How to Raise Menu Prices in Your Small Restaurant
Restaurant owners often fear a backlash if they raise their prices, but price changes are often inevitable and necessary. Leading restaurant consulting group Technomic, for example, estimated that most restaurants prices would increase roughly 2.5 to 3 percent due to a rise in the cost of goods, led by fast-food giant McDonald's. Before you decide how much to raise your prices, be sure that you have a good handle on your costs and that your restaurant is operating at peak efficiency.
Other People Are Reading
Instructions
-
-
1
Calculate your fixed costs, starting with the kitchen. Make sure that you have a good understanding of the cost of each and every food item that goes into the dishes on your menu, including spices and seasonings. To help ensure consistency, make certain that you have written recipes for every dish for the staff to use, as well as written instructions for everything else, including sides and garnishes, that goes on the plate. Make any menu adjustments before calculating new prices.
-
2
Check inventory levels. Carrying too much food will inevitably result in more waste and higher food costs. The Restaurant Resource Group recommends that a typical full-service restaurant carry no more than seven days of food inventory, roughly 15 days for spirits and wine and only seven to 10 days of beer inventory.
-
-
3
Talk to your food and beverage distributors to get a pulse on what the price of goods will be in the upcoming year. Talk to them frankly, and see if there is anything that you can do to keep prices relatively stable, such as joining a local food coop.
-
4
Figure out all of your operating costs and compare them to industry averages. Your labor, food and beverage costs should not exceed 65 percent of your costs. How that number shakes out will differ depending on the type of restaurant that you run. A white tablecloth restaurant, for instance, may spend 40 percent on food and 15 percent on labor, while a casual restaurant may only spend 30 percent on food and 25 percent on labor. Rent and maintenance should not exceed 10 percent of your budget, while utilities should be around 5 percent. Do not forget to include advertising and marketing, as well as management salaries into the budget.
-
5
Gain a clear understanding of how your customers view your restaurant. Seasoned restaurant veteran Jonathan Munsell says that many restaurant owners worry that a raise in prices will cost them customers, but that is not the case in his experience. (see Ref 3) Customers tend to focus on value more than price. If you offer them good-quality food and service and a clean and maintained environment, small prices raises should not significantly hurt your customer base. Be careful, though---if you have built your restaurant's reputation on value pricing, you should raise your prices in small increments over a longer period of time.
-
6
Set your new prices and run with it. Print new menus, notify loyal customers of the upcoming increase and define your strategy. You may choose to make across-the-board price changes, or perhaps set aside a "Value" portion of the menu for lower-priced items. Many restaurants use daily specials that allow them to react to changing food costs, take advantage of lower-priced items on the fly and still offer value to their frequent customers.
-
1
References
- Restaurant Resource Group; "10" Restaurant Financial Red Flags; John Nessel
- Baker Tilly: Restaurant Benchmarks (PDF)
- Restaurant Success Monthly; Why You Should Raise Your Prices; Jonathan Munsell
- Restaurant Marketing Group; Raise Your Menu Prices; November 2009
- "Los Angeles Times"; McDonald's Likely to Raise Prices; Emily B. York; January 2011
Resources
- Photo Credit Brand X Pictures/Brand X Pictures/Getty Images
