Today’s environment in the hospitality industry is looking bleak. Since the decline of Covid restrictions, restaurants have been dealing with labor issues, product availability and rising product costs. The results have caused operators to evaluate operations and search for opportunities to reduce cost or ultimately increase profits. Raising menu prices is a quick and effective method but it becomes a band-aid more than a prescription.
Now, mitigating inflation is part of operating a restaurant. There have always been changes in product costs. In the past, a product price may increase 1-5% over the course of a year. Most operators would just absorb that cost. The current 10-30% inflation is too much and operators need to mitigate that cost. Passing off that cost to the customer is the easiest method of mitigation. The key is to have a systematic plan for making menu and pricing changes.
All corporate restaurants have a team of individuals whose responsibilities are to evaluate the menu. There are different methods to examine a menu but it comes down to two components: 1. What does it cost to produce the menu item? 2. What would the customer pay for this menu item? Many operators may take the price to produce and multiply by 3 to generate a sales price designed to obtain a 33% food cost potentially leaving money on the table. Others may estimate the cost of the item based upon similar items on the menu potentially creating a loss for that item. The key is to manipulate the menu to affect customer perception. The best practice is to eliminate market comparisons and maximize value on the plate.
The simplest method to eliminate market comparisons is to create a menu that is unique and isn’t comparable to competitors. In many cases, this is extremely difficult because concept dictates the type of menu items. If the concept is a burger joint, then make the best burger. Highlight why it’s the best, an ingredient, source of product, method of production. This unique characteristic reduces the ability for the customer to compare prices. Build the menu around this concept and maximize your profitability.
The incorporation of this method can mitigate inflation and hide those pricing changes from customers. The time is now, according to a report produced by the FDA, food away from home (restaurants) is 20% below food at home (groceries). Your customers are already experiencing this change, passing on your increases isn’t only responsible management but is now required. Additionally, evaluate all menu items, if the cost to produce versus the selling price doesn’t meet your target profit margin then those items need to be redone or removed from the menu.
