Prices must be regularly monitored both in-house and against the competition.
Prices must be regularly monitored both in-house and against the competition.

There’s no better time than now to review your pricing strategy, as Natasha Shaw discovers

When was the last time you reviewed your menu prices? Last week? Last year? Five years ago? Never? It goes without saying your prices affect your bottom line, so if you’ve been putting off updating your prices, you could actually be putting off making a worthwhile profit.

With about 8550 cafes and restaurants in Australia cooking up revenue in the ballpark of $12 billion each year, many managers are clearly going about business the right way. But most would, no doubt, like to see an increase in their business’s bottom line. The IBISWorld’s Restaurants market research report, released last November, states “busier lifestyles and the diminishing availability of leisure time have increasingly led consumers to turn to restaurants as a solution” and that “consumer demand for quality food and fine dining experiences has fuelled industry revenue growth over the past five years” with the trend likely to continue. This is great news for cafe and restaurant owners, so why not take advantage of the good times and really prosper simply by taking a deeper look at your menu prices?

Time for a change?

How often you review your menu prices—whether it’s once a year or once a quarter, for example—is an individual decision based on the dishes you offer and where you sit in the marketplace. However, the general consensus is that prices must be regularly monitored both in-house and against the competition.

“If you have not re-evaluated prices in years, you’re probably losing a lot of money or you were overpriced to start with,” says Brian Anderson, principal of Hospitality Consulting & Services. “However, any increase should be properly considered against costs, including labour, and not be considered mandatory.”

If you’ve stuck to the same menu prices because you simply haven’t gotten around to reviewing them or because they’re just what the customers are used to, Carlos Swinton-Lee, principal consultant at Bar & Restaurant Consultants says you should still take a look at them, even if you’re well-established in your neighbourhood. “Chances are, your customers are loyal because of great quality and excellent service,” Swinton-Lee explains. “These things place a value on your product, so be bold, research the pricing and take that step—the margins are so poor due to wages and the cost of goods you can’t afford not to.”

Mastering the pricing dance

To get things started, you may take a few wrong steps, but once you’ve pirouetted around your menu’s figures a few times, you’ll get the hang of how your moves affect your overall profit within the environment in which you are operating.

“Rising prices are a fact of life and management needs to maintain constant monitoring of prices and update menu costings and item profitability accordingly,” says Anderson.

“Food ingredients can affect the eventual selling price, but you should never price a product or a dish based on its cost price,” adds Swinton-Lee. “The eventual price either fits your market or sector, or it doesn’t. If it doesn’t, then don’t use that particular ingredient; there is always a good substitute.”

Once you’ve worked out the contents of your menu, Swinton-Lee recommends you research and establish a price point your core customer is willing to pay. “Also, consider how many times you want a customer to visit, their dwell time and the spend per head you want to achieve,” he advises.

Finally, don’t forget your competition. “Local competition is important; without competition you stagnate. It’s not good enough to ‘look’ at a local competitor’s pricing; they have to be doing well, too,” explains Swinton-Lee. “If you want to charge more, do it better and be able to display why you feel it’s worth more.”

Keeping customers on side

Many restaurant managers are afraid of increasing prices for fear of losing valued customers. In reality, though, customers will often return to establishments despite a reasonable price rise if the service and atmosphere combine to make an enjoyable experience. This can easily be seen in the way a customer will happily pay $4.50 for a coffee if it’s delivered with a smile, over $4 for the same standard of coffee from a grumpy operator.

Looking for value-add ways to increase a customer’s experience is also a terrific way to increase revenue. Customs House in Brisbane, which won Caterer of the Year at last year’s national Savour Australia™ Restaurant & Catering HOSTPLUS Awards for Excellence, offers free wedding ceremonies on certain days, which helps to secure business so it doesn’t need to increase pricing as often.

“You can also invest in other areas including crockery and glassware so the customers notice other changes that make them feel like they’ve had a better experience,” says Swinton-Lee who also owns and operates Meatballs & Sons in Melbourne’s Fitzroy and understands first-hand what it’s like to play the ‘profit versus value’ game. “I find the best way to raise prices is to put new dishes on the menu that also raise the quality by reflecting seasonality. If you simply charge more for the same dish, you will experience raised eyebrows.”

Sometimes, disguising a price increase will work, while maintaining customer satisfaction. Customs House operations manager Paul Johanson says, “A good example would be our Corporate Dinner where we have kept the same price and changed the beverage package from four hours to three hours. This is something we are able to achieve while reducing our wage and beverage costs. The client still has a great experience and can extend the package if they choose.”

In today’s climate, many customers are also expecting a large dose of friendliness to the environment thrown in with their dining experience. “Price rises can be justified by delivering great quality and standards,” says Swinton-Lee. “Keep your customers well informed of where your produce comes from—how it’s prepared; how it’s grown, organically, free-range, etc—and who your quality suppliers are.”

While pricing is inherently important to your bottom line, it’s important to remember the customer has other objectives. After all, says Anderson, “the dining experience is built on ambience, interaction with staff and the quality and quantity of the meal.” Therefore, reviewing your prices isn’t something to avoid, but embrace, so that your business will survive and customers will get to enjoy it for years to come.


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