With how the restaurant industry looks right now, from shifting consumer behavior and volatile demand, strategically pricing a menu has never been so complicated, nor so important. It doesn’t help that the costs of running a restaurant are higher than ever. According to an analysis by Buyers Edge Platform, a restaurant supply-chain company in Waltham, MA, restaurants are now spending 38% more just on food costs alone (1). Operators have also been pressured to spend on safety products from masks, sanitizing supplies, Plexiglass dividers and various touchless systems to protect their staff and customers. And while many operators have resorted to raising their menu prices, either by charging a COVID-19 surcharge or charging more for food being delivered than they do for take-out or dining in (2, 3), there is speculation that these costs increases will hurt customer relationships and cause long-term implications (4).
“Generally, if the prices are significantly higher for 30 days or more, restaurants will have to start making decisions,” said Buyers Edge CEO John Davie in an interview with Business Insider (1). Because of the economic impact of the pandemic, consumers will be seeking more value and buying up deals (1). Navigating the balance of loss and profit and figuring out win-win scenarios for both operators and customers is sure to be the key to a restaurant’s future success.
Here are some steps you should take when you price your menu items:
The food and operational costs vary by restaurant, so there is no one-size-fits-all solution to pricing your menu. That’s because creating the perception of value in a customer’s eye goes beyond what goes behind the dollar sign. Value isn’t about being the cheapest. It’s a package of both experience and price.
As you begin to make changes and adjust your pricing strategy, try to remember that once the pandemic passes, your customers will return. Here’s what not to do according to McKinsey Research (7): taking advantage of customers, assuming that every demand problem can be solved with pricing, extensive cost-cutting and relying on old price-sensitivity research. Doing these things could help your business in the short-term, but the businesses that are most likely to succeed after the pandemic will be those that do what’s hard. By focusing on long-term value, optimizing their business, and sustaining customer relationships.