So You Want to Open Up a Restaurant – Are you Crazy? Part 6
by Spence Cooper on 07/03/09 at 9:01 am
Is the price Right?
In this sixth installment I was going to discuss menu pricing, menu item arrangement, and merchandising techniques, but pricing is so complex and interesting, let’s briefly discuss menu pricing alone.
The most fundamental approach to pricing anything is simple math: you total the cost of the of whatever it takes to bring the product you’re selling to market, and then decide what your sale price will be based on what the market will tolerate by supply and demand. This sounds simple enough in theory until you begin to factor in all the variables.
One standard method of the determining the price of each menu item is to tally up the cost of all ingredients using strict measured portions, add labor (time and motion studies from chef to dishwasher), gas and electricity, and then tack on between 25-35 percent. But the cost of food items vary based on transportation costs and seasonal availability of certain foods, forcing restaurant owners to factor in price necessary adjustments.
Here’s where computing the menu price for entrees and other items becomes more involved: Dave Pavesic, Ph.D., with Restaurant Resource Group points out that “if your operation is considered the top steakhouse or Italian restaurant in your market, you will be able to charge more than the ‘customary‘ menu prices. Similarly, if your service is head and shoulders better than most of your competition, you can charge a little more than the average operation. In other words, there are certain things that you do better than most that give you a competitive edge over your competition and you can charge a little more than your competition.
“Examples of other indirect cost factors that could allow you to adjust prices upward (the absence of these items would work the opposite in the pricing decision). These include ambience, location, amenities, product presentation, customer demographics, and specialty menu items. There are further adjustments that one would make to fine-tune menu prices that involve your desired check averages and the high and low price points of your various menu item categories“.
Another menu price consideration is the lean state of today’s economy. Unless you’re selling fast food, restaurant sales are down roughly 30 percent from a year ago across the board — people just aren’t dining out as frequently. Creatively solving the problem of reduced revenue will be crucial — especially if it’s your first year in business. Will you reduce entrée portions, change menu items, cut hours, staff, and advertising? Or will you do what George Pappas did, owner of Taverne Crescent: “Desperate times call for desperate measures,” said Pappas. He allows patrons to dine for whatever they want to pay. “Some people might pay nothing,” said Pappas, “but maybe when they have more money in three or six months, they’ll come back and pay more.”
Potager Café in Arlington, Texas, has followed suit and allows diners to “eat as much as they like and then leave an amount that they feel is fair in envelopes crafted out of old magazine pages“.
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So you want to open up a restaurant – Are you crazy – Part 5
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- So You Want To Open A Restaurant – Are You Crazy? Part 5
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- So You Want To Open A Restaurant — Are You Crazy? Part 1/10
- So You Want To Open A Restaurant – Are You Crazy? Part 3
- So You Want To Open A Restaurant — Are you crazy? Part 2
