Restaurant Pricing Strategy

Developing the most productive pricing strategy for your restaurant is critical to having a healthy P&L at the end of each month. But how do you get there? Read here to find out!

Pricing Strategy for your restaurant’s profitability:

• Review competitors monthly: Conduct what is called a competitive analysis by

collecting menus and promotional materials that include pricing from restaurants in your

market. Stay informed on what competitors are offering to the market and at what price

point. This will help you determine and promote your restaurants point of difference

while staying true to your restaurants concept.

• Price based on value, not just cost percentage: This is a common mistake made by

operators that believe all items should be priced at a standard percentage to achieve a

desired percentage cost for food and beverage. There are 2 sides to value, the value

perceived by the customer and the value that menu items create in gross profit dollars.

For example, in food cost, an Italian restaurant that may have a 30% food cost for pasta

that they sell for $20 will cost them $6 to produce and produce a gross profit of $14.

That same restaurant’s Veal Osso Buco cost $12 to make, it will be a 33 percent food

cost if sold at $36. This may be perceived as a high price and not a value to your

customer. If you priced the Veal Osso Buco at $29 that would be a 41 percent food cost

which is a high. However, that item will produce a gross profit of $17. That creates $3

more in gross profit for your business and creates a perception of value to you guest.

Another area of opportunity resides in wine list. A good wine list should create strong

wine sales. Having wines on your list that are known, that your competitors carry, and

are step up purchases when dining, are what most operators build in their wine list. For

the most part those wines get marked up by 3 times the cost of purchase. On high end

wines that will result in slow sales of that product. For example, a bottle of Caymus

Cabernet cost $60, and you price it on your wine list at $180. That is a 33 percent cost.

That is a pricey bottle and most likely may not sell that often. If you sold that bottle of

Caymus Cabernet for $130 it would be a perceived as a terrific value to your customer

and produce $70 in gross profit for your restaurant. What else do you sell 1 of that you

do absolutely nothing to, except store it and serve it to the guest that creates $70 of

gross profit for your restaurant? A good rule to follow when pricing your restaurants offerings is to consider the cost of the good, the cost of labor to create that product along with the gross profit that item contributes for your restaurant.

• Price within the acceptable sweet spot of your business PPA. What the guest is

currently spending with you tells you how they value your business. It is very important to track your guest count daily and that number divided into your sales for the day

equals what is known as your PPA (per person average) If your per person average for

the sales of food and beverage is $28 that is what the customer is currently

spending/valuing your restaurant at. Common directives to increase PPA are upselling

the customer to an appetizer to be shared, a dessert to be shared, and another

beverage. This is an important practice because just a dollar increase in PPA creates

more profitability. However, be certain that your pricing stays relative to your current

PPA. For example, weekend specials, limited time offerings and seasonal specials are

another way to increase PPA. If your current PPA is $28 it is best to price any special

offerings at $30-$31. Much more of a jump may create resistance from the customer to

purchase them.

• Set pricing to the quarter/or 6 months at the longest. Commodity pricing is volatile,

and you must respond promptly and swiftly with your menu offerings and pricing. Each

week analyze your restaurants product mix. Follow the process in step 1 of this series

on Menu Engineering. Conduct weekly inventory to ensure your operation is operating

efficiently and producing profitability. Our industry is in constant movement. Buying

habits, culinary trends, beverage consumption preferences, supply chain issues, labor

shortages, market economies, and competitive intrusion all will influence the success of

your business. Staying current with these items and your pricing will ensure the

profitability of your restaurant.

Remember Value is determined by your customer and there are several components to

defining value. It is not only price. It does not mean cheap or inexpensive. It does

mean the quality of the product, service from the staff, the restaurants ambience, to the

variety of offerings and most importantly how the complete experience made the

customer feel. That feeling will be the lasting impression that brings the customer back

with friends time and time again.