Q: The cost of food has been increasing over the last year. Times have been tough but it’s time for me to take a price increase on my menu. What is the best way to go about increasing our menu pricing?

A: The National Restaurant Association is forecasting an increase in wholesale food prices of 3.3% over 2010 while the USDA projects a 2.0-3.0% increase for all foods. Meats, pork, dairy, fats and oils are projected to have the highest increases.

On top of product cost increases the U.S. Energy Information Administration projects diesel fuel to increase 14.7% (39.4% over 2009) leading to margin pressure on suppliers. The largest, publically held supplier to the industry missed market projections for Q2’10 due to more “pressure on gross margin”. You can bet price increases and fuel surcharges are coming your way in 2011.

In addition to food and fuel, minimum wage jumped $0.12 to $8.67 in Washington.

It’s logical that many are looking to increase menu pricing based on projected increases in product and labor. To begin, estimate how much product and labor increases are going to cost your company in 2011. For illustration purposes we’ll estimate food without the fuel surcharge and make some assumptions about the number of hours worked at minimum wage.

Total Sales

$1,000,000

Number of Guest Visits

50,000

Guest Check Average (GCA)

$20.00

Food Sales (70% of Total Sales)

$700,000

Food Cost (30%)

$210,000

2011 projected increase in Food Cost($210,000*3.3% rounded)

$6,900

Hourly Labor @ Minimum Wage (10% of sales)

$100,000

# of Labor hours @$8.55 (rounded)

11,700

2011 projected increase in Hourly Labor cost(11,700 hours*$0.12/hour rounded)

$1,400

Total projected increase in food and labor ($6,900+$1,400)

$8,300

Total projected increase per guest
($8,300/50,000 rounded)

$0.17

To keep food cost at 30% and hourly labor cost at 10% increase your GCA by about $0.75 (($6,900/30%+1,400/10%)/50,000 guests). Rather than simply increasing every price on the menu by $0.75 target items that can easily handle a price increase. AVOID SWEEPING CHANGES!

  1. Print a product sales mix report from your point of sale system and highlight your best sellers at lunch and dinner. Focus on increasing prices on those items that sell the best. If the item is common to other restaurants make sure the price is competitive, it doesn’t have to be less than your competitors. Be careful adjusting pricing at lunch as lunch guests are more price sensitive than dinner guests.
  2. Look through the menu for items that are simply mispriced first. On a large menu there is usually one. Make sure the food cost percentage for an item makes sense. If you’re underpriced on any items, fix the prices or take them off the menu.
  3. Follow the time tested logic for items priced less than $5.00 having them end in $0.25, $0.50 and $0.95 (you can also end in a nine), for items between $5.00 and $10.00 end in  $0.50 and $0.95, for items over $10.00 end in $0.95. The logic? How do you read the price of gas? $3.179 reads $3.17 not $3.18 as it should. $10.95 reads differently mentally than $11.00. Remember, consumers don’t read menus they scan them.
  4. Make sure your items are properly “squeezed” to reflect value. If you sell soup this way: cup $2.99 bowl $4.99 then move the bottom price first to gain more revenue e.g. cup $3.50 bowl $4.99. The guest may chose to move to the bowl rather than the cup, either way the guest check increases. Repeat the same pricing technique with half/full, small/large. Make sure the prices of the large are about 50% higher than the small. For example; Small $10.95 Large $15.95
  5. If need be, adjust the portion size to reflect to reflect the additional price. Add an accompaniment or improve the quality of the item.

After prices have been adjusted have a meeting with your staff. Raise the bar on service in every area. The goal is to provide a flawless guest experience every time regardless of concept. Every position in the restaurant must be focused on meeting and exceeding the needs of the guest from door to door. Remember guests are five times more likely to return to your restaurant if they have a memorable experience with an employee!

Rick Braa, AMP