If you are pricing your menu based solely on food costs, you may be leaving money on the table. When setting menu prices, operators should also consider competitive pricing, consumer perceptions and price sensitivity in their area. In a Foodservice Radio interview, Leslie Kerr, President and Founder of Intellaprice shares tips on how operators can "right price" their menu.

"We look at pricing holistically; it might not be a question of margins," says Kerr. ""There is a myth that food costs should be a certain, specific percent of the actual price on the menu and it's not always true that relationship exists. You might even be able to justify higher prices than those that would command a 30% food cost." Kerr suggests looking at four different factors when setting menu prices.

Consumers make choices between your operation and other competitors in the area. Pricing should ensure you provide value relative to these locations. "In thinking about a family going out to dinner, what is in the list of options for them? Look at the items that might be alternatives," Kerr suggests.

Operators need to look at their customers perceptions when making pricing decisions. "In terms of consumer data, there's more available than operators realize," states Kerr. "Operators can look at information about consumer confidence. In addition, many companies have a guest relations hotline. That can be a great source of information just by looking through the types of comments or complaints and how often the topic of price comes up. Anecdotes and input from field management or franchisees throughout an organization can also be helpful."

Operators also need to look at their data and location. "Another bucket we look at is store location-based data - looking at the demographics in certain markets," Kerr adds. "Some markets are more depressed and that is important to take into account. In addition, the menu mix, sales trends, and financial metrics are important."
The final consideration is the product, both in terms of cost and profit analysis on a per item basis and on a per location basis.

The stagnant economy has caused restaurants to take a more careful look at pricing. "I think the impact has been to really get companies to pay attention," says Kerr. "There's a lot of caution out there. I talk often with companies who say they haven't taken price in three or four years because they are concerned it could lose them business. The good news is that it is not always just about price. A number of companies are at the premium end of the spectrum and it's not hurting them."

The bottom line is that pricing needs to make sense to your customer." Kerr states, "Prices should be fair, convey value, and be understandable to consumers. As consumers read about fuel prices or diary prices getting higher, it makes sense to them to see items at a grocery store or restaurant going up a little bit. Doing that in a careful, strategic manner is very important for the operator."

Kerr concludes that companies need a consistent, ongoing approach to pricing. "Companies need to think about it like any other aspect of a company. Companies have a financial plan, they have a communications plan - they need a pricing plan."

For more information on Intellaprice or to contact Leslie Kerr, go to www.intellaprice.com.

Copyright 2014 Foodservice Radio
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