Restaurants of all sizes are facing inventory and profitability issues in the climate of rising food prices. As the cost of inventory staples such as beef, corn and wheat continue to climb, restaurants will need to adjust menu prices in order to remain profitable.
Doing this during a recession can be a delicate balance. Asking for more from a budgeted consumer is not an exact science, but with careful consideration it can be achieved. There are tried and true approaches to keep your food cost in-line with the rising market prices.
Adding value to your menu does not mean that your items were not valuable to begin with, it simply means that you are emphasizing the value of whatever it is you sell. Offer your customer something that feels worthy of the item’s higher price.
- Advertise your premium ingredients: Angus certified beef, smoked applewood bacon, organic produce or food products from local sources.
- Don’t carry premium ingredients? Look into how much more it will cost you to do so; it may add up to a beneficial profit increase.
- A slight mark-up in acquiring a specialty product can result in an accepted menu price change for your customers.
Combine Menu Items
Raise prices while masking the fact that you are doing so. “Pick two combo options” furthers the value-added concept. Customers still receive a sense of value from your menu while your prices remain in sync with supply markets. Smaller portion sizes for each item create a winning profit combo for you.
- Offer customers a select menu of small portion items. Bundle these small plates together for “mix and match” deals where the customer can select two or more choices for one discounted price. Examples of this could include: Half a sandwich with a bowl of soup or a small salad. These are relatively low cost items to carry, but you can increase the pricing for both when paired together.
- Give customers more bang for their buck while keeping portion sizes in check and profits in line.
Your menu design can actually influence how your customers order. Placing certain items in different places on the page and altering how prices appear can affect consumer behavior in your favor.
- Ditch the dollar signs on your menu. They represent cost and are bold visual reminders of spending money.
- Place your highest profit-gaining item at the top right side of a two-page menu and in the center middle page for a three-page menu.
Learn more about menu design »
Comb through each menu item with an economically critical eye. Identify which items are increasing your profits, which are not significantly contributing and which are under-performing. Streamline your menu’s options based on what inventory is most crucial.
Use the Boston Consulting Group Growth-Share Matrix, also known as the Boston Matrix or Boston Box, to determine what menu items can handle a price increase, what items need promoting and what items need to be cut.
The BCG Growth Share Matrix is a simple table formula where items can be visually arranged into one of four categories: Stars, Question Marks, Cash Cows and Dogs.
- Stars: Stars represent the menu items that are generating strong sales and may cost a lot to produce. These are your fast-selling high-end items that either involve expensive ingredients or detailed and skilled labor to prep – or both.
- Question Mark: Question marks represent menu items that are gaining in popularity with a select crowd and cost more to produce. These items have not quite hit a stride with a large enough customer base to fully understand the market potential. Analyze these items carefully and monitor them over a period of time. Note the ebb and flow of how this menu item trends with your customers and make adjustments on your menu to keep your food cost under control. These could be great menu items to run as specials, but not as permanent menu fixtures.
- Cash Cows: Cash cows menu items are generating more money than it costs to produce them. These are the easy to make, low-cost go-to items. These menu items have a high return on investment and are your menu staples.
- Dogs: Dogs are menu items that are not selling well, but do not cost as much to create. These items may go unseen as problems when analyzing cost as they will not have high cost assigned to them, but they are creating a cash trap for your budget. These will likely be the menu items that need to be cut from the regular repertoire.
Bottom Line: Get rid of the dogs on your menu and recognize the stars and cash cows. Monitor your question marks along with your weekly or monthly budget and gain a full perspective of how your budget is working with or against your success.
Introduce Changes Gradually
Add additional price increases over time instead of changing every item all at once. Increase prices on a small collection of menu items. These slight adjustments will give your profit margin some instant relief without overwhelming the customer with abrupt changes.
Tip: Begin with items that are most likely to be overlooked, such as non-alcoholic beverages, specialty drinks and side items.
Bottom Line: Consider what your financial goals are when changing your menu prices and how that reflects your over-all inventory and menu options. Think about what you want to offer your customers and advertise what makes your restaurant worth the expense: value, fresh ingredients or one-of-kind dishes.