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Monday, July 30, 2007

Reader Question Regarding Menu Prices


Subject: How to off-set food cost ?
Joe,
I have been interested in your recent comments on inventory levels affecting food cost. After a company would get their purchases and orders in line and start to control their waste at a unit level, at what point would you consider raising the sales prices of their entrees to help compensate for the increase in supply costs? How would you raise prices? Gradual or once a year? Do you have any suggestions?
Thanks,
Chuck


Chuck Pagnotto
Director of Research & Development
Escape Enterprises


Chuck,
I would raise the prices prudently and let your customers know why the increase is needed. The recent run up in oil prices and subsequent move to greater use of ethanol is driving food costs up (8% in last 6 months). Treat this as a "one time" action necessitated by the rapid rise in costs.

It's always good to watch every competitor closely. Just a few months ago, the casual American grill group was in a price war.

As to the normal calendar, I like to increase beverage prices before the summer season and food prices before the year end Christmas season (annually).

Thanks for the question!

Joe

2 comments:

Jeffrey Summers said...

Prices should be raised by reviewing a quarter of your menu items in each category that have the most cost-pressure. Then doing this each quarter would allow you to maintain an acceptable level on your cost structure throughout the year. Both your food and beverage menus should be changed quarterly anyway – this will also provide the necessary “cover” to change pricing also. Waiting 6 months to a year is too late and you will have missed out on profits you should have realized.
But prices aren’t a cost issue as much as they are a marketing issue. If you analyze your pricing solely based on costs, you will be leaving a ton of money on the table. The value perception of the guest is the most important consideration when talking about pricing and not even competition plays a huge role. You have to do what’s in the best interest of your business by providing the best value for your guest.
Who wants to compete on price? If you do then you’ve become a commodity in your market.

Jeffrey Summers
Restaurant Coaching Solutions

Joe Dunbar said...

I find many operators with menus completely out of sync with the cost to produce quality meals. If they charged more, it would produce a better value proposition. You definitely do not want to play the commodity game.

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