Connections for Success



What to do When Raising Menu Prices is the Only Option
James Pellino

From the new Health Care Reform Act to this past year’s polar vortex, restaurateurs have recently faced a plethora of challenges. The restaurant business has always been known as one of the most difficult industries with margins that are relatively lower than other industries, leaving very little room for error.

In addition to the aforementioned challenges, another problem restaurateurs have run into this past year is the dramatic increase in food costs. Combined, these additional expenses have put more pressure on an industry with already-thin margins. Tainted produce and meat have caused prices to be at an all time high for some products. Cheese, eggs, whey, butter, beef and pork costs are at least 15% higher than a year ago. Some experts expect commodity prices to increase an additional 3% by the end of the year. In order to ensure ample margins, restaurants must look to strategies to alleviate these additional costs.

Some restaurants have been trying to mitigate these rising food costs by revamping their menus. By incorporating lower cost ingredients into their menu options, restaurants can often reduce food costs while providing a new dish that may not have otherwise been available to their customers. Having fresh, new items not only entices regular customers to dine more often, but also attracts new customers who are looking for to enjoy unique cuisine.

However, many restaurants – including big chain restaurants – have reached a point where there is no other option but to raise menu prices. It is estimated that 93% of chain restaurants plan on raising their prices in the second half of 2014. If you find yourself running out of options like the majority of the chain restaurants, keep a few things in mind when raising menu prices. First, you are not the only one doing it. Customers can certainly be price sensitive, but the increase in food costs is not only affecting you, it is affecting other restaurants as well.  Second, if you do raise your prices, try to highlight the value customers are getting by promoting any premium ingredients that are in the menu item. Work with your wait staff to develop appealing descriptions to highlight the uniqueness of entrées. Finally, look for ways to creatively promote the use of unique ingredients and entrees on social media to drive interest. Customers are always looking for the next “new” trend in dining.

High food costs are expected to remain in place throughout 2014. It is important for restaurateurs to carefully track their food costs and be proactive in coming up with a plan to mitigate any adverse effects to their bottom line. If you have any questions regarding food costs and menu planning, please contact me at [email protected] or call him at 312.670.7444.

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