Restaurant Menu Pricing Strategies Amid Rising Food Costs
June 10, 2022
Pricing within the restaurant industry is often a topic that owners and consumers alike think about when deciding to go out to eat or dealing with rising food costs. In recent years, food inflation along with working to rebound from a decrease in sales has made the conversation more complex for restaurant owners. So, keeping menu price tags at the best profit margin possible without driving customers away is critical in 2022 and beyond.
Examining Current Food Costs to Build a Profitable Menu
Product costs are never static, so those in the foodservice industry are used to adapting their menus. However, a few ingredients have been steadily increasing in price since 2020. To stay ahead of the cost curve and maintain positive profit margins, the first step is to be aware of higher-priced products:
- Steak: A recent study done by CNBC revealed that steak prices increased 20.1 percent between 2020 and the end of 2021. Higher price tags for steak are expected to keep growing in 2022.
- Pork: The same study also showed pork costs to be up 14 percent and are expected to grow.
- Chicken: The National Chicken Council has indicated that poultry costs inflated 9 percent at the end of last year.
- Eggs: According to a study conducted by CNN, eggs increased by almost 12 percent.
- Fresh Produce: Fresh fruits and vegetables are predicted to increase between 6.5 and 7.5 percent over the next year.
Menu Pricing Techniques for Rising Product Prices
As a chef or restauranteur, you will notice some or all of the items above are on your menu right now. If that’s the case, there are plenty of pricing strategies you can take in order to preserve robust profits.
1. Base Cost Plus Markup Approach
To get a firm grasp on cost versus profit, restaurant owners will often implement a cost and markup model. This method requires an analysis of every ingredient that goes into making a dish, then applying a percentage markup to reach profit goals.
Restauranteurs can often access plenty of easy-to-use tools to help determine markup margins and get menu prices in check. The beauty of the technique is that you can quickly adjust the formula to account for fluctuating food costs without eating into your profit margin.
2. Demand-Based Menu Pricing Method
Nick Kokonas of The Alinea Group of Restaurants and Tock, takes a “supply and demand” approach to his menu pricing structures. During less-peak dining times, like weekday evenings, guests will find lower-priced menus than on popular weekend nights. This innovative strategy has two potentially revenue-boosting outcomes.
First off, having higher-priced tickets on bustling Saturdays can increase sales overall without any additional labor or food costs. Second, offering discounted meals on slower days encourages patrons to fill up seats during off-peak times.
3. Consider Your Menu Format
How you present your menu can be as important as properly pricing your items. Mobile menus and QR codes have been shown to preserve food cost margins and reduce spending. So, implementing those strategies can preserve profits during rising food costs. Another less tech-driven but still effective way to boost your ROI is through menu boards. A recent study showed that a top restaurant brand boosted revenue by $15 million in drive-through sales simply by optimizing its menu board.
4. Charge a Deposit Fee for Reservations and Food Orders
Sometimes, despite all your best efforts to cover costs with menu pricing, other factors can cut into revenue, especially food waste and empty seats. When reservations are booked for service and you’ve stocked up on supplies for a predicted full house, there’s nothing more frustrating than reservation no-shows. It can mean fewer orders and could lead to wasted ingredients. In fact, the average no-show rate is around 20 percent. Charging customers a deposit to hold their tables discourages people from backing out of their reservation at the last minute.
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