How To Raise Menu Prices Without Negative Pushback

By Ken Burgin

Inflation is back, following dramatic rises in energy costs, wages and all the food & beverage supplies we purchase. Operators still holding the price of meals to what they were 12 months ago are bearing the brunt of massive increases in the cost of ingredients. And profitability is suffering.

Setting prices is approached with fear and anxiety by many restaurant and cafe operators, but it’s a unique opportunity to use your marketing and financial skills and make more money. So how do you put up prices with confidence and style? First, let’s look at some of the issues involved.

When Should You Increase Menu Prices?

There are two reasons: rising costs and marketing opportunities. If wages and supplies are rising, the costs need to be increased to cover them. It’s better to act sooner rather than later, and if you’re expecting sustained price rises over the next 12 months, make plans for a few adjustments every quarter. orders over $50 – an excellent way to disguise it.

Don’t Leave Money on the Table

If people are out for a good time, make sure you help them spend it. For example, if you’re in a coastal tourist area and have a regular influx of visitors during school holidays, they’re probably looking for good seafood and are prepared to pay for it. So adjust your menu with a range of better quality and higher-priced items that would not appeal to locals at other times of the year. Profits follow accordingly.

Pricing is Part of Your Image and ‘Positioning‘

It influences people’s perceptions of you. Every slight increase adds up to the final account total – if people are used to two people eating out for $60, and now it’s $75, it usually will be noticed. There needs to be an apparent reason. As you improve the quality of your service, atmosphere and efficiency, does it matter if your prices are a little higher than the neighbours? Themessage could well be ‘better quality, better service and a much better experience’. Here’s to you hearing that envious question from competitors’ how come your place is more expensive, and you’re always full?!

Delivery Prices are Expected to be Higher

If you’re delivering via UberEats or DoorDash, customers understand an order fee and rarely compare the item price with what’s on the sit-down menu. Therefore, you can legitimately price these items high enough to absorb the 30% delivery fee you are paying. Have the Big Beef Burger in-house and the Super Burger for delivery if you’re concerned about comparisons.

Lead or Match your Competitors

Most businesses watch each other’s prices closely, and your 40c rise in a coffee price will be followed soon after by other cafes nearby. This is a small example, and you’ve seen it with other items – there’s unlikely to be a rush down the road to buy cheaper coffee if you make the rise incremental and sensible.

Educate Staff on Why Prices are Increasing

Most employees have little understanding of the economics of a business and probably think everything is way more profitable than it is. That’s why it’s helpful to show the massive electricity and gas bills when you receive them. Likewise, if you’re putting up the price of protein items or any other dishes in a noticeable way, show how the price of meat has increased or the cost of cooking oil or takeaway boxes. Finally, if a customer makes a negative comment, they’re the ones in the firing line – give them the tools to defend you. See What Profits Are Used For: An Explanation for Restaurant Staff.

Prices can be Stretchy (elastic) or Rigid (inelastic)

Elastic prices are when a price change significantly affects the volume sold, and inelastic prices mean the number sold is not much affected by price changes. Many prices are less sensitive than you think. Ever held your breath and put prices up – and found that no-one noticed?

High prices don’t mean a lack of Value: a $7 bowl of noodles at your local Thai restaurant is great, but so is a special occasion lunch with great seafood, a terrific view, excellent wine and efficient service – and the price is $600 for four people! When customers experience quality service, food and atmosphere, they’re much less likely to worry about the right-hand column on the menu. There’s also a saying about the importance of the ‘second cheapest bottle of wine’ – keep that affordable even if your food is expensive.

The Process of Raising Menu Prices

Cut the Menu Size – it’s not a price rise, but it will lead to immediate cost reductions with less stock on hand and more sales of each remaining item. This is a good first step, then work on how you adjust the remaining prices. Can you cut by at least 30%?

Adjust Price Endings: move away from ‘flat pricing’, e.g. the $4 coffee or the $10 salad. Instead, add 30c, 50c or 80c to every flat price, so it’s now a $4.30 coffee and a $10.80 salad – just doing this to all items can give you a 4-5% increase in sales revenue.

