André Pellerin has over 25 years of expertise in the food service industry. Being a former Marketing and Sales Associate, and a previous restaurant Owner/Operator, André has knowledge from both the Food Establishment and Supplier sides of the business.
Three out of four restaurants in the U.S. are underpriced. Instead of charging what they should to make a profit, restaurant owners and managers commit to hiring less staff than they need and, as a result, give poor service. That causes a negative spiral of drops in profits. As a rule, it’s generally a bad decision to keep prices down and deliver a lesser service; it’s better to move the margin and give the consumer exactly what they want, the way they want it.
Labor costs are higher than they used to be, so your food cost needs to change, too. The previously accepted wisdom of 33 1/3% food cost for a restaurant no longer stands. Today you should aim 26-27% food cost for a truly profitable restaurant.
Statistically, if you grew up worrying about money, you are probably price sensitive. By comparison, younger generations (such as millennials) are much less price sensitive. They are prepared to pay a premium, but they have extremely high standards on everything from sourcing to service. You have to be much more professional in your culinary delivery to speak to this generation of people. Tailor your menu and hospitality to the guests you serve.
Let’s say the price of beef goes up. Many restaurant owners will immediately raise the price of their beef dishes to compensate, but a better course of action is to see where else you can raise prices on your menu that won’t cut into traffic and sales. Here’s how it works: · Look at your top-performing items to see where you’re making the most money. In general, 15% of your menu will yield 65-80% of your cash flow. · Ask: are those items price sensitive? In the history of those items, when you last changed the price, did the demand stay the same or go down? If the same number of people buy it either way, it’s not price sensitive. · If two items trade with each other and are both very sensitive, you might lower the higher-priced item and bump the lower-priced item so people will trade up to the better-margin item. That can result in a huge change in profits.
Sometimes in restaurants that have bars, the price for a drink at the bar includes the tax while the price for the same drink at the table does not. The consumer will always think the one with the lower price is the better value. It’s usually a good idea to put the lowest number on your menu. Don’t put the price of the tax imbedded, because the consumer doesn’t give you credit for supporting the federal government or the local state government. Similarly, you never want to list a high-priced item on your menu that isn’t popular. On a menu where the average entree costs $15, a $30 tripe dish will actually cause people to be less happy with the overall value of the restaurant. Even though they didn’t order it and it had no real impact on them, seeing it will negatively impact how they feel about their experience. Only have high-priced items that really move.
For the most part, people don’t really know what they spend in a restaurant. Guests aren’t aware of how much they spend in a restaurant plus or minus about 18%. They do know whether they will go back to the restaurant. They have a strong feeling for the value of what they spend, but not an economic feeling, When people go back to a restaurant it’s because they really like the food, and when people don’t go back it’s usually outweighed by poor service. A service staff that doesn’t perform up to standard will negatively impact your business. For example, in a quick-service restaurant, the number one way to drive more sales is to open another register. People simply don’t want to wait in line for long.
The restaurant industry is more competitive than ever before, and you need more than good food to be successful. The demand for great dining experiences is outstanding and continues to grow. From an economic point of view worldwide, the high consumption generation for restaurants is going to be the Baby Boomer retiring. It used to be that if hot food were hot and cold foods were cold and the service was accurate, that was all you needed. That’s not true anymore. Now you’ve got to be noticeably better.
Source: Open Table