings us sweet dreams, while sitting idle is a potential nightmare in the making. Whichever route we take, raising prices should be less of a Hail Mary and more of structured decision based in at least some thoughtful analysis.
If there is one thing the last few years have taught us, it’s that uncertainty is the only thing that is certain, so by keeping a close eye on the fluctuations that impact the bottom line, we can move all that much closer to serenity.
Plan to Attend or Participate in Bar & Restaurant Expo, March 27-29, 2023
To learn about the latest trends, issues and hot topics, and to experience and taste the best products within the bar, restaurant and hospitality industry, plan to attend Bar & Restaurant Expo, March 27-29, 2023 in Las Vegas. Visit BarandRestaurantExpo.com.
To book your sponsorship or exhibit space at Bar & Restaurant Expo, contact:
Veronica Gonnello (for companies A to G) e: [email protected] p: 212-895-8244
Tim Schultz (for companies H to Q ) e: [email protected] p: (917) 258-8589
Fadi Alsayegh (for companies R to Z) e: [email protected] p: 917-258-5174
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