Increases Prices Based on Accurate Data

Your recipe pricing software gives you the facts to make informed decisions. It can be easily backed up with electronic ordering for most supplies – pricing is transparent and not just in the chef’s head. Check the Recipe Software options available – free and low-cost. If accurate recipe costing show the item is unprofitable, it may have to come off the menu.

Improve the Pricing Spread

Ranging from the cheapest item to the most expensive with lots of prices in between. This way, you can make adjustments to prices in the middle range, and it will be less noticeable, leaving your top and bottom ‘marker’ prices alone. Prices should be a good ‘jumble’, with all types of prices, and definitely not all main courses the same price, or all starters the same price – ingredient prices vary, and a mix of prices in each section gives more options for adjustment.

Use a ‘Decoy’ Menu Price

This is a much higher-priced item that you know you won’t sell very often, but it makes other items look cheaper. If you want to increase prices overall, maybe you should introduce one of these if you don’t have it already. An example is the deluxe seafood platter at a luxury price, making other seafood dishes (that have had price rises) look better value.

Use the 80/20 Rule to Decide What Menu Prices to Increase

Your sales will probably follow the 80/20 rule: 80% of sales come from just 20% of what’s on the menu. So if you have 50 items on the menu, just 10 of them (20%) will give you most of your total sales. If you concentrate on increasing the prices of these, it will have the biggest impact on total revenue increasing.

Be Smart with Discounting

No-one believes most ‘10% off’ deals – they look desperate, not generous. But you could introduce price offers for quieter parts of the day to increase volume – your fixed costs are the same, and the extra revenue will have a high proportion of profit. Rather like the happy-hour idea only smarter. How about a late-night meal deal to get more volume after 9.30 pm? Or one I saw recently – pasta is $5 at 5 pm and $6 at 6 pm, then reverts to regular prices at 7 pm. Black Friday and Cyber Monday deals in November are examples of when you could introduce a short, sharp discount to fill quiet booking times or clear the cellar.

Rethink Happy Hour Discounts

When I recently asked for a regularsized beer at a pub, I was told: ‘it’s happy hour, you can have a large one for the same price’. Of course, I said yes, but discounts like this don’t drive business unless customers know about them beforehand. What makes more sense is free chips or snacks with every beer between 5-6 pm. Customers react favourably to price discounts for low-demand times but don’t appreciate surcharges at peak times.

Use Everyone’s Favourite Price: Free.

If you have function rooms available and they’re usually empty in the morning or afternoon, offer them free to customers for their meetings – it’s a highly valued bonus at minimal cost to the business. This is an excellent example of another important concept – the ‘soft-dollar’ item, when you offer a bonus with a high perceived value that costs you little. For example, include AV equipment for free in the hire cost of conference facilities, or throw in unique decorations and table settings for a function. If it gets the deal across the line, it’s good business.

Use ‘Retirement Pricing’

This is when a popular item ‘retires’ from the menu for a while before reappearing with a new and higher price. For example, the Chilli Shrimp Linguine for $27 is off for a month and comes back as the Shrimp & Leek Fettuccine at $29.80.

There’s just one simple rule when working out your prices – ‘charge as much as you can’ and be smart about how you do it. n

Ken Burgin

Who is Ken Burgin?

Ken Burgin’s Hospitality Reset

Ken Burgin developed his love of hospitality during his 10 years as a cafe and restaurant owner in Sydney during the 90’s.

His main business, Caffe Troppo in Glebe became one of Sydney’s liveliest and most popular destination for many Sydneysiders as well as interstate and international visitors. Ken’s current priorities and fascinations include hospitality automation and robotics, digital kitchen management, strategies to overcome staff shortages, supporting operators to handle Covid restrictions, and finding the best ways to use social media (especially TikTok and Instagram) for marketing and promotion.

Hospo Reset Industry News

Each week he publishes the Hospo Reset newsletter, with information and inspiration for restaurant, cafe and foodservice operators